Ask HN: Interested in buying shares in startup?

I'd buy in, but not blindly and not without documentation. Honestly, I don't know how the legalities would work. As to the rest of your questions....

Take this as you will:

Going public actually serves more of a function than just getting an inflow of cash. For example, it can give existing shareholders of a company more liquidity -- it is difficult to figure out a price to buy and sell stocks of a company that isn't publicly traded, but relatively straightforward for a company that has marketable shares. I think venture capitalists call it an exit.

But there also exists a case where a company would like the added publicity that comes from offering an IPO. Especially in the currently frozen IPO market, anyone going that route will make a large splash (even more if they belly flop).

It's been stated before, but selling equity is considered the most expensive way of raising money: you're giving away ownership and control in exchange for cash. As much as you can, you'd prefer to get money from loans and bonds, but that isn't always an option. If your balance sheet and income statement are weak, a creditor may not give you the loan you need, or may charge an exorbitantly high interest rate. It really depends on your individual situation as to what you want to do and what the market will let you do.

Yes, there is risk involved in going public, but good advice should help you minimize this risk. Say you're Big Company A that's privately owned. When you decide to go public, you call up the investment bankers and ask for help. They'll hook you up with the large investors (hedge funds, pensions, etc) and work out ways to protect you from the downside. One of these methods is called the "Green Shoe" (named after a company). Basically, you allow for an overallotment of stocks you're going to receive. Then, the investment bank borrows this overallotment (typically 15% of what's going out) and sells it to other investors. Now, when the IPO is going through, therAPPINSDRMWB19222e already exists demand to buy this stock -- the investment bank needs it to return to original stock holders. Here's how the mechanics work: If the stock price goes up after the IPO (it's so-called well received), then the bank buys the stocks from the company and everyone is happy. If the stock price goes down, then the bank buys from the people who are selling -- creating a demand, and helping to stabilize the price.

There's a lot of fun financial stuff in there, but I hope that answers a bit of your questions.

If you sell the shares in the US without complying with securities law, investors can sue you (personally, not the company) to recover their money if it goes south. The fact that the government can order the transaction be unwound at any time will also discourage any investors, since it could potentially eliminate any upside for them.

You can call the shares whatever you want, but if the SEC deems them securities, they're securities. For an example of this, Prosper (a P2P-lending site) recently got nailed and is facing huge fines and several lawsuits over what they called "loan notes" and the SEC later said needed to be registered as securities. See:

http://fred93blog.blogspot.com/2008/11/prospercom-sec-cease-...

(Please don't take any of what I'm writing as legal advice, you really need to talk to a lawyer. There are ways to go the friends-and-family route that aren't horribly expensive.)