TradeVibes tried this many years ago (their assets were ultimately acquired by VentureBeat) so as a side project for fun, maybe. As a viable business, not so much.
The problems with this type of "exchange" are as follows:
- There is little data and liquidity to "price" these companies. SecondMarket and the other markets like that had this issue as well. Everyone is interested in Facebook and Groupon when private. After that, nobody knows or cares. And the interest is based on popularity - not on fundamentals of companies.
- The audience for this type of thing is relatively small - startup enthusiasts, startups themselves and maybe VCs. It's not like Hollywood where virtually anyone has an opinion.
I agree, I don't think a large enough number of people would find it all that interesting but there should be enough to make a fun sustainable platform provided it resources put into it are kept to a minimum.
I agree that it would be practically impossible to work out how much the companies are worth by traditional investor metrics, discounted cashflow for example. But what about other metrics - user signups, number of times tweeted, number of followers on twitter, number of uniques on site, number of mentions in articles/ posts online...
wow a friend of mine was literally JUST talking about this last week xD. if anyone here's actually interested in helping discuss how this would be best implemented, I can put you in touch.
Love it. Each year, I do March Madness brackets and Fantasy Football. The only thing that surpasses my interest and knowledge in sports, is my interest and knowledge in the tech space, with special focus on investment injections and long-tail performances. Would love to see this become widespread. Keep it up!
It's not about being a spectator sport. It's about identifying (potentially undervalued) opportunities early. I didn't make this list to speculate, it's where I'd put my money if I had money to invest.
"People who can't own their own sports teams play fantasy sports. People who can't invest in the stock market do virtual trading. Why should I be left out? I decided that I'm going to publish my list of investing picks (that I've kept private up til now), so that in the future I can (and you can) look back and see how I do."
Plenty of people say "oh I called it" after the fact. "I knew it was going to be big."
I wanted to publish my list publicly (esp. given YC W13 Demo Day) so I can publicly see my performance over time. No cheating and calling it after the fact. Trust me, if I had access to money to invest, I'd keep this list to myself and put my money where my mouth is.
What better way to learn what kind of things convince VCs to invest than by being a VC? Even if you never invest a dime in any other company, you'll be a better entrepreneur if you do this.
I find getting into hot deals to be one of the tougher parts of VC/angel investing. There always seems to be a lot of money chasing the best deals.
That being said, I don't have to deal with salary caps and a bazillion other complications when I play Fantasy Football. And this looks like fun! Thanks for posting Sohail.
Definitely, and many deals are based on some kind of personal relationship with the founder. It's funny: over time I've built up better access and relationships, but have no money to invest... So this will have to do for now :)
I'm looking forward to keeping the list updated and looking back in a couple years.
This! Obviously good investments are almost always oversubscribed, and additionally not all startups are raising angel money all the time. You need to find the overlap of:
* Company is raising now
* You can get in on the deal
* Terms are acceptable
* You want to invest in the company
These are some reasons why professional investors are so busy taking meetings, and why so many angels piggyback on deals with more active/well known investors.
Challenging to get the inside scoop on valuations and such but conceptually it's an interesting play.
My suggestion is that you set up a prediction market, with play money of course, where you buy shares on a prediction, so "Foo - Acquihire" yes/no, "Foo - IPO" yes/no, "Foo - Acquistion" yes/no, and "Foo - Deadpool" yes/no. Maybe even lesser bets like "Seed", "Series A/B/C/D/E". You get the value of the shares if your prediction occurs, you get 0 if your prediction does not come true.
With enough participation I expect that could get a bit dangerous (actually moving the market) but its easier than my other idea which is take the stats for every known founder, engineer, marketer, Etc and create actual fantasy startups and have those fly or die based on events that the real people they are based on are seeing.
Dwolla is too good for my 75k? Good for them. Companies like BofA, Walmart, GE, and literally thousands of other companies would love to take that money and put it to use. Only in the upside down world of SV would you have to be somebody to have your investment accepted.
As far as the prediction market, it would be useless with play money. Skin in the game is what drives efficiency.
I assume you're talking about buying stock. When you do that, you're not actually giving money to the company unless it's an IPO; you're buying shares from other investors.
When companies raise money, they only raise a given amount. This is true from seed rounds through IPO and subsequent stock issuance. If people want to buy more shares than the company's issuing, some of them won't get shares (and raising the price of equity isn't always the correct answer, especially for an early stage startup).
I'm confused. If this is some sort of Hollywood Stock Exchage where you can magically invest into fake stock of startups, then I'm wrong. What I'm getting at is I too have a shortlist of the next Dropbox(es) who I would love to seed or jump into a Series A with, if I were accredited. But I have no reputation and no celebrity, and thus would be passed over as an early investor.
I'm concerned I'd be a bad financial investor because I'd want to invest in interesting technologies that I really understood or found interesting, vs. things which seemed like easy returns.
If I had 100k/yr to invest in startups (which would mean investing $1mm/yr to have a decently safe allocation, unless I had $100mm in existing safe assets), it that's either 1-4 small angel investments per year, or somehow buying an index fund of startups. The only index fund I'd want is one which inherently included all startups, not just the ones which chose to be part of the index, so it would have to be YC VC or something like that. As far as I know, neither of the YC companies doing investment markets could offer that at the current time.
The only way for 1-4 small $25-100k angel investments to be meaningful would be to add a lot of additional value, or to already know the founders really well. So, I guess I could do infrastructure, or gov/intel, or security. Of the public YC companies this batch, only 3-6 really fall into that category.
If you're good at deconstructing a business model, finding out who's hired at X company, reverse engineering code, and analyzing the competitive startup landscape...
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[ 3.3 ms ] story [ 89.3 ms ] thread[1] http://www.hsx.com/
The problems with this type of "exchange" are as follows:
- There is little data and liquidity to "price" these companies. SecondMarket and the other markets like that had this issue as well. Everyone is interested in Facebook and Groupon when private. After that, nobody knows or cares. And the interest is based on popularity - not on fundamentals of companies.
- The audience for this type of thing is relatively small - startup enthusiasts, startups themselves and maybe VCs. It's not like Hollywood where virtually anyone has an opinion.
I agree that it would be practically impossible to work out how much the companies are worth by traditional investor metrics, discounted cashflow for example. But what about other metrics - user signups, number of times tweeted, number of followers on twitter, number of uniques on site, number of mentions in articles/ posts online...
I believe http://appdaq.net/ used some of these ideas.
edit: Apparently we are. Wow.
I wanted to publish my list publicly (esp. given YC W13 Demo Day) so I can publicly see my performance over time. No cheating and calling it after the fact. Trust me, if I had access to money to invest, I'd keep this list to myself and put my money where my mouth is.
That being said, I don't have to deal with salary caps and a bazillion other complications when I play Fantasy Football. And this looks like fun! Thanks for posting Sohail.
I'm looking forward to keeping the list updated and looking back in a couple years.
* Company is raising now * You can get in on the deal * Terms are acceptable * You want to invest in the company
These are some reasons why professional investors are so busy taking meetings, and why so many angels piggyback on deals with more active/well known investors.
My suggestion is that you set up a prediction market, with play money of course, where you buy shares on a prediction, so "Foo - Acquihire" yes/no, "Foo - IPO" yes/no, "Foo - Acquistion" yes/no, and "Foo - Deadpool" yes/no. Maybe even lesser bets like "Seed", "Series A/B/C/D/E". You get the value of the shares if your prediction occurs, you get 0 if your prediction does not come true.
With enough participation I expect that could get a bit dangerous (actually moving the market) but its easier than my other idea which is take the stats for every known founder, engineer, marketer, Etc and create actual fantasy startups and have those fly or die based on events that the real people they are based on are seeing.
Really like ChuckMcM's acquihire/deadpool idea.
Dwolla is too good for my 75k? Good for them. Companies like BofA, Walmart, GE, and literally thousands of other companies would love to take that money and put it to use. Only in the upside down world of SV would you have to be somebody to have your investment accepted.
As far as the prediction market, it would be useless with play money. Skin in the game is what drives efficiency.
When companies raise money, they only raise a given amount. This is true from seed rounds through IPO and subsequent stock issuance. If people want to buy more shares than the company's issuing, some of them won't get shares (and raising the price of equity isn't always the correct answer, especially for an early stage startup).
If I had 100k/yr to invest in startups (which would mean investing $1mm/yr to have a decently safe allocation, unless I had $100mm in existing safe assets), it that's either 1-4 small angel investments per year, or somehow buying an index fund of startups. The only index fund I'd want is one which inherently included all startups, not just the ones which chose to be part of the index, so it would have to be YC VC or something like that. As far as I know, neither of the YC companies doing investment markets could offer that at the current time.
The only way for 1-4 small $25-100k angel investments to be meaningful would be to add a lot of additional value, or to already know the founders really well. So, I guess I could do infrastructure, or gov/intel, or security. Of the public YC companies this batch, only 3-6 really fall into that category.
You'll come out ahead!