Raising money from random people on the internet sounds like a nightmare.
Every investor you take on is there for life and has a unique set of goals. The advice they give you is bent towards those goals, be it creating the best product, exiting in six months, IPOing in 10 years, or making a large social impact. I can only imagine the all-caps emails from first-time investors demanding the company go in one direction.
Investor relations can be a time sink to manage for an early stage company, especially if you have inexperienced investors who only read about the good times on TechCrunch.
While I understand the spirit of your posts, I've learned the hard way that treating investors with less than the respect they deserve is a sure fire way to shoot yourself in the foot. They are often times the first and fastest method to raising additional capital when in a pinch. Naive investor or not.
Investing $250K in a seed round startup buys you a lot more equity stake than buying $250k of stock in Apple. Publicly traded companies solve this problem by the virtue of their size.
The New York Stock Exchange used to prohibit listing shares where there was more than one class of stock. (The only exception was Ford, which predated that rule.) We need that back.
I'm familiar with the deal structure that Invesdor (https://www.invesdor.com/en) does. They have been doing this for years in the Nordic countries (thanks to very lax local laws), and nowadays have a license for the whole EU.
Most companies who raise through Invesdor use an "Equity Crowdfunding Shareholders' Agreement" that each investor must sign. Its wide boilerplate language prevents the small investors from selling or transferring their shares, and requires that they vote on key issues according to instructions from the Board.
That kind of agreement basically strips the investors from any actual power in the company, so their influence really is limited to "all-caps emails". Even then, my impression is that most of these small investors are reasonably well diversified (contrary to what one might expect) -- they put small amounts of money in multiple Invesdor companies, and don't expect a return any time soon.
Often they're really just looking to support the business Kickstarter-style, with no actual expectation of an exit.
Before the company is publicly listed, the crowdfunding shareholders can only sell (and must sell) when the Board tells them to -- in an acquisition or merger, in other words.
This type of clause often exists in shareholders' agreements between founders as well, to prevent one founder from selling a substantial part of the company to a party the others might not approve of.
If these are Regulation A+ offerings, which they must be to sell to unaccreddited investors, then shares are free to trade on secondary markets after the offering closes. These companies may even list on OTC exchange. Here's a good slide deck on it: https://www.sec.gov/info/smallbus/acsec-071916-otc-zinn-reg-...
I'm not familiar with US regulations at all, and I wouldn't pretend to give any advice about that. The information I posted about the agreements used by Invesdor is only pertinent to the Nordic markets in which they operate (Finland and Sweden). Sorry if that wasn't clear, and thanks for the info!
Dividends. I think that system (reward investors for funding profitable companies) was healthier than today where shares exist only to be flipped and prices have no connection to performance other than speculators' psychology.
Because they don't read them and even if they did they wouldn't understand them. All of that is moot anyway since any reasonably informed investor would realize these type of non-voting shares with essentially no board representation are going to get diluted into oblivion in later funding rounds anyway.
It's almost impossible to profit as a shareholder via crowd funding even if the company is wildly successful as it stands currently. Hopefully in the future the markets or legislation will adjust this once that becomes more clear to the general public.
I assume the GP meant something similar to restricted stock, where you are severely limited in selling and transferring of your stock until certain preconditions are met (change of ownership, IPO, etc).
Privately-held stock, i.e. restricted stock of non-reporting companies, can't be sold "to the public" and generally must held for at least one year [1], but other than that is quite transferable pre-IPO. That minimum holding time can vary, too, depending on circumstances. Most transfer restrictions are put in place by companies, not law.
It's not legal to go out and raise a bunch of money from unaccredited investors. Companies will most likely have to get approved for Regulation A+ by the SEC before Indiegogo agrees to sell ownership, in which case the shares are transferable once the offering is closed.
And it's because of the points you made that most real investors will "blacklist" any company that has raised crowd equity.
However, it will be interesting to wait and see if someone (probably and accountant or lawyer) figures out a structure/vehicle that allows me utilize the positives of crowd equity while staying away from the negatives. EDIT: Maybe a crowd equity funded VC group...? Run by sophisticated investors.
It's false (at least here in the UK) that investors blacklist companies that have raised equity crowdfunding. The trend is going the other way: towards crowd equity rounds being anchored by venture funds and to VC co-investment.
Re: edit, absolutely. Crowd investment into a portfolio / fund vehicle is a great idea. Likely to be more like a quant fund / index tracker though, rather than professionally managed -- because who wants to pay 3% annual fees. And what would you logically track? AIM or crowd equity platforms because they are your signal.
Yes, but you and I don't really have the ability to put a portion of our savings into Andressen Horrowitz. At best our money ends up at a VC fund through a middle man, be it your brokerage house putting LOTS of clients money in or a work pension fund.
Legal structures need to be adapted. In Europe for equity crowdfunding, there is a "nominee structure" for example.
It removes lots of pain for entrepreneurs, investors and the middleman.
Every investor you take on is there for life and has a unique set of goals. The advice they give you is bent towards those goals, be it creating the best product, exiting in six months, IPOing in 10 years, or making a large social impact. I can only imagine the all-caps emails from first-time investors demanding the company go in one direction.
Investor relations can be a time sink to manage for an early stage company, especially if you have inexperienced investors who only read about the good times on TechCrunch.