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I know blockchain gets a lot of hate on HN, but democratizing fundraising via crypto tokens and taking some power away from Silicon Valley VCs is a massive shif

I know blockchain gets a lot of hate on HN, but democratizing fundraising via crypto tokens and taking some power away from Silicon Valley VCs is a massive shift. The merit of the projects themselves can be debated, but the fact that technology entrepreneurs all over the world have easier access to capital has got to be a net positive.

mandelbrotwurst 8y ago
It's a net positive for technology entrepeneurs, certainly. What's less obvious is whether it's a net positive for everyone, e.g. if that "access to capital" comes in the form of naive investors pouring money into projects that are likely to fail (i.e. have been arguably a poor use of capital / a net negative).
- nine_k 8y ago
  Almost all projects are likely to fail. The key tenet of venture investment is investing in 500 companies, and have 499 fail, while one would give a 1000x return. A "retail" investor is likely not able to follow this strategy, so people who would invest in a few apparently great projects via blockchain technologies may be in for disappointment. But I don't see why small-scale venture investment via an appropriate technology could not work. Invest $10 in 500 companies, get $10k back... eventually.
  - mandelbrotwurst 8y ago
    Fair point. Where I said "likely to fail" what I meant was "so likely to fail that they represent a poor use of capital" (for even a large investor and also for society as a whole). As you've pointed out, there's a distinction between poor use of capital for the individual and a poor use of capital for society, and other groups in between. I'm not proposing that this is the case about any particular investment it just seemed worth pointing out that such a type of investment does exist.
1996 8y ago
You mean on a VC run forum, crypto gets a lot of hate because it is an alternative? Color me shocked! Personally, I think bootstrapping + ICO is far less trouble that even bothering with VCs, but I am sure many people with Stockholm syndrome will explain me why I'm wrong!
- mmt 8y ago
  I actually have no idea if you're right or wrong. However, one of my primary concerns regarding any "crowd-source" or direct-to-retail investment in startups is the information assymetry. It's tough, if not impossible (and certainly not scalable) for individual investors to do something like due diligence, especially in a manner consistent from startup to startup. This is a potentially soluble problem, with adequate regulation, and/or with third party providers (although keeping incentives aligned might be tough), but, in the meantime, I fear it could attract businesses that are much higher risk than even VC-funded startups, if not outright scams. On the other hand, I'm not convinced VCs have quite solved the problem, either, beyond, presumably, filtering out straightforward [1] scams. They do provide some minimum of risk-spreading by not investing in a single company (but their LPs get no say in those choices anyway). [1] i.e. embezzle the money and run, not complex fraud like Theranos, or even dot-com era spending all the money running the business, just with no credible business plan
  - 1996 8y ago
    I agree with you - it is impossible to say if it will be good or bad in the end. However, I believe individual investors will bridge the information asymmetry, since regulation of anonymous fungible crypto is bound to fail (or to be "as successful as the war on drugs" if your excuse my french) Since it can't be regulated, enough people will be scammed to cool down the taste for risk for the remaining ones. Whether the remaining ones is >0, IDK. Maybe yes, because out of a few billions, there will always be a few hotheads? In any case, I see the funding of highest risk business as a positive. I want to see crazy innovation like transhumanism!
    - mmt 8y ago

mandelbrotwurst 8y ago

It's a net positive for technology entrepeneurs, certainly. What's less obvious is whether it's a net positive for everyone, e.g. if that "access to capital" comes in the form of naive investors pouring money into projects that are likely to fail (i.e. have been arguably a poor use of capital / a net negative).

nine_k 8y ago
Almost all projects are likely to fail. The key tenet of venture investment is investing in 500 companies, and have 499 fail, while one would give a 1000x return. A "retail" investor is likely not able to follow this strategy, so people who would invest in a few apparently great projects via blockchain technologies may be in for disappointment. But I don't see why small-scale venture investment via an appropriate technology could not work. Invest $10 in 500 companies, get $10k back... eventually.
- mandelbrotwurst 8y ago
  Fair point. Where I said "likely to fail" what I meant was "so likely to fail that they represent a poor use of capital" (for even a large investor and also for society as a whole). As you've pointed out, there's a distinction between poor use of capital for the individual and a poor use of capital for society, and other groups in between. I'm not proposing that this is the case about any particular investment it just seemed worth pointing out that such a type of investment does exist.

1996 8y ago

You mean on a VC run forum, crypto gets a lot of hate because it is an alternative? Color me shocked! Personally, I think bootstrapping + ICO is far less trouble that even bothering with VCs, but I am sure many people with Stockholm syndrome will explain me why I'm wrong!

mmt 8y ago
I actually have no idea if you're right or wrong. However, one of my primary concerns regarding any "crowd-source" or direct-to-retail investment in startups is the information assymetry. It's tough, if not impossible (and certainly not scalable) for individual investors to do something like due diligence, especially in a manner consistent from startup to startup. This is a potentially soluble problem, with adequate regulation, and/or with third party providers (although keeping incentives aligned might be tough), but, in the meantime, I fear it could attract businesses that are much higher risk than even VC-funded startups, if not outright scams. On the other hand, I'm not convinced VCs have quite solved the problem, either, beyond, presumably, filtering out straightforward [1] scams. They do provide some minimum of risk-spreading by not investing in a single company (but their LPs get no say in those choices anyway). [1] i.e. embezzle the money and run, not complex fraud like Theranos, or even dot-com era spending all the money running the business, just with no credible business plan
- 1996 8y ago
  I agree with you - it is impossible to say if it will be good or bad in the end. However, I believe individual investors will bridge the information asymmetry, since regulation of anonymous fungible crypto is bound to fail (or to be "as successful as the war on drugs" if your excuse my french) Since it can't be regulated, enough people will be scammed to cool down the taste for risk for the remaining ones. Whether the remaining ones is >0, IDK. Maybe yes, because out of a few billions, there will always be a few hotheads? In any case, I see the funding of highest risk business as a positive. I want to see crazy innovation like transhumanism!
  - mmt 8y ago