Unregulated Crowdfunding

Two years ago Congress passed the JOBS Act, promising to help small businesses and startups more easily raise capital by loosening various Securities and Exchange Commission (SEC) regulations. Two years later, it’s as hard as ever to raise equity capital and if you aren’t rich (accredited or qualified investor status), you can’t legally participate in the world of startup investing. The reason for this is that the SEC implemented the JOBS Act the way they wanted to, and in the process hamstrung its use.

As one might suspect, the world of technology is likely to solve this problem on its own. As Naval writes in this excellent post, the innovations behind the Bitcoin protocol and architecture are spilling out into the world of open source and crowdfunding. We have seen a number of exciting projects lately that are loosely organized collections of software developers building new approaches to distributed e-commerce, identity, legal contracts, and a host of other interesting and vexing problems using this method to fund their “startup” (cut and pasted from Naval’s post):

  • Write software to power a completely distributed network in which any node can participate anonymously.
  • Allocate scarce resources in the network using a scarce token – an Appcoin. Users need this Appcoin to use the network. Owners of scarce resources get paid in Appcoins.
  • Pre-mine or early-mine Appcoins and keep some non-threatening amount. These are shares of your company, equity that will appreciate in value if the network is adopted.
  • Give network operators the ability to collect new Appcoins in proportion to their contribution. Route a small fraction of each transaction output to the developer foundation (Mastercoin does this). Theserevenues are used to pay for operations, and bounties for ongoing development.
  • As network usage increases, so does equity value and revenue.
  • Anyone can buy Appcoins, anywhere, anytime, anonymously. Ship your code, ring the IPO bell.

We’ve been asking ourselves at USV if we should be purchasing coins in some of these “genesis block sales” instead of our normal appetite for Series Seed and Series A shares. I think the answer is ultimately yes, but we are most certainly entering into unknown territory in the process.

My partner Albert has been predicting that there will be no distinction between the public and private markets in a decade. He may have been off by eight or nine years in that prediction. It feels like its coming soon and coming fast. And that is exciting to me. Anything that creates more innovation and more entrepreneurs is a good thing for VC, for society, and for me.

#entrepreneurship#VC & Technology

Comments (Archived):

  1. Julien

    I’m with Albert and convinced that private and public markets are already merging.But, what stroke me in your post is “the world of technology is likely to solve this problem on its own”. I believe this deserves a post in itself.It’s both fascinating and encouraging but it also shows the “arrogance” of the tech crowd (me included!) who assumes that their (technical) solutions to problems are to be applied to everyone else.After all, maybe regulations have a role and maybe the agenda of people deciding of them is not just to protect the existing status quo. Maybe the fact that a problem can be solved technically does not mean that it *has* to be solved technically and not also politically, legally, and more.

    1. fredwilson

      when i wrote that i was thinking about the DOJ’s attack on Microsoft’s monopoly in the late 90sbefore that wound its way through the courts, open source and the internet had taken care of the problem

      1. andyswan

        Fred I wish you’d apply this same reasoning/connection to “net neutrality”!Of course markets (sometimes through technology, sometimes otherwise) take care of these problems on their own…not instantly, but ultimately.

        1. fredwilson

          the cost of markets fixing the net neutrality issue is enormous and the power of the incumbents is equally enormous. maybe if the gov’t let the spectrum get into the hands of innovators instead of incumbents we’d have a chance.

          1. andyswan

            sounds like a fight I could get behind

          2. AlexHammer

            technologists versus government is an interesting dynamic.Clearly the power of technologists is waxing, as defeat of SOPA and PIPA and Naval and Case able to put through the “jobs act” seems to demonstrate.

      2. AlexHammer

        The degree to which governments allow technology to innovate to solve problems, versus not, is, of course, an interwoven and critical topic.

        1. CJ

          The balance between regulation and innovation is not one that has ever been easily struck.

      3. Antone Johnson

        Completely agree about the Microsoft case, but it’s easy to overlook the second-order effects of that kind of thing. Criminal justice (including antitrust) is as much about deterring similar behavior in the future (whether specifically by MSFT or by other industry participants) as it is about rectifying injustice.

    2. ShanaC

      politics is also a form of a code. it regulates us just as often and we regulate it

  2. pointsnfigures

    There is an old book my friend wrote, Capital Market Revolution Future Markets in 1998. When I was on the CME board, I’d bring up some ideas that people thought were absolutely nuts. Bitcoin can make a lot of them possible. I have been thinking a lot about this-and since the traditional exchanges are monopsonists, and banks are oligopolists , they don’t have incentive to innovate. Talking to people that work there make an innovator nuts. They are ripe. It’s time.Exchanges have done a terrible job at making the world flat. In lockstep with government regulators, and with big banks, they have erected protectionist walls that ensure their dynasty.Cannot wait for those walls to fall-and the beauty of it is they have no idea it’s coming.

    1. fredwilson

      and we do

      1. AlexHammer

        It reminds me of the story of two people being chased by a bear and one stops to put on his sneakers.In response to the question of why he is doing that from his friend, he responds, I don’t need to outrun the bear, I just need to outrun you.

    2. Andrew Kennedy

      “Talking to people that work there make an innovator nuts.”– Great line

    3. Mark Birch

      Very much why I left the COMEX floor for tech many years ago. No innovation or incentive to use technology other than to continue existing ways of doing things (which was ass-backwards in many respects). I have remained one foot in the markets since this time, and I still see many of the fundamental flaws in the commodities markets, except now accelerated by electronic exchanges. But the processes and people still remain to gum up the works.If innovation does happen, it will have to happen from the outside exactly as you describe, when they have no idea is smacked them upside the head.

      1. pointsnfigures

        As a former Board member and one of the guys who advocated for a switch from non profit to for profit, the exchanges of today bear no resemblance to what we envisioned.

    4. ShanaC

      about “Capital Market Revolution Future Markets” – which ideas haven’t been implemented than you thought would have been

      1. pointsnfigures

        First, all exchanges are for profit, not mutually run. Second, many regulatory things were foreseen. Third, electrification of the marketplace. But a lot of stuff will take time. For example, he talked about Investment banks changing-and the possibility of local peer to peer networks raising money at a kitchen table.

    5. JamesHRH

      It is always important to ask the following question, when your innovation revolution fervour gets to a boil.How did this goofy environment come to be?This one came to be – guessing here, happy to have knowledgeable source speak up – because unscrupulous stock boilers scammed large numbers of people.So, this is a non-starter, basically.

  3. Tom Labus

    Is SecondMarket still planning on a Bitcoin or virtual currency exchange?

    1. fredwilson

      yes they are

      1. AlexHammer

        Coopetition.How does Bitcoin work with the big banks, and the regulators without becoming co-opted.Fox guarding the henhouse?Of course the alternative may well be death by a thousand cuts due to uncontrolled hacking and/or fraud.

  4. jason wright

    is appcoin a generic term, or a specific brand? i’m struggling with this.

    1. LIAD

      generic term

    2. fredwilson

      generic, like “company x”

      1. AlexHammer

        How specifically will Coinbase,and other leaders in this space be implementing this?

  5. LIAD

    + DACs have inbuilt investor protection.Forking the code + doing away with the pre-mine = Firing the founders.

    1. fredwilson

      i would love to hear more of your thoughts on this

  6. Twain Twain

    This dovetails neatly with Fred’s previous post on 8th Jan 2014 about the mutual company:* http://avc.com/2014/01/the-…Appcoin and its distribution channels would be an infrastructure play to also change what Jack Dorsey said in the 99% Conference video Fred shared a couple of days ago:* http://avc.com/2014/03/vide…For me, the key golden nugget was less about the nature of “luck” and recognizing its emergence and more about Dorsey’s observations about the “abstract constructs of the financial system that have built up” and which showed themselves to be flawed during the crisis.Ergo how he and the Square team were able to meet with regulators, banks etc. in an accelerated time frame.

    1. fredwilson

      yup. i’ve been looking for this for a while

      1. pointsnfigures

        at some point in the future, why would a big company issue equity shares when they could issue cryptocurrency instead? GE Cryptocurrency versus GE equity.

        1. JLM

          .If your financing objective is to have money to plow back into the business, big businesses already do this via bonds or commercial paper.GE Capital — essentially a bank — at one time was funded completely by commercial paper, a financial instrument intended to finance commercial contracts.The comm’l paper market was so obscure and GE had been in it for so long, they could sell paper at less than Prime.JLM.

      2. Twain Twain

        Two associated considerations:(1.) The founding team would need to have a technical founder “baked in” — otherwise how would they be able to setup, mine or issue the Appcoins?Or is outsourcing this technical component an appropriate option for non-technical founders?(2.) Investors / users would also need to be technically proficient enough to understand crypto currency.Would this be the case with the majority of investors on sites like Kickstarter, CrowdCube, Funding Circle etc.?This then re-routes us back to the must-do if crypto currency is to become mainstream……..Education. Education. Education.

  7. William Mougayar

    I first heard about this from Andreas Antonopolous a few months ago, in one of his videos. It’s one of those things that makes your head turn the first time you hear about it.But now it’s happening, and it’s going to happen in a big way. Ethereum is also planning a new raise that is essentially booted out of their infrastructure. (disclosure: I’m involved with them)But the key point behind these schemes are the Apps that will sit on top of the infrastructure, protocol and services. We can’t just have engineers cycling CPU time to prove that cryptocurrency protocols are cool. We need business apps with real-life usefulness to flourish on top of it all. That’s why having a strong developer community behind these initiatives is super important.

    1. Richard

      Great resource

  8. AlexHammer

    Fred, you will be one of the disruptors rather than disrupted because you have your finger very much on the pulse of “what is next”.Of course, timing is critical. The dot com bust of 2000 once again illustrated that you can have the right types of business models, but until the infrastructure is in place leading to market adoption it is impossible to be successful.As has been very famously said, the amount of change is overestimated in the short term but underestimated in the long term (and I think the long term underestimation, in the end, often trumps the short term overestimation), and as a result it is very difficult to tell whether you or your partner is more correct in the timing assessment.Of course, this timing assessment is, from an investment standpoint, most critical.

    1. pointsnfigures

      Timing is everything.

      1. AlexHammer

        The knowledge that lies behind proper timing is everything.

        1. Andrew Kennedy


    2. ShanaC

      Long term, we’re all dead

      1. AlexHammer

        True, but not yet.

  9. andyswan

    Part of me thinks this is amazingly cool. The other part of me thinks this sounds like version 89.5 of marxist “means of production” techno-babble. You gotta admit, this sounds like something a 5th year philosophy major would be ranting about every time he hits a J in the tent. Not that there’s anything wrong with that (a full 87% of my brilliance is surfaced while under the influence).It’s funny because our first idea with mytrade was to allocate 20% of the company to early adopters, allocated by participation and new-user recruiting. Then we found out that, like so many of our great ideas, happened to be illegal.This isn’t an approach I would take (not a fan of decentralized, as I have just enough ego to believe that things are better when I am the strong gravitational center of them), but if it gets more people involved in creating wealth and disrupting decay-value power structures, I’m a fan.

    1. pointsnfigures

      I am a huge fan of decentralization being enabled by some sort of connective force in the middle powered by network effects.

      1. andyswan

        I am too. I’m going to file this under “potentially extremely powerful tool” rather than “superior business model”

    2. Drew Meyers

      “It’s funny because our first idea with mytrade was to allocate 20% of the company to early adopters, allocated by participation and new-user recruiting. Then we found out that, like so many of our great ideas, happened to be illegal.”I would love to do the same thing…

    3. Antone Johnson

      > I have just enough ego to believe that things are better when I am the strong gravitational center of themAndy, I like the way you put that. Isn’t that the essence of being an entrepreneur? You wouldn’t toil to build a new venture from scratch *unless* you believe you’re uniquely insightful, gifted, etc. in one way or another to give it a good chance at succeeding.I work with entrepreneurs for a living and most of them certainly don’t fit the “let’s decentralize everything” model. If anything, they generally want to retain as much ownership and (more importantly) control as long as possible, to keep others from screwing it up. It’s been their baby from day zero, they’ve worked like hell for a long time (often unpaid) to create value, and know every aspect of the business inside and out to an obsessive degree of detail.

  10. Daniel Eckler

    You’ve alluded to interesting concepts relating to eCommerce + Bitcoin in a few posts recently / I’d love to hear more about your thoughts on this topic…

  11. markslater

    watch mastercoin.

    1. fredwilson

      YupSuper interesting and responsible for a lot of this post

    2. jason wright

      surely mastercard will want a rebranding – ip infringement, confusingly similar, LOL.

      1. markslater

        but who would they go after? 😉

        1. jason wright

          Ron Gross, in Israel.

  12. Fraser

    How would this work for a network based on crowdsourced knowledge (such as Wikipedia)?

  13. Guest

    I completely agree – very soon we will not be able to differentiate private and public capital raising efforts.

  14. Rich Rodman

    I completely agree – very soon it will be hard to differentiate public and private capital raising. The environment was meant to be unregulated but it appears as through it will be highly regulated going forward – just in different aspects. I started noticing this trend about 2 years ago and created Crowdentials – a company that makes scaleable compliance software for the JOBS Act. It’s our goal to allow this piece of legislation to thrive by allowing investors, entrepreneurs and portals/brokers to comply with ease.

  15. James Ferguson @kWIQly

    I find this complex to get my head around. Can anyone help?Is this in essence an argument that rather than “money” to resolve/defer the need for “double coincidence of wants”. we use a virtual information exchange ledger as (marketplace) to represent the transactions (actual or promissory)Fiat currencies (as promises that cannot always be enforced) then add no valueIn a capitalist world view – does this lead to AmendmentCoin, VoteCoin, and PoliceCoin perhaps tempered by SocialCoin and ConscienceCoinSo If what I just wrote sounds silly – is it only because we are not used to expressing desires in advance in monetary terms – but rather look for solutions before reaching for our walletsMaybe the ultimate role of money is simply matching Purchaser to SupplierPreferenceCoin anyone?

  16. James Ferguson @kWIQly

    @fredwilson:disqus – It seems to me this is so abstract and complex we may soon see the emergence of “moneyCoins” to pay for time of consultants to just to translate coin into koine (sic – as in the common language ).

  17. Jonathan Sandlund

    Exciting times. Agree on the convergence. But “society” will only benefit if we manage to redraw VC in the process…Otherwise, while the system will change, its beneficiaries will not. And VC will continue to monopolize (and manipulate) gains in our innovation economy.

    1. fredwilson

      You assume VCs have power. They don’t. Entrepreneurs have power. VCs just have money. Which is not that valuable

      1. Jonathan Sandlund

        Disagree. VCs do have power. Granted (and protected) legislatively by being the only real source for meaningful growth capital.Fully agree that the choice of who to raise capital from, and how, should always be the Entrepreneurs. But they don’t have that choice today. At least not one that’s fair. (Including even a single non-accredited investor is a painful exercise.)VC is the only real option. Had the WhatsApp founders been able to raise capital from its users, would they have gone VC? Or opened a tranche to their users? Maybe, maybe not.But I bet there are lots of companies—if given a level playing field—that would choose to include retail investors. Mainly loyal customers. Lots of young & idealistic—perhaps naive ;-)—entrepreneurs out there :).How many Kickstarter projects have been validated by the “Crowd” only to then be funded by VC? Are users not absorbing the risk—only to see VC, with exclusive access, swoop in and claim the financial upside?Maybe I’m seeing it wrong, or not seeing something right?

        1. fredwilson

          VC is just money. And money is not the secret of success

          1. Jonathan Sandlund

            Agreed.But doesn’t VC = Money + Access?And doesn’t access (protected) create unfair advantages? VCs only real competition is itself. And even then, today, the losers still find ways to win. (Although, not for much longer. FundersClub / Microventures model is gunning for mgmt fees on captive capital.)The private markets need to be opened to competition. And VC’s (using this term very broadly) monopolization over the private markets challenged.Title III, for all its good intent, is being decapitated by the SEC. Some interesting developments on Title IV. If we get the blue sky exemption, we could see Reg A+ offerings become a viable vehicle for retail crowdfunding. Or, there’s always JOBS Act 2.0, which I hear is coming very soon. (Sigh… here we go again.)Sorry, I’m ranting. All in all… we just desperately need to bring equality to our private markets.

          2. LE

            Ranting against VC’s is like ranting against newspaper reporters in the olden days saying they controlled what made it into the papers.Each day VC’s (and reporters) wake up and their job is to identify things that they think will be deal or newsworthy. In their opinion. Based on their experience. [1] Your job (as an entrepreneur) is to tell them why they should invest in or write about you or your company. Complaining about them as gatekeepers is not to your benefit. Not to mention the fact that if you are not willing to put in the effort to approach many VC’s (or reporters) of course you will fall short and think that life is not fair. Because you are then (in my book) lazy and not willing to put in the effort. Just want things to be ideal and easy. But if things are ideal and easy there is greater competition. If you have something which is good, learn the game, put in the effort, and then go to the VC’s and show them what you have. How much fairer do you need things to be exactly? It’s not like there is only one cable company that has the final mile to your house.[1] Same exact thing that you do as an entrepreneur when you are making a hiring or buying decision, right?

          3. greggdourgarian

            I love the way you approach this but there is still this thing called profits and bootstraps that some of us still believe in more than VCs. And appealing to reporters in MSM? Showing the bear where he shat in the buckwheat isn’t as much fun as tearing the bear apart with grassroots organizing on new media.

          4. LE

            isn’t as much fun as tearing the bear apart with grassroots organizing on new media.Having fun and doing business are two different things. (Not that you can’t do business and have fun of course). And to new media I say (again) live by the sword die by the sword. Anyone who has ever seen guests whine on tripadvisor about bullshit will recognize the limitation of to many mouthpieces.As far as “profits and bootstraps” that’s what I’ve done already two times. So I have no reason to defend the VC model.Also don’t doubt the importance of legacy media. They are still important. When 60 minutes and the WSJ come knocking (or any network for that matter) most entrepreneurs recognize and respect that and it’s not just so they can impress their aunt.

          5. Twain Twain

            How about this equation?Success = (smart allocation of resources) X (timing) X (luck) + expectation management.The tug o’war / seesaw between founders and investors over who pulls and pushes the power strings or carries the weight on the seesaw is less effective for producing success than simply recognizing that the game’s much more fun when both sides have a hand in turning the rope and skipping to the beat of the other in turn.

        2. LE

          Had the WhatsApp founders been able to raise capital from its users, would they have gone VC? Or opened a tranche to their users? Maybe, maybe not.Whatsapp? Oh sure. They had a really shitty outcome the way things happened in the end.

          1. Jonathan Sandlund

            Who benefited? GPs & LPs at Sequoia. A handful of already exorbitantly individuals?(I’m not, in any way, saying those gains should be re-distributed. But I do believe non-accredited investors should be allowed to compete in the private markets on a level playing field with accredited. Today, there isn’t even a field. Non-accredited investors are knee-capped, and sidelined.)But let’s dive even deeper.The $19BN transaction. Sequoia got (mostly) cash. Cold hard cash. Even on the FB equity, I guarantee you they’ll sell and realize their cash gains soon enough.And what did they sell to Facebook’s retail investors? Hope. More hope. And more expectation. I have no clue when, but we’re in for a massive correction in the public tech sector.When judgement day hits and these co’s see that their revenue conversion and customer LTV assumptions are bogus—and that the hope they sold isn’t translating to real $ profits—they’ll collapse. (Example: Groupon. VC manipulated the story, the metrics, the expectations, and peddled it to the public markets. )And who will be hurt? Who will be left holding the bag? Not VC. They’ll have long realized their gains—and cut their exposure. They have every incentive to pump valuations in the private markets, and dump them to the public.It won’t be VC that gets hurt. It will be retail. Nearly everyone you and I know. Most of our friends, our family, the people we care about the most.I don’t have the answer. I can’t place my finger on it precisely. I need more data. But something is very wrong with Venture Capital today. And if we don’t fix it we’ll see high finance—once again— ride the boom, escape the bust, and royally screw over Mainstreet America.

          2. LE

            Who benefited? GPs & LPs at Sequoia. A handful of already exorbitantly individuals?Do you mean “people who already had money?”. So what? You’re making like they are Russian Oligarchs or something.And who will be hurt? Who will be left holding the bag?That’s easy. People who are stupid and have no business gambling on things like this. People play the lottery also for entertainment and go to casinos.It won’t be VC that gets hurt. It will be retail. Nearly everyone you and I know. Most of our friends, our family, the people we care about the most.So you should run for public office and then you can put in place laws to protect people like that I guess. Of course if you do that you will now how to learn how to BOGU in the entire political system.But something is very, very wrong with Venture Capital today.I don’t worry about things like that. I worry about myself (and obligatory my friends and family) and making money so I end up on the right side of things however the game is played.

          3. Antone Johnson

            If something is very wrong with VC today, it is — according to widely published reports — that VCs on the whole are delivering a lower ROI to their LPs than should be the case given the risk involved. That is, as a group, they are underperforming. That would seem to contradict the notion that VCs are profiting spectacularly through all kinds of unfair advantages.I don’t fault anyone for holding that view because the stories that get all of the publicity are spectacular successes like WhatsApp. They, and the small group of elite VCs who fund them, are at the upper tip of a very long tail. Nobody reports on the vast majority of investments by VCs and angels that result in mediocre or negative returns or complete write-off.

        3. ErikSchwartz

          WhatsApp didn’t raise money from VCs until they were already getting substantial revenues from their users and were already profitable.

      2. Oh boy

        Is that why humanity always gets to see the money behind VC funds? VCs push scale, and modern society (regrettably) seems very much scale-oriented. Come on now Fred, please.

      3. ShanaC

        Vc’s have power by how they distribute that money

  18. ZekeV

    I like buying appcoins in small amounts. As a non-rich person, this is a great way for me to get a small piece of interesting projects such as Ripple or Blakecoin. I could do very well if these projects succeed. And if not, I only lose a few bucks. Scaling to a larger investment is tricky, though. Appcoins give you software-defined rights, but no say in the management of the underlying project. If I were putting in millions of OPM into a decentralized project, I would probably want some of that to go toward funding the core developer group directly. Another approach could be to buy up a bunch of appcoin in a cool but stalled project, then drop in a team of ninjas to rescue the project, thus increasing the value of your coins.

    1. Antone Johnson

      I agree. Size of investment is a significant issue on which reasonable minds differ. The libertarian perspective is to let people make their own choices about how much they are willing to risk. The history of crowdfunding legislation such a the JOBS Act suggests a desire among legislators to place some kind of cap on the amount of any single investment. One person’s “nanny state” intervention is another’s vital consumer protection depending on where you sit.

      1. ZekeV

        I’m not sure if your comment is predicting future regulation, or prescribing it. In either case, the appcoin created by an open source project (let’s say XRP, as issued by the Ripple protocol) is NOT a security. Related conduct might give rise to an investment contract and thus a security, but the buying and selling of digital chits created by open source protocols not= security. See this post by my partner for a brief explainer. http://adlervermillion.com/

  19. Richard

    This is interesting. One pretty big oversight with this appraoch is the missing shareholder limited liability afforded to corporate share holders.

  20. Xavier Faure

    Fascinating thought.I will have to dig deeper on this AppCoin/equity analogy :Value : will AppCoins necessarily gain value as usage increases? At which rate? Quicker or slower than the cash equity equivalent? Can it be controlled by the profile of AppCoin mining? By other means?Political rights : shares come with voting rights, a critical amount of AppCoins will provide some sort of influence. Hard to foresee how it will play out.Liquidity : seems built-in within AppCoins but probably not that much different from “real” equity, liquidity is (at least in the beginning) strongly correlated to value creation.Tax : you mine AppCoins, they gather value, you use them to buy valuable stuff. How are you going to pay anything but sales tax?Very stimulating stuff, thanks for sharing.

  21. Michael Brill

    For the less gifted of us, could someone explain why this wouldn’t be claimed as a security by the SEC et al and regulated like any other security?

    1. Antone Johnson

      It likely would, under current standards. Hence a shift in thinking is probably necessary in Washington to get there. That’s not inconceivable — Bernanke’s comments about Bitcoin were more positive and open-minded than I ever would have expected — but the wheels seem to turn slowly inside the Beltway.

      1. Michael Brill

        This is one area where slow-turning wheels are appropriate. I think one would have a hard time arguing that it would be good today for a meaningful part of the economy to be based on near-instantaneous/irrevocable clearing reliant on software that has and will continue to be exploited.

      2. ShanaC

        but why would they shift. it is better for the beltway to regulate them like a security.

    2. Richard

      I don’t see how renaming a “share” a “coin” will matter much to the SEC, particularly when source funds are $.

      1. ZekeV

        That is correct. Decentralized cryptocurrencies are not “securities”. A bitcoin- or “appcoin” related investment scheme could certainly be a security, but the coin itself is not.

        1. Michael Brill

          I’m totally out of my element here, but it seems that once an appcoin becomes a store of *enterprise* value then it’s hard to argue that it’s simply a currency.

          1. ZekeV

            appcoin is more than a currency. it is a means of allocating scarce network resources, to use fred’s language. what’s your point?

          2. Michael Brill

            A question, not a point. Trying to understand whether the word ‘equity’ is appropriate here any more than it would be for someone holding bitcoin or USD.

          3. ZekeV

            Could be appropriate in a general sense. Equity means control and economic rights in a business. Appcoin is software-defined contract that allows the holder both to consume services offered by the network, and to benefit from the network’s success. But it would be a mistake to equate appcoin equity with stock equity — very different concepts.

          4. Michael Brill

            Thx. This is pretty exciting stuff.

  22. Mroberhozer

    Rather brilliant, really. But it seems to only encompass consumer oriented startups, particularly those aiming to garner large networks of engaged users. In USV’s wheelhouse, for sure, and comprises a very significant chunk of startup activity. But there is also a substantive chunk of enterprise facing startups where this method won’t be efficient. Doesn’t change the brilliance of it, just narrows the scope a bit.

  23. Joe Wallin

    Fred, I thought you would be interested in this. http://www.geekwire.com/201…States are taking equity crowdfunding into their own hands. Bill Carleton maintains a site, statecrowdfundinglaw.com, tracking these developments.Great blog post.

    1. Michael Brill

      Joe, does this imply a larger scale model where the $1 million company simply invests that money along with other $1 million companies into a larger entity? If I need $50m, can I just spin up 50 of these things?

  24. Maciej Olpinski

    VC money will be more of a curse than a blessing for these ‘coinified’ plaftorms.And I sincerely hope that legal barriers will prevent institutional VC from pouring money into them, at least in the nearest future.Value of these emergent networks lies in maximum decentralisation of token ownership, ‘trustlessness’ and the community. They also inherently change the nature of relationship between the stakeholders. We no longer have users-customers , we have users-shareholders who have vested interests in the success of the network.These users-shareholders are no longer sold to but they promote and grow the network themselves through their own social channels, spread the word, contribute code etc.So it’s waaaay more valuable for the ‘coinified’ platform to raise $30 million USD from 300k investors putting in $10 each than to raise the same $30 million from 3 VCs putting $10 million each. It’s all about decentralisation and community. That’s where the value comes from.I’ve been following launches of several metacoins such as Mastercoins (MSC), Counterparty (XCP) or Protoshares/Bitshares (PTS/BTS). The early signs are that even the small amount of centralisation around the founding team is disadvantageous in the longer term. That’s why developers of Counterparty XCP completely separated their coin distribution from the development budget.Someone has already mentioned the ‘firing the founders’ issue and it’s a very valid point. These projects are open source so nothing prevents the community from taking the code and moving to another blockchain abandoning the original blockchain with original founders’ or VC stake.For these reasons, I’m afraid that traditional, multi millions dollar VC firms might have a hard time investing in the blockchain based, peer-2-peer, open source ecosystems without eroding trust of the rest of the community.

    1. ShanaC

      why do you think vc money will be more of a curse?Community goes only so far to build a platform

      1. Maciej Olpinski

        Because it skews the initial distribution of network tokens towards large holders with purely financial and for-profit motives – that’s the paradigm of the VC money. That doesn’t instill trust of the rest of the communityAnd it’s the community that believes in the idea that creates services, provides infrastructure, dedicates their time & resources for the idea.In exchange for tokens which are worthless at the time.Satoshi Nakamoto’s invention would stay on paper if hundreds and then thousands of people haven’t contributed their resources to developing this idea.Of course Bitcoin’s token distribution is far from equal but the large holders are early believers who got into Bitcoin when it was worth next to nothing. And Satoshi is the largest Bitcoin holder out there.But for some reasons I’d rather invest my time & money in the blockchain with genius innovator controlling the largest stake of tokens rather than the VC firm which can ‘exit’ at any time.

    2. howardlindzon

      good stuff.

  25. Antone Johnson

    As a devoted technophile, I *love* this kind of big thinking. As a seasoned startup and securities lawyer, I’m skeptical that any technological solution can solve the centuries-old principal-agent problem between management and shareholders/investors. It’s the single most vexing problem in investing, from the friend-of-a-friend pieces-of-the-Brooklyn-Bridge scam to Fortune 100’s like Enron.Massive information asymmetry exists between entrepreneurs and investors, which is why private investments rely so heavily on trust and due diligence. When investors go from a handful of VCs and angels to thousands of individuals, it’s impractical to build that kind of trust — which is why we rely on things like SEC and exchange regulations, audited financials, etc., to mitigate (not eliminate) that asymmetry. Basic economic theory tells us that asymmetric information guarantees inefficient outcomes.For the majority who are honest and transparent, wonderful! For the fraudsters, dissemblers and white-washers of the world, any crowdfunding model is fraught with tremendous risk to investors. Adverse selection tells us these types will *always* seek unregulated markets to go fishing. The gift of transparency in the online era is an illusory siren song; management could disclose every metric every day online, but that does no good if the numbers are cooked. In fact it’s far worse because that perceived transparency conveys a false sense of security. (Again, think Enron releasing numbers “audited” by Arthur Andersen. That collapse of trust led to the demise of both giant firms and the biggest regulatory overhaul by Congress and the SEC in 70 years.)Online markets usually deal with trust challenges by feedback. That works great if I only want to buy computer equipment from eBay sellers with more than 500 positively rated transactions. Where do you find a crowdfunded business to invest in whose founders have that large a volume of prior deals to be statistically significant? (500 Startups doesn’t count — sorry, Dave McClure. 😉 )

    1. ZekeV

      bitcoin OTC trust rating is a good place to start

  26. sigmaalgebra

    Special case of, “Be wise, generalize”!I got that from Max Zorn of the famousstatement of the axiom of choice, Zorn’s lemma. See, say, Kelley,’General Topology’!

  27. JLM

    .The JOBS Act implementation has in some — make that many — ways underwhelmed the opportunity. It has however had a lot of good outcomes that were not directly attributable to its implementation.Make no mistake, the SEC tried to kill this baby in the cradle because they did not like the legislation itself and for good reason, it’s a wholesale change in how the SEC sees its role.What the entire discussion about crowdfunding has done is to get people thinking about attracting smaller investments from individual accredited investors who perhaps did not even know their own status.It created a nimble cadre of broker-dealers who got out in front of things and used these concepts — wholesale marketing — to drive their businesses under the existing regulatory scheme and to branch out (e.g. into real estate in addition to securities).The as yet untapped vein of gold is the changes made to the Reg D exemptions — wholesale marketing to investors with the right to determine whether they are “accredited” at some future date.The death of community banking will provide a bit of a surge to this effort some time in the future.JLM.

  28. Greg Kieser

    Yes. Yes. The collective intelligence of thousands, if not tens of thousands, of tech nerds acting as shareholders long before a product is even prototyped is an intriguing idea. I’m really liking the Invictus approach.

  29. Oz Nathan

    Interesting. I’ve seen many valuations for the potential value of bitcoin. None of them considered the VC investments vertical.

  30. George

    So thrilled to see how the technology community is exploring and producing new solutions to bust the doors of convention down!It’s only a matter of time, before everything is stringed together!

  31. howardlindzon

    1929 securities act….i rest my case. pathetic innovation only rivaled by patent laws.

    1. Joe Wallin

      Let’s advocate the repeal of that. Pretty sure you mean the 33 act though.

      1. howardlindzon

        where do i sign 🙂

  32. howardlindzon

    all of this is interesting….but the problem is people have no idea how to sell with discipline…for example there is a show about HOARDERS, not a show about the peeps that sell too early

  33. Emil Davtyan

    Fred, I would be interested to know what you think about the model we are trying at http://joltem.com.

  34. cedricbellet

    How about crowdfunding USV’s next fund? I’d love to be a $xx,000 LP along with thousands of peers 🙂

  35. Jennifer McFadden

    These systems are built on the premise of circumnavigating the rule of law, particularly existing tax regimes. Given the historical precedent set by countries which lack a strong rule of law, where economic development is often stunted and corruption is rampant, I have a hard time reconciling how this can be a good thing.

  36. HerwigK

    One thing not mentioned here is Title III of the JOBS Act which allows non-accredited investors to invest into private equity as well.I believe this to be a major game-changer that will lead to all of America becoming players in the economy resulting in a radically new culture where every day Americans better understand the economy, and in turn, improve society in a whole new way.Think of it this way. Entrepreneurs no longer need to rely on VC’s or angels for validation. Instead, the consumers of the economy will pick (and invest in) what new innovation or value they believe needs to be created. How exciting this new economy will be!



  38. Nadia McDonald

    This sounds like a very good venture with many benefits. However, there is a downside. Before giving the green light to this, it is necessary to do all the research.

  39. Fraser

    Fred / others, question about Ripple as it relates to this thread. They’ve raised VC, giving something like 20% of the currency to the investors. I assume the investors also took ownership in the company that manages the protocol and distributes the currency (Ripple Labs).Is the longterm value for the investors in the currency or in the ownership?If the currency, did they take the % ownership to satisfy requirements of their LP agreements?If the ownership, what’s the end game for the company that creates the liquidity necessary for the return?

  40. andyswan

    Comcast is not a monopoly in the slightest. I can get superior product from DirectTV within 4 days.

  41. sigmaalgebra

    Yes, what’s especially ‘evil’ abouta monopoly is that it is free to raiseprices. But the main way Microsoftmaintained its ‘monopoly’ was by lowering prices. Compared to whatcame before Microsoft and many ofthe alternatives, Microsoft’s prices were right down through the floor.Apparently the DOJ didn’t like lowprices!

  42. andyswan

    That I agree with but do you disagree that DirectTV is a meaningful competitor?

  43. LE

    It’s a cable monopoly that has exclusive contracts with municipalities that prevent other cable operators from setting up shop.You make as if they didn’t have to actually rent ditch witches [1] to bury cable and fix concrete sidewalks that were damaged. In many cases back in the day when it wasn’t clearly going to be profitable (if it was don’t you think everyone and their Uncle would have gotten in on the action?).The idea of an exclusive contract is in part to give you an incentive to invest capital and take a risk.I think I spend < $180 per month on Cable and Internet at home. I think I get tremendous value for that < $180 per month.At the office we have comcast internet. I have been trying (just for redundancy) to get them to dig in Fios but they don’t want to spend the money to do that. (At home I can get both Fios and Comcast).[1] http://www.ditchwitch.com/d

  44. ErikSchwartz

    Comcast is in the two way pipe business, DirectTV is in the broadcasting business.

  45. andyswan

    Fair enough. I can guarantee you one thing…they can’t sustain a monopoly without the men with guns on their side.

  46. Salt Shaker

    Comcast owns this little company called NBCU. They are very much in the broadcast & content biz (TV and film).

  47. ErikSchwartz

    In some areas (where we live in Los Altos Hills for example) you can get both Comcast Xfinity and ATT U-verse. I’m not sure how much of this is a legacy of the phone company and the cable company being separate exclusive contracts with the city. It will be interesting to see what happens as those contracts come up for renewal.

  48. Salt Shaker

    Cable most def a monopoly in urban areas, while DirecTV & Dish skew rural, just like the old C-band dishes. Limited or no choices in big cities, unless you can get a DSL line to compete w/ cable wire.

  49. Guest

    Testing, sorry!

  50. ErikSchwartz

    Broadcasting and content are two totally separate businesses.My point is that DTV has a basically one way relationship with their consumer for a single data type. Comcast has a two way relationship with their customers over all digital data types.The discussion was over the monopoly over last mile connections, not over whether Comcast/NBCU is a vertically integrated monopoly a la the Paramount Decree.

  51. Salt Shaker

    Agree. Echostar’s (not DTV) attempt to enter the streaming biz w/ Disney if successful (in an increasingly crowded space) could make them a 2-way player.

  52. Antone Johnson

    That’s a big “unless” that swallows the statement. How many big urban areas *don’t* have widely deployed DSL in 2014? Things were very different a dozen years ago, but even then (working for @Home) I had the choice between cable and DSL. Today I have satellite for TV and DSL for (very fast) Internet. Granted this is one of those classic “YMMV” issues.

  53. CJ

    DSL doesn’t compete with cable, the technology just isn’t as good. Call it luck of the draw but Cable can scale all the way up to 1Gbps and maybe more, DSL is having trouble touching 25-30Mbps. Not even close.

  54. Salt Shaker

    I can’t get DSL here in NYC. Verizon’s FIOS service, for example, has very spotty distribution, plus the enormous cap investment has slowed its growth. Varies by geography, but in many urban areas cable is the only game in town.

  55. Antone Johnson

    That sucks. Personally I couldn’t care less about getting TV over a telco connection, but if you can’t get usably fast DSL in a major city (or any DSL at all), that’s a big problem.

  56. Salt Shaker

    Yes, it does. I’m talking residential, btw. More options avail commercially.

  57. Salt Shaker

    Didn’t mean “compete” from a tech standpoint, I meant compete from a choice standpoint. No incentive for TWC to deal cause as a monopoly they have their customers by the balls.