YC wants to let people invest in its startups through the blockchain

https://techcrunch.com/2017/09/20/yc-wants-to-let-people-invest-in-its-startups-through-the-blockchain/

by rmason • 9 years ago

171 94 9 years ago

pfraze2• 9 years ago

“Do I think ICOs are silly, bordering on scams? Yes, they are,” he continued. “But, there are a few that are important, and the blockchain is more important than not… ICOs need to be regulated.”
At the same time, it could mean working, for the first time, with investors who are not “accredited,” meaning high-net-worth investors — an idea that appeals to Altman.

I guess he sees blockchains as a vehicle to getting the regulatory framework he wants for securities, and (I assume) doesn't feel he can get for traditional stock.

Added Altman of the appeal of ICOs in particular, “People are watching their friends get really rich and it’s making them [frustrated and wanting to get rich, too].”
“One of the trends that bothers me about Silicon Valley,” he continued, is that “more and more of the wealth creation here is not available to most people, and I think that’s very bad in a society with already so much wealth inequality. If there’s a way that new technology can make it practical and possible to democratize this, I think that’d be great.”

I mean, he just said he recognizes it's a bubble. Doesn't a bubble usually suggest wealth transfer instead of creation? Of course it's frustrating to not get in on that money. It's even more frustrating when you see the situation as ethically gray, and here's Sam signaling that YC should jump on board.

pfraze2• 9 years ago

I guess I'd ask this question:

Is it ethical to want to bring in unaccredited investors to a market that's known for being scammy and overhyped?

twalla• 9 years ago

Fundamentally, I see it as democratizing investment and removing arbitrary hurdles for those without millions in the bank to seek higher risk/reward investments.

In practice, I'm seeing teams doing ICOs do shady things like change the terms halfway through raising capital, leaving early contributors with a diluted stake or teams that straight up don't deliver with no way for share(token?)holders to hold the team accountable - basically this kind of behavior seems a whole lot easier when you took small sums from thousands of nobodies instead of millions from a handful of deep-pocketed somebodies.

Fomite• 9 years ago

The worried part of me thinks this is the build up for just another example of "In which cryptocurrencies discover that banking and securities regulations were created for a reason".

relyio3• 9 years ago

It doesn't bother the government when the middle class spend its hard earned money in gambling, sport events or entertainment. Somehow, there's suddenly a moral imperative to protect those poor sheep from doing as they please with their property. But, wait, only if their capital inflow will dilute the returns of established investors.

It's to protect the middle class of course, though one can only wonder why the blatant double standard. I have no idea!

The "accredited investor" regulations are a sham, an unfair and artificial barrier to entry that ought to be removed. Yes, some people will get abused. This might even create local instability. But, that is clearly the long-term optima. Those who lose money to scams can leave it to law enforcement to do their job. Others who invest more they can afford to lose into bad apples will learn that you should always hedge risk. As a whole, society gets smarter when it is allowed to make mistakes, even costly ones. Smarter and less fragile.

fgjjgutjvnu• 9 years ago

I understand the reasoning behind such regulation. On the other hand, for example doing a startup is also highly risky. Should it therefore also be regulated, only people with enough savings (and perhaps education) should be allowed to do startups?

I don't think it is easy to answer, clearly not allowing people to take risks is also taking away there freedom and chances for making a better living. Not allowing people to take risks (and consequently, start businesses) ultimately leads towards a communist worlds were people can only pick from a selection of government ordained jobs.

csomar5• 9 years ago

Silicon Valley created lots of "valuation" in the last few years. This made lots of people rich on "paper". Now if we can only get other people jealous of them, and sell them these on paper gains for real money. Transfer it through the blockchain just to be safe.

untilHellbanned• 9 years ago

Keeping it 100%.

notyourday2• 9 years ago

“One of the trends that bothers me about Silicon Valley,” he continued, is that “more and more of the wealth creation here is not available to most people, and I think that’s very bad in a society with already so much wealth inequality. If there’s a way that new technology can make it practical and possible to democratize this, I think that’d be great.”

Wow. Just wow. Looks like 2017 is the year when VCs publicly started adopting the pump-and-dump positions.

quuquuquu• 9 years ago

"Remember 1999? Yeah, those companies were 'bad companies'. And the banks that brought them to IPO are 'bad people'. They knowingly peddled their stock to the public market. Grandma lost her 401k because of them.

But you see us? We're 'good people'. Our companies are 'good companies'. We 'generate wealth'.

And an ICO is a great way to facilitate sales of stock a large, global, but ahem 'private' market."

smokeyj2• 9 years ago

I think the people who laughed at blockchain tech for years now are having a cognitive dissonance moment, when they slowly see this technology seeping into traditional spaces. "It must be a bubble! It's a tulip scheme!" they proclaim, clinging to their last shred of dignity, as they fail to predict the inevitable future one more time.

exelius2• 9 years ago

I'm divided over the whole ICO thing. On one hand, I don't think that Bitcoin, et al are ever going to replace fiat currency. But shares of stock are a perfect analog to what he's trying to do; and I think the SEC will see right through it.

On the other hand, blockchain tech is very useful for distributed asset tracking; specifically corporate bonds and equity. It makes an incredible amount of sense for things like stock certificates and even shareholder voting. Having a tokenized, open ledger that is able to be analyzed by anyone is nothing but good for shareholders. I think that as long as shareholders are aware that they are buying equity in a company, cryptocurrency should be a viable way to do so.

What I do not think, however, is that these corporate cryptocurrencies should be exempt from all existing laws governing equity finance. It should be 1 share = 1 coin and leave it at that. The market can determine the value of the shares, and the company can create new ones whenever it wants (since it would control the "mining" pool).

sjg007• 9 years ago

The jobs act allows smaller fundraisers from non-accredited investors.. but it’s not very popular. Why?

tommynicholas• 9 years ago

Every headline from Techcrunch disrupt that I have seen has been directly contradicted in some way in the video. For example, Vitalik Buterin spends about 10% of his talk explaining why not everything will be or should be decentralized. The title of his video? "Decentralize Everything with Vitalik Buterin"

zachlatta• 9 years ago

This is called clickbait and is why Techcrunch is a trash website.

allenleein• 9 years ago

Techcrunch is not a trash website. They are just keeping few trash editors in front of iMacs.

rayalez2• 9 years ago

I understand the aversion to clickbait, but using clickbait doesn't make writers trash. Some of my favorite creators use the most shameless over the top clickbait you can imagine.

That is what smart people do - they do things that work.

Why on earth would you decrease your success by 20-30%(I'm guessing) by using less appealing headlines?

Clickbait doesn't devalue the articles. It only presents problems for websites like HN, but here it is already moderated.

elmar• 9 years ago

Link to the actual video of Sam Altman at Disrupt SF 2017 https://www.youtube.com/watch?v=UqszUNk_vQU

jaunkst• 9 years ago

Yes, I would invest.

Steve_Green• 9 years ago

Agree

crispytx2• 9 years ago

I bought some Bitcoin for a family member as a gag gift recently thinking we could have some fun paying each other with Bitcoin for little things like household chores and whatnot. This was my first time using Bitcoin, and I was shocked to learn that it costs roughly $5 worth of Bitcoin to make a single transaction using Bitcoin! The fee is known as a "Bitcoin mining fee." I'm an open minded person and honestly believe d that Bitcoin might work prior to actually using it. However, after discovering the actual cost of using Bitcoin, it is clearly inferior to US Dollars in every way. Bitcoin is a scam, block chain is all hype, and everyone involved with Cryptomania is going to look silly when the music stops and someone has to eat the soggy biscuit.

gkoberger• 9 years ago

That's not true, it doesn't cost $5 to make a single transaction (unless your chores are really, really expensive). Mining fees are optional, although if you don't pay it, miners don't need to accept your transaction. Basically, you're paying for miners to do the work necessary as an incentive (much like you'd pay Visa or Mastercard).

jondubois• 9 years ago

It is essentially true though because your transaction almost definitely won't make it into the next block unless you offer around $5 worth of Bitcoin... This means you may have to wait a very long time for the transaction to go through.

Bitcoin transfers are slow and expensive so it only makes sense for large transactions. For small transfers you should use a different altcoins.

johnvonneumann3• 9 years ago

I feel it's necessary to point out some problems with your argument here. "I'm an open minded person and honestly believe d that Bitcoin might work prior to actually using it." First of all, it seems kinda strange to me that you say you believed Bitcoin would work, without even using it. So you made an approximation of the technologies value before using it. Then, after using it once, you then totally changed positions. This hardly seems like a decent analysis of the situation, and I think you should probably do some more reading and learning.

Number 2, writing off an asset, and furthermore, an entire asset class based on one instance of a transaction fee (a problem that is being actively worked on, might I add) is lazy and dangerous, to conflate this to "it is clearly inferior to US Dollars in every way. Bitcoin is a scam, block chain is all hype, and everyone involved with Cryptomania is going to look silly when the music stops and someone has to eat the soggy biscuit" is ridiculous and you haven't made any decent points. Your entire argument is based on conjecture and no technical information.

Do yourself a favour next time you decide to shoot Bitcoin and Crytpocurrency down, ask yourself if you've actually done due diligence on your opinion, or if you've settled for the lazy option.

PS: If you are that disgruntled, you're welcome to submit PRs.

crispytx2• 9 years ago

Maybe if the community can fix the Bitcoin mining fee problem it will work. But if they can't get the mining fee down to like 30 cents per transaction like with square or stripe, the overwhelming majority of people aren't going to want to use it.

And to be specific, I used Coinbase to purchase my Bitcoin and then transferred it to an Electrum wallet and then to another wallet.

People have told me that you don't have to pay the $5 mining fee, but I did not see an option anywhere with those two wallets to avoid or substantially reduce the mining fee.

BinaryIdiot2• 9 years ago

I'm not sure your comment comes off in the way you think it does. While the parent didn't do much research you have to understand that if bitcoin is going to become bigger you're going to get an overwhelming amount of people using it without understanding it at all (in fact it's probably at about that level now; anecdotally I don't know a single person who both owns bitcoin and understands why / how it works and what's up with the transaction fee).

Instead of coming off as condescending with a simple beratement of their first impression of using a cryptocurrency, why not try to use this as a teaching moment and say "hey, that sucks and I know it's confusing. The mining fee is actually because of X but we're working to make that not necessary / lower through Y".

If those of us in the tech industry want bitcoin and other cryptocurrencies to grow and prosper we can't just tell people they're dumb and to submit PRs if they don't like anything. This only reinforces their poor first impression and lacks empathy.

cslarson• 9 years ago

You can make Ethereum transactions for a few cents that take only about a minute or less to complete. There's also a lot more you can do with them than just transfer them around.

csomar5• 9 years ago

The Macbook costs $2500. Oh, it is a Scam.

Just because something is expensive, doesn't make it a scam. It is also important to note that Bitcoin is a free market. Unlike Apple which sets the prices of a Macbook, demand set the price for the bitcoin blockchain space.

Why did you assume that bitcoin transactions are free? or should be free?

MichaelGG3• 9 years ago

Don't blame him for Bitcoins ridiculous fees. Hard to pitch a peer to peer electronic cash system that costs $5. And don't blame him for buying into the online hype. Reading around, if you're not careful, one might even think LN is usable.

josephagoss• 9 years ago

    $5 worth of Bitcoin to make a single transaction using Bitcoin!

Fees will come down with Bitcoin based LN or another network like Ethereum. Give it time this is still early days.

    it is clearly inferior to US Dollars in every way.

This is categorically false. For some tasks US dollars are great but a lot of people are into BTC for the whole decentralized store of value thing. And honestly it does "decentralized trust" pretty well.

    Bitcoin is a scam, block chain is all hype, and everyone involved
    with Cryptomania is going to look silly when the music stops and
    someone has to eat the soggy biscuit.

This is a bit of a leap isn't it?

Here is an idea for your chores, make your own family coin on Ethereum, make an exchange rate that the family pays to the kids, etc.. (1 family coin for $1) then you now have a decentralized home currency that will cost a few cents to move.

Or if you're not interested in a funky project like that, just use Ethereum for now instead of BTC for micro transactions. I regularly pay 5 cents to move money around in Ethereum.

I do believe both BTC and ETH have bright futures.

MichaelGG3• 9 years ago

Bitcoin has been around for years. When does LN launch? The block size has been kept small for years past reasonability. Now we have segwit, so where's LN?

MichaelGG3• 9 years ago

It's sad you're being downvoted. You're totally right. The issue is that the main Bitcoin community is insisting on keeping the blocks to 1MB every 10 minutes. They are doing this with the promise that one day, they'll have whizbang technology to do a million transactions a second for cheap. They're even calling Bitcoin a "settlement layer" or "layer 1" or just "store of value". Instead of a peer to peer cash system. Some such supporters have expressed interest in seeing the fees hit $100 or $1000, saying such fees would "indicate success".

I didn't particularly care before, but the more and more I've read, the less sense it makes. At this point, almost all miners (people running the equipment that keeps the network safe and operational) have decided to switch to larger blocks, "hard forking". This will be fun to watch. The "core" people are insisting the miners rebrand and break backwards compatibility so it doesn't hurt their main, small block chain.

That's not to say these other solutions are terrible, when they end up existing. But artificially restricting Bitcoin and driving up fees while slowing transactions down seems basically petty at this point.

sulam2• 9 years ago

YC isn’t even reaching most accredited investors and it wants to go to unaccredited? Sounds like they want liquidity.

lvkleist• 9 years ago

I'm not sure I understand, could you elaborate?

sulam2• 9 years ago

If YC can create a vehicle like this it will give the employees sitting on relatively small amounts of common shares someone to sell to without an IPO. I don’t know what their deal might be, but I imagine the partners all have the equivalent of carry and the run of the mill employees do not.

contingencies2• 9 years ago

This is clearly a good idea. The whole broker/exchange/regulator triumvirate is a massive overhead for everyone.

Uptime: Trading hours are a 19th century anachronism. Distributed infrastructure is more reliable.

Management incentive: By removing annual and quarterly investor relations milestones businesses are incentivized to move more quickly by creating a more fluid and transparent management and investor relations style.

National access: Being 'listed' on a 'market' is a huge hassle and comes with fiscal protection mechanisms such as requisite auditing which essentially (not completely) amounts to a mafia-esque pay to play fee. Why not just go international and skip the hassle?

Regulation: Of course, the financial services establishment will cry "Regulators! Consumers need protection! Only we, the few, the humble, the experienced, can save their financial souls!" but alas their track record is pretty shocking and regulators with any guts should encourage innovation with some oversight and involvement. The thing is, since blockchains are international regulators are nominally sidelined in a default approach. There should be a middle ground where they can perform basic services such as corporate registration, legal good standing, fair taxation and IP asset attestation, for example, without becoming intimately involved in day to day business.

Transparency: Instead of occasional, high level audits, if transparency is required why not require that in order to be blockchain listed, companies must either use a public blockchain or otherwise effectively real time (eg. daily batched reporting) to transparently manage their financial assets? This would provide superior transparency than the establishment, potentially with crypto levels of trust (thus auditors cannot be bought/make mistakes).

Fiscal restructuring: Being able to do stock splits and so forth could work very well on chains.

Conventional asset financial connectivity: Sooner or later you have to interact with the off-blockchain world. Gatekeeper financial institutions need to validate inbound capital by showing things like source of funds. This is nontrivial with anonymous blockchain inflows, and requires setting up a significant KYC process as per larger crypto exchanges.

Of course there are issues. If there is a gatekeeper to enforce due diligence then is it truly blockchain anymore or are you just doing rebranded ICO 2.0 and issuing your own tokens? I fear the latter. We must find a middle ground. The devil is in the details.

trophycase• 9 years ago

Trading hours aren't an anachronism. As someone who trades cryptocurrencies, I frequently need to stay up well into the next morning if markets are moving. It never stops, sleeping is never completely safe. Trading hours make it human

contingencies2• 9 years ago

Efficiency is profit and is rewarded by the market. Therefore, humanistic single timezone centric trading hours are disincentivized, and because they are not required, they will eventually disappear. Therefore, I view them as an anachronism.

omarchowdhury• 9 years ago

Just buy and hold/hodl.

pscsbs• 9 years ago

Surprised CoinList isn't mentioned here, as they did a successful ICO for FileCoin and serve as a platform for pretty much this exact use-case.

hndamien• 9 years ago

That was accredited investor only.

grizzles• 9 years ago

Personally I think just enabling trading would not be a good idea. That said, I also want to do something similar to this. Securities laws in the 1st world are hopelessly out of date.

So I've looked in other jurisdictions but I've had huge problems finding the right country to do it in.

The last time I tried I got scammed by a Corporate Service Provider in the Isle of Mann that went out of business about a month after I sent them $$.

If anyone is looking for a co-founder in this space, and is interested in having a chat, email is in my profile.

Animats• 9 years ago

OK, so you buy a YC token. What do you have? A share of YC's equity pool? What makes YC pay you if they have a big win?

hisabness• 9 years ago

what makes them pay investors today if they win big?

chis• 9 years ago

The government, mostly. I guess the investors would sue and a judge would order them to pay or go to jail.

Your implied point is true though. I'd trust YCombinator to pay out their tokens as long as they don't go bankrupt.

subroutine2• 9 years ago

This might be a dumb question but can you currently invest in yc itself or just its individual startups, à la carte?

Double_a_922• 9 years ago

If we could stop hindering real progress with all this blockchain bullshit, that would be great...

goertzen• 9 years ago

What progress are blockchains hindering?

Double_a_922• 9 years ago

All those investors could actually invest in something with a future.

erdle• 9 years ago

im good, already invested in one company that a YC company from this summer's batch ripped off... including copy and vendors

dharma1• 9 years ago

It would be nice to remove some of the complexities, friction and cost of holding and trading shares in companies beyond the vehicles that exist today, and I think we can get that via blockchain.

It would need to be regulated though - to reduce scams, and also because regulators wouldn't allow tokens that are securities (shares in a company) unless it's regulated. That part, to me, feels like it will take a long time - would require changing legislation.

soVeryTired• 9 years ago

It feels like there are two different moving parts here. First, should YC open up to a new class of investors? That's just a business decision for YC: either it suits their plans or it doesn't.

The second question is how they open up their business to new investors. It's a little tricky to raise money from retail investors, so I wonder whether this talk of an ICO is designed to skirt regulation. I know I sound very un-hip when I say this, but that regulation is there for a reason. The vast majority of investors don't have the background or knowledge to assess the risk of alternative investments.

It's not impossible for YC to market to retail investors, just more difficult. They should either raise money in the conventional way or not at all.

dalbasal• 9 years ago

I can see why startups raising money benefit from an increase in the numberof potential investors and capital. But apart from this, is there a good reason to want to "democratize access to investing,” and open the field to non-accredited investors?

I share the instinctive response to a rule where "only rich people can X" but (1) Are startups such a great investment that unaccredited shlubs are substantially disadvantaged by excluion? (2) Do they have enough (risk tolerant) money to make a difference? (3) Will companies financed these ways be better in some way.

If we assume the bigger fraud-ish problems get solved, what is the big upside?

I can vaguely see an argument for something between kickstarter/patreon & NASDAQ enabling new kinds of things, but is there really something here. To put it more generally, why should people other than Sam Altman agree with him?

norswap• 9 years ago

"non-accredited investors". Compared to some so-called professional investors, they only lack "credits" if that word is taken to refer to currency.

tstyle• 9 years ago

A few reasons I can think of:

Financially, having the option to do X has a certain value, even if on average X isn't valuable. (If X has volatility)

Startups has a certain risk characteristic that is different that what you can find on the public equity market. Theoretically, an efficient market should dish out higher reward to compensate for higher risk and poor liquidity of investing in startups. It may be beneficial to individuals to use startups to diversify their overall portfolio.

Startups in general might not be a great investment. The subset of all YC startups might be.

Researching and investing in startups is fun and educational.

gobengo• 9 years ago

crowdfunding investors are a lot less likely to push out a founder or force a sale than an experienced VC

csomar5• 9 years ago

I'd say the biggest problem is "fraud". Once you make it accessible for the average person to invest and the sophisticated fraudster to advertise and raise money, what you get is ... ICOs.

IPOs do have fraud but at least it is controlled a lot. To raise capital you need to be a specific person/company and you have a set of responsibility toward your investors.

For ICOs? Not really.

noddy1• 9 years ago

SEC regulations are failing the average american in a big way. When it is impossible to own stock in basically any of the high growth tech companies, every person with retirement funds/401k in index funds or markets is missing out, and all the gains are going to a handful of investment banks. I'm not sure whether this represents an intentional move by banking lobbyists, but following the money I'm sure it is.

The ICO market may be bubbly and ridiculous, but at least it will make founders consider an alternative to traditional VC which may give more money for less equity.

fortythirteen• 9 years ago

Please, let's not attempt to legitimize ICOs.

Cakez0r• 9 years ago

Why not? They can be used legitimately, even if the majority of the use cases at the moment are cash grabs.

blueprint2• 9 years ago

Why do they need to be on a blockchain?

kecoco0207• 9 years ago

There are currently other possible ways to access and invest in the private markets. For example, EquityZen is a platform that lets people to invest in private pre-IPO companies.

EquityZen: https://equityzen.com/?utm_source=https%3A%2F%2Fnews.ycombin...

YC wants to let people invest in its startups through the blockchain

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