
Oculus Facebook deal could ignite equity crowdfunding - bernardlunn
http://bernardlunn.wordpress.com/2014/03/30/oculus-facebook-deal-will-accelerate-equity-crowdfunding-and-change-the-world/
======
aaronbrethorst

        The Oculus founders got $2.4m of free seed funding via Kickstarter.
    

No they didn't. They took money for pre-orders.

    
    
        I believe that the Oculus Facebook deal will accelerate the equity
        Crowdfunding revolution.
    

I don't doubt this for a second, but I bet you that the vast majority of
people who are allowed to invest in startups through the JOBS equity
crowdfunding provisions are going to lose their shirts.

    
    
        even if a lot of people who gave free funding to Oculus via
        Kickstarter in return for a beta product and a T Shirt feel
        a bit burned today.
    

Why should any of them feel burned? They spent money in order to get a t-shirt
or an Oculus DK1.

    
    
        FWIW, the terms were clear, the folks who ponied up cash were
        promised an early version of the product and got what “it said
        on the tin”.
    

Yep, exactly.

    
    
        Personally I think how millions of people make a living
        [via crowd funding]...is more interesting than...the VR
        Oculus story.
    

Citation needed on that "millions of people" figure, and what does this have
to do with equity? Do you really think that the next musician who funds their
first album through a Kickstarter is going to hand out equity to their
backers?

    
    
        If Oculus had been in the Valley they would have easily got
        Angel funding – and given 25% to those Angels.
    

Um, Oculus raised almost $100mm after their Kickstarter. I would be astonished
if they didn't give up at least 25% of the company across those two rounds.
Still, it's pretty cool that they were able to skip raising a seed round, and
I don't doubt that the founders retained more equity than they would have
otherwise.

    
    
        Nobody wants a bunch of T Shirts plus being the first kid
        on the block with a new toy for $500m of equity value.
    

If Oculus had sold equity instead of product pre-orders I don't believe for a
second that their Series A round would have worked out nearly as well. I'd
much rather walk into a meeting with a VC with 7,400+ pre-orders for my
expensive gadget tucked under my arm than a list of people who ponied up a
thousand bucks for a sliver of equity in my company.

    
    
        However we are still in the really, really early days of
        crowdfunding, the days when we have not yet moved from the
        “first they laugh at you” phase.
    

Right, because the Indian independence movement is _exactly_ like
crowdfunding.

~~~
BrainInAJar
> Right, because the Indian independence movement is exactly like
> crowdfunding.

Grandiose, self-important valley startup wank talk. Like "disrupting the
market" by making another bullshit website or app.

~~~
dang
This is a truly awful comment that should never be on Hacker News at all, let
alone upvoted. This is not because of what it says about "the valley", but
because of its form. It could be about anything else and be just as bad.
Please don't post this sort of thing.

(Edit: I completely rewrote my comment here, because I'm still getting the
hang of this. Also, all these feedback comments I've been adding are an
experiment in comment quality and transparency. We're going to keep
experimenting until we find things that work. I doubt that this experiment is
going to work, because I'm getting tired of writing these, and some of you are
no doubt tired of reading them.)

~~~
tptacek
I think these comments are awesome, but I can't imagine having to write them
regularly.

The "I'm burying the story" stuff is especially useful.

~~~
dang
I'm going to keep writing them for a while while we brainstorm alternatives.
It's good to do things manually for a long time before you figure out how to
automate them. That's how I wrote my HN moderation software.

~~~
rdl
I especially love how you generally stick to criticizing the action vs. the
person -- sort of like "this comment isn't appropriate for HN; please do
better" vs. "please die".

(I was just going through all your comments after seeing one; this is really
becoming the new 'pg: "Please stop"')

~~~
tptacek
Someone needs to buy Paul Graham a baseball cap with those words embroidered
onto it.

------
philmcc
I -guess- each $300 backer could've received $150,000 of stock/cash...

...if this kickstarter happened 6 months from now, as an equity kickstarter.

The 6 month number is sort of arbitrary, but the SEC is currently evaluating
Regulation Crowdfunding. Title III of the JOBS act.

(for more info, here [https://blogs.law.harvard.edu/corpgov/2013/12/06/jobs-
act-ti...](https://blogs.law.harvard.edu/corpgov/2013/12/06/jobs-act-title-
iii-crowdfunding-moves-closer-to-reality/))

Regulation Crowdfunding will allow "funding portals"
(kickstarter/indiegogo/etc) to facilitate equity based crowdfunding, with a
limit of up to $1,000,000.

We'll pretend that Oculus at $1mm KS has the same destiny as Oculus as a
$2.4mm KS. [I think in an equity world, people would be less inclined to
invest after that wall is hit.]

We'll ALSO pretend (here's the bigger stretch) that the subsequent rounds of
financing at $16mm and $75mm somehow magically didn't affect the equity of the
seed round. [Hahaha, hilarious.]

If the KS had stated that the $1mm was to own 25% of the company (I bet
he'd've done more, but we'll go low) that means that each $300 backing is
equivalent to %0.0003 of $1mm.

%0.0003 of 25% equity is %.000075 of Oculus.

%.000075 of 2 billion dollars is $150,000.

[I think. %50 chance I mucked this math up at some point.]

~~~
bernardlunn
I was only suggesting that the people who pony up the early cash get some
token equity. Lets say give up 5% to enthusiastic early adopters who share
your passion rather than 25% to angels. If say the $300 netted you $3,000
bonus on exit, you can have a party and celebrate the founder's good fortune.
Its a win/win (founders get lower cost of capital than angel route, early
adopters make some cash. Methinks we will see more of this, but only time will
tell.

------
ig1
The big problem that equity crowd-funding faces is that the seed rounds of
most top-tier companies are already over-subscribed; that means the only
startups who'll end up raising on equity crowd-funding sites are those who
can't raise the money from good angels.

Given angel investing follows the power law with the majority of returns
coming from a small number of companies not having access to the top 10% of
the deals vastly reduces your chance of having a decent return.

~~~
backprojection
What if, rather than offering equity, crowdfunders got voting rights instead.
I feel that most of the outrage from the Oculus deal is that people feel
betrayed. They could almost not have picked a worse outfit to have been bought
by (rightly or wrongly, the point here is sentiment). If there had been a
shareholder-esque vote, I think it's unlikely the deal would have been
approved.

So maybe that could be the deal going forward - sure I'll put up $100 to fund
your project, but that comes at the cost of you not selling out in the future.

EDIT: Clearly the weight of your vote would be proportional to your
investment.

~~~
mattzito
This would be disastrous for startups - for $100 you get a say in what we do?

How deep does that go? Change of control events? That would basically mean
that a startup would have to disclose that they were in negotiations for
acquisition/investment/whatever, with whom, and for how much. That would
basically mean potential acquisitions would become public knowledge - it's
hard enough keeping them quiet when it's just the startup, their investors,
and the acquirer involved.

~~~
backprojection
Well your vote would be proportional to your investment, $100 out of $2.4M, in
this case.

> That would basically mean potential acquisitions would become public
> knowledge

That would kind of be the point, it would be about fairness. People may not
want to invest in a promising project that could change the world, just for it
to be bought up by the next FB/Google.

------
samstave
[https://news.ycombinator.com/item?id=7471344](https://news.ycombinator.com/item?id=7471344)

So I am not the only one who thinks this;

" __ _Personally, I think this illustrates a severe gap in how crowd-funding
works. 10K drops by an individual are no different than an angel investor.
There should be a chip-in-level for crowd-funding campaigns that require the
OP to provide some % equity into the project._ __"

------
fragsworth
Crowdfunding could be a powerful way to fight against monopolies.

For instance, if a town's population cares enough, they can decide on their
own to invest $500-1000 per person in a series of fiber cables (and get equity
for it), making the initial costs more appealing to everyone involved.

Then the crowdfunding participants would receive dividends on the lease
payments for the lines.

~~~
ianbishop
Isn't that what a traditional co-op is?

~~~
andygates
Offering equity as well as gadgets is an interesting spin on the co-op model.
It works well enough; generally it's chosen for something that doesn't want
explosive growth but instead is serving a community -- and that might not gel
with the "get rich" urges of some startup types.

------
mcphage
Is the problem that people had with the Facebook deal really just that they
didn't get a cut?

~~~
yaeger
That would be stupid of them as nowhere did it say that was even a
possibility.

As the article says, everyone got what it said on the tin. After they received
their shirts and the dev kit, the kickstarter campaign was done. Period.

The only people who like to make a stink now are people like this Notch fellow
who throw a tantrum cause they don't like the business model of the company
that acquired Oculus.

Completely ignoring the facts that as a tech company, facebook really does a
lot of good things. Open Sourcing inhouse technology. Backer of the open
hardware project to mention two examples.

They all be better served to stay quite until it becomes evident that facebook
backtracked from their original statements and starts to call the shot at
Oculus. But that is of course not how angry, emotional people act. On the
internet or in real life.

I for one would have pre ordered the DK2 last week if I had the money and I
would pre order it today. And I look forward to call a lot of people out on
their hypocrisy once the final product launches and I notice people who swore
they were boycotting this and who swore they were so done with Oculus suddenly
raving about how great this thing is.

------
tormeh
Crowd investment is already happening. Check out Seedrs. The companies are
mostly uninspiring, but that will hopefully change at some point.

~~~
onehp
There's wefunder too ([https://wefunder.com/](https://wefunder.com/)) who are
getting set up to allow unaccredited (lower net worth) investors once the JOBS
act goes through.

------
HelloMcFly
The font on that article is all over the place.

~~~
dadrian
Agreed, I couldn't concentrate enough to even read it because the font kept
changing.

------
siglesias
We already have "equity crowd funding." It's called an IPO.

------
hershel
The main problem with crowdfunding is prevention of scams. The SEC which is
responsible for implementing this bill,have an expensive list of
demands(papers, lawyers) for companies wanting to go that route, making the
whole process not worthy for companies.

Until a solution for this problem will be found, it's hard to see crowd-
funding becoming an option.

~~~
swalsh
What prevents scams on kickstarter?

~~~
squidfood
A scam where you don't get one product you ordered is a different order of
magnitude than one where you lose a long-term stake in a company.

(For Kickstarter, it's the same thing that prevents scams over any online
exchange really - nothing except you might go after someone for fraud).

~~~
smsm42
Yes, the former is much worse - you're immediately don't get a useful product,
instead of not getting a paper which may or may not bring you some money
somewhere in the future if 1000 things align right. Note that most sales of
product actually end up in product being sold, while most startups end up
failing and wiping their investors clean. That is without any fraud - just
plain statistics.

------
Jonovono
Saskatchewan just started allowing something like this to exist. No one has
taken advantage of it (from what I have heard). I am thinking of looking more
into it:

[http://www.fcaa.gov.sk.ca/SKEC](http://www.fcaa.gov.sk.ca/SKEC)

------
bashcoder
It's possible that new investment instruments, such as YC's Safe [0] which
removes the friction of convertible notes by offering warrants for future
equity, could facilitate this sort of thing.

[0] [http://blog.ycombinator.com/announcing-the-safe-a-
replacemen...](http://blog.ycombinator.com/announcing-the-safe-a-replacement-
for-convertible-notes)

~~~
bashcoder
My point being, the OP lists four methods by which he thinks crowdfunding can
work (pre-order plus reward, equity, debt, and donation).

Each method has its own set of concerns for regulatory issues, requirements
for qualified investors, upside potential, tax implications, etc.

My point is that there may be other possible options, and I point to Safe as a
good example of how VC can innovate and remove friction from raising startup
capital.

------
everyone
What language is this article written in?

------
notastartup
equity crowdfunding is a bad idea. it's an open invitation for government
regulation for something that works really well right now.

Next time you want to make a game on kickstarter and share the wealth with
"investors", you are going to be facing the SEC and fending off people's
lawsuits.

Not to mention people getting scammed appearing on News would ruin the whole
crowdfunding movement.

