Hacker News Reader

Comment by anton_tarasenko | Hacker News Reader

Lending Club almost went broke in the late 2000s when it experimented with real P2P lending. Defaults on the loans chosen by lenders went up, so Lending Club had to improve its underwriting model and effectively exclude the lender from the decision making process.

Equity crowdfunding is the same as P2P lending but more volatile (since equity is a claim on everything what's left after paying everyone else). It's harder than lending. And we haven't seen successful examples of P2P lending yet.

Another thing is, we had crowdfunding in 1929. It turned out badly, so now we have the SEC and many restrictions on equity offerings.

View on HN

I believe you meant "Prosper" and not "Lending Club". LC never allowed lenders to set the rates, it was Prosper. LC started out as Facebook app for lending.

Equity crowdfunding was hobbled by SEC equity crowdfunding regulations influenced by special interest groups. The restriction on max amount non-accredited investors can invest to very low amount doesn't help investors in diversifying across lot of companies and make follow up investment in winners.

Also, equity crowdfunding platforms haven't done the favor to the industry by creating poor investor-unfriendly terms like no direct claim/ownership of the company, no voting rights, no access to ongoing financials and inability to do follow up investments. A better structure would have been that followed by angels/VCs.

The fundamental problem with equity crowdfunding is that there is always going to be a huge imbalance of power between the company and the investors. In traditional VC investing it is much closer to equals and one might argue that the VC's even have the upper hand. That's why you see those investor unfriendly terms in crowdfunding, when you are just one tiny fish of 1,000 you have zero leverage. Not only do you not have anything the company needs, people with 1,000 bucks are a dime a dozen, but it's also unlikely you would go to any great cost to hold them accountable since it would cost too much to do so.

Get experienced people to rate investments in a manner similar to that for debt.

The same experienced people that gave triple A ratings to junk bonds before the crash?

Snark aside, if you happen to halfway accurately solve the problem of rating a startup's risk and potential, better keep it to yourself and go down as the most successful VC in history.

Ha! Well, it definitely wouldn't be perfect, but an experienced VC knows quite a bit more than the average crowdfunder in assessing risk, threats, opportunities, valuations, etc.

Given that the biggest gripe about crowdfunding is that the green amateurs must be protected for themselves, a little guidance there might help to close the gap. No omniscience required. Just a starting point.

The imbalance of power is not an issue. Angels have overcome this issue with syndication. There is no reason syndication will not work with non-accredited investors. The main problem is the equity crowdfunding platforms that want to collect 3-7% fee for doing nothing. They do none to minimal work for companies raising capital as well as for investors investing in such companies.

Reply on news.ycombinator.com