Not just a tech issue. Money isn’t a commodity because it comes attached to people, with varying expectations, time horizons, ethics, and incentives.
It’s also not only an institutional capital problem. Some owners want to build long-term. Some what to make a quick buck.
Conversation
Should be sources of $ that fit a variety of goals, and there usually are. Bigger the amounts that you want/need, the more structured and fewer the sources become.
If you’re interested in securing $100K, there are a lot more folks out there with that capacity than $10M.
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The marketplace concept is attractive on the surface. If favorable terms could be set and 500 people could throw in $1K checks, a business wouldn’t have to give up control. Everyone shares in the upside of distributions of profits or sale proceeds pro rata.
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The problem is that a lack of control cuts both ways. In most operating agreements, minority shareholders aren’t guaranteed much and there’s lots to consider beyond the price. (podcasts.apple.com/us/podcast/fin)
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Without proper negotiation and a complicated board structure, it’s easy for unethical majority owners to unfairly share in the upside through compensation adjustments, lifestyle expenses, or related party transactions.
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Another problem is visibility. In the startups, you want everyone to know you’re raising money. In mature businesses it’s the opposite.
Most owners of mature businesses are terrified of vendors, customers, or employees knowing they’re looking for capital. Can signal instability.
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The only way to make it work would be to have a standardized set of protections and a lead investor to watch the investment. That involvement is costly and the more standardized the rules become, the less flexible to the needs of the owner/leadership team.
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Replying to
7 years ago, wrote Startup = Growth, and threw in these two paragraphs: paulgraham.com/growth.html
I guess DHH was just tweeting from the hip 🙃
