JOBS Act and the Crowd-Sourced Startup

In April 2012, the JOBS Act was signed into law, but the SEC has been slow to implement it. The first part of the act will finally become active tomorrow, which will allow startups to publicly announce that they’re fundraising. However, they will still only be able to raise money from accredited investors, i.e. rich people.

Phase III of the JOBS Act will allow crowdfunding – ordinary people will be able to invest small amounts of their income in startups (see Crowdfunding passes in the Senate). This will help many small companies and startups raise money from a large number of people. Currently, a person or company can raise money on a site like Kickstarter, but can only offer backers rewards (like their product or tshirts), but not equity in the startup. Imagine how many more people will be interested in backing startups if they can hope to get rich from doing so! This will raise the risk of scams though, which is why there will be various regulations on crowdfunding once it is (eventually) implemented.

Startups will be able to raise money from the public, and could also use their “crowd” of investors to help to do things for their company. For example, a company could perform market research with their crowd investors, or ask them to help promote the company’s product on social media. Quirky uses its crowd to help decide what physical products to create, so tech companies could consult with their crowd to help decide on new features for an app.

Perhaps a company’s crowd could  be consulted with to work on a specific task, such as creating some icons for a site or improving its SEO. Crowd investors will want to be compensated for large tasks that they do, but it could still be easier to hire someone already invested in the company than an external consultant. In fact, maybe this work could be an alternative form of crowdfunding – instead of investing in a company, people could contribute work and get a share of equity. This would differ from standard employment for equity since it the work would be distributed to a large number of people. While this could make collaboration more difficult, many open-source projects have been successful with a large number of contributors, so perhaps startups can do the same thing.

Paul Graham once said:

I don’t think crowdfunding is good for startups. For startups, having large numbers of investors is bad, and having inexperienced investors is bad. So having a very large number of inexperienced investors is the worst scenario possible.

 

While too many ordinary investors could be a nuisance, a large group could by filtered through a crowdfunding site and can offer more value than standard rich investors. This may be why Paul Graham accepted the crowd-sourced startup FundersClub into Ycombiantor. Startups may even start crowdfunding because of the product and marketing opportunities it will provide.

 

Lottery Ticket Investing

In a previous post, I listed a bunch of Startup Ideas, but I didn’t go into any details about them. In this post I will discuss one of the ideas – Lottery-ticket investing. I decided to start from one of the less realistic ideas, so I can move to more realistic ones in later posts. While writing this post, I realized there were even more issues than I initially thought.

Q: So why are you publishing it?
Well I thought it might still have some potential somewhere, and I can use a Q&A format to discuss its issues. And it touches on some questions in economics and psychology.

Lottery-Ticket Investing

Problem: People buy lottery tickets despite the poor odds, i.e. their negative expected return. They do this because they’re excited by the prospect of large winnings, and may not evaluate the odds correctly. But there should be some way to let them get tickets that offer a large prize, but still have an overall positive return.

Solution: Create an Investment Lottery: Invest the lottery ticket money in stocks, which historically have a strong positive return. Use a investing method with high-voltaility so there is a chance of large payouts.

Q: But how would you distribute the money?
One way would be to have an actual lottery at the end of the investment period and give the money to specific winners. However, this is too similar to a regular lottery, so the state governments wouldn’t allow it. Instead, one could give the actual returns of each ticket to the buyer. This way people who get or pick the right tickets can win big.

Q: So you’re basically just selling people stocks.
Yes, these tickets would let people easily invest small sums in a high-risk but high-reward manner.

Q: That sounds pretty boring.
It’s true that people are motivated to buy because of the hope of getting a huge prize, but people also buy tickets for smaller prizes. So one would need to examine where the cut-off would be. For example, people might be willing to pay $10 for a ticket that could potentially win $1000. If they here about one winner who won a huge prize, they might get excited enough by that possibility, even if it rarely happens.

Q: But how would you ever get 100x returns on investments in a short time-span?
There are a number of possibilites that one could explore. Perhaps there’s some way to do it with margin-investing, or with some variety of that. For example, the lottery stock tickets could insure other investors against losses, so the ticket-holders take larger losses or bigger gains if the stock has a large change. This will let the ticket-holders magnify their risk and provide insurance to safe investors.

Q: That doesn’t sound like a very good idea, and people can insure against losses without any lottery involved, e.g. by buying put options.
OK, so that idea might have some flaws. But there are risky investments that one could find, such as certain junk bonds. In addition, it will soon be legal for ordinary people to invest in small companies. They could serve as a very-high risk investment that could have extremely good returns. By making it easy for people to buy “Investing Tickets”, they can be encouraged to invest in a system that has good overall returns instead of losing so much money in the lottery. While they might not make it rich this way, they’ll have better long-term odds than in the lotto.

Startup Ideas

Paul Graham recently wrote a post about How to Get Startup Ideas, so I figured I’d write about a couple of startup ideas. This post list some of them in a couple of words, and later I’ll pick a few to write about in more detail.

Education & Content:
This is an area that many are working on to change (finally), but there’s still a lot that can be done.

  • Platform for creating interactive educational content.
  • New platform for publishing general content
  • Bootcamps for learning technical topics
  • Programming for the masses

Replacing Intermediaries:
Before the internet, it was necessary to have various intermediaries involved in transactions. The internet has changed that for many things (e.g. buying airline tickets), but some areas remain stubborn to change (e.g. cars or houses). There are various ways certain industries can be brought up-to-date with the internet.

Better Search
Everything is search. It’s not what you know, but what you can search for that counts.

  • A Better meta-search?
  • Better Website searches
  • Integrating search and actions within applications
  • Tracking everything you read or learn for later ‘recall’

Ecommerce
The Internet has changed how we buy things, but made everything more complex. People need help getting what’s best for them at the best price.

  • Finding the best deals quickly
  • Reliable data-based reviews
  • Chipping away at Craigslist…
Miscellaneous:
  • Crowd-sourced startups
  • Alternative Wikipedia
  • Lottery-ticket Investing
  • Computer-aided productivity

Writing with Less Writing

Ideas discussed:

  • People think all writing needs to be paragraphs, but that’s not always the best way to express something.
  • What’s the Appeal of Twitter? + Idea for new platform
  • At least include an outline in your article!
  • Bonus: What writing can learn from programming

My recent chart on learning programming did quite well and got upvoted on Hacker News and Reddit. I realized that one chart was able to encapsulate the important information from 3 previous blog posts. This makes me think there might be too much of a bias to write content in a specific form and style with paragraphs and connecting sentences, when sometimes another form would work better. A chart or diagram can display certain information in a faster and clearer manner than long paragraphs, making the paragraphs unnecessary. Different diagrams and styles can be used for different types of information.

Ways of presenting content

Content Format Good for this type of content Zappable Example Benefits for reader Extra stuff that get stuck in
Paragraphs of Text Long connected arguments Maybe Google and the Future of Search Easy linear read Connecting sentences, stylistic phrases
Table Repeated categories of information Resources to Learn Programming Fast to reference Certain cells just to match others in row. (Maybe use NoSQL-style instead ~)
Flowchart Simple decision guide Picking a Programming Language Can quickly reach relevant decisions Random Jokes
Outline-Style Hierarchical content of separate points Attempt below Can easily skip subsections Hopefully nothing

Even if content doesn’t fit into a chart, it does not mean that standard paragraphs are necessary. Sometimes an Outline-style could do the trick.

Outline vs. Paragraphs

  • I often start with ideas in note-form before writing a post
  • Before publishing notes, need to refine and clarify ideas.
  • Also includes “textification” into paragraphs, which consist of things like:
    • Keeping to a writing-style (varying words, paragraph format)
    • Putting in filler words to build and connect sentences
  • This turns writing into nice essay, but it can obscure points for both the writer and reader
    • It becomes harder for the writer to revise essay when each change affects the continuity of the sentences and paragraphs. (Maybe writers should also aim for looser coupling!)
    • Certain articles (e.g. academic ones) may be so complicated, readers may feel need to create their own outline or diagram to follow it
  • Notes need to be refined before being published, but they can still be kept in an outline style, with several benefits:
    • Often quicker to write than figuring out how to “textify” content.
    • Easier for reader to follow overall flow of argument
    • Lets reader skip certain sections or examples and still follow argument (In fact, maybe the reader should be able to understand the argument heading without even reading the implementation!)
  • Outline-style can be better for reader and writer, though not sure about this example

Obviously, people know that concise writing or charts are often helpful. However, I think people still feel constrained by standard style expectations. That’s why they need things like Twitter and even Powerpoint to permit them to write in shorter form.

While Twitter’s limits may be overkill in cases where you actually want to say something, the fact that its so successful shows the power of letting people get to the point. Maybe someone should create a blogging platform that enforces a posts that are concise and include a diagram, outline or chart. This could help popularize a new style of writing.

I’m not arguing for eliminating essay-style text, I just think it might be worth putting more outlines and charts within writing. Even if much of an article needs to be in paragraphs, perhaps some of it would be clearer or more effective as a chart. And more articles should come with short outlines (or diagrams) that says what their main points are. This would let people decide if they want to read it or review what it said afterwards. Why should some one need to construct their own outline or argument diagram to analyze an argument?

Charts and outlines are really just a minor step. For more challenging material, one can go beyond such static content and create more interactive content. But that’s for another post…

Stay tuned by following me on Twitter, RSS or Email. 

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The Complexity of Online Shopping

Technology can make life easier, but frequently it also makes things more complicated. It is easier to buy things online than going to a store, but one faces a dizzying array of choices. People want quality items at the lowest possible price, but it is hard to figure everything out. Shopping searches return too many results, and Amazon always has thousands of items for every category.

One way to get a smaller subset of lower prices is to check out a deals site like Dealnews or Slickdeal. (Especially around this time of the year.) However, it’s hard to know whether the item is good-quality or whether the “deal” is actually such a great price. Dealnews tries to provide some information about the normal pricing of the item, but it still doesn’t answer whether the price is a good one. It may be that those earphones are normally $20 and are now $10, but it’s not really relevant if I can get better earphones for $5.

It would be pretty useful if a website was able to provide data not just on the price of the item, but on similar items also. If the site could measure in some way the features and quality of an item, it could help users recognize what’s a good deal. For example, if the site was able to say that these type of earphones are hard to get for under $15, one would know $10 is a good deal. The hard part for the site would obviously be getting and analyzing the data in a way that allows these comparisons. A site could use various sources, such as Amazon reviews, but it would need to see what’s really reliable and gives clear information about a product. If a website could do a good job in this area, it could really help people deal with all complexity of online shopping.