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.

 

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

Choice and Innovation In Education

Goldman Sachs recently sponsored an essay contest on the following topic:

What should we do to create a strong US education system that works for all, that improves student outcomes and enables our country to regain its leadership position in the field of education?

Below is the beginning of the essay I submitted.


In a famous parable, a group of animals get together to establish a school for their young:

[The animals] adopted an activity curriculum consisting of running, climbing, swimming and flying. To make it easy to administer, all animals took all the subjects.
The duck was excellent in swimming, better in fact than his instructor, and made excellent grades in flying, but he was very poor in running. Since he was low in running he had to stay after school and also drop swimming to practice running. This was kept up until his webbed feet were badly worn and he was only average in swimming. But average was acceptable in school, so nobody worried about that except the duck.

Other animals fared no better than the duck. Each animal had its own strength and weakness, but the one-size-fits-all approach of the school wouldn’t let the animals focus on their strengths. Real schools suffer from a similar problem. Every child is unique, with his or her own interests, capabilities and style of learning. However, the schools lump everyone together into one system, with one curriculum, one pace, and one style of teaching. This prevents students from studying the subjects they enjoy in the way they learn best. The American school system needs to diversify its approach to education. Schools should offer more subjects outside the standard curriculum, teach in new ways besides the traditional lecture, and make greater use of technology in learning. This will ensure that all students will be able to learn the subjects important to them in the way that works best for them…

Eric Schmidt on Innovation: Patents, Self-Driving Cars and Education

Last night I attended the AllThingsD interview with Eric Schmidt. Yesterday’s post focused on smartphones, this post will go through the second half of his discussion.

Patents
While Schmidt wasn’t willing to discuss specific patent fights, he did emphasize one point: The patent fights harm little companies the most since they don’t have the resources to fight patent claims. Small companies have created the most jobs and innovation and so patent disputes can cause great harm by harming them.

This seems true, though patent trolls probably only sue companies that have enough money to be able to pay them. Though perhaps large competitors could sue small companies out of existence, but I don’t know if that is too common. No matter what,he current patent system is pretty ridiculous.

Google and Self-Driving Cars
Swisher felt bothered that Google was involved in everything instead of just focusing on organizing information and called Google a Borg. She also said Google Glass is ugly and wasn’t so in to self-driving cars. Schmidt replied that they want to be in the center of the information revolution. But he said they should be celebrating innovation instead of dissing it.
He said that people shouldn’t really be driving cars and that self-driving cars will save many lives. Car companies will be able to implement components of Google’s technology in a few years, but their will still be a driver behind the wheel and a big red button to turn off automated driving. Also, Google Glass will provide new opportunities and experiences for people.

Clearly Google no longer just focuses on making information accessible  but now does all things software. I don’t see any reason to be bothered by that, as they seem to be doing a good job and provide basically everything or free.
Schmidt seemed to imply that humans will need to be monitoring the driving. People have a hard-enough time staying focused on the road now when they are driving, so I doubt they will be able to when the computer is doing it. Though maybe the computer will be able to pause the YouTube video when there’s an issue that require’s human attention.

Innovation & Education
Schmidt said there’s low morale in the US, which is a demographic problem, a global problem, and an automation problem. He seemed to be saying there was low unemployment because software and globalization are taking over jobs, but he felt that more innovation was the solution. He said the platforms created by Google and their competitors can create many job opportunities in the US.
The solution is also to improve education to help innovation. Currently, the gap between the elite and everyone else has widened, but it needs to be closed. Mossberg asked if he things online MOOCs like Udacity are the future even for the elite. Schmidt replied that these new initiatives are just version 1 and that they glimmer with possibility, i.e. yes. He said there has been very little innovation and real competition in education but these new online offering are changing that.

If technology is part of the problem of low-employment, perhaps increased innovation will just make things worse? However, improving technology has not caused long-term unemployment, since it has always created new markets for people to spend their money on. So the online platforms may provide many more new jobs. This type of work is not for everyone though, and better education won’t necessarily help. However, I don’t think there’s an immediate risk of widespread unemployment.
I think Schmidt hit the nail on the head about the potential of online education. Who more than the head of Google recognizes the power of software to revolutionize industries? He stressed often how competition drives innovation and lowers prices. This is something the government-backed system of education sorely lacks, but there is now potential for change.

The overall theme that emerged from this discussion was the power of innovation. By allowing competition that isn’t restricted by unfair patents or over-reaching unions, great things can be developed that will benefit everyone.

Paul Graham’s Frightening Startup Ideas

Paul Graham discusses some “Frighteningly ambitious startup ideas” in a post on his blog (based on a speech he gave which is available here). He wants someone to replace 1)Google 2)email 3)universities 4)Hollywood 5)Steve Jobs 6)code optimization and 7)doctors.

For #1, he suggests a startups create a search for hackers, though I think it might be easier to focus first on certain high-revenue categories that Google doesn’t do so well at. Both #1 and #7 sound very difficult, I’m not sure if a startup will be able to solve them, but there are larger companies (like IBM) which are making progress in those areas.

For #2, I don’t know if email will be replaced anytime soon, but I assume more features will be added to it to help people manage its magnitude. Gmail and Hotmail already both have some features to help with this, and I assume such tools will improve.

#3 is an area I am especially interested in. I don’t know if universities are about to disappear, but I think the traditional lecture model will be upended.

PS
Another interesting link from today: Job Growth and Loss (LinkedIn). Looks pretty good for Tech stuff. Of course, some of the shrinking areas may be rebounding now, while some of the growing ones may be in a bubble (see the greenest one on the chart).

Link of the Day

Another post relating to patents, but this deserves to be linked to:

 Like patents, I see unions as incredibly well-intentioned and at one time vital to America’s development. But let’s face it: Mismanaged unions are also at the root of a lot of our capitalistic problems today. It’s hard to see what’s happened with the airline industry, the automobile industry, public education and feel that unions are a totally benign force in the corporate world.

Workers may have been exploited in the past, but does anyone really think that's what would be happening  with teachers and auto-workers today? Instead, education causes crazy debt with poor results, while the U.S. auto companies need the government to bail them out.

How to Fix the Patent System

Why do patents exist? A person does not inherently own the rights to his ideas. The patent is an artificial construct to encourage innovation in areas that otherwise would be under-developed. For example, certain companies invest millions of dollars in R&D and only get a return on their investment if they own exclusive rights to their inventions for a certain period. In this way, the patent system can encourage innovation.

However, in many areas, the current patent laws end up causing the exact opposite. Software patents are often given as the prime example where patents end up stifling innovation. Frequently, patents are granted for ideas that are not really that innovative. Often the patents are granted when similar ideas had been floating around before. In other cases, many people can come up with the idea independently, but once company manages to patent it first and exclude others from using it. In fact, even if a person is only later able to come up with he idea on his own, why should the initial patent prevent him from using the idea? He was able to discover it without their help, what economic good is served by preventing him from using it? It would be difficult to prove he didn’t see the original patent, but the system should be adjusted so only extremely innovative patents are granted.

 

Another issue with the patent system is the inefficiencies and costs involved. It costs many thousands of dollars to apply for a patent, and then it can take the government years to process the patent. The whole system is slow and inefficient. Patents should have a much higher bar to be granted, but they should also be a quicker, cheaper process.

Recently, some have begun trying out to crowd-sourcing some of the patent review process. Instead of just having inefficient government clerks reviewing the patents, some have begun opening the process to the wider public. This way many people can review the patents to see if they involve any “prior art”. This is a good step, but the very definition of the patent needs to change. Even if a patent does not involve prior art, who says the idea is so innovative that others couldn’t have thought of it on their own?

Instead of just checking the patents for prior art, I suggest a more radical move. If an idea truly deserves to be patented, then no one else should be able to think of the same idea on their own. To apply for a patent, a person or company would have to submit the problem they are trying to solve, and the general area of the solution they have in mind, which would all be posted to a public site. Their actual solution would be posted privately to the patent site. If no one can suggest the same solution, than the patent is truly innovative and will be granted. But if people can come up with the same solution on their own, then no patent would be granted. Why should there be a patent, when others were able to figure out the same idea?

This would greatly reduce the number of patents that are actually granted, but it would fit with the way ideas are actually discovered. In a recent paper, “The Myth of the Sole Inventor“, Mark Lemley demonstrates that most inventions are invented simultaneously by different groups of people working independently of each other. There is little reason why one group should be granted exclusive rights to something that would have been invented anyways. In my proposed solution, they would both be able to submit to one site, and instead of a patent being granted, the idea would become open to the public. The companies would still be encouraged to submit their ideas, whether to get their patent, or to prevent their competitors from patenting the idea.

By having the general public review the patents, people will suggest different ideas, and this will lead to even more innovation. Of course, this will lead to large numbers of submissions, and new methods will be needed to categorize and process all the patent data. In the current system, the patent-reviewers do not even have access to the internet when reviewing patents. In the new system, all patent applications will be well categorized and tagged and have clear semantic data that could be processed by computers. This way, it will be much easier to find related patents, and perhaps even to discover what areas are ripe for new ideas.

 

The entire patent process would be much quicker and cheaper. Instead of payinggovernment clerks to review the patents, the process would be open to the public. People will compete with each other to suggest solutions to the problems or to find related patents. They’re could be some financial incentives, or there could be certain opportunities for suggested ideas to be patented themselves. But people would likely partake in the process without even getting any money, as they do on sites like Wikipedia and StackOverflow.com. However it is done, the whole process will be much faster and cheaper than the current system.Many details of such a system would still need to be worked out. Perhaps it could then be tried out in a small area of software patents. If such an idea succeeds, it could lead to greater innovation, a greater spread of ideas, reduced legal costs, and a true stimulus for the economy.