From my understanding, FundersClub actually solves this crowdfunding problem by acting as the sole investor on the cap table. As far as you are concerned as a startup, there is only 1 investor, and if there are any shareholder approvals, you only have 1 shareholder to go to.

This is sort of the best of both worlds. The small investor gets the ability to invest in a (risky) company they wouldn't normally be able to, and collect (potentially) disproportionate rewards. The company doesn't have to deal with the hassle of having a ton of shareholders to contend with on the books. They are just along for the ride, and nothing more.

So they are much like a "virtual VC"? But you do understand that VCs have value because they bring "unfair advantage" or "connections" or "good advice & experience"? FundersClub has to think of two sides of the problem - how to shield large number of inexperienced investors from the founders and how to provide network, unfair advantage and smart advice to the founders.

One of the biggest values of YC is the second part. Replicating this is going to be difficult.

Who knows, the value of say 100 or even 1000 less powerful, but by no means powerless, investors might be greater than that of 10 VCs?

This might work for the small investors. However, they are only currently admitting people with an annual income of 200k or a net worth of 1m. These "accredited investors" are probably in an economic position to just start investing in companies outright, and given FundersClub's middleman position, I don't see a huge reason to go through them were I an accredited investor.

Come January 1st, the rules for accredited investors change dramatically, as a result of the JOBS act. Basically, anybody can play.

An interesting model would be to sel permanent discounts to your products rather than stock.

Thos discounts could be used by the "investors" to buy and then resell your products.

So, say I invest early, I can buy a perm discount of upto ~30% of a product. Then use that to resell at an overall 10% discount and make a profit - but working to kep the company selling its products....

This could be used by savvy people to setup whole businesses where they make a passive income on the sale of the company's products.

That is not an attractive option relative to e.g. being an affiliate of the company and getting 10% of the sales price (or much more) for no up-front investment and no sales work. They're not necessarily competitive options vis-a-vis a single company, but if you offered terms like that, I predict no savvy person taking you up on them.

A more viable approach to generating cash early in the life of a company is to pre-sell a particular product which is either time-bounded or feature-bounded in return for a largish sum of cash paid up-front. For example, Joyent used to be a fairly attractive option for Rails hosting, and they had a shared server offering where you could buy a lifetime membership on a particular tier for a few hundred dollars. Selling ~6 of those memberships buys you the physical machine to host many more than 6 of them, meaning they raised enough capital to buy machines (or demonstrate creditworthiness to Dell) to have available inventory for more traditional hosting plans.

Slicehost similarly had a massive cash flow crunch at one point which was preventing them from buying hardware to service new customers for their VPS offering, back when VPSes were quite new and Slicehost was heads-and-tails the best game around. They had an amusing auction-like mechanic: they sorted their waitlist by the dollar value you were willing to pre-pay, so if (for example) you wanted the $20 a month VPS but were willing to pre-pay for the first 6 months, you got in earlier than someone willing to prepay 3 months or desiring month-to-month. This essentially let Slicehost borrow e.g. Bingo Card Creator's credit cards to buy new servers from Dell, without ever needing to offer any sort of equity or do anything very tricky with accounting. (Book $1,000 of cash as assets and $1,000 of unearned revenue as liabilities, spend $1,000 cash from assets and add $1,000 of servers to assets, gradually debit unearned revenue as I consume services every month.)

Another example is Spreedly, which sold a particular plan for their SaaS service (I think they called them "Kickstarters", actually?) where you'd essentially pre-pay for 2 years of service and in return get service for life. It apparently worked out pretty well, though your accountant will hate you if you do that. A more typical example is a SaaS company offering you 10% off the monthly rate if you sign up for yearly billing and 15% off if you sign up for bi-yearly billing, which in both cases will tend to have the SaaS company get a whole bunch of cash upfront. (And the same accounting thing as Slicehost, above.)

Permanent discounts can prove to be a bad idea too, like the American Airlines lifetime passes. http://articles.latimes.com/2012/may/05/business/la-fi-0506-...

You could believe that, and still like Funding Club, as a worthwhile experiment/hedge, or because of some faith in the founders. (For example: "this impressive team will figure something out" or "this team has some great insight on how to address my concerns with the model".)

There's a difference between the "crowd" in crowdfunding and accredited investors. pg was probably talking about the former.

Just because crowdfunding is/isn't good for startups doesn't mean that there won't be a huge market for it.

I'd like to see angels kickstart a managed fund type of deal.