As for whether this is investment or speculation, as I understand the Funders Club model, every extra dollar that comes out of an investor's pocket results in one extra dollar going to a startup company. If providing a company with additional capital to pay for up-front costs before they're profitable isn't investing, what is?
As a FundersClub investor, you are buying shares in a fund, where the fund only holds assets (either convertible debt, preferred equity, or common equity) of the specified companies. Your money invested in the fund goes directly to the companies (minus fees).
It's really no different from investing in the companies themselves, except it wraps the multiple investors to a single fund which itself makes the investment.
Of course, I want this to work out and would love to eat crow. But it is a very risky strategy to take. Though give how Cherry got 5 million to wash cars, I can't see how this wont manage to make billions (which is the aim of YC).
If FundersClub does go down, each fund's LLC survives, with it's investors owning their fractional claim on the funds' assets.
Similarly to buying stock in a company using ScotTrade or equivalent. If ScotTrade goes down, you still own the equity you purchased and which they were holding as your custodian.
Even in spite of the above process, startup investing is risky, as we disclose in our FAQ. No one should invest money they cannot afford to lose in the startup asset category.
Stop calling it an investment. What you do is pure speculation. It is not an investment fund per se. But a speculation fund. But you can't call it that due to how people do not like the word "speculation" (for a reason).
I just think this "startup" is going to set off a lot of copycats and thus mark the beginning of the end.
Anyhow, I'm not against it. God knows I want this model to happen, so I can buy more cheap stocks.