> No matter if intentions of the business owners are benign or not, when the public invests in companies there is a need for rules governing transparency and control. What the post is referring does exist, it's called the stock market.

When the users are the owners it's a co-op. No need for a stock market there. A lot of grocery stores in BFN are co-ops.

I disagree - a business that is owned by its customers is probably best described as a mutual company. Examples are the old NYSE, and most other stock markets before modernization, most insurance companies before the wave of demutualization in the 1990's, Savings and Loan companies. The list goes on.

I think it's potentially a good model for some businesses, for example those that do not require a large amount of R&D spending, or where this is not a race to the bottom as happened with stock exchanges.

> What the post is referring does exist, it's called the stock market. It is a set of rules you need to follow before you can allow thousands or millions of shareholders to invest. Committing to the rules and getting the permission to do so is called an IPO.

No, that's all wrong. There are business that seek direct investment -- including specifically from their customers -- without being publicly traded on any exchange; they obviously have to comply with general securities laws, but do not have to deal with anything applicable specifically to publicly-traded companies or particular exchange rule, and obviously don't have an IPO first as they aren't public.

Neither being widely held (having lots of individual shareholders) nor seeking direct equity investment from your customer base requires you to be a publicly traded firm.

There is another alternative: a second market. There are limits to that but it is feasible in a much smaller scale.

The problem is that those regulations makes impossible for small companies to IPO. The Government must think harder on how to make them more affordable. Others stock markets are not so costly.

Understood. Is it possible to create a mutual fund that invests in start ups? May be something like a VC backed by many small investors? Small investors can be an important resource. Loyal customers, promoters, extra help, etc.

There are some hedge funds that invest in startups, along with the investment arm of other companies (Microsoft bought 1.6% of Facebook pre-IPO), but I don't know if it'll work for mutual funds. Hedge funds and companies can sit on a startup for years before getting any return, but mutual funds have to be much more liquid. It could work as a closed-end fund, but those are much less common than open-ended funds and you lose the ability to reinvest in the startups.

http://lxventures.com is a Vancouver based public company that does something very similar to what you just described. It is a very new concept, and hotly debated.

"LX Ventures is a publicly-traded startup technology incubator that launches, acquires and integrates silicon valley style early-stage, high-growth technology companies. "

To my understanding, the thing that is really new is the current strategy surrounding IPOs. From what I gather, IPOs used to be a key option for raising funding, rather than a key option for cashing out.

If you use an IPO as a source of fund raising, it seems like you'd have little trouble using the stock market to do this very thing- allow your users to invest in you.

I think (for technology companies you're correct).. Private money is 'cheap' for growing tech companies, so going IPO as a way to source further growth capital makes little sense (also worth noting, the cost of starting/ growing is accelerating down).

So, why give up massive amounts of control - in many cases having to actually listen to those owners, be forced to share information with competitors through filings, and deal with the headaches when VC money is so cheap and relatively plentiful?

Look at an example like Groupon, where many of the major shareholders had largely cashed out before ever making it to the stock market (through VC fundings). Similar situations have happened with both Facebook, Twitter in terms of pre-emptive cashing out.

"need for rules governing transparency and control."

And when they're implemented, the politicians the existing large players hired via campaign contributions are very careful to make sure the regulations favor the existing large players who pay the politicians bills, in other words the exact opposite of startups. So that's probably not going to end well for the startup.

It isn't the startups that need the rules. It's the People, who have been scammed one too many times.