GameStop: opportunity in chaos

Will Kramer -

Everything old is new again. The top songs of 2020 were remixes of the 80s and 90s hits. Abercrombie & Fitch is back in vogue. And day traders are back as if it is 1999, but this time they are out for blood. GameStop’s stock has been a roller coaster of a ride recently: fueled by greed and social justice. Retail investors are trading based on tips located on Reddit to TikTok. But what makes this different from 1999 is that some retail investors are intentionally trying to hurt elites.

According to the Financial Times:

In the frenzied GameStop trading, Redditors had a clear goal in addition to simply jacking up their favoured bet: they wanted to flush out two hedge funds that were running negative bets on the stock

What is occurring with GameStop's stock is a bubble and possibly illegal due to coordinated purchasing (though the legality is gray at best). What we are witnessing with day trading is a symptom of a bigger problem.

Romeen Sheth made a great point in his Twitter thread:

The chaos with GameStop’s stock reviled a sentiment to capitalize on: people are tired of being shutout by elites.

One of the best ways to create massive wealth is through investing in startups. Just ask Mark Zuckerberg’s father, Edward. The question we need to be asking right now is how do we level the playing field. One idea is to make investing in startups more transparent and create access for retail investors. In other words, we need to democratize access to startup opportunities.

Democratizing access to startup investments was helped significantly in 2012 with the JOBS Act. In 2016, the JOBS Act requirement for the crowdfunding exemption went into effect. For the first time since 1933, non-accredited investors can participate in startup investing (with some stipulations). With this change, companies like Netcapital could become brokers for raising startup funds outside of the traditional angels and VC networks. However, I am not aware of any notable successes on these newer crowdfunding platforms. Perhaps crowdfunding is not creating the next Airbnb because angels and VCs bring more to the table than money; they also offer valuable advice, introductions to potential hires, and experience navigating the pitfalls that affect every startup.

If retail investors are to ever be part of an Airbnb-type IPO, we need something better than current crowdfunding options. We need a platform that allows any retail investor to participate in startup funding rounds but still provides the experiential component that angels and VCs bring.

There are numerous smart people from academia and previous startups who can guide a budding company with great advice but do not necessarily have the resources to write 100k checks. If we can combine a platform that connects retail investors, great advisors, and promising startups, we could create a more level playing field with these opportunities.

To create a platform like this, we would need three components:

  1. Enable startups to list themselves and share information in a consistent, understandable, and transparent way so investors will feel comfortable investing.
  2. Enable advisors to reach out to promising companies and offer their services, publicly disclose that they are advisors to a particular startup, and list their commitment (e.g., I advise 5 hours a week on B2B strategy).
  3. Enable retail investors to invest in startups while still abiding by SEC guidelines.

This would not be an easy multi-sided platform to start; however, it could be a game-changer for raising capital and making investment opportunities more equitable.