 Welcome to NewsDisc on SiliconANGLE TV for Monday, October 22nd, 2012. I'm Kristen Folletti. Genealogy is worth $1.6 billion, and Funders Club wants the crowd to join in on investing. But is it legal? Join us now with his breaking analysis on these stories as SiliconANGLE founder John Furrier. Welcome to the show, John. Good to see you. Funders Club has just raised a $6 million seed round, the biggest in Y-combinator history. First of all, can you explain to us what Funders Club is and how it works? Yeah, it's a group that basically has a website that uses crowd sourcing or uses the people to raise money on the web and circumvents kind of this thing at an SEC age, but allows people to put in anything from a couple hundred thousand to up to a millions of dollars via crowd sourcing techniques. And it's been very popular amongst the investor crowd, and it kicks off what kicks out of it. It basically uses crowd sourcing for fundraising for startups. So how does this change the game of startup funding? It opens up a whole other dimension for raising money, helping companies get off the ground and allows for anyone other than the inside venture capitalist to invest in startups. So it just allows for them to use their own resources to handpick early startups and get them some funding through any new channels, and that's individuals. What kind of success is Funders Club seeing so far? Is there a lot of interest from investors? They've done some deals recently, but there's really a lot of interest from investors because they just got six million dollars in funding to help them with their business model, mainly to cover legal fees and cases in the lawsuits. But for the most part, people like it because startups can get funding. Venture capital is likely because it helps them with deal flow. So we've seen with this funding an endorsement from a lot of the top VC firms, mainly because sprinkling capital around from seed funds is one thing, but using the crowd to raise money is another. There's also another element of filtering that goes on with the crowdsourcing. So in a way, it's a whole other dimension for fundraising for startups. Do we see this moving in a direction where any John Smith could participate in funding a startup if they wanted? Well, that's kind of the idea of some of these crowdsourcing platforms and the government recently allowed people to put up to a million dollars in for non-accredited investors, but this site also is going to include accredited investors as well. So yeah, there's this big movement in Joe Sixpack, John Doe to put money in, gives them access to startups that was once a reserve club for venture capitalists and insiders. So yeah, it's going to be including the gamut of low-end individuals to full-on accredited investors. John, with your roots in the Valley, we know that every business idea that sounds too good to be true, there's usually a catch. So what's the catch here? The catch here is that it just allows people to get into startups early, and it basically makes it more like Vegas, kind of where I'm at today. But it's like playing roulette wheel or craps. You can get in on some of the action and get in on some of these startups and you never know which one could be the next Pinterest or Twitter or Facebook. So for an investor, it's one thing. The Silicon Valley's ecosystem, this is just another example of taking capital that's available and putting it into new channels to get startups funded. And that's actually going to be good for startups in general, although there's some new kind of fear around the regulations involved. But for the most part, it's going to power more startups. And that's going to be a good thing. It allows for more, as I always say, crops to grow, if you will, startups being crops. And it's a fertile market for startups given open source and these new technologies like cloud and mobile. So it's a great opportunity for people to get in because the costs to do a startup these days is much, much lower. Therefore, any new money wherever it comes from is a good thing. You mentioned some fear regarding regulations. Why are there questions surrounding the legalities of this operation? Well, in any new thing, there's always an underbelly and always bad actors. And I talked with Kim O'Reilly about this a few cubes ago last year. Strata, on one hand, it's great for startups. On the other hand, it also gives an entrance for bad actors to come in, basically scam artists. So what people worry about from a regulation standpoint is that Joe Sixpack or grandma is not going to get taken for her retirement because of some people pushing this product out there. So the site's funding mainly is going to address that, that they really want to stay above board, above keep the bar high in terms of quality. And also in terms of their ability to filter out any bad actors. So there's loopholes in the regulations with crowd sourcing. It's a very, very new technology. Think as early as Twitter, you can actually get messages out there via the crowd and let the crowd become part of the investment process. Not in terms of capital, not only in terms of capital, but in terms of helping filter the company. So this site Founders Club is going to be doing that. It's going to be part of doing some of the filtering and also getting some of the cash. So it's a lot of fear involved around someone's retirement, getting scammed out and dot com bubble in the last decade really kind of highlights that fear. What would happen to Founders Club if the Securities and Exchange Commission declares them as an illegal business? And do you see that happening? It's very possible. I hope it doesn't happen. I think if Obama's elected, I think you might see some looseness around that because he's pretty liberal around some of the entrepreneurial environments. Not sure how Romney would handle it politically, but if the SEC comes in and says it's illegal, what's going to have to happen is most of that money will be used to defend themselves and legal in the legal court and they have to figure out a way to stay on the credited investor side, which means that it's very, very limited and becomes just another investment vehicle via a new channel of money. Earlier, you mentioned Kickstarter. How is Founders Club's business model different from a company like Kickstarter? Kickstarter is pure crowd sourcing. This site, this company is going to be involved in the selection. So they're going to essentially be the matriot D, as I call it, for selecting and vetting the startups, which is good. Venture capitalists like that, which is why they're excited because they can become part of the filter of the good deals. And venture capitalists care about deal flow because with this product, there's more eyes and ears on the streets filtering out the startups. So even though people may win or lose, ultimately as they rise up, venture capital will take it to the next level if it's required. So for the next big hit, if something comes out of this, you'll see the venture capitalists come in and pay up on an evaluation. Therefore, help that company go to the next level. So do you feel Founders Club is a smart enough idea to be worth investing in despite the risk? What's your take? Yeah, I do. I think it's great investment opportunity because it's always risky. But anytime you have a market dynamic like we're in now, which you see with Twitter and mobile and social media, the crowd is part of the process, whether it's production for content like at Silicon Angle, we use that, whether it's disrupting the investment community, which this site definitely does. And it's an environment that's disrupting or disruptive. So this company is set up to disrupt essentially the early stage funding because there's a lot more startups coming in because think about it. If someone develops a really cool application for mobile, they might only need, say, you know, $600,000 to get started. And from there, I go right to cash flow positive and then hit it trajectory and growth and create new jobs and new opportunities. So I think it's a good investment because it meets my criteria for, one, a growing market of entrepreneurs to the venture capital and investment community is currently being disrupted anyway at the moment. So it puts it in a position to possibly be successful, notwithstanding some of the things we talked about, about the regulations and whatnot. But for the most part, I like this deal for that reason. It allows money to flow into startups from new channels and new dynamics. So it's definitely a real market force. Whether they can capitalize and execute on that will be determined. Another large deal in the works is that genealogy website Ancestry.com has agreed to be acquired by an investor group led by European private equity firm, Permira, for about $1.6 billion or $32 a share. What does Permira want? Why does Permira want Ancestry.com? Well, they had a relationship with this company and I think they want to make a run on essentially the social graph of historical people information, which is the family. So for the most part, they had a participation in the past and it's part of their business plan. And Ancestry is kind of on the ropes, in my opinion, because it is kind of a niche market opportunity, although they do have good revenue. The numbers just aren't staggering. Two million subscribers, as reported by the Wall Street Journal, just isn't that many people. So they are throwing off some cash flow. So it might be something that someone else can weave into their existing portfolio and throw it from there. How do you see them trying to expand to their subscribers? Well, I mean, getting just your background of your family is one thing, but really making it part of your everyday life is a whole other dimension. And I think when this company was funded, Twitter and those environments were just developing. So it's had some competition from some other avenues in the marketplace and other products like Twitter and Facebook. So when you have that kind of force, it limits the growth. So what they're probably going to have to do is, on this kind of takeover, integrate it in with other assets. So make it a feature of an overall different set of products. And I think that's the intention of this new group, is to make this part of another product. And because it's throwing off so much cash, it has a sticky effect, meaning people do like to stay and they are paying. So that's one thing that can't be overlooked that it is throwing off some cash flow. It's not a free product. Ancestry.com is scheduled to release third quarter results on Wednesday after market hours. What can we expect to see from them? You know, I don't know. I haven't been following the numbers closely. I think what you're going to see is obviously going to try to pump up the numbers that they have again. And the subscriber's low and it's kind of a niche market, but they are throwing off cash. My expectation is that it's probably going to be flat and also maybe moving sideways because of the takeover bit. Well, John, thanks for your analysis today and we'll talk with you again soon. Thanks. For in-depth coverage on News of the Day and the latest breaking analysis, join us daily at Newsdesk on SiliconANGLE.tv.