Recently, I’ve looked into investing in start-ups with venture capital. Last year, the SEC allowed non-accredited investors to invest up to $2200 per year in start-ups through online sites. (Accredited investors can invest much more). You can put as little as $100 and in some cases as little as $20 into an offering for future equity, convertible notes, stock, or loans paid with interest.
Both. I look at it as a serious investment knowing that eight or nine out of ten are likely to fail. So can I pick a winner, or more winners than others? Can I improve on that ratio?
Just one being a big success would make it a worthwhile investment, as a successful early venture capital investment will vastly outweigh the gain from anything currently in the stock market. For instance, an investment in Facebook before it went public would have proven quite worthwhile.
There are some guidelines about start-ups more likely to succeed.
[quote=“Argyll, post:4, topic:1619, full:true”]
Both. I look at it as a serious investment knowing that eight or nine out of ten are likely to fail. So can I pick a winner, or more winners than others? Can I improve on that ratio?
Just one being a big success would make it a worthwhile investment, as a successful early venture capital investment will vastly outweigh the gain from anything currently in the stock market. For instance, an investment in Facebook before it went public would have proven quite worthwhile.
There are some guidelines about start-ups more likely to succeed.
[/quote] I’m going to suggest this strategy will and has failed for 99+% of individual angel investors. Happy to expand, if desired.
The chances of you, as an individual investor, getting a unicorn like Facebook are zero.
Most venture investing is “spray and pray” - do a lot of tiny seed deals and hope one becomes Facebook.
None of them do. The average exit is like $25M, ignoring the failures. The failure rate for a high quality portfolio is near 75%. The average duration is 7-10+ years. Run the scenarios and see if you get above a low-teens IRR. Doubtful.
The most important things are vintage, geography, quality deal flow, and LOW entry price. I don’t think stage adds diversification (late stage deals require more money than most individuals could ever fathom investing). I don’t think industry adds diversification (e.g. healthcare IT and medtech/biopharma generally suck). So I get all of my deal flow from as close to the best sources as possible (proprietary). I use very little to screen after that. And I don’t weight my bets - there’s zero value in that (proven over large portfolio data sets).
That’s why I suggested something like Angelist: passive, quality deal flow, early-stage / low’ish valuations, ability to even-size investments.
The point of my post was start-up investing for unaccredited investors. AngelList is for accredited investors, who can invest in most anything they like anyway.
I don’t expect any of my 22 investments this year to become remotely like Facebook. All of them, though, have a chance to be functioning companies that might pay a return.
I don’t understand everything in your post, but all of my investments had a LOW entry price. Thanks for the info.
Thanks for the clarification, Argyll, and sorry for the misunderstanding.
What portion of your net worth are you investing, as a %, in early/seed stage investing, assuming you stick to the $2,200 a year allowed?
Where do the sites you use get their deal flow?
What type of screening is done?
Who is protecting your interests in future rounds?
If you’re over the $2,200 limit, what happens to your future pro-rata portion of subsequent rounds?
How have your investments fared?
Republic.co is an off-shoot of AngelList. It’s two co-founders formerly worked at AngelList and say they get many deals through them. They say acceptance requirements are stringent and that most proposals are rejected.
MicroVentures claims stringent vetting. WeFunder is said not to vet as much.
Protecting my interests in future rounds? That goes with the terms of the deals which are at set valuations.
In general, funds are tied up until a year after initial investment. The return comes if they get bought out, go public, or choose to pay a dividend.
[One exception is a movie with revenue participation rights which, if successful, would pay one in perpetuity. They could possibly start paying in less than a year.]
Most of them appear to be functioning companies with actual products and revenues.
You’ll have to check back at least a year from now to see how my investments fared.
These things that are available to the public tend to essentially just be loans at like 10% or some other absurdly low interest rate for what it is. If I want to make 10% I’ll sell weekly Ford puts, you guys. If I want to throw money in the trash can in the form of a loan, I’ve got family members I can call for that. I don’t get requests like this for startups IRL, but occasionally for RE deals. Get out of here with that noise. If I’m going to give somebody money so they can go microdose and post about unicorns on instagram, I at least want a piece of the company if it ever amounts to something. Blah.
Calling that business Skynet would have been more appropriate. I had to read it to understand what “cloud-connected robotic intelligence platform for drones” means, and it’s not as ominous as it sounds – the drones aren’t cloud connected, they just collect data and dump it to “the cloud” after they land, then some “intelligence” analytics are performed on the data.
Brought to you by … The Fifth Element? Pretty sure the scene with a talking toilet was in that movie.
Commands could come in through satellite modems or ground-based RF that are cloud-connected. “Autonomous” robots generally still accept user commands and may send back telemetry while operating.