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Investing in Startups by Passing the Series 65

50 points22 hoursnatecation.com
ramraj072 hours ago

It’s interesting that OP living in a midtown apartment thought a 195 dollar Kaplan subscription is too much money and skimped on it while spending a lot of their time (wasting) on subpar material. Doesn’t exactly bode well for good investment acumen does it.

diab0lic19 minutes ago

They do admit that mistake and adjusted their viewpoint in the article.

iammisc3 hours ago

Great writeup. Been thinking of doing the same thing.

> the unspoken secret is that accreditation — at least when investing in individual startups, and especially if the founder is a good friend of yours — is just a box you can check that nobody verifies

I've heard this as well, and it's a very sad thing, because it is one of those 'secrets' that if you knew, it'd open up a lot more opportunities for you. There are few 'secrets' separating the rich and poor, but this is unfortunately one of them.

ttul2 hours ago

Well, maybe. But if your net worth is < $2M and you want to build a portfolio of 20 or so startups and then let that play out for a decade until one or two have popped and the rest failed or languished, you are going to need steel balls.

vmception2 hours ago

But you can also invest in a fund that gets better deal flow, and your exposure can be more easily spread around.

cortesoft57 minutes ago

You don't need to be an accredited investor to invest in a fund that invests in startups.

+1
sanderjd26 minutes ago
1cvmask1 hour ago

There are so many examples of investors passing over friends as investments.

In fact from anecdotal observation people do not invest in friends in general. It is people one or two removed who take the plunge.

cortesoft58 minutes ago

This is probably smart. Running a startup is stressful enough without worrying that you are risking your friends and family's life savings.

sanderjd24 minutes ago

On the other hand, this is how Warren Buffett got his start, and (from his biography Snowball) it seems to have been a strong motivator for him.

vmception2 hours ago

The legal consequence isnt on you, its on the company selling shares. So just like the Texas law, it deputizes everyone else to shut out poor people instead of being a prohibition from the state directly on the poor person. In practice that means just never talking to poorer people about opportunities, and letting them figure out that they cant even raise capital because none of their friends are accredited. Just American things.

Its Super effective!

czbond1 hour ago

You act like startups are some "keep poor people down scheme". It is because startups are incredibly high risk, and they will most likely lose their money. "Poorer" people can't stand to lose 8/10 bets they place in most cases. Only in the past 10 years with bubble money, and bubble VC exits are Silicon Valley startups seems as 2/10 gold mines. Before that, they were few/far between with a lot of failures. Startups are a failure game.... because their default mode is "fail".

Also note, outside of SV - the rate is nowhere near 2/10 billion valuations.

Making sure an investor has financial acumen helps founders focus because it is hard enough raising money from angels/VC's in $10k+ amounts - imagine if you only raised $100-$1k per person. Egad! Crowdfunding might be an exception to this - but it is fairly new.

gahays6851 minutes ago

It doesn't require financial acumen to follow a lead that has qualified a deal. It is technically possible to form syndicates that corral millions of small checks (Blockchain) to follow leads. And while startups are risky, the investing discipline is simple: spread your bets among several "qualified deals", like poker. Anyone skeptical of this should download Fantasy Startup at Doriot.com which is working to qualify non-millionaires as SEC Accredited....you'll quickly discover that everyone can (and should) be investing in startups. All that needs to happen is, first, education, and second, scaled access. Scaled access will follow once there is a large and growing educated population of Mainstreet investors. The average age of the Accredited investor is close to 60 years old....while 98% of GenZ's and Millennials don't qualify. Does it really make sense to cockblock the generations that should be investing (given they have time and ability to take on risk) and they have to live with the investing decisions of today?

jsjsbdkj2 hours ago

If you're a college student and you put 1k into your friend's startup, is there a risk that's actually a negative signal for future investors? Do investors in a real series A want a cap table that has a bunch of friends and family chipping in a grand, or are they just going to ask to wipe the slate clean?

funshed43 minutes ago

Good Question..

dogman1442 hours ago

What's the minimum possible investment you'd need to be taken seriously by a startup - 5k, 10k, etc?

What rounds would you look at mostly? Assuming it's gotta be seed-ish unless you're very liquid.

toomuchtodo2 hours ago

It really depends on the startup, their traction, and your relationship with the founders. I've had folks ask for $10k-$20k for a seed round (the line between angel and seed is very blurry imho) with zero traction and a rough idea of the product market fit with a barely functioning MVP, and another team I spoke with wasn't talking to anyone without $100k to invest. Once you're past the seed stage, unless you're connected or an employee, it's $1MM+.

I focus on seed stage as I'm seeking high risk high return exposure for this part of my portfolio (and I'm not liquid enough to participate without investing in a fund for Series A on, unless I'm leveraging as part of a transaction).

(n=1, YMMV, accredited investor)

dogman1442 hours ago

thanks!

toomuchtodo2 hours ago

Happy to help.

lmeyerov2 hours ago

As a founder, you don't want tons of small checks because of legal complications (> 99 entities on your cap table) and not a good ROI on your time initially + ongoing. A workaround is bringing in someone to run a syndicate on AngelList or some other bundling, making it their focus vs yours, and condensing to one entity.

The result is, as an individual investor, you can focus on those syndicates. Two benefits are you can spread risk by doing a wide variety of small investments, and while following more experienced individuals.

themanmaran1 hour ago

I've seen that changing a bit recently with the AngelList Roll-up vehicle[0].

It's almost like crowdfunding for seed rounds, but still with $5k - $20k kinda checks. But it helps out a lot with the legal side of things, so you don't need an investment agreement with a dozen different investors.

[0]-https://www.angellist.com/ruv

funshed41 minutes ago

I loved the get-out clauses. Though being from UK I am a little confused, you need authorisation to buy shares in a SME in the US?

vincentmarle2 hours ago

> found, however, that there was an “internet adviser exemption” for advisers that give advice entirely through the internet. That sounded like an exemption I could qualify for — I would just have to commit to not giving any face-to-face investment advice

One thing I didn’t understand from this article is what “giving investment advice” has to do with being an accredited investor and investing into startups. Can someone clarify that?

cortesoft53 minutes ago

Matt Levine has written about the problems with opening up this kind of investing to everyone.

One of the major differences between earth stage startup investments and normal public companies is that there is not an open market. Startups can choose their investors, and don't have to give the same price to all investors.

So yes, if you get accreditation, you will be able to find a startup to invest in... however, it isn't going to be the best startups, and you aren't going to get the same valuation that big VCs get.

vmception2 hours ago

The other aspect of this is that the door is open for an accreditation-specific test to become approved.

gahays6849 minutes ago

Check out Doriot.com / they're the first to submit an application to the SEC to become approved and have a product already in market