you hear the stories about how real money is made by investing in companies BEFORE anyone knows about them. which is where the VC partner companies come in.

but it seems like an equally great way to lose your entire investment.

who has participated in this world and what are your recommendations?

I've invested in a few. Some very sophisticated projects through an investment banker buddy and others through friends/family money. I don't invest any more than I'm willing to lose. On my personal financial statement, I have the investment value at $0 as there is a chance that I'll never get my money back.

I have one that was a complete loss. Another one told me today that he's considering selling and the price would return about half of my money. A couple of others have solid promise - one of which just received a 6.5x multiple valuation.

thanks that is good advice

I am wondering if accredited investors can actually make more money because they have additional assets to purchase

or is it really like just having a AMEX Black card versus a Visa World Rewards card.

I see a lot of offers pitched to accredited investors where it seems that is the real opportunity to grow your wealth.

or lose the entire investment.

I think accredited investors "make more money" before they become accredited. They have higher earning jobs which allow them to take risks. One of my buddies that I've invested alongside on multiple projects is always putting in 50-100% more than me. He's willing to take bigger risks, so his return is better. He also makes more money than me in his "regular" job, so he can recoup a loss faster.

What do investors look for when coming in on low level investments? We are possibly looking to bring on investors with our new software. We are not reinventing the wheel, but see issues with the software that we use and with feedback from other resellers we are looking to do it ourselves.

Not soliciting here, just trying to get an idea of what investors look for when looking at a startup.

n_touch said:

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What do investors look for when coming in on low level investments? We are possibly looking to bring on investors with our new software. We are not reinventing the wheel, but see issues with the software that we use and with feedback from other resellers we are looking to do it ourselves.

Not soliciting here, just trying to get an idea of what investors look for when looking at a startup.

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those are great questions and I don't have an answer.

I know that here in Israel they just had the largest AI conference in the world earlier in the week

where most of the biggest names in the field were meeting in Tel Aviv. So clearly there are hundreds of startups trying to get funding and there is a huge amount of it.

this may be helpful to you:

Tech Start Ups

n_touch said:

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What do investors look for when coming in on low level investments? We are possibly looking to bring on investors with our new software. We are not reinventing the wheel, but see issues with the software that we use and with feedback from other resellers we are looking to do it ourselves.

Not soliciting here, just trying to get an idea of what investors look for when looking at a startup.

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In my experience on these deals, it's slightly different based on the industry or product, but a few common themes:
1. Experience of management (both in the area and in building businesses) and their drive/dedication to achieve results. A large part of an investment like this is in the management team.
2. For software, demonstration of the need in the market and how easy is it to replicate the product or use another solution, and is it something you can copyright and protect from a Microsoft just stepping in and doing themselves. They need to understand and agree with the competitive advantage.
3. Stages of development and timing to commercialization.
4. Timing to cash flow, ROI and liquidation event. They will want some sense of an exit strategy for them.
5. Capitalization structure of the business - how much stock already issued to other investors (I.e are they the first money in) and whether any debt on the business.

I'm not sure how much money you are trying to raise. Friends and family may be easier. A loan may make more sense we than diluting yourself. If you plan to pitch to actual PE or VC firms, you need to be more formal and polished about the process to increase chances.

Thanks for the feedback. This has just been something that I have been looking into. Nothing on a serious note, but would be up for it to help get launched.

To answer everything you had there.

1. Been in the field for 14 years so I know the market and currently sell something similar to my clients as well as others. This would be something that would be available to my clients as well as resellers in my field.

2. It is easy to replicate with the right team. It is not ground breaking software.

3. From start to launch 6-8 months.

4. Almost immediate. All current clients and those we onboard between now and launch would be migrated to the new platform after user testing. Their current pricing would stay the same, but would also allow us to include new services that we could bill for since they are currently not available with the current software and not something that we can easily integrate.

5. No other stock or any investors.

The amount is not large when it comes to Tech Startups. Less than 60k for everything and that is on the very high side.

Sounds like this is a candidate for a loan if you truly believe in the business. That way you don't dilute ownership at this stage. Plus at that level you probably won't get much interest in equity investing unless it's friends/family, but even then a loan may be preferable if they are willing vs. going to a bank that is going to require more red tape and restrictions.

Excellent post and you boiled some very important concepts down to level I think most can understand.

I regularly review new ventures with partners who invested in my "new" business 15 years ago. We boil down to those main points pretty quickly.

Thanks. You are one of my new favorite posters. Haha

n-touch. Good luck with the venture. If you do end up raising money and getting investors, give me a shout. There's other things you need to consider vis a vis governance, how to remove investors, what happens to their interest if they die, call or put options to buy them out, etc.

does investing in a brewery located in Aggieland count as this?

One way is to get a job at an early start up and get stock options.

Early employees at Instagram, Uber, SpaceX, etc. have become quite wealthy from their employee stock options.

Equity in most start ups ends up worthless though, or not worth much.

I have not personally invested in a VC backed company, but I have worked close to the space and with a few VC backed startups.

I will say, the more I've learned about VCs, the less sophisticated they seem to be. There are some good ones which may be the house hold names (Founders Fund, Sequoia) that you hear invested in Facebook, and Uber, etc. but there are a ton of funds out there and new ones starting all the time. And many of the investors aren't that sophisticated, they just have money to risk and they invest it across a lot of start ups and new ideas.

A lot of seed stage funds are limited in the capital they have so that's why they go seed stage, they can do a few hundred thousand, maybe a few millions tops. The smaller seed stage investors often can't fund larger rounds like series A, and beyond. The bigger funds that do series A, B, C etc are a little more sophisticated. But you'll also be getting in at higher valuations in later rounds.

The funds charge fees and stuff for the investors to participate and have different rules on asset allocation and percentage stake they take in the companies. This may limit their investments to companies at specific valuation ranges only.

But I have to say a lot of dead end ideas get a surprising amount of funding. Sometimes there is a surprisingly little due diligence by the investors. But yeah, some investments become home runs. Usually one company makes up the majority of the fund returns.

bmks270 said:

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One way is to get a job at an early start up and get stock options.

Early employees at Instagram, Uber, SpaceX, etc. have become quite wealthy from their employee stock options.

Equity in most start ups ends up worthless though, or not worth much.

I have not personally invested in a VC backed company, but I have worked close to the space and with a few VC backed startups.

I will say, the more I've learned about VCs, the less sophisticated they seem to be. There are some good ones which may be the house hold names (Founders Fund, Sequoia) that you hear invested in Facebook, and Uber, etc. but there are a ton of funds out there and new ones starting all the time. And many of the investors aren't that sophisticated, they just have money to risk and they invest it across a lot of start ups and new ideas.

A lot of seed stage funds are limited in the capital they have so that's why they go seed stage, they can do a few hundred thousand, maybe a few millions tops. The smaller seed stage investors often can't fund larger rounds like series A, and beyond. The bigger funds that do series A, B, C etc are a little more sophisticated. But you'll also be getting in at higher valuations in later rounds.

The funds charge fees and stuff for the investors to participate and have different rules on asset allocation and percentage stake they take in the companies. This may limit their investments to companies at specific valuation ranges only.

But I have to say a lot dead end ideas get a surprising amount of funding. Sometimes there is a surprisingly little due diligence by the investors. But yeah, some investments become home runs. Usually one company makes up the majority of the fund returns.

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other than being a millionaire, what's the benefit of becoming an accredited investor?

seems from this thread and other ones the answer is: not much.

LMCane said:

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bmks270 said:

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One way is to get a job at an early start up and get stock options.

Early employees at Instagram, Uber, SpaceX, etc. have become quite wealthy from their employee stock options.

Equity in most start ups ends up worthless though, or not worth much.

I have not personally invested in a VC backed company, but I have worked close to the space and with a few VC backed startups.

I will say, the more I've learned about VCs, the less sophisticated they seem to be. There are some good ones which may be the house hold names (Founders Fund, Sequoia) that you hear invested in Facebook, and Uber, etc. but there are a ton of funds out there and new ones starting all the time. And many of the investors aren't that sophisticated, they just have money to risk and they invest it across a lot of start ups and new ideas.

A lot of seed stage funds are limited in the capital they have so that's why they go seed stage, they can do a few hundred thousand, maybe a few millions tops. The smaller seed stage investors often can't fund larger rounds like series A, and beyond. The bigger funds that do series A, B, C etc are a little more sophisticated. But you'll also be getting in at higher valuations in later rounds.

The funds charge fees and stuff for the investors to participate and have different rules on asset allocation and percentage stake they take in the companies. This may limit their investments to companies at specific valuation ranges only.

But I have to say a lot dead end ideas get a surprising amount of funding. Sometimes there is a surprisingly little due diligence by the investors. But yeah, some investments become home runs. Usually one company makes up the majority of the fund returns.

---

other than being a millionaire, what's the benefit of becoming an accredited investor?

seems from this thread and other ones the answer is: not much.

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It generally means you've demonstrated the smarts to invest in things others cannot. For example an FA with the proper licenses can invest in futures, options, etc. A normal customer cannot unless he/she has enough money or demonstrated income, and even then have to sign enough disclosures to embarrass a divorce attorney preparing a prenup.

I've invested in some start ups but I typically ride along with some other investors who are traditional PE entities that I have come to trust their diligence and experience in vetting opportunities. Being an accredited investor allows me to invest in these private company opportunities. As has been noted above, my experience is that for every handful you participate in, one or two may be a dud. One or two may give you a modest return but nothing that's significantly higher than the market. But all you need is that one to hit and frankly it makes up for the others.

So to answer your question, being an AI allows me to participate.

The strategy from what I can tell seems to be this:

Have a thesis on a specific type of technology or sector.
Invest in a bunch of startups working in that space.
Hope one of them has the innovation in the sector that grows it into a multi-billion dollar business.

Some example sectors that have funds around them:
Defense focus
Space focus
AI focus
Climate focus (CO2 emission reduction)
Manufacturing focus

The fund will then invest in a bunch of companies hoping that at least one will be the game changer, and expecting most of them to stagnate.

I've seen data that shows average VC investor returns aren't any better than the S&P500.

Also, I think the community seems to follow fads. If one VC does something, then everyone follows. Like fashion trends. What sector or company is in vogue gets a ton of attention for a few years then fizzles out. There is a ton of social psychology going on with VC investing in my opinion, they all kind of look to each other and are closely networked.

Right now the new hotness is climate focus. A few years ago, space and satellite tech was huge (still kind of but not as much). Defense is also one I've seen a lot of. And then you have the economic environment where in 2020 companies were getting just crazy valuations.

Data shows VC deal valuations have reduced significantly in 2022/23, but what's even harder on the companies raising money, is that the number of deals has been cut in half. The investors are being a lot more picky now, and giving lower valuations.

Reasons to invest in VC: I haven't run any regressions but I'm guessing the returns are only moderately correlated with broad market returns, meaning you can increase portfolio return reliability (a hot startup will do still do well in a down market and fantastic in an up market). Also, you can make a boat load of money.

Reasons not to? The expensive, customary 2 & 20 fee structure attracts lots of bozos who have no business running a fund (like moths to a podiatrist's office) and if they screw up you pay the price. Long lockup periods.

If you're considering handing your money over to a fund, you need to 1) be highly, highly confident that they know how to perform diligence and pick enough winners to make serious $$ (again, there are a lot of idiots running funds who generate meh returns at an exorbitant price), 2) respect the fund managers' networks (VC is a network game. Connections are EVERYTHING. Need a good network for deal flow, helping portfolio companies find partners and customers, etc), 3) be comfortable doing without that money for awhile.

Last place I expected a norm reference