
Ask HN: How To Start Angel Investing Now - biznickman
Hi All,<p>So I have a question.  I'm looking to start investing in a couple of startups and found AngelList thanks to a blog post linked to this morning on Hacker News.  I was disappointed to find out that I need to be an "accredited" investor to join.  The easiest requirement to meet it appears is having a net worth of over $1 million.<p>I sold my company in December and have a few hundred thousand in cash but won't have a $1 million net worth until my first earnout date this coming December.  Is it possible to start investing before that date?  I write a popular blog and get A TON of startup pitches every day but it sounds like it could be difficult if I'm not SEC Accredited.<p>What should I do?<p>FYI ... this is the page detailing how to become an "Accredited Investor": http://www.sec.gov/answers/accred.htm
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thrill
You're free to invest in anything _you_ want - short of a court order or some
specific law about where your money is spent (i.e. no helping those on certain
bad-boy lists of the US government), no one can stop you. The difference is
that those _seeking_ investment are limited in how they may approach non-
accredited investors, ostensibly for the protection of the "little people", to
use a phrase recently in the news.

Much of this is driven by a (valid) concern for liability. I've personally
been a part of a company that had accepted investments from non-accredited
investors in its early days. One of those investors decided he wanted out
early, before the stock had become liquid (i.e it was still privately held).
He took the approach of arguing that he'd been taken advantage of in his
ignorance of risk, and the company took the probably wise step of finding a
way to undo his investment.

Accreditation is not strictly a net-worth evaluation. If you are very
knowledgeable person in a given area of expertise, a company may be
comfortable with accepting your investment even with your lower net worth/

Your net worth is not strictly your cash in hand - if a reasonable person
would value your forthcoming payout as worth $1 MM, then the corporate
attorney for whomever you're interested in would likely be comfortable enough
to advise his client to accept your money.

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gojomo
_Your net worth is not strictly your cash in hand_

Excellent point, though I'd heard part of the recent Accredited Investor
'compromise' (in lieu of inflation-adjusting net-worth limits up to
$2-million-plus) was to change the definition to consider only 'liquid' net
worth. That could cause troubles for this net worth accounting method.

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joshu
First start taking some meetings. Unsolicited pitches in my experience are
less investable. Do some advisory work or something like that.

There is no accreditation process - you just are allowed once you meet the
rules.

Please understand, though, that if you have a $1m net worth, you probably
can't allocate more than 10% of that to angel investing, which means being in
just a few deals if your minimum in is $25k or whatever. And it comes back to
you slowly - I've been investing since 2006, in 38 deals so far, and I've seen
exactly one exit so far.

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hugh3
My advice, if you have a few hundred thousand in cash and want to start angel
investing: don't.

Don't angel invest until you have enough secure, low-risk investments sitting
around that you can shrug off losing your first few hundred thousand dollars
worth of investments, as you're very likely to do.

If you have the kind of patience that an angel investor needs, then you'll
have the kind of patience you need to wait for December.

~~~
joshu
Well said. You ARE losing your first investments, and it will take 5-8 years
to get anything back.

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seanMeverett
You don't need to be an accredited investor to invest in startups. I did a lot
of research back in 2007 when I started BlueStone Investments, a high-
frequency ago trading firm. Basically the SEC requirements don't even apply
unless you have a group of more than 10-15 investors (i.e., hedge fund).

Thus, if you want to be independent or start a small angel fund, you don't
have to worry about being accredited, you just have to worry about sharpe
ratios of the investments you're pursuing (whether securities or businesses).

I'm in the process of starting a few companies and need a bit more cash than I
can liquidate at the moment, so we are looking for an angel investor around
the $100k level for a year to fund leasing short codes (SMS) and marketing.
We're not changing any user behavior but extending the functionality of a
communication medium used by every mobile phone in the world.

You can find my email in my profile if you're interested in chatting.

~~~
gojomo
_You don't need to be an accredited investor to invest in startups._

True, but the most-promising/best-advised startups often avoid the risk and
expense of taking money from non-Accredited Investors (or at least those who
aren't close friends and family). So while it's technically possible, your
ability to angel-invest is severely encumbered by the Accredited Investor
rules.

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axiom
Maybe I'm just totally crazy here, but my feeling is that unless you have $10
million+ cash you really should not be investing in startups. It's just way
way too risky.

This is probably just my own personal risk tolerance, but you should not be
investing more than 10% of your net worth into stratups (because you're very
likely going to lose it all) and you should have at least ~10 investments in
order to normalize your risk. Not to mention that you're probably tying up all
the money you're going to invest for ~5 years until (if you're lucky) there's
an exit.

Again, this is purely just my own (admittedly conservative) risk tolerance.

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hristov
I believe you can become accredited if you are director in the company you are
investing in. If you are investing a significant amount of money it is
probably a good idea to get on the board anyway, regardless of whether you
need it to become accredited.

By the way, this is not legal advice as I do not know the specifics of your
situation, please consult a securities lawyer; he/she will be able to give you
better advice for your situation.

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Mankhool
As the costs for creating a new product or service continue to be driven down,
is there not an opportunity here for a new category of angel investors to meet
the needs of startups that need ie., < 100K?

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joshu
In my experience, companies raising > 500k aren't hiring fast enough to grow
rapidly. And if they are, they're almost certainly raising again almost
immediately.

There's plenty of business that can be built for that small amount, but they
tend to be lifestyle businesses and as such are not particularly suitable for
investment.

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epi0Bauqu
Advise for equity.

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dnsworks
It seems that in the past 3-4 months interest in becoming an angel investor
has been popping up everywhere, kind of like a few years ago right before the
real estate bubble popped and everybody wanted to become a real estate
investor.

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callmeed
Are you saying we're in a seed/angel bubble now? Is that (really) bad?

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damoncali
It's bad if you're a seed investor.

It's also bad if you need a bigger VC round after you take a (highly) inflated
seed investment round. This sort of thing happens when bubbles pop.

(For the record, I don't think we're in seed bubble).

