

Ask PG/YC: Angel Capital Funds? - stevenj

When it comes to startup financing, my understanding is that VC money is pooled together from various parties.<p>But where does it actually come from? If it's from institutions, is it college endowments, or financial companies like Goldman Sachs. Or does it come from rich individuals? Perhaps it's a combination of both. Or?<p>I ask because I came across this comment:<p>http://news.ycombinator.com/item?id=2339722<p>and it left me wondering if there are angel capital (AC?) funds which pool together money from "angels" (I would imagine mostly from rich individuals) to invest in startups with an initial goal of getting acquired or just building a self-sustainable business (for lack of a better term, I suppose you could call it a "lifestyle business").
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pg
Most LPs are other funds (e.g. pension funds, university endowments) or rich
families. As far as I know, companies like Goldman don't invest in VC funds
because that sort of investment is too long term for them. (LPs in a venture
fund might not get money back for 10 years.)

There would be nothing distinctive about pooling money from rich individuals
because that's what a lot of LPs already are.

As of now, essentially zero investors want to fund "lifestyle companies" (=
companies that remain independent but never grow to the point where there is a
market in their stock) because there is no way to get one's capital back.

(I say essentially zero because apparently Bezos invested in 37signals in
return for dividends, but that sort of arrangement is as of now vanishingly
rare.)

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stevenj
At a certain level, dividends seem like they could be pretty valuable.

Is such an arrangement rare because the amount of dividends in this type of
situation is just too small?

I'm curious if an alternative (and effective) use of one's capital would be to
invest in these other types of businesses. Or even buying them outright.

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rms
It's almost definitely not an effective use of one's capital. Angel investment
is a bad industry to diversify into unless you have some sort of strong
competitive advantage as an angel. Otherwise you're likely to be one of the
median investors losing money.

