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Ask HN: How would you invest $50,000?
46 points by alphabetaprune on Mar 15, 2010 | hide | past | web | favorite | 97 comments
I am in a financially secure position. I have no debt, I am single, no mortgage to pay, and no need to work (although I do it anyway because I enjoy it). I am not "super" wealthy either. Rather than having money sitting in the bank, I've decided to invest $250,000. $200,000 will go into vanilla/convserative investments. But with the remaining $50,000 I'd like to try something a bit more interesting. I have unlimited risk tolerance for the $50k, provided the investment has "home-run" type upside.

1. Excluding angel investing, what would you do?

2. Assume you have zero experience angel investing, but have a capable technical background. What do you do? How would you build an angel brand for yourself?

I imagine that becoming an angel is difficult.

1. You need to be situationally positioned well to get decent dealflow.

2. You need to invest in many deals; I have been told that profitable angels do 10+ deals a year.

3. Low-end slices are typically $25k and up. It's a lot of work for companies to wrangle a large number of investors so minimizing that number is to their advantage.

4. It can take YEARS to return anything at all. I've invested in 24 startups since 2007; one exited so far.

I have a few friends that do angel investing in the 5k - 10k range regularly. Unfortunately that's still only a handful of deals and might not be enough to get a good reputation or good deal flow.

In what kind of companies? With what kind of success? In what region?

Be careful: If you're in the US, to do most angel investing, you must be an accredited investor, per SEC regulations. To qualify, you must have a net worth of at least $1M or have made >$200K in each of the last two years (>$300k if married). Almost any company with a good lawyer will require that you sign something certifying that you are accredited.

I do meet the SEC's accredited investor criteria

1. Excluding angel investing: If I were you, with 50,000 and unlimited risk tolerance, I'd buy a foreclosure. If you take some time, do your homework, and make the right investment then the payoff could be quite good.

2. I understand your frustration. There's just nothing out there for the beginning angel. As you can tell from most of the answers here-- there really isn't a good answer. You're too rich to have the money sitting in a bond fund, and too poor to be Paul Graham. You're stuck in the middle, and the investments market (right now) doesn't have a home for you. You're also a prime target for some get rich quick investment schemes, so you ought to be careful.

Invest in a small tech firm from a country where labour is cheap. India. Ukraine. Philippines.

$50,000 = annual salary of 3-4 employee team.

Get them to make iphone apps, android apps, facebook games.

If you go with a 4 people team, the division should be: 3 developers and 1 marketer. And one of them handles everything for a bit higher salary and a very small equity stake.

If you had $100,000-$200,000 to invest, I would get the team to flip websites. You buy the websites (with the remaining $50,000 to $150,000). They make it better with new features / redesign etc and then increase traffic to it for 4-6 months. You then re-sell the websites.

In this instance, I would go with: 2 developers and 2 marketers.

Find a startup that interests you personally enough that you'd go on board as a founder who conveniently has $$$.

board experience is a super big plus.


- $40k into an Index Fund tracking the S&P 500

- $10k into a Six Month Trip Around Southeast Asia

Chances are you're not going to hold onto that Single, No-Mortgage thing very long. If you haven't done much traveling, it's probably best you get out there now to see what you're missing.

You definitely have the right idea with getting your debt sorted and starting the retirement investment stuff early. You're never going to be in a place where excess money comes in so fast, and it's physically impossible to get into a place where your investments have longer to compound.

But then you're also in a place where you can afford to squander a bit of that advantage to go have some fun. Send us a postcard!

I went around most of Southeast Asia, plus Japan on $12k for exactly six months. Three of those months were in Japan.

Totally worth it. I'd go back now, if I wasn't dead broke.

I go to Thailand in just over 4 weeks, after Indonesia last year ive got exactly the same bug. Though I think my anti love of commercial epicentres was further developed by the fact we spend 3 days in Dubai on the way back home..seriously everything that is wrong with anything is there! Nasty...Rant over.

I would post on HN and ask for people to share with you what they're working on but for the love provide some sort of template or format you want to be pitched with. Whether you want to see wireframes, a demo, or a slide deck with 5 slides etc.

Pick what you like best and dive in - in whatever capacity you choose.

I might respond to something like this.

I would make a list of lesser known sites that I am impressed with, then sequentially contact them for an x% stake. If all say no, I would try and join the angel list on venture hacks. If they didn't let me in, I'd go to the angel investment network.

Err, the first question we should be asking you is "why don't you have a mortgage".

Unless you were given a house and have a chest full of gold bars, you are probably living off the income of interest, so you're still paying income taxes.

Get a mortgage. Its a tax write-off, along with the fact that RE is a pretty good overall investment, and very 'cheap' money. Hell, if you have to, HELOC your place and put that money into a higher yield investment.

Get a mortgage. Its a tax write-off

Not so much, if you're in AMT-land (and it seems like the poster is).

But even so, I don't understand why people (you're far from the only one) say this. For every dollar you save in taxes, you're paying two dollars to the bank. How can that possibly be smart?

Whether to invest in Real Estate is an entirely separate question. And one that I also think is a poor choice in this age. I base that on the current price of homes relative to their historic levels. They're still expensive.

But even so, I don't understand why people (you're far from the only one) say this. For every dollar you save in taxes, you're paying two dollars to the bank. How can that possibly be smart?

That plan is to take the money you have invested in your personal dwelling, and leverage a government subsidized low-interest loan (mortgage with deductible interest) to re-invest for a higher return. Obviously it doesn't make sense for everyone - it requires that you have a low enough paper income that you aren't in AMT territory (and can thus deduct your interest) and that you are comfortable investing that money in something higher-return and presumably higher-risk, though the last few years have shown that your personal dwelling isn't necessarily a low-risk investment either.

The short answer is that for every two dollars you pay to the bank in interest, you should be making more than two dollars in return on your subsequent investment.

Have you considered becomming a creditor? You can lend via sites like lendingclub.com. Annual returns are approaching what you'd expect to get on the stock market in the long term.

I haven't tried this investment myself yet (insufficient funds) but I'd be interested if I had the money spare.

Warning: I'm not sure about how this works in the US, but here in the UK I'd have to obtain a consumer credit act license for lending more than 25k.

I'd say come join my company.

We're operating in a $15 Billion industry with no real market leader (yes, there are still a few of those around). We've made ourselves profitable in less than 6 months with about 3,000 customers.

This is my ninth business, I'm tech and marketing oriented, and a fourth generation entrepreneur.

I'd love to speak with you, get to know you, and hopefully help each other make some money.

Send me an e-mail, lets talk.

blalock.matt AT gmail.com

While I'm not calling you a liar, why don't you either:

1. Post your company name, or 2. Post an email address that isn't AT gmail.com

It just gives you a bit more reputability, which I think is important when you're fishing for $50,000.

I've posted my contact information here several times. I really wouldn't call myself fishing, but here's my contact information in full.

And I can understand how my post may have seen somewhat fishy (no pun intended!).

Matt Blalock Tickle Industries, LLC http://myticklespot.com mattblalock@myticklespot.com 336-231-3744

Out of curiosity, why 'women and couples'? I know guys don't like to talk about that sort of thing, but speaking as a guy who has spent more time single than I would perhaps like, I imagine the market for things like the fleshlight is rather, um, large.

Ha, yes. That market is large, the gay male market is large, and the lesbian market is large (not trying to stereotype, but each of those demographics require different approaches in this sort of product).

We are developing sites under the same style and philosophies for each of those markets (hope my competitors aren't hanging out here...) but we believe a "one size" approach simply wouldn't work - the customers are simply too different.

Women and couples was what we understood most, so we began there.

what do you need investment for? Are you doing manufacturing and not just retail?

Investment would allow us to do more promotion, grow our catalog, bring a designer onto the team and seek out another developer.

There are several things I want to do, but I get so caught up in day to day things (answering the phone, responding to customer e-mails, etc.) less development gets done.

Further, we write every description on our website, writing isn't cheap. We have over 1,000 products now, but have about 5,000 in a database we want to carry. Everything needs photos, often they need to be cleaned up, photoshopped, the specs found and fact-checked. Basically, each product we add costs us about $20. New products come out every week, so a lot of money goes to that. The ability to increase our catalog quicker would be awesome.

Beyond the investment, the expertise the person has, the contacts, the outside interest he/she could bring, would be far more beneficial for us than the money.

To answer your question directly, we are not doing manufacturing, but we could. And probably should. Not yet, anyway.

I was/am in a similar situation. The rule of thumb financial advisors tend to use (and you should take any advice from them with a few grains of salt...) is to put around 10% of your portfolio into high-risk investments.

The 'typical' route you'll be steered toward are real estate investments. There's a whole world of exotic financial instruments I had never heard of before coming into money, but real estate is probably the most popular, since it seems so familiar to most people. This is what we did. In 2007. Yeah... =) It paid off in the end, surprisingly, but it was a close thing.

The best advice I can give you is to invest in things you understand. If you have enough experience with startups to judge them critically, angel investing may be your best option. Putting your money into something you don't understand is little better than gambling.

Invest in green tech - but I'm not speaking stocks. Install solar panels on your home, or maybe a vertical wind turbine. Insulate your home better, research if it's financially worth it. After doing that, you can even reuse your experience for others - for charity or profit, as you like.

Invest it in something that will directly and non-financially benefit at least one other person, not including yourself. I guarantee that it will give you the greatest ROI. You already sound much better off that 99% of the population. Good luck with your investment!

Invest in something you know. For me, that meant becoming an ISP, buying servers, virtualizing them and renting 'em out.

Knowing what you invest in is a huge advantage, one that you will certainly need if you only have $50K to invest.

How is you investment working out for you?

pretty good. I'm probably not quite in the black if you take all the money I spent before I figured out what I was doing into account, but it's supporting me and paying for two new servers a month, so I'm happy enough to call it a success. But yeah, there were, ah, a few years of failure to slog through before I got to this point.

Note, I didn't have a big wad of cash going in; I've paid for it renting myself out as a contractor. (But then, OP only is spending $50K, and, uh, by the time the project was able to support me, that was maybe 4-5 months of contracting. $50K is not a big wad of cash by "I want to start a business" standards. )

Good to hear, thanks for replying.

Thanks for the responses. I appreciate the feedback. The discussion here gave me a few ideas.

Perhaps if anyone is interested, I'll do a blog post within the next few months explaining what opportunities I chose to pursue and why.

http://www.secondmarket.com for private company stock that you expect to go public within a year or two. I haven't tried it.

Find somebody who wants to start a company in the hardware business. They don't have the luxury of building something for free and $50k might be enough to get a prototype.

For #1, are you looking for a 1 in 10 chance of a 5x return, or a 1 in 100 chance of a 50x return?

For #2, if you don't want to spend the serious time and money (because you will lose some money while learning) becoming a angel investor, consider investing in a fund that does angel size investing. David Cohen of TechStars runs a small fund that does seed stage investing, and I'm sure you can find others as that is a hot area.

For #1 You can beat those odds by going to Vagas. It's not hard to get a 1 in 10 chance of 9.5x return or a 1 in 100 chance of a 95x return. What you want is a 1 in 3 chance of a 30x return within 5 years.

PS: This is also why most VC funds make so little money for the investors.

> It's not hard to get a 1 in 10 chance of 9.5x return or a 1 in 100 chance of a 95x return Does 2x on $100 leave me a total of $200 or $300.

> What you want is a 1 in 3 chance of a 30x return within 5 years Obviously, that will be hard to find. If you did 100 of those, you'd be getting a 10x return in 5 years.

My original question to the poster stands. Are you looking for a real long shot, or something with a decent chance of paying off?

To answer your question. My original thinking in setting aside $50k was to expose myself to "positive black swans." I'm looking to place a series of improbable bets such that if one pays off in a major way...

I do like the idea of investing in an angel fund to get my feet wet. I'll consider that.

Here's something you can do even with small dollars and without being an accredited investor: find some public firms with lots of "toxic assets" on their books, e.g. mortgage REITs. See if you can find some that most people are afraid to touch, yet you think they'll pull through. Buy their stock.

I have a lot more research to do before I pull the trigger, but I'm planning to throw a couple grand in this direction myself.

Sounds like somebody was watching 60 Minutes last night.

Here's a full article about one of the guys they profiled: http://www.vanityfair.com/business/features/2010/04/wall-str...

I believe that guy effectively took short positions on the firms with toxic assets. His positions were pretty much insurance bets, which paid off when a lot of these firms tanked during the crisis.

Nope, coincidence. Been looking at this for a few weeks. Thanks for telling me, though: I'll take into consideration anything that looks like a spike from the media attention.

See if you can implement an improved information system if they have a really bad one. Their cause of failure: bad information. On the other hand maybe they have some good information that can be useful.

Think about how you can differentiate yourself in the angel market. What do you believe in the potential of that you don't think is shared by a lot of more established names? What do you think everyone else is missing? I bet there's something.

Track down the most talented people you can find working on that unfairly underserved idea and make it your cause.

Invest in New-Space, or "Space 2.0". There's a private space travel revolution happening in Mojave, and Texas.

Look up:

XCOR Aerospace

Scaled Composites

Armadillo Aerospace

Masten Space Systems

Unreasonable Rocket

Blue Origin


Check out the arocket-list mailing list for detailed engineering discussions on amateur rocketry, including comments by some of the people involved in the companies I mentioned.

It's not clear who the winners will be here, but some of them will be billion dollar companies.

All on black.

Or 8 or 6 on the craps table... Heck even the pass line...

I would advise against anything like angel investing. You're not in a position where liquidity concerns wouldn't pop up, so having access to your money (should you need it) is important. Angel investing means tying down your cash for years...

I personally suggest you follow Nassim Taleb's advice (he of Black Swan fame), which you seem to be doing by keeping the majority in conservative,safe investments and looking to score big with the remaining. If you're looking for home-runs, I suggest options trading. There's a lot of volatility in the market, and if you time things right you should be able to generate a handsome return.

Good luck!

I'm a fan of Taleb's philosophy. I've actually dabbled in options trading with straddles.

Hmmm, very interesting. Are you doing it based on arbitrage, for mergers or when earnings come out? Which sectors do you dabble in? I'm curious to how your strategy has worked out so far!

Don't ever buy a variable annuity.

1. Some forms of oil and real estate investments, in some states, can be a significant tax deduction. Otherwise consider saving this money for future tax benefits or new opportunities.

2. Get involved in the community where you want to work with angels. It looks like you've already started. People make angels, not a brand.

Go to YC demo days http://ycombinator.com/dday.html

If the $50k is more than 1% of your liquid assets you should consider short-term investments until you're in a position where angel opportunities find you.

What's wrong with a variable annuity? Just curious b/c I don't know anything about annuities but they sound good for the future.

Enter in contact with other angel investors, sometimes they group together in a fund and they will be happy to help you invest the $ 50,000.

I would invest half of it in low risk mutual funds and then take the other half over to my friend Asadulah who works in securities...

1) I wouldn't, but you could do real estate, franchising or futures/options trading.

2) If you want to consider angel investing alongside me, email me.

Angel Investment? Seriously? For a guy with $50k in the bank??? Surely you must know how Angel investing works, right?

You might as well advise him to take his money to the dog track. It's better odds and more fun.

He's the one talking about it. I'm just offering a way to think about it in a more focused manner.

Ah, in which case your answer should have been "No. Angel investing only works if you invest in dozens of companies, since chances are any one of them will go under."

Or better still, "No. You should take it all out in twenty dollar bills, box it up and send it UPS to that Expat Software guy." I'd back you up on that one.

If he wants to be a co founder and contribute, and he's got some skills the odds go up

Not so much an investment...Come up with some crazy idea to do with the money, do it, then write a book on it.

Anyone remember the guy who sold everything he owned, went to Vegas and put all the cash he had on black, then wrote a book. Might have been a documentary too.

Then there was KLF who burned a million quid but I don't see how they made their money back.

1) bootstrap a company....get products out the door.....try to find product/market fit

2) best starting point is to go through the cycle yourself....if you haven't, refer to response to 1)....this investment in building a company will pay off down the road when you want to invest in other startups (and have accredited investor status, etc.)

There was an idea floating around the blogosphere a few weeks ago about investing in individual rather than an specific company. Where you would pull in a percentage of that persons net income for the rest of your life...could be interesting.

That sounds like slavery.

No, slavery would be forcing someone to work for you (rather like what the government does when it forces people to pay an income tax.) Contracting with someone for a percentage of their income is rather like investing in their startup with the agreement that they will work for the startup for a long time.

No dude it is slavery, it is called indentured servitude (classified as a form of slavery) and it is illegal. The reason being that if allowed it is easy for the rich to drive down the market until you sign up for service or you starve. If allowed, the vast majority on this board would be indentured in less than 15 years. The worst part is that it never becomes enough, fathers have to enlist there sons, before they can consciously accept or reject just to be competitive. If they ever legalized this in America, I would revolt the day it was passed, it may be a revolution of one, but it would be a revolution.

Even if it's done without force, one can't contract away their freedom (at least in the US). The contact isn't enforceable.

You could loan it out over Kiva, or at least a part of it. Just be sure whatever you choose, for any of your investments, that they at least beat the rate of inflation, else you are better of spending it.

Kiva does not even pay interest, so I don't see how this fits the description of a potentially high-risk investment with the possibility for a large payout.

That's not true; Kiva often charges extraordinarily high interest rates. See: http://en.wikipedia.org/wiki/Kiva_(organization)#Interest_ra...

It charges interest to borrowers, but it doesn't pay interest to donor-investors.

Am I the only one who sees a problem with this?

I lend on Kiva, and I don't have a problem with it. There's a lot that has to happen between my Paypal transfer to Kiva and the money being distributed to the local entrepreneur...and even more that has to happen to collect the payments.

I'm happy to set aside a small amount of money as a catalyst for progress, and thankful that others are doing the heavy lifting.

(Apologies for continuing this off-topic line of conversation.)

Buy 50 servers and start leasing VPS for $19 a month. 1000 clients will leave 20k a month enough to pay a sysadmin and pocket some cash while you monitor everything from hawaii.

I'm not saying it's a bad idea; If you don't count marketing costs, there is lots of margin in the VPS business right now. However, it's probably a bad idea if you aren't a SysAdmin. At least until you get those 1000 customers, it will be difficult to buy your hardware /and/ retain a good enough sysadmin.

also, you are probably better off with dual-socket servers w/ at least 32GiB ram, which will cost you considerably more than a grand each, but that will likely get you more power/ram for your money. For a grand a pop, you are probably looking at 8G ram servers, so if you are trying to put 1000 customers on those puppies, you are going to be coming in at around twice what I charge, and pretty close to what Linode charges. Linode is very good and very established, and they have an excellent toolset. You will need to spend a lot of marketing dollars to say "Hey you've never heard of me, but pay me just as much as you'd pay the established player with the good reputation"

If you still really want to do it, go buy my book[1] - I've included much of what I learned running my own VPS company.

[1] http://nostarch.com/xen.htm

I don't think shared hosting has the "home-run" type upside that he's looking for.

the difference between a 'vps' and 'the cloud' is little more than an API layer. Many people seem to think there is much upside in the cloud.

(that said, I'm not saying you are wrong; owning infrastructure and renting it out usually has a reasonable and predictable (and not huge) upside.)

I'm in a very similar situation - I don't have any great advice, but I'd love to discuss "offline" and hear whatever conclusions you come to.

I'd ask myself how much time I'd want to spend in growing the $50K. An angel requires time to help cultivate an idea. Do you have time?

I would say: get your pilot's license. It seems that you pretty well set, it should be pretty fun to fly. Also a cool conversation point

Nothing beats Greyhounds: http://www.thedogs.co.uk/Ownership.aspx.

Though one. Are you willing to spend significant time on those angel investments?

What's your definition of a home-run.

1x return a success or multiples? and in what time frame?

Invest in me :)

Give it to charity. Sounds like you have more than enough.

I'm a programmer I typically make ~72k a year. But for 50k, I'll work for you for 1 year. The catch, is you have to let me work on whatever I want (provided you agree it has profit potential) we can discuss further details if you're interested.

hey its worth a shot :)

Buy/get a dataset, such as images or audio or biological data, and spend the money on computing time to do machine learning/genetic programming to create a classifier from it. Sell/rent out the classifier for big bucks.

For example, label smiling/unsmiling faces on 10,000 images using mechanical turk, run an algorithm (neural net,svm,genetic programming) on it using your own computer cluster or amazon ec2. Once you have the classifier, allow people to use for a small payment each time.

There are almost infinite number things to do in this way, some examples

accent identification in audio ; telling the gender/race of person from photo ; labeling person attractive/not attractive

I'd be really interested in working in machine learning, so if you know an easy way to make money from it, I would be interested to learn more. You think such a classifier would be an easy sell?

It's use is already sold (rather expensively) in inspection/robot systems in factories and in automatic license plate recognition.

I imagine it would be easy to sell. Create a classifier that rates a user's attractiveness and many dating sites or individial users might interested in paying for it.

Call centers might be interested in paying for accent identification, they can route a call based on accent to a employee with similar accent.

Microsoft will release project natal later this year and probably make billions from it.

As far i can see the opportunity is absolutely huge (trillions and trillions of dollars) since it is so commercially useful (unlike the web industry which has been based around selling eyeballs).

Do you have a link(s) to someone who appears to be doing this? I'd like to see that this idea has been implemented, and how.

This area is generally referred to as machine learning and is used extensively.

Many inspection systems and vision guided robots in factories use machine learning.

The netflix prize was one famous example of this.

The darpa grand challenge was another famous example of this.

Machine learning is used in many different places hidden from view. Probably your car automatic braking system has a machine learned controller in it. Search engines, recommeder systems. Star detection in astronomical observatories. Cheque reading in atm's and mail sorting systems.

This web page about computer vision companies http://people.cs.ubc.ca/~lowe/vision.html

Many automatic license recognition, speeding detection cameras might have machine learned algorithms

Google voice is based on machine learning.

Face detector in many different places (e.g. picasa) uses haar features and boosted decision trees. However, because it is so commonly implemented and was first made in research community (at microsoft research) no one charges for it.

Field Guide to Genetic Programming (google it) contains many examples of gp application.

Type in machine learning applications, or "something" classifier, e.g. face classifier, accent classifier, on google and in many cases somebody has already done it as a student project.

Right now you don't have funds to be an Angel, usually it requires $250,000 or higher in income and proof of yearly investments. That means you barely made the minimum requirements.

However, you could join an Angle VC investment club where they pool resources including doing fact checking on deals.

An alternative option might be do the startup yourself rather than attempt to become Angel as you already are at zero debt and security/retirement taken care of..in which case a mobile app might be ideal as a startup

Non Angel wise..municipal bonds

lottery tickets

50,000 $1 scratch-offs.

I just wrote a program to trade stocks. The testing makes around 30% annually. I don't believe it since I know myself too well but can't see where the error is. Put your money in an account, let me trade for 6 months live and see what happens. I can send you "testing proof" except the code for review. Would automate it if it does work. One last thing, taxes on this might be the killer but compounding after a few years might make it worth it..

You just wrote a program that loses money.

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