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How Can I Invest in Startups?

Posted by Erica Duignan Minnihan on May 1, 2016 3:52:00 PM



There are several avenues to building an early stage portfolio. One is to invest with a fund manager, who will select the investments for you. These managers provide the service of selecting and vetting the companies in your portfolio, and in exchange they typically take a 2% annual management fee, as well as 20% of any gains realized on your portfolio.

If you want to avoid the fees, carry and capital commitments that come with fund investing, direct investing is an option. This is when you directly own the equity in the startup, rather than the fund manager owning it on your behalf. Many people enjoy making direct investments in startups for several reasons:

  1. You choose the founders and ideas you feel most passionate about
  2. You get to choose how much you invest in each company
  3. You can be helpful to the company’s growth
  4. Opportunities for Board Seats or Advisory Board Roles
  5. There is an opportunity to generate substantial financial returns

But direct investing on your own can involve a lot of work. It requires, sourcing, screening, and vetting investment opportunities. It also helps to live in an area where there are a lot of startups, such as New York, Silicon Valley, or other major startup hubs. This sometimes isn’t a fit for everyone, due to time or geographic constraints.

Another alternative is to invest through a community of vetted investors such as 1000 Angels where you get access to high-quality direct investments as part of your membership. 1000 Angels investors are able to choose their own investments, curated from a selection of high-growth, high-return-potential startups.

Members are able to invest in the companies directly, so they do not pay any management fees or carried interest on the investments. Members also have the freedom to choose how much they would like to invest in each company and when they would like to invest. Fund investors are required to invest whenever the manager makes a decision and a capital call, providing much less freedom to adapt your investments to your current views on the market and financial situation.


Topics: Venture Investing, Invest in Startups, Portfolio Building, Direct Investment