Last week we discussed angel investing in Part 1 called, Strategy: “How will I invest?”. Today, we’re going to lay the groundwork for setting up your own investment sourcing system.
How to Angel Invest: Part 2 - Finding your next deal!
Hey friends! Did you catch the earnings release from Google, Apple, and Microsoft?
They crushed it…Microsoft, a company founded in 1974, had its most profitable quarter ever 🤯.
This remote-first world is pushing the market decades ahead. We’re living in wild times…
But here’s a lesser-known story that is equally explosive 🧨.
Did you hear about the startup that went from 2 employees to over 600 and a $5.65B valuation over the last 18 months?
Hopin, a UK-based online events platform, was founded in late 2019 and within the last 18 months raised over $570 million, grew from 2 employees to over 600, and from 0 in revenue to over $67M annual recurring revenue (ARR).
What’s my point?
Startups are amazing. You put the right innovation, in the right place, at the right time, and crazy things can happen 🌊.
For angel investors, it can sometimes feel like playing the lottery, but when you win, you can win BIG.
Last week we discussed angel investing in Part 1 called, Strategy: “How will I invest?”, which you can read here. Today, we’re going to lay the groundwork for setting up your own investment sourcing system.
Parts 3 and 4 of this series will answer the questions, “How will I diligence deals?” and “Which deals will I invest in?”, respectively.
Let’s dive into Sourcing to answer the question, “How will I find deals?”
Humility is important in the startup investing world. It’s critical that you understand the limits of your knowledge so you can fill in the gaps and make more sound investment decisions.
When you first start investing in startups, you won’t have the reps under your belt to see the breakout opportunities - in short, you won’t be good.
There are a few great paths for new and experienced investors to get exposure to some amazing startup opportunities. The fun part? None of these paths existed a few short years ago.
Your deal sourcing system:
Syndicates & Rolling Funds enable you to invest alongside well-established investors who typically get unparalleled access to the best investment opportunities (this is their magic! ✨).
We’ll discuss Syndicates first...
You can invest in syndicates on a deal-by-deal basis, for as little as $1,000. The great thing about syndicates is the access and guidance you receive. Typically, a syndicate lead (the investor who controls the syndicate) has a successful investment track record (you’ll be meeting many of them via this newsletter) and will get allocation into a company that only a well-established investor could get access to.
There are many platforms that host syndicates including AngelList, SeedInvest, and Funders Club. Typically, a syndicate lead is a well-established and successful angel investor. They benefit from creating a syndicate for a few reasons.
Additional Capital: Instead of a $20,000 check, they can now write a $500,000 check with the support of their syndicate backers (investors like you and me!).
Support: The syndicate lead can lean on the expertise of the entire investor network for advice, customer introductions, and hiring support.
Carry: They earn more money! A syndicate lead will typically charge a 20% carry fee. A carry fee is a share of the profits for the effort of sourcing the investment opportunity and setting up the deal. Typically, they will receive 20% of the profits if the company exits.
If the syndicate lead invested $20,000 of their own money and Syndicate backers invested an additional $500,000 and the company exited for ten times the current value, that syndicate lead would receive:
$20,000 x 10 = $200,000 💰
($500,000 x 10) x 20% = $1,000,000 💰💰💰
$20,000 x 10 = $200,000 💰
($500,000 x 10) x 20% = $1,000,000 💰💰💰
The process is very simple.
Minutes before writing this post, I invested in a company alongside one of the best funds in Silicon Valley led by a relatively new investor whose writing and perspective I’ve admired for some time now (check him out - Packy McCormick)...all via my laptop 💻.
Steps to invest in a Syndicate:
Go to AngelList and sign up as an investor
Find a few syndicates that you want to participate in -- Yyou can review syndicate leads current portfolios, biographies, and generally get familiar with them before you apply to join their syndicate
Apply to join the syndicate (and hopefully get accepted)
Start reviewing deals
It’s that easy.
Within a few clicks, you’re well on your way to investing in your first startup 🥳.
Investing in startups is a fantastic way to learn.
Sure, you’re hoping that the company will exit and you’ll be rewarded for the risk you’ve taken as an early investor, but what’s equally important, you’re now a member of an investor network. You can review hundreds of pitch decks, speak with peer investors in your syndicate, and generally just soak it all in!
Rolling Funds are also hosted via the AngelList platform. The short explanation of the differences here is that Syndicates allow accredited investors to pool money through a special purpose vehicle (SPV) and invest it in a single company (deal-by-deal), while rolling funds enable the fund manager or lead investor to launch multiple funds back-to-back. Rolling funds typically require higher capital outlays (Typically $5,000 to $25,000 per quarter), but you benefit from a broader portfolio of bets.
There’s a lot more that we could discuss here (like how to choose a syndicate or rolling fund lead), but we’ll share more about that in our next chapter evaluating companies.
Crowdfunding (Direct-Investing) is another option for deal flow.
Direct investing via crowdfunding portals may require more leg-work because you don’t have a syndicate lead surfacing the deals for you, but you’ll capture more of the upside if things go well because there are no carry charges (Remember there’s 20% charged by Syndicate leads) via Crowdfunding platforms.
Similar to Syndicates, you can start investing with very little money, as little as $100 depending on the platform.
You can find crowdfunding deals in a couple of ways:
Hosted on a platform: Portals like Republic.co, WeFunder, & SeedInvest provide companies with the tools, resources, and community to raised funds via the crowd.
Self-Hosted: More mature companies that already have a well-established investor base may choose to take control of their investment process and use services like DealMaker where the cost structure (fees) are often more favorable for the company, but you miss out on the audience of investors the platform can bring.
Some really interesting companies have chosen to leverage crowdfunding to raise funding. We’ll meet many of them via this newsletter!
Let’s chat about the hyper-growth of San Francisco-based Mercury, a modern bank for startups.
Fun fact, my previous fund invested inn 2019. It’s truly amazing to see how far they’ve come.
Mercury is live on the WeFunder platform having raised $120M at a $1.62B valuation led by some of the country’s top investors including Coatue, Andreesen Horowitz, CRV, and Sapphire.
These investors have invested in some of the top companies in the country including Snap (Market Cap: $120B), Airbnb (Market Cap: $88B), Coinbase (Market Cap: $50B), and Facebook (Market Cap: $1T).
The crazy part. They’re opening up $5M in allocation to the crowd!
People can now invest in one of the country’s top startups, alongside some of the best investors in the world, from the comfort of their sofa 🛋️!
I’ve learned so much about business and innovation through platforms like AngelList. They are the internet home to some of the country’s top innovators, entrepreneurs, and investors. So, join, take a visit, and stay awhile...there’s a lot to learn.
See you next week where we’ll be discussing part 3 in our series - how to diligence deals! ✌️
THIS WEBSITE IS OPERATED BY EARLYPUBLICOFFERING.COM, WHICH IS NOT A REGISTERED BROKER-DEALER.
EARLYPUBLICOFFERING.COM AND ITS AFFILIATES MAKE THE INFORMATION AND CONTENT ON THIS WEBSITE AVAILABLE AS A SERVICE TO ITS CUSTOMERS AND OTHER VISITORS, TO BE USED FOR INFORMATIONAL PURPOSES ONLY. THE FINANCIAL INFORMATION CONTAINED ON THIS WEBSITE IS DERIVED SOLELY FROM THE APPLICABLE LISTED COMPANY, AND EARLYPUBLICOFFERING.COM DOES NOT VERIFY OR ASSURE THE ADEQUACY, ACCURACY OR COMPLETENESS OF ANY INFORMATION. NEITHER EARLYPUBLICOFFERING.COM NOR ANY OF ITS OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND WHATSOEVER RELATED TO THE ADEQUACY, ACCURACY, OR COMPLETENESS OF ANY INFORMATION ON THIS SITE OR THE USE OF INFORMATION ON THIS WEBSITE, AND ANY REPRESENTATION OR IMPLICATION TO THE CONTRARY IS EXPRESSLY DISCLAIMED, NOR SHALL ANY SUCH PARTY HAVE ANY LIABILITY WHATSOEVER ARISING FROM ANY ERROR OR INCOMPLETENESS OF FACT OR OPINION IN, OR LACK OF CARE IN THE PREPARATION OF, ANY OF THE MATERIALS POSTED ON THIS WEBSITE.
NOTHING CONTAINED ON THIS WEBSITE SHALL BE CONSTRUED AS LEGAL OR TAX ADVICE, AND EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH THEIR FINANCIAL ADVISORS, ACCOUNTANTS, ATTORNEYS AND OTHER PROFESSIONAL ADVISERS AS TO LEGAL, TAX, ACCOUNTING AND RELATED CONSEQUENCES OF AN INVESTMENT IN THE FUND AND AS TO THE SUITABILITY OF AN INVESTMENT IN THE FUND IN LIGHT OF SUCH PROSPECTIVE INVESTOR’S INDIVIDUAL CIRCUMSTANCES. ALL INVESTORS SHOULD MAKE THEIR OWN DETERMINATION OF WHETHER OR NOT TO MAKE ANY INVESTMENT BASED ON THEIR OWN INDEPENDENT EVALUATION AND ANALYSIS. ALL SECURITIES INVOLVE RISK AND MAY RESULT IN SIGNIFICANT LOSSES, INCLUDING THE POSSIBLE LOSS OF YOUR ENTIRE INVESTMENT. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE INTERESTS AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. NOTHING ON THIS WEBSITE SHALL CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR WILL THERE BE ANY OFFER, SOLICITATION, OR SALE OF THE INTEREST IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER, SOLICITATION, OR SALE. THIS WEBSITE IS NOT, AND UNDER NO CIRCUMSTANCES IS IT TO BE CONSTRUED AS, A PROSPECTUS OR ADVERTISEMENT, AND THE OFFERING CONTEMPLATED IN THIS IS NOT, AND UNDER NO CIRCUMSTANCES IS IT TO BE CONSTRUED AS, A SECURITIES OR PUBLIC OFFERING.
THE FINANCIAL PROJECTIONS AND ANY OTHER ESTIMATED, PROJECTED, TARGETED OR ASSUMED INFORMATION ON THIS WEBSITE CONSTITUTE “FORWARD-LOOKING STATEMENTS”. PROSPECTIVE INVESTORS SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, AS THEY ARE SPECULATIVE IN NATURE AND MAY PROVE INCORRECT. THE INCLUSION OF FORWARD-LOOKING STATEMENTS HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION, WARRANTY OR GUARANTEE OF ANY KIND BY EARLYPUBLICOFFERING.COM, ITS DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, AFFILIATES, AGENTS OR ANY OTHER PERSON OF THE RESULTS THAT WILL ACTUALLY BE ACHIEVED BY THE APPLICABLE COMPANIES. ADDITIONALLY, EARLYPUBLICOFFERING.COM HAS NO OBLIGATION TO UPDATE OR OTHERWISE REVISE ANY FORWARD-LOOKING STATEMENTS, INCLUDING ANY REVISION TO REFLECT CHANGES IN ANY CIRCUMSTANCES ARISING AFTER THE DATE HEREOF RELATING TO ANY ASSUMPTIONS OR OTHERWISE. EQUITY CROWDFUNDING INVESTMENTS IN PRIVATE PLACEMENTS, AND START-UP INVESTMENTS IN PARTICULAR, ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND THOSE INVESTORS WHO CANNOT AFFORD TO LOSE THEIR ENTIRE INVESTMENT SHOULD NOT INVEST IN START-UPS. COMPANIES SEEKING STARTUP INVESTMENTS THROUGH EQUITY CROWDFUNDING TEND TO BE IN EARLIER STAGES OF DEVELOPMENT AND THEIR BUSINESS MODEL, PRODUCTS AND SERVICES MAY NOT YET BE FULLY DEVELOPED, OPERATIONAL OR TESTED IN THE PUBLIC MARKETPLACE. THERE IS NO GUARANTEE THAT THE STATED VALUATION AND OTHER TERMS ARE ACCURATE OR IN AGREEMENT WITH THE MARKET OR INDUSTRY VALUATIONS. EARLYPUBLICOFFERING.COM IS NOT ACTING IN A FIDUCIARY CAPACITY WITH RESPECT TO ANY USER OF THE EARLYPUBLICOFFERING.COM SERVICES, AND EARLYPUBLICOFFERING.COM DISCLAIMS ANY BROKER-CLIENT OR ADVISOR-CLIENT RELATIONSHIP WITH RESPECT TO ANY PARTY USING THOSE SERVICES. MISO ROBOTICS IS OFFERING SECURITIES THROUGH THE USE OF AN OFFERING STATEMENT THAT HAS BEEN QUALIFIED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER TIER II OF REGULATION A. A COPY OF THE FINAL OFFERING CIRCULAR THAT FORMS A PART OF THE OFFERING STATEMENT MAY BE FOUND HERE.