Thoughts on startups by investors that
fund them & entrepreneurs that run them

Where would I go to invest in startups or emerging companies?

The first question you need to ask is “What country are you in?” and the second is “Are you an Accredited Investor by that country’s standards?”

If we’re talking about the US and you are NOT at the Accredited level ($1 million in investable assets, or $200,000 annual income), then for the moment you are actually not allowed to invest in privately held startups (emerging publiccompanies, of course, you can buy on the stock market like everyone else.)

This will be changing next year, however, because of a new law called the JOBS Act of 2012, which establishes a new, limited type of Crowdfunding for small companies and non-Accredited investors. Once the U.S. Securities and Exchange Commission gets around to writing and releasing the rules for this program (aaaaaaaaaaaaany day now), you will be able to go online to one of many new ‘crowd funding portals’, where startups looking for equity investments will list themselves (similar to the way project crowd funding sites like Kickstarter work today.) Subject to specific rules and dollar limits (10% of your income in aggregate for all investments per year, etc.) you will be able to invest online, just as easily as buying books from Amazon 🙂

On the other hand, if you already are an Accredited investor, you can legally invest in startups today without much hassle, putting in as much or as little as you and the company agree on (the average angel investment per company is about $25,000.)

The challenge with this, however, is that while you are allowed to invest, right now the company is not allowed to tell you that it’s raising money! That’s why one of the best options for you today is to join a local angel investor group, where you will work collegially with 25-250 other investors to hear pitches from companies, do your due diligence homework, and then—if you are interested—pool your money with the others to make meaningful investments.

Most angel groups today are connected on a single Internet platform called Gust(of which I happen to be the CEO), which allows their members to easily collaborate both internally and externally on finding and executing investments. As the primary international platform for angel investing, Gust is also used by over 200,000 startups to manage their investor relations, making the industry increasingly efficient.

If you want to strike out on your own, though, there are several online platforms that have recently begun to offer selections of curated startups to Accredited investors. While this has been a bit problematic given the current rules, as of late September 2013 (also thanks to the recent JOBS Act) it will finally be legal for companies to publicly announce that they’re raising money (technically this is called General Solicitation).

Some sites are already offering individual investments to Accredited investors, and hundreds more are gearing up to launch in the coming months. Among the better known ones already in business are AngelListFunder’s ClubSecondMarket,SeedInvestRealty Mogul, and Bolstr.

So, the bottom line is that this is a great time to start thinking about investing in high growth startup companies! Whether you’re an Accredited angel investor or a non-accredited crowd funder; whether you want to invest with a group or on your own; whether you want to meet founders in person or do everything online; whether you want to invest $1,000 or $1,000,000; whether you want to lead an investment syndicate or participate along with other investors; there are—or shortly will be—groups, platforms and services that will be delighted to help you get into the game!

*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *

Written by David S. Rose

user David S. Rose Founder and CEO,
Gust

David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.

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Comments

2 thoughts on “Where would I go to invest in startups or emerging companies?”

  1. Tom-Scott Gordon says:

    Although my partner and I have been brooding about our startup since 2009, when I initially set out to design the logo and explain it all in handwritten script I really wasn’t remotely prepared to share any of our ideas with anyone for fear that it was first, too difficult to condense into a simple narrative, and the fact that my product designs are far too easily to steal after you see them in print. Eventually, the brooding lead to stagnation as the monthly bills kept flowing in. Out of the blue, I came across an article at a site called BothSidesOfTheTable. There, I was able to listen to several pros badger on about valuation and risks. And who would blame them when they are discussing their role in gaining $billions in corporate returns?

    Me, I went to art school. This means I’ve learned to live on practically nothing at all. And after 40-something years of pocket-stuffing at gallery openings and short term freelance opportunities, I realized that I have a lot more perspective and interest in seeing this particular idea come to market than any thoughts I may have held about doing it merely for my own personal gain. “Teams” they said, “we’re only interested in finding teams that we feel really click.” For me, this signaled that the time was ripe to put it all out there, sink or swim. Against all odds, I submitted a plan for our ‘faux-French’ restaurant to the team at 33Entrepreneurs, and I was rejected right off. “It’s Not tech,” they said. But, on second thought, AFTER they had spent time on the road investigating the dearth of decent food choices across mid-America, they began to warm up to the idea. We were accepted to show at BonAppéTech and made it to the pitch stage. The week before I couldn’t have afforded the bus fare from Oakland to San Francisco. Of course, we didn’t win. Yet, I can’t help but share with you in the excitement of putting one’s dreams into action. I still haven’t a clue about running financial projections, but I am a thousand times more ready to assume my share of the requisite responsibilities. This, I see as rudimentary to any real success or failure.

    Thanks David, for giving us ‘creatives’ a different way of seeing the financial universe.

  2. Gwee Doe says:

    Actually anyone can invest in a startup and always could. The problem was never for the investor, but for the startup. If they accepted money from a non-accredited investor they were the ones exposing themselves to considerable risk. This is the reason institutional investors would not participate in a follow up round if there were non-accredited investors involved, unless they were bought out.