December 1, 2022

There is no minimum unless set by the company. Traditionally in angel deals it is about $25K, but some are as low as $10K. Frankly, it is not worth dealing with a huge number of people under that amount for the CEO. The less they invest, the more trouble they are to deal with, usually. Likely not “Accredited investors” and a pain in the butt because they are investing more than they should as a percentage of their portfolio.

Of course, at crowdfunding sites, which are growing at 100%+ per year now, the minimums are often $100 to $1,000. This would allow people with a small amount to invest to diversify better and own a small piece of 5–10 companies. So, a better route if you have only $20K or less to invest. Diversification is very important because many startups will fail, typically through no fault of their own.

Finding quality ones is the tougher question and more art than science. You need to look at the team as maybe 50% to 75% of the success, as they can pivot and adjust to learning in the marketplace. Due diligence is critical, and possibly 50% of founders and team have no business launching a company and are doomed to fail from lack of experience. Eliminate these, and you will likely have a decent ROI for a 5-year time horizon, with possibly 1 in 3 making it to a profitable company. Instead of 1 in 10 that is not uncommon, even for professional VCs.

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Note that some crowdfunding sites do no due diligence and make their money on listing fees. While others like NextSeed (Invest in Small Business ) do lots of due diligence to maintain only quality offerings. The focus on retail and Texas as well as southern companies, but are expanding by merging with other companies.

Criteria to look at should be:

  1. Team – 50%+. This means experience in company management, product development and marketing. I would not invest without a team member in all areas with 10+ years’ experience.
  2. Market opportunity which is size, pain of the customer and competition with ability to maintain some edge via patents, trade secrets or other “secret sauce”.
  3. Founding teams’ own capital and skin in the game. Did they get funding from friends and family first? This is a vote of confidence from people that know them for integrity, intelligence and ability, as well as a glue to be sure they don’t walk away when things get tough – which they always do.
  4. Where is the product? No product, just an idea, should be a veto on investing for inexperienced investors who cannot evaluate the technology or other risk. Look at Theranos, that raised $700M on all lies over many years. Any decent investor would have walked away investing in a 20-year-old that had zero experience running a company and 100 red flags, but she committed fraud. Didn’t even any have background in medical science or chemistry. Even just a degree is not good enough. Sure, there are exceptions like Google founders, but they are 1 in a million and smart enough to get a real experienced management team behind them with the capital infusion.
  5. A sales and marketing plan that targets a small niche to start and can expand into larger markets later. Startups should enter smaller niche markets first.

This is tough to do without entrepreneurship experience and most will not do well, but when one do you could make 10X or even 100X your investment. So, diversify. One way to reduce risk is investing alongside others via angel syndicates like Keiretsu, Angel list syndicates and other local groups that will share due diligence work. This could easily double your success rate, too.

Crowdfunding with smaller investment for a year at $100 to $500 per deal would be a great way to learn with less risk. Then you can use that experience to pick better investments. There is also a company called Kingscrowd that is ranking crowdfunding deals. I am not sure if they have a track record to prove they can rank them well yet – as that might take 5-years, and they are young – but something to consider because they have a small monthly fee.

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Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.

Call (619) SCALE06 or email [email protected] for a complementary strategic consultation.

 

https://www.linkedin.com/pulse/what-would-minimum-i-can-invest-startups-how-find-quality-bob-norton