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Basics of seed investing rule number 1: Have $1 million in assets outside of your primary home or make $200k+ per year for the last 2 years with the reasonable

Basics of seed investing rule number 1: Have $1 million in assets outside of your primary home or make $200k+ per year for the last 2 years with the reasonable assumption you will continue to.

jacquesm 9y ago
And plan on doing >> 10 investments if you expect to ever see a return.
lisper 9y ago
I've done >20 seed investments, and here is my Rule #1: you can do seed investing as a hobby, or you can do it as a business. If you do it as a hobby, count on losing every penny you put in, and treating that as the cost of pursuing your hobby. If you do it as a business, count on working on it full time, i.e. AT LEAST 40 hours a week, and probably more like 60-80. The competition is fierce. And I would not do it with less than $1M in LIQUID assets which I could afford to lose. The reason you need this much is that in order to have a good shot at a return you need to be able to do two things: 1) invest in a pretty broad portfolio (i.e. at least 10 companies) and 2) have enough money to participate in follow-on rounds so you don't get diluted into oblivion.
- tlb 9y ago
  Mileages vary, but I haven't found dilution to be a big problem. Dilution only gets large when companies go through near-death experiences, and those are often followed by real death. Follow-on investments are economically just like making later-stage investments. The average return can be good, but you can also lose all your money and you need much more capital to participate.
  - k__ 9y ago
    Sure, but if the company does good and you believe in it, why not throw some extra money at it and get a bigger part of the pie :)
    - tlb 9y ago
      Sure. But you should think of it like a new late-stage investment, on par with investing in any other late-stage company whether you were in on the seed round or not. Concern about not getting diluted sounds like a sunk cost fallacy, which can lead to suboptimal decisions.
      - rahimnathwani 9y ago
        That was my first thought as well. Is there any good reason why these opportunities for follow-on investment might have higher expected returns than, e.g. putting the same amount of money into other seed investments? e.g. is it possible that if you participate in the follow-on, that you get some extra leverage to convert your previous shares into a more favourable class?
  - SeoxyS 9y ago
    Doubling down on your winners can exponentially lift your returns. When you're an investor at an earlier stage, you have the best information and insight on how the company is really doing (information asymmetry) and have access to deals you would have no access to otherwise. (An angel doesn't get to invest in a good hot Series C unless they're already on the cap table.)
- mbesto 9y ago
  > If you do it as a business > And I would not do it with less than $1M in LIQUID assets which I could afford to lose. IMHO -> Rule #2: If you do it as a business, don't use your money and use a standard 2/20 model. Why someone would do seed investing working 60-80 hours a week and use your own capital is beyond me.
orarbel1 9y ago
Isn't that just the definition of Accredited Investor?
- billmalarky 9y ago
  My tongue was planted firmly in my cheek.
will_brown 9y ago
Maybe for post seed rounds or seed funding greater than $5M, otherwise I don’t understand the need (or rule) for limiting seed funding to accredited investors. I’m surprised YC has that as a requirement to participate in demo day, seems kind of archaic for a disrupter.
- fudged71 9y ago
  This is an SEC rule for public solicitation... demo days can only be for accredited investors, plus it's easier that founders know everyone has been vetted. I know of accelerators that don't screen the demo day participants, and it's risky.
  - will_brown 9y ago
    But there are exceptions to the general solicitation prohibitions. Maybe they find those exceptions to onerous and burdensome, but in my mind that just means there is a giant opportunity - 90% of the US market is being excluded.
  - wslh 9y ago
    If you don't live in US and you are not an US citizen, do you need to be an accredited investors?
  - icedchai 9y ago
    Don't a lot of people "self certify" for accreditation? In my experience, most of this "screening" isn't very deep.
    - fudged71 9y ago
      Yes I think a signature of self certification is all that's generally required to keep the accelerator out of trouble, but again there are accelerators that don't even know this limitation exists with the SEC. Blame Shark Tank and general lack of knowledge of investment regulations.
      - 9y ago
Alex3917 9y ago
Nah being a seed investor is easy, you just go into Telegram and wire money to anything people say China likes.
simonebrunozzi 9y ago
For the ones that might not get it: these are the requirements to be a "qualified investor" in the US. They don't apply elsewhere.
louprado 9y ago
Does anyone know if you can count a business you personally own and operate as part of your assets assuming you use reasonable valuation methods ?

Basics of seed investing rule number 1: Have $1 million in assets outside of your primary home or make $200k+ per year for the last 2 years with the reasonable assumption you will continue to.

jacquesm 9y ago

And plan on doing >> 10 investments if you expect to ever see a return.

lisper 9y ago

I've done >20 seed investments, and here is my Rule #1: you can do seed investing as a hobby, or you can do it as a business. If you do it as a hobby, count on losing every penny you put in, and treating that as the cost of pursuing your hobby. If you do it as a business, count on working on it full time, i.e. AT LEAST 40 hours a week, and probably more like 60-80. The competition is fierce. And I would not do it with less than $1M in LIQUID assets which I could afford to lose. The reason you need this much is that in order to have a good shot at a return you need to be able to do two things: 1) invest in a pretty broad portfolio (i.e. at least 10 companies) and 2) have enough money to participate in follow-on rounds so you don't get diluted into oblivion.

tlb 9y ago
Mileages vary, but I haven't found dilution to be a big problem. Dilution only gets large when companies go through near-death experiences, and those are often followed by real death. Follow-on investments are economically just like making later-stage investments. The average return can be good, but you can also lose all your money and you need much more capital to participate.
- k__ 9y ago
  Sure, but if the company does good and you believe in it, why not throw some extra money at it and get a bigger part of the pie :)
  - tlb 9y ago
    Sure. But you should think of it like a new late-stage investment, on par with investing in any other late-stage company whether you were in on the seed round or not. Concern about not getting diluted sounds like a sunk cost fallacy, which can lead to suboptimal decisions.
    - rahimnathwani 9y ago
      That was my first thought as well. Is there any good reason why these opportunities for follow-on investment might have higher expected returns than, e.g. putting the same amount of money into other seed investments? e.g. is it possible that if you participate in the follow-on, that you get some extra leverage to convert your previous shares into a more favourable class?
- SeoxyS 9y ago
  Doubling down on your winners can exponentially lift your returns. When you're an investor at an earlier stage, you have the best information and insight on how the company is really doing (information asymmetry) and have access to deals you would have no access to otherwise. (An angel doesn't get to invest in a good hot Series C unless they're already on the cap table.)
mbesto 9y ago
> If you do it as a business > And I would not do it with less than $1M in LIQUID assets which I could afford to lose. IMHO -> Rule #2: If you do it as a business, don't use your money and use a standard 2/20 model. Why someone would do seed investing working 60-80 hours a week and use your own capital is beyond me.

orarbel1 9y ago

Isn't that just the definition of Accredited Investor?

billmalarky 9y ago
My tongue was planted firmly in my cheek.

will_brown 9y ago

Maybe for post seed rounds or seed funding greater than $5M, otherwise I don’t understand the need (or rule) for limiting seed funding to accredited investors. I’m surprised YC has that as a requirement to participate in demo day, seems kind of archaic for a disrupter.

fudged71 9y ago
This is an SEC rule for public solicitation... demo days can only be for accredited investors, plus it's easier that founders know everyone has been vetted. I know of accelerators that don't screen the demo day participants, and it's risky.
- will_brown 9y ago
  But there are exceptions to the general solicitation prohibitions. Maybe they find those exceptions to onerous and burdensome, but in my mind that just means there is a giant opportunity - 90% of the US market is being excluded.
- wslh 9y ago
  If you don't live in US and you are not an US citizen, do you need to be an accredited investors?
- icedchai 9y ago
  Don't a lot of people "self certify" for accreditation? In my experience, most of this "screening" isn't very deep.
  - fudged71 9y ago
    Yes I think a signature of self certification is all that's generally required to keep the accelerator out of trouble, but again there are accelerators that don't even know this limitation exists with the SEC. Blame Shark Tank and general lack of knowledge of investment regulations.
    - 9y ago

Alex3917 9y ago

Nah being a seed investor is easy, you just go into Telegram and wire money to anything people say China likes.

simonebrunozzi 9y ago

For the ones that might not get it: these are the requirements to be a "qualified investor" in the US. They don't apply elsewhere.

louprado 9y ago

Does anyone know if you can count a business you personally own and operate as part of your assets assuming you use reasonable valuation methods ?