How to Get Started Investing in Startups
Tips, Strategies and Ways to Invest in Startups Online
Want to know how to begin investing in startup companies?
If you're considering investing in startups online, you need to understand how investing works, and be able to know the due diligence of investing so that when you receive a term sheet from a startup that is raising money, you're prepared. Our Venture Capital experts have compiled a list of three of the most important things you need to know about how to get started investing in startups and new companies:
#1 Know the startup investing laws:
Before investing, there are three primary regulations you need to know:
Regulation D, 506 (b) – Private Fundraising
Companies can raised unlimited amounts of money from accredited investors and a maximum of 35 unaccredited investors.
Under Rule 506 (b), startups are only allowed to advertise fundraising to accredited investors.
Examples: AngelKings equity funds, WeFunder, FundersClub
Regulation D, 506 (c) – Private Fundraising
Companies can publicly raise an unlimited amount of capital, but must verify investors are actually accredited.
Examples: AngelList, and AngelKings equity funds
Regulation A (Section 401 of JOBS Act)
Companies can advertise and raise funds from non-accredited investors. This is akin to the Wild West; Regulation A opens a brand new frontier for startup investing. In fact, Regulation A is kind of like a small-IPO, and for the first time startups will be able to circulate an offering to investors of all sorts – from billionaires to retail investors.
Overall, we support the free markets that are driving new investments in startups; none of these regulations are perfect. The only right thing to do, whether you are accredited or not, is to use the formula and diligence we discussed in this book before making investments in startups.
*At Angel Kings we have a hybrid of funds devoted to both early-stage venture capital, and later stage investing. We prefer accredited investors and have strict membership criteria.
#2 Do your due diligence on startups:
The Angel Kings formula contains everything you need to get started in venture capital investing. From the people, product, execution, timing and then financials to support, you must use each ingredient wisely.
Trust your gut less. Make more calculations with less public information. Build rapport with the founding team and ask yourself whether this is a “startup” or a long-term company that will give you a massive return on your investment.
And always read the terms sheet. Never invest without getting your money back. For a more analytical guide to terms sheets, we recommend reading Venture Deals by Brad Feld and Jason Mendelson.
#3 Meet everyone you can in the startup community:
We host events at Angel Kings. Our startup investing conferences allow you to meet many of the top angel investors in the world. Through Angel Kings, you can meet, greet, and ask questions from the best. Whether you’re a beginner angel investor, or have invested in many startups, you’re welcome to continue learning from the best venture capitalists in America.