Ask HN: How do I find early stage startups to invest in?
I’m interested in being a very early seed/angel investor and want to find tech startups that haven’t even received major funding yet. I’m aware of secondary markets but they cater to more mature startups.
31 comments
[ 2.8 ms ] story [ 62.6 ms ] threadSome notes, based purely on my own experience (YMMV):
* There is a large amount of variance, and basically people with ideas that won't work or decision-making / management practices that won't fly haven't yet been weeded out of the market. So it might be worth thinking that you'd be happy if you had a hit rate of less than 1 out of 10 or 1 out of 15-20.
* I wouldn't tell anyone that you are looking to invest when you initially meet them, because you'll immediately cause an incentive problem. Instead, by working on a side project, or something, you could get to know other founders as a secret shopper / peer.
* The reason the early stage startups haven't received major funding yet is due to several factors. I believe the most compelling one is that the founders aren't good at making themselves seem "investor friendly." (Assuming the concept and execution show promise, there is positive signal, etc.) On a more general note, if you are going to "assess the person" over other factors, working along side them might be a good way to assess them.
What I'm saying is that being proactive might be a great way to find what you are looking for; which from what you write... by the time you "hear" about them it will be "too late."
- Founders Club
As several have mentioned, co-working spaces or pitch events can also be a place to find deal flow. Oftentimes you'll find less experienced entrepreneurs with less formed ideas at these events. As an investor this presents a great opportunity to provide value beyond capital, but may also raise concerns as to the entrepreneur's capabilities.
My greatest finds to date have come when I'm looking in a specific industry or at a specific problem statement. I'm a bit later stage than what you're looking for (Series A - small Series C), so I look for companies with a website (so they can actually reach customers) and search for news releases or any PR they've done. At that point its pretty easy to have an intro conversation and determine whether or not it's something worth pursuing.
Regardless, it takes a lot of conversations to find the right investment candidates.
I mention that because the best startups are in a position to get more than money from investors.
If all you have is money, you're looking for early startups that are reasonably likely to succeed but don't need more than money.
everyone claims to be bringing unquantifiable value to the table, and the only investors that actually do are mostly bringing their top-tier name and possibly some support functions coming out of the gate like specialized legal or recruiting. sure, sometimes you get a hire, sales lead, or business partnership .. but you also have to coddle them and it seems like thats a wash. I guess there is advice, some of which is pretty valuable, but its hard to filter that out from the overly general platitudes.
I'm a bit more negative - I think that most investors add less than money, that "help" from most investors is, at best, a waste of time, and all too often actually harmful.
I mostly agree with the idea that advice from most investors is useless. (That said, I do know an entrepreneur who says that some advice from a "not investor" got him into a very lucrative business that didn't need investment during the pandemic instead of flailing around looking for investment.)
However, there are other useful deliverables.
The best way is : 1 find someone you know who started a startup in your area, Or ask a founder during an interview or during a meet up or directly on LinkedIn.
Spend 30min to 1h with them and ask about their pre-seed and seed round there is a 99% chance that Business angels were included in these rounds. Explain that you want to invest and if they would be kind enough to introduce you to the smallest investor in its cap table.
Now… you’re done it’s just a matter of network.
Explain to the investor… and she/he will redirect you etc etc etc.
Ask for his/her WhatsApp to keep chatting and stay in touch in case they see a deal in your area of expertise. Now it’s a matter of reputation : what do you bring to a startup.
If you do a bit of pro bono in your area of expertise to a founder in exchange of network it will be even better. They will likely recommend you to other founder during their seed or preseed.
It’s all about network.
If the startup is looking for money meaning case 2 : not sure it’s a good idea to invest at the begging unless you know what you are doing
In case 1/ if it’s overcommitted remember that there is a limited amount of capital in a company and the founder doesn’t need money (he is over committed) he/she is looking for smart money : meaning if you want to be in the cap table : bring smartness. There is no free lunch ;-)
What kind of startups do you invest in? How much do you typically invest?
An angel typically will put between 10K for small ones to 150K for big ones with big names and network taking way less capital and having actionable insights / network.
Angels are people not institutions and are more willing to help on a daily basis using their names and leverage their network putting their reputation or time on the table because they believe in you VS a YC where you are 1 among thousands and YC depends on who you have to manage you. Ive heard they have an amazing content and network, they have a strong branding, YC brands will help you hire, market your product. but it's more a factory while Angel are more the expert / goldsmith.
YC and VC (in general) are shares driven requesting X% of your capital in general while angels and heavybit are money driven asking to put a certain amount of money without looking at a minimum amount of shares this money would represents (again it's generalist)
Both/Three are complementary bringing different things on the table.
Personally invested in AI, Fintech, InsurTech, Quantum computing.
Started Small helping a friend of a friend with his AI startup (my expertise) and ended up investing in pre-seed.
Then a guy who was also an Angel round also in the pre-seed started a company and ask for my expertise on tech in general (like guidance around architecture and later ML/AI problems etc...) => they asked me to get into their pre-seed.
Then we got along well and started creating a syndicat of 10 people : bringing each other the smartest people we know that were willing to invest/get involve into our syndicat.
Then invested In companies : founders liked the value => some of them joined the syndicat later
each year we would open angel "applications" : all of us bringing the smartest people we know with different expertise (startup specialized lawyers, social network specialist, retail, online distribution, fintech, web3, infrastructure, product management, etc...) Also everyone has it's own network which make this tentacular very quickly and Founders LOVE this as it's helping them to accelerate super super quickly.
we are now 30+ and it brings even more value and speed/faster time to market to founder.
Local/close to founder expertise => global impact that the job of the BA
my twitter @jilijeanlouis if you want to DM me.
Happy to chat : MD me on twitter
It's very likely that when you are ready this BA will connect you to its fund network or the founder that he/she introduced you to will recommend the fund that financed them to take a look at your project.
this is how you start the wheel spinning but it's not a golden ticket and honestly if you project is not good or you don't show the right energy etc... It will help you to start car but won't do the ride for you.
It might also be worth not going for the professors but people a bit further down the leader.
There are sites like wefunder.com for the average American, but these are the investments that traditional investors passed on, so most of them aren't great.
Fig.co looked good for games, but has gone bad, since Tim Schafer joined Microsoft.