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Ask HN: Getting Started Investing
91 points by wantrepevestor on July 14, 2019 | hide | past | favorite | 99 comments
I, like probably most of the people here, want to someday build a product and sell it. But, until I can come up with an idea I believe in I would like to invest in other people's ideas. I'm a well paid independent consultant and have $100-150K yearly profits that can be used for investments.

My problem is getting in touch with startups to invest in. Investing through AngelList, but I unfortunately do not (yet?) meet the requirements to become an accredited investor.

Is $100-150K yearly enough to get started? Do I have the "buy in" necessary to join a fund?

Any real life advice on how to get started would be greatly appreciated. I'm based in western Europe btw.




Do you really want to invest in early stage, high risk ventures that have a low probability of return? Open a Vanguard or Fidelity account. Buy index funds. Invest regularly. In 10 - 15 years you'll have a small fortune.


> In 10 - 15 years you'll have a small fortune.

More specifically, if you invest $150k per year for 15 years and get a 7% return, you'll end up with right around $4 million.


What percentage of people, even in this industry, can afford to invest 150k a year?


150k would be nice! Personally I was investing over 50K/year for 10+ years.


idk, but OP said that they can


Specifically recommend buying SPY (tracks the S&P). Then with a smaller subset you can speculate on individual companies/stocks after doing research.


At all time highs? sure investing today will guarantee a return in 15-30 years.. but there are smarter ways to diversify your gains (and losses)

USG bonds may be a worthwhile investment over the near term. Invest less in equities right now so you can average down further and faster as the market cools. Or invest outside of the market (there is crowd funding for small businesses like nextseed)


The market is trending will right now we are looking at higher highs. My system suggests it and has been right when everyone was running away from the market in 14/16/18.

You should read the worlds worst market timer [1]. For most people the best way is to just put all their money in stocks. Obviously not just SPY, maybe a world index, SPY and bonds. This way you can sell the bonds if the market drops and use that for living expenses, or to average out the downturn.

[1] https://awealthofcommonsense.com/2014/02/worlds-worst-market...


Whenever the market drops, I put more in. October - December, 2018 was tough, but I invested more. And it paid off. I had months where I've lost, then gained, more than I take home in a year. 2008 - 2009 was bad, but I put more in then, too. The reality is that the "great recession" created the foundation upon which I built a small fortune.


The Great Recession was an epic transfer of wealth that we will not witness again in our lifetime


there is no guarantee


In my opinion, index funds are overrated at this point. Over the past couple of centuries, England and especially the US have had exceptional returns.

Most indexes have zeroed out at some point, however. War, economic collapse, revolutions, etc happen. Even if we've reached "the end of history" and these risks no longer exist (which I don't think is true), then there's still the question of valuation.

Stock markets have grown faster than GDP in both countries, and as a result, valuations are much less attractive than they were 70 years ago. Maybe the reason is because real GDP growth has slowed. Maybe it's because stocks have simply become much more popular than they used to be. Either way, I'd make index funds part of, rather than my entire strategy.


You seem to be aware of index funds but not of buy-and-hold index fund investing and you assume everybody is like you. I say this because an attack of index fund investing based on a prediction of low future returns makes no sense. A major point of index fund investing is resigning that you cannot reliably do better than the average. Predicting a lower market average doesn't change this. Such an investor would say that a slow market average makes it difficult for everyone to make money, not somehow just the index fund people.

I am also bewildered that you'd think buying index funds is good in an up-economy but is bad an a down-economy. You want the diversified gain and the non-diversified loss? It seems to me that if you could somehow make accurate market predictions you'd be better off doing the exact opposite strategy.


I'm aware of "buy-and-hold index fund investing". I believe it was a good strategy because it was an an unpopular, undervalued asset class 100 years ago and has since become very popular and overvalued.

Another important consideration is that companies now go public much later than they did pre-Sarbox. The sad truth is that a company's biggest gains are generally behind them by the time retail investors are allowed in. There will be no repeat of the windfalls ordinary investors made[1] from the IPOs of Microsoft, Walmart, Starbucks and similar companies in today's batch of new IPOs. This in itself is a good reason not to reflexively discourage someone from learning about angel investing.

> I am also bewildered that you'd think buying index funds is good in an up-economy but is bad an a down-economy.

I don't think this.

Provided long-term real-GDP growth prospects are good, I think buying index funds when the funds themselves are under-valued is a good strategy. Looking at the underlying P/E, P/B, DCF or just about any metric you choose, you'll see that on average, publicly traded stocks[1] are very expensive compared to historical valuations.

1) both directly and through funds that index them


100 years ago? Index funds aren't that old.


Stocks are.

A common pitch used to sell people on index funds involves bragging about annualized returns of stocks going back even longer than that, and comparing them decade by decade against other asset classes such as real-estate and bonds. The implicit pitch is, "Look at this upward historical trend of stock valuations. If you invest in a fund that indexes them, you too will see these kinds of returns".

Your point is good, though. Index funds never return quite as much as the underlying assets do since there are management fees. Over time, those fees compound.


You will see those returns if you're invested long enough. Take a look at any 30+ year chart. Yes, there are periods of little-to-no return (2000-2011...)


You can totally do better than the average, especially with small amounts of money, but not for the same effort required of an index fund (i.e. close to none).


Do you want to invest, or to gamble?

At your level of available funds, investing in startups is gambling, because you can’t spread your bets widely enough to hedge them and increase the likelihood that gains on one will make up for the losses or break-even on the rest.

If you want to invest, I recommend index funds.


Yes

1) never take a position that can wipe you out, and 2) shut up and wait

Steady accumulation will achieve most things for most people if you can handle the fact it's not exciting and you won't get to feel like an important investor guy. If so, there's your best bet.


> If you want to invest, I recommend index funds.

This. I've gotten this question from family, and the answer's just pair VTI and BND at some ratio you're happy with (or buy a target date fund) and wait.


Yes, but there are some subtle advantages [1][2][3] to buying the VTSAX fund over the VTI ETF if you can meet the minimum.

The analogous fund for BND is VBTLX.

There are some big caveats to watch out for with target date funds like increased expense ratio vs holding the underlying funds directly and the glide path. I avoid them personally, but they're not all bad.

[1]: https://www.bogleheads.org/forum/viewtopic.php?t=116581

[2]: https://forum.mrmoneymustache.com/investor-alley/vanguard's-...

[3]: https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds


If we're looking for subtle advantages, I really like VTCLX (for US investors).

Except for the fact that its top 5 holdings are in tech, and I work in tech.


VTCLX looks interesting. It looks like the top 10 holdings match VTSAX but comprising 20% of VTCLX vs 18.8% of VTSAX.

https://investor.vanguard.com/mutual-funds/profile/VTCLX

https://investor.vanguard.com/mutual-funds/profile/VTSAX


Very weird time we are in right now. US Markets at all time high, stronk us economy, faltering global outlook, plus tariffs. Market may go to the moon, or it may collapse.

That ratio needs to be tweaked at least monthly maybe bimonthly through the rest of this year (lots of uncertainty coming up)


Caveat: if you're a long-term investor, pay no attention to this or my comment.

I completely agree that we're in a weird time. A few weeks ago, there was a bad economic report and the market rallied because it assumed that made it more likely the Fed would cut rates. I get it, but it's also absurd, and by reductio ad absurdum, the Fed alone can't power the economy.

There have been rumblings that volatility is probably underpriced (options almost always imply less downside risk than there really is, anyway), especially in the political climate with Iran and Brexit and the economic climate of a US trade war with China and--now--France.

On the other hand, money is cheap, you gotta put it somewhere, and Vision Fund II looks like a sucker's bet.


The times are always weird. You’ll be perpetually waiting if you’re waiting for stuff to get “normal”. Absorbing the essential truth of this is part of the zen of indexing.

Nobody knows what outcome you’ll get, but indexing is a solid process. That’s all you can do - maximise the quality of your process. Anything else is noise.


We’re at all time highs, is the market going up or down? You have an increased risk here because the wrong decision can be decimating (short the market and it continues to rally, or buy the market and we’ve hit the top). Nope I would wait for a confirmation signal and act on that. Even long term investing, you should have an edge never invest and withdraw blindly.


Unless you are a PhD in finance working at one of a handful of the world’s top money managers, I guarantee that what you confidently refer to as your “edge” is gonna end up poking you in the eye. Age and experience will teach you that if you let it.


Or maybe age and experience has seen this before and went balls deep in ITM calls after the market washed out 100+ points. I mean if you reread what I said, it’s spot on to what happened over the last few days

But keep thinking a paper giving you a title with some mixed case letters makes you a top money manager and that no one could have possibly avoided a 40% loss during 2008

Also an edge can simply be moving averages which has a proven backtest but there are a lot more analytical tools that exist today


> you can’t spread your bets widely enough to hedge them

What does hedging mean in startup investing? I'm used to the meaning in securities where you take an inverse position to limit losses.


I probably should have said “diversify” instead.


Put money in Uber. Hedge with money in Lyft. Uber goes hockey stick, you’re golden. Lyft goes parabolic while Uber is still trying and now losing? Hedge.

Taxi industry may fail entirely? Sell puts on car max because market will soon be flooded with depreciating assets (cars) from drivers who no longer taxi. Hedge.

Hedging is not an inverse, it is protection on your original investment. A lot of the times this is simply an opposite investment such as calls to puts or puts to calls. But nothing saying you can’t protect your FB (Libra) Or JPMorgan bets by buying bitcons, etc. Hedge.


> Taxi industry may fail entirely? Sell puts on car max because market will soon be flooded with depreciating assets

Why would you do that? When you sell puts, your upside is limited to the premium and the downside is close to unlimited (the full value of all the shares at strike price). Whereas if you were to buy calls, your downside is limited and upside is unbounded.

And FWIW, speaking in layman's terms, I would consider two long positions with opposite prospects to be inverse.


I don’t follow, are you saying two longs could be a hedge? Because you are corrext


These days there is too much money and not enough places to put it. It’s difficult as an unconnected angel to find decent opportunities. If you met the threshold to invest as an LP in a fund that would keep you diversified and the GPs would have access that you do not.


But there's clearly a lot of people who still seek funding but can't find it, so how does that mesh with the idea that "there's too much money and not enough places to put it"?


Because most people doing things are not worthy of investment (i.e. crappy ideas, bad execution, not ready for investment, etc)


Again way too many barriers to entry. I just need $100k to prove my idea. These funds have billions. They won’t lend 100k because it has a prototype app, a handful of interest, but no investor pitch? But they will give $1m to someone who can pitch a dream with no product?

Please come to me with $100k and I’ll offer you simply a guaranteed 0% return (no loss on investment) so I can pad my bank account and make “real” investors interested because it makes us look like we can manage our money.

It’s all smoke and mirrors and I wish I could get access to the same cheap money big corps get. $300k at 6, 7, or 10% interest is just robbery when public companies and home owners are walking away with 2-3% APRs


Lol dude, "just" $100k. Barriers to entry? Totally honest: I'm an investor and I wouldn't invest $100k in you with a mentality like that. We're all in this to make money.

What you need is to prove your idea. No one is going to put $100k (or $100 million for that matter) in an untested idea, unless you have a relationship with an investor. And investing is a relationship business.

If a friend whom I trust and I know is a talented chef comes to me with a restaurant idea, I'll consider investing. If a random person comes to me, there is <10% chance (unless his food is absolutely amazing in every regard) that I will consider investing.

I'm happy to invest in a good tech business. But most things that I see just aren't great businesses.

You're likely in the US, but many EU countries have investment entities (generally funded by EU funds) that "give out" loans at 3% APR. If you want it, you can get it done. But there are very few barriers to entry. A good idea in need of funding will find funding.


I have ideas, i have executed on them and I’m up 500k in pure profit. But investors like you are hard to find. But investors wanting to pay $5m to start a mechanics for Uber app when there are several in the market? Everywhere.

So my options are simply do something I don’t want to do to get investors (read: become an employee again), get an SBA Loan at 9%, bank loan at 6% or remortgage my house at 2%. I shouldn’t risk homelessness for cheap money and neither should investors buy let’s get real — $100k is a monthly rounding error for them


Might be a bit late but do you have some more info on these EU funds? I'm just a very technical guy but somewhere on the horizon there will be a point where our proto is matured enough we probably should seek some funding if we want to do something with it. Thanks.


I'm not up to date on the particulars for each country, but where are you based? Happy to help if I can.


I'm based in the Netherlands. After my post I went searching and found we have a "early phase funding" from the government.

https://www.rvo.nl/subsidies-regelingen/vroegefasefinancieri...


Also this https://www.rvo.nl/subsidies-regelingen/groeifaciliteit


Thanks for helping! :)


I could rephrase to “too much money and not enough risk adjusted places to put it.” Also I’m not particularly tapped in but in major cities in the US I believe seed is still reasonably easy to come by. Series A+ is getting tougher with rates higher than they were in ~’13 risk appetite is lower at that investment size.

Sure we could have a discussion about how geography shouldn’t matter, but right now being physically close to the money is an important factor.


Some people seeking funding don’t seem like good investments.


Sounds like it's just a problem of identifying arbitrage opportunities then. I.e. the problem isn't actually that there isn't enough places to put money. The problem is identifying systemic biases in the investor landscape (e.g. a bias against diversity, as just one potential example).


I mean, yes, obviously if there are people who aren't getting money despite actually being a good investment, then of course that's something that should be identified. However, I don't think that's a necessarily large amount of people (I could be totally wrong, this is just a gut feeling). It's a pretty well known failure mode that investors try not to fall into.

I think a much bigger arbitrage opportunity, one that e.g. YC tried to exploit a lot at first, is getting people who aren't looking for money, but would actually be a good investment, to try building a startup. That's why pg wrote so much about why people should build startups - he thought (and I imagine still thinks?) that there are way more good startups that can be built, if only more people were trying to build them.


This might be related but I think the bigger arb opportunity is looking outside of SF/NYC. There are some PE funds operating in the Midwest and doing great, but I think it’s still pretty difficult to find early/growth equity funding.


Isn't that just choosing wise places to put your capital? Where's the arbitrage?


The arbitrage is that the same amount of dollars to pay engineers goes further in the midwest than on the coasts which extends the runway of a company with the same amount of funding because of reduced burn rate.

Drive Capital (ex-Sequoia) is a good example. You might be surprised how uncommon this idea still is today.


Arbitrage is about buying something that you can immediately sell somewhere else for a higher price with no risk. What you're describing just sounds like getting a good deal.

If you could buy 10% of a company for $1mm in Chicago and sell that 10% for $1.5mm in SF the next day, that would be a form of arbitrage.

From wikipedia:

> the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a (imagined, hypothetical, thought experiment) transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs

https://en.wikipedia.org/wiki/Arbitrage


In the theoretical sense, yes. The usage in the here is much softer and less strict, not like in finance. I wouldn't get too caught up on the casual usage.

The way I've seen the word used in startups is more akin to "Tim Ferriss style" geo-arbitrage.

https://www.physicianonfire.com/geographicarbitrage/


In what sense is geo-arbitrage associated to Tim Ferriss for you? Genuinely curious. I've listened to a lot of his podcasts but can't recall that ever really coming up.


This isn't particular to me, but he's frequently cited for popularizing the term. You can see on Google Trends that it took off in 2007-2008 after the publication of 4HWW, and that there are virtually no results for it prior to the book's publication.


Even if they are at LP levels, it will be difficult for them to get in to funds that have deal flow.


Martin Shkreli said $100k is not enough money to start investing, you can't do anything with such a low amount. The reason for that is because investing is competitive, you have to make smart decisions. To make smart decisions you have to spend a lot of time and effort evaluating companies you want to invest in. If you actually spend this time and effort, you won't have enough time for anything else. With your $100k you will be happy to make 10% in one year, so it's $10k per year full time.

You need millions of dollars, then it starts being worth it. You should listen to Martin Shkreli, even though he is in prison for fraud, because he knows more about investing than almost anybody here on HN. Most people on HN will not be able to record 1 hour video talking about investing, let alone 35+ of them. They don't have the stamina and knowledge. They also don't have the results to back up their advice, unlike Martin Shkreli.

It seems foolish to think that you can spend just a few hours per week and think you're going to beat the market.

I don't want to insult anyone, I myself don't know much about investing. The reason why I mention Martin here is because his videos on youtube are very accessible for layman people who are uninformed about the market.


This book by Jason Calacanis is actually pretty good for beginning angel investors. Worth the read. https://www.angelthebook.com/


Have you considered getting your start by investing in micro cap tech stocks?

The transaction is much easier. You get all the risk of total wipe out you may crave. But most importantly you get a lot more information and that might help you get practice.

The most valuable practice is when you think a company has a great strategy and is a no brainer and it shuts down. Or when you do a lot of work and invest in a rocket ship only to notice that Facebook would have been a better investment.


Do you want him to lose every dollar? Most penny stocks are garbage. Generally low volume, occasional pump-and-dump scams, fake news from paid stock promoters, etc.


So you’re saying it great practice! Do a study on the survival rate of the average AngelList offer.

I didn’t say penny stocks. You can try names you know and like: SMAR, SSTI, PS, etc


You did say micro cap though. The ones you list are really small caps...


You’re right.


Sounds like start up investing to me


If you're committed to investing in startups (as opposed to index funds/real estate), I'd recommend checking out AngeList's spinoff https://republic.co/

Their startups raise crowdfunded equity rounds that you can invest in for smaller amounts without meeting the requirements for being an accredited investor.


looks similar to seedrs http://seedrs.com (which was used by revolut to get investment AFAIK)


Have you considered other types of investment that are more liquid, like stocks, bonds, commodities, or real estate?

If so, did you gain experience with them? Why or why not?


Find the startup places: conferences, meetups, etc. Be somewhat discreet about saying you have money to invest, that's a good way to get scammed. Basically you need to social-network the hell out of the place so you can get good startups to come to you. You may also need to provide some additional benefit to startups - domain knowledge or contacts about something of value to them.

Eventually you will find the other angel investors in your area, and collaborate with them.

$100k is probably enough to build a small software product, especially if you can find a tech co-founder who is putting in sweat equity. The process of doing this will teach you a lot even if you never make back the $100k.


Can you? Yes. But it's going to be like taking a second job, because sourcing good deals is hard and a lot of work.

If you want to deploy a few 100k, your best bet would be to invest directly into a private fund -- if you can find one that is in need of capital. One fund manager I know with a small 50m fund takes tickets starting at 100k when fundraising, for example. So X00k should be sufficient to buy in.

Which country btw? Some countries offer tax advantages to investors as well, depending on how you invest.


If you're in Western Europe, why does that weird USA regulation about "accredited investor" matter to you?

I run a Dutch startup. As far as I know, all our (also Dutch) angel investors did was:

    * Sign papers
    * Transfer money
So unless I'm missing something, and if you're serious about doing high risk investing, it's just ("just") a matter of finding good startups that are looking for money.


The objectively best advice you can get is to buy index funds - either ETFs or through a Vanguard account. This will give you the highest probability of a favourable outcome over the long term.

Unfortunately people also find this advice to be too boring and therefore usually ignore it. I expect that’s what you’ll do, too - no offence intended.

Best of luck!


If you are in the U.S., wait until you become accredited and have enough excess cash that you can do this part time.

Otherwise, make this your full time job and make sure you have enough income to wait 8-10 years before you start seeing return.

You can also invest in a first time fund, where the manager will charge 2% management fee and 20% carry (success fee).

Getting access to entrepreneurs depends on your geography but generally if you make yourself useful to entrepreneurs, with or without investing, you can start generating dealflow.

Start with small checks, you will mess up in the beginning, so make these mistakes less painful.

Read venture deals and watch all the videos from YC investor school.


Startup Investor School links for the curious:

- Videos: https://investor.startupschool.org/

- Blog post: https://blog.ycombinator.com/startup-investor-school/


As others have stated, you really likely shouldn't be investing in early-stage startups at your level of capital.

Read all of the content available on /r/financialadvice /r/investing and /r/financialindependence


You can't start investing in start-ups and expect to hit the good ones without excellent access and knowledge. You will almost certainly lose all your money.

Invest in the S&P 500 using an index fund, that's it. Investing in the S&P 500 is another way of investing in "the world's economy", and that will, hopefully, go up over time. And if it goes down, then at least you're not the only one who lost money so your money will be worth as much as it used to anyways.


https://www.seedinvest.com is really good for this. They are the best at vetting companies and only allow a small amount (something like 3 out of 1,000) companies that apply raise funds through the Reg A (and other various regulations passed in the JOBS Act) exemption and I believe these are now available to accredited and non-accredited investors in some form.


That's enough to start Angel investing in in the UK at least. My first round clip size is about 25k and I keep some back for the invetible future funding rounds. Being doing this for around 4 years and looking at my first exit next week (about 2.5x net). Learnt so much aside from any money I might make and my contacts list has exploded. Reach out if your UK based and want some some tips.


Hey, not OP but I’m interested (London based). What’s the best way to reach out?


email addy on my hacker news profile.


What are your goals for your investing? What does it help you do in your life in 5 years, 10 years, etc.

Usually these answers won't fit in ski well with startups as an asset class.

Also you're right. Startup investing is all about deal flow.


Do you see yourself ever needing some of that money in a short period of time e.g. 2-4 weeks? As you move away from listed equities to alternative assets access to that money moves from days to a decade.


As another person based in Western Europe who would want to start investing, I would also like to ask for good resources. Particularly for a long-term outlook.


If you want to someday build a product, save your capital and use it to seed your future company. In the meantime, put it in US Treasuries or munis.


Also western Europe. If you've got no clue, index funds is pretty much the way to go.

Otherwise read. A lot. BEFORE making decisions.


Early to the game myself but my sense is that starting with syndicates for the first ~10 investments is the way to go.


If you would like to discuss investing feel free to contact me through Reddit, /U/Jj_leahy.


Why not going to a hedge fund?


doubt anyone would accept such a small amount.


I unironically suggest cryptocurrencies.


Contrary to the stock market, Bitcoin _is_ a zero sum game.


Could you expand on that please?


First, there's no intrinsic value. If a healthy company's share price drops to zero, I'll buy up as much as I can, making a profit on just its cash reserves. Bitcoin isn't "healthy" (or unhealthy); it doesn't hold assets; it is the asset.

Second, companies (hopefully) generate value and return it in buybacks or dividends.

It goes a little bit beyond your question, but Bitcoin on its own doesn't create value in the same way a company does. Investing in Bitcoin is much more like buying Turkish Lira.


If I understand bitcoin correctly (I probably don't); Mining a block is finding some numbers (maybe they all have to be prime?) whose product is a large number ending in a specified number of zeros. Hence the zero sum game comment :)


They might be referring to the 21M cap on bitcoins.


The best startup to invest in is Bitcoin


Just double check your offsite backup strategy!


BitCoin wants to replace Aws https://twitter.com/_unwriter if you are interested




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