I am looking to learn more about being an accredited investor.

[lostinneverland]

I have googled the term and read the many pages defining an accredited investor and I am curious how many people on here are one and what the benefits that they have used are.
Here is the limited information that I have learned
Accredited investor is someone with investable assets greater then one million dollars not including your primary home. The other part of being an accredited investor is making more then 200k per year (single) or 300k per year married.

The main benefit that I can see is being able to be an angel investor and invest in start up companies.

Any and all information would be appreciated.
Cheers

[OldShooter]

You do not want to do this. The very fact that you are asking this question leads me to believe that you are not an experience investor.

Being an angel investor and investing in start-up companies is a very risky business. It is compounded by the fact that, as a novice and a little guy, the only deals you will be offered are deals that are so stinky that bigger, smarter, and more experienced investors will not touch them.

It is also almost impossible for a small investor to do this kind of thing and still to have a diversified portfolio. William Bernstein, one of the true investing gurus, makes this observation:

“Do you think that by choosing a portfolio of only a few stocks that you hope will score big, you are maximizing your chances of becoming wealthy?

“Indeed you are, but you are also maximizing the chances of a retirement of cat food cuisine”

I have done this kind of investing and have made money at it but, sorry to say, I don't think it is for you.

[lostinneverland]

I agree that as the small fish in a big pond one would only get the offers that no one else wants.

There are a couple venture capital grouped In my area that pull together investors to a fund and then the fund together decides whom to invest in. oldshooter do you have any experience in this?

I am still interested in learning about the whole process

[OldShooter]

Quote:

Originally Posted by lostinneverland I agree that as the small fish in a big pond one would only get the offers that no one else wants. There are a couple venture capital grouped In my area that pull together investors to a fund and then the fund together decides whom to invest in. oldshooter do you have any experience in this? I am still interested in learning about the whole process

Well if there are groups where you can attend/learn and see pitch sessions that is an excellent way to get educated. And there is nothing but good to say about getting educated.

But if you are committed to this, never invest more than you can afford to lose. I had one deal that turned $50K to zero in less than a year and a half. Not fun. I have had others that were more fun, of course, but I suggest that you never have more than 5% of your invest-able assets (not counting house, other personal assets) in deals simultaneously. Consider it to be "play money" and do the rest of your investing more conservatively.

The other thing to understand is what Nassim Taleb calls "silent evidence." There are lots of great stories about people who have made money in these kinds of deals. You'll hear them at parties, see them posted on internet forums, etc. The deals that failed? Nobody brags about those at parties or posts about them on forums. That is the silent evidence and, without it, you are getting less than half the story.

[kite_rider]

Based on my limited knowledge of the subject I would guess that most (or at least those who are FIRE'd) on this forum are 'accredited investors'. You either have to have income of over $200K or over $1M in net worth not counting your primary residence.

https://www.investor.gov/additional-...ited-investors

I've seen this term come up when presented with speculative investments over the years. As I understand it, it's up to the person or company selling you the investment to determine your status here.

Again, just a quick answer since your last response seemed a bit condescending and didn't actually answer your question. I'm sure others will jump on the opportunity to correct my limited knowledge on this as well.

[Bruceski44]

I'm an AI who would never consider investing in a start-up company, but have invested a great deal in real estate which is only available to AIs. There are some on here who will tell you the deals are all junk, but they are certainly good enough for me. Just take baby steps when you wade in.

[lostinneverland]

Looking at this I see that given the opportunity we learn more from our failures than from our successes. Given that there are is lot of “silent evidence”
old shooter were there any lessons that stuck out looking back.
The only statistics I have found are 50/50 with success/failure. That is why this this venture capital group seamed so appealing.

[OldShooter]

Quote:

Originally Posted by lostinneverland ... old shooter were there any lessons that stuck out looking back? ...

Well, I only looked for base hits and not home runs. So, nothing wild.

• No completely unproven technologies.
• I only invested in deals where I knew or at least knew of the principals and dealt with them directly.
• No deals through brokers.
• No deals where the offering was a commercially printed brochure. Just copier paper laser printed.
• All deals came through my personal network, attorneys & CPAs mostly.
• My evaluations concentrated on the company management. Personal history, vibes, credentials. I saw myself as buying people, not things.
• My hurdle rate was 25% IRR. If I couldn't reasonably see at least that, I was out of there. (NB real estate deals are different. You'll never see 25% but they are nearly as risky either.)
• There had to be a plausible exit strategy within 5 years. Usually it was to sell the company to someone larger, not to IPO. IPOs are more home run type deals.
• Often I went in just for the minimum ticket price. I never risked more than I could afford to easily lose or, worse, had to keep the loss secret from my wife.

Whether these are good criteria I can't really say because there's no feasible way to experiment with different sets of criteria.

In maybe four or five deals I got returns ranging from zero to several hundred percent. The zero deal was a failed restaurant concept from people I knew of, who had been very successful, but I didn't know personally. The several hundred percent deal was a company that managed an Indian casino. That was kind of a wild ride because the Indians decided to kick them out. One deal was a drug delivery system that ran out of money around 2008 and we had to sell cheaply. 15% IRR on that one. Aggregated I'm pretty sure I averaged over 25% IRR but I didn't ever do the calculation.

Quote:

Originally Posted by lostinneverland The only statistics I have found are 50/50 with success/failure. That is why this this venture capital group seemed so appealing.

Well, you first have to say what "success" is. I think "success" is getting your hurdle rate, not escaping with your scalp still in place. Re the group, that will be very hard to evaluate. Maybe they are a bunch of tire-kickers with no history of actually doing anything. Maybe they have some exciting success stories but you will have to dig, dig, dig, for the silent evidence. Be careful out there.

I did say that I didn't think this was a good idea for you, right?

[Love This Community]

I learned about this term in the post that imoldernu posted yesterday with the thread title “Net Worth Averages”. Just curious if OP googled the term after reading that thread... :-)

[MichaelL]

I looked into the idea of joining an angel investors club but haven't done it as I decided it was to risky and time consuming to invest this way. I've worked in the tech industry for the last 20 years. I worked for 7 companies that were startups. I joined after they got big enough to hire product marketing managers, which is my job function. All of them got acquired by larger companies, which they were lining up or had just completed when I joined. I got talk with the founders and founding members and learn about how it worked. Doing an IPO is only for very well funded companies. An exit strategy is important. I discussed this idea with people I know. I have a number of friends who work for venture capital companies as investors. They all worked in the tech industry for a long time and learned the business. I have some friends who are angel investors. They are all multi-millionaires who can dabble for fun. I investigated the idea of working for stock options for a startup. I went to pitch nights in San Jose to meet people and see what kind of deals where out there. Only a very few ideas get funded. Investors listen to hundreds of pitches before choosing one. I'd have spent who knows how long trying to find a match. Then even if you are working for equity my investor friends tell me that they will still want you to put in at least $50,000. I figured it would take a minimum of 3 years and easily 6 years before there would be a chance to cash out. The cash out might never come as most startups fail. You can get wiped out in follow on funding rounds too. Angel investing is fraught with issues. I decided that it is only for those who have millions to spare.

[lostinneverland]

Oldshooter thank you for the information yes I agree it is extremely risky and against my add age of make your money slowly. This is just something that sounds interesting and I would like to learn as much as I can about it. But to possibly be part of something bigger intrigues me.

I had not read the article about an accredited investor. This was just something that I have been thinking about for a while now and there is an opening in a current fund with this angle fund “rev1 ventures” if anyone knows anything about them besides what is on their website please feel free to share.

[Lienlord]

Quote:

Originally Posted by Bruceski44 I'm an AI who would never consider investing in a start-up company, but have invested a great deal in real estate which is only available to AIs. There are some on here who will tell you the deals are all junk, but they are certainly good enough for me. Just take baby steps when you wade in.

Like Bruceski44, I'm an AI. But as my name suggests, I stick with Real Estate also. I've LP'd a few commercial and multi-family deals in which the sponsor was required by SEC rules to offer only to accredited investors. I try to spread my investments around among several deals rather than dumping all into one.
If you're curious about the types of offerings available, there are several websites that serve as investing platforms.
One is www.crowdstreet.com

[clifp]

Lost

I've been doing Angel investing and alternate investment for about 13 years. During that time I've made about 3 dozen investment into about 2 dozen companies. I've also made three investments in angel "funds" which have invested in roughly 80 companies (with a lot of overlap). Overall Angel investing been quite profitable for me, but it is very important to point out why. My 3rd investment turned out to have a 12x cash return. Plus it is very likely to continue to generate a 12% return going forward, with a potential for a pretty huge upside. I also was one of my largest investments.

Of the 80 odd companies I've invested directly or via the funds, and ~200 companies that have made pitches before the Hawaii Angels, only one other has had close to that type of return. Including four that have appeared on Shark Tank


I dragged longtime board member @Nords into the Angel group about a year after I joined, and while he has invested in one medical company which has a huge potential, overall I believe he has lost money, because he passed on my big winner. It's not because I'm smarter than Doug and he certainly puts more effort into due diligence than I do. I just got lucky.

The advice on the risks you've gotten is good. It is a rich man's sport. You really need to make at least 20 investment to have shot at the 10x+ investment that will pay for all the losers. The typical minimum angel investment is $25K (sometimes you can get away with putting in only $10K) So 20x25K = $500K and if you want to keep your total Angel investing to 5% (also prudent advice) that implies a portfolio of $10 million plus. Now, I don't have $10 million, but I have a very healthy appetite for risk so now Angel and alternative investments are over 20% of my net worth.

But it is not all about the money. I love talking to young entrepreneurs and giving them my $.02 (about what's worth) on their business. It really helps me keep up on new technologies and trends, which is one of the few things I miss about not working and no longer being in Silicon Valley and you do feel like being part of something bigger than yourself.

I also love interacting with my fellow Angels, they are smart and successful (mostly men) and several have become friends. They've also given me great advice about finding a good accountant, and a good estate lawyer. Plus I've been exposed to other investment, like tax shelters, and commercial real estate that would have never found on my own.

I'm also convinced that becoming an Angel investor has made me a better overall investor, I'm now able to trade off investing the stock market vs real estate, vs alternative investment and I'm much more diversified than just depending on the stock and bond market.

So some advice.

#1 Don't do it alone. I'm not sure of what the fund your talking about involves. I'd highly recommend going to an Angel group meeting or two.
https://www.angelcapitalassociation.org/ has lots of resources about Angel Groups, as well as an annual meeting which is very interesting.

Other resources for finding Angel deals include AngelList.co and gust.com but nothing really takes the place of meeting face to face.

#2 Volunteer. Most groups have a number of committees that you can volunteer for you'll learn a lot from the experienced folks

#3 Don't be in a hurry to invest. Warren Buffett said

Quote:

The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!,’ ignore them.”

#4 Funds can be good but watch out for the fees. Most VC fund have a 2% annual expense ration plus they take 20% of the profits. I'm personally ok with the 20% of the profits but the 2% expense ratio really adds up.

[OldShooter]

Quote:

Originally Posted by clifp ... I love talking to young entrepreneurs and giving them my $.02 (about what's worth) on their business. It really helps me keep up on new technologies and trends, which is one of the few things I miss about not working and no longer being in Silicon Valley and you do feel like being part of something bigger than yourself. ...

Excellent post overall!

Re working with young entrepreneurs, you might enjoy working as a SCORE mentor. (https://www.score.org/volunteer) We generally see small start-ups rather than VC-ready propositions but it is still great fun. My regular multi-year clients include a guy who sells about $1M of tee shirts on the internet, a lady who is a consulting CFO/Account for restaurants and has about 5 employees, and a woman who sells very specialized teaching materials for speech therapy and autistic children. Today I talked to a guy who is starting a safety training business for the gas & oil industry based on a unique training concept.

[gauss]

I went to some meetings of a local AI club when I first became an accredited investor. They were looking for a minimum per year investment of $20,000. Given that most of these wouldn't pan out, that seemed pretty steep for me.

The problem with staying in long enough to uncover the 10x or 20x winner, is how would you know when it is time to get out vs NOT selling out too soon?

Seemed to much like market timing with a high entrance fee.

-gauss

[Backpacker]

I got to do this with other people's money! I was on the commercial loan committee at the financial institution I worked at. While I really enjoyed it, my take away is that it is more risky than I am willing to take on Even with 5 experienced lenders on the team, we still didn't have 100% success.

[clifp]

Quote:

Originally Posted by OldShooter Excellent post overall! Re working with young entrepreneurs, you might enjoy working as a SCORE mentor. (https://www.score.org/volunteer) We generally see small start-ups rather than VC-ready propositions but it is still great fun. My regular multi-year clients include a guy who sells about $1M of tee shirts on the internet, a lady who is a consulting CFO/Account for restaurants and has about 5 employees, and a woman who sells very specialized teaching materials for speech therapy and autistic children. Today I talked to a guy who is starting a safety training business for the gas & oil industry based on a unique training concept.

I've thought about volunteering for SCORE, unfortunately, the guy I heard a couple of months ago at the Rotary club was awfully full of himself and so that was a turn-off.

I also periodically get involved in judging college business school plan competition which is also fun.

[clifp]

Quote:

Originally Posted by gauss I went to some meetings of a local AI club when I first became an accredited investor. They were looking for a minimum per year investment of $20,000. Given that most of these wouldn't pan out, that seemed pretty steep for me. The problem with staying in long enough to uncover the 10x or 20x winner, is how would you know when it is time to get out vs NOT selling out too soon? Seemed to much like market timing with a high entrance fee. -gauss

Timing isn't that much of an issue. One of the biggest issues with Angel investing is you have very little liquidity, with few exceptions, you can't sell your shares other than in a few situations. If the company goes broke (the typical case) you have preferred shares or a convertible note so you might get .$10 to $.20 on the dollar, if you are lucky. The common shareholders like the founders get nothing. Among those that don't fail the rest are acquired by a larger company and then you get a check. I guess in some cases, you might get stock instead of cash in the acquiring company but that's pretty rare. Going public is exceedingly rare.

My big winner has been distributing meaningful dividends for the last 7 year, and along with several special big dividends.

[michelek]

Some real estate syndicators that I follow (but have not vetted) and PLEASE do your DUE DILIGENCE are Rod Kleif , Joe Fairless and Kathy Fetke. IMHO they are conservative and only accept accredited investors for their deals. Every investor should be VERY cautious when giving money to deals that require you to be an accredited investor (AI) The rule is in place because if you are an AI then you are presumed to know WTF you are doing.

[OldShooter]

Quote:

Originally Posted by michelek Some real estate syndicators that I follow (but have not vetted) and PLEASE do your DUE DILIGENCE are Rod Kleif , Joe Fairless and Kathy Fetke. IMHO they are conservative and only accept accredited investors for their deals. Every investor should be VERY cautious when giving money to deals that require you to be an accredited investor (AI) The rule is in place because if you are an AI then you are presumed to know WTF you are doing.

Look especially at fees. Anything that is nationally syndicated is highly likely to be loaded with fees compared to simple local deals found through your personal network.

(The best RE deal we have ever been in was structured to provide zero profit to the Generals until the property was sold, and then they shared the profits with the Limiteds.)