A Founder's Guide to Investing in Other Startups
Founders are intimately familiar with the highs and lows of building a startup. The challenges and achievements you have on your journey provide valuable insights when evaluating investment opportunities in other startups.
Investing in other startups can be a great idea because it not only diversifies your personal financial portfolio but also opens up new avenues for learning and networking.
Here are five ways founders can invest in other startups and potentially benefit from the growth of the startup ecosystem.
→ AngelList: I am sure you’ve heard of it, and as a founder, it’s great because you can explore a wide range of startups, review pitch decks, and invest in those aligned with your interests and expertise, expanding your perspective and ideally invest in a massive winner. The key here is to join and be accepted into many of the great Syndicates on the platform.
→ Special Purpose Vehicles (SPVs): These stand-alone single investment entities, allow founders to access hard-to-find (usually later stage and larger deals). You can also lead or co-lead SPVs which gives you a taste of what it’s like to be a institutional VC, as you have to find the deal, win it and get the capital needed to fund it from LPs.
→ Direct “On the Cap Table” Deals: As a founder, you have unique access to other entrepreneurs and startups and founders usually love to take other high-quality founders money. However, this can be a distraction if you spend too much time sourcing and diligence companies and lose focus on your own business. One way folks have done this successfully and with limited overhead is in investing in batch-mates during accelerator programs.
→ Small Fund: If you have more experience, you can set up a small fund to invest in startups. By thoughtfully curating your portfolio, you can have even deeper network access, business/market insights, and of course meaningful financial upside if all goes well.
→ Select Advisory Positions: Taking advisory positions in select startups allows you to offer expertise while being commercially aligned to their long-term success. You are investing with your time, network and expertise here instead of your capital.
Investing in other startups as a founder can be rewarding. It not only provides opportunities for financial gains but also expands your network, broadens your knowledge base, and allows you to contribute to the growth of promising ventures.
Remember to do thorough due diligence, align your investments with your expertise, and remain mindful of potential risks.
(Note: This is for informational purposes only. It does not constitute financial advice. Before making any investment decisions, always consult with a financial advisor and ensure you meet the requirements of being an accredited investor.)
