How do I get involved in Venture Capital Investing? I have some folks with whom I can pool capital.
Answers
You can very likely get into it through different channels - we constantly see people looking to raise funds of various types and investment foci. I assume you are referring to a SuperAngeltype of investment, as opposed to a traditionally-structured fund, but some key questions to ask yourself and your investment partners are:
* What do you have a particular expertise in, which will be valuable to a company?
* What agendas are you excited about seeing move forward? Enterprise software? Pharmaceuticals? Solar energy? If you are investing in it, you should be engaged in it. This investment focus would be part of the fund's prospectus.
* Who are your ideal investors and your ideal investments? What qualities will you screen investments for?
* Will you require Board seats or not?
* What are your thresholds for investment, and what are your preferred equity vehicles? Is there a 'knockout factor' that would cause you to either veto an investment election or liquidate an existing investment?
Anon, there are a lot of other both strategic and very tactical questions to answer before raising a fund. If you would like to discuss them, please feel free to contact me.
Depending on the scale of your appetite for venture investment, you might also consider Angel investing via one of the many organized groups. Given the phrasing of your question, Angel investing may be smaller scale than you interests. But, in individual Angel rounds individual Angel investors deploy anywhere from $10K at the very low end up to well over $1M at the high end. I'd estimate that a median investment by individual Angels is in the range of $50K.
Perhaps take a look at the Angel Capital Association, to explore groups in your own region: http://www.angelcapitalassociation.org/directory
If your interest is raising your own Venture fund in which you and your colleagues will be the General Partners, I yield to the answer from my colleague above. But if you want to deploy your capital via an existing venture mechanism, your prime choices are to become Limited Partners in an existing VC fund(s) or to act as Angel Investors. As LPs, you are typically outright passive. As Angels, you'll be extremely active in selecting the investments, often mentor the companies as they grow, and occasionally take a board seat.
Perhaps if you'd share a bit more information about your interests and possibly also your location, one or more of us might be able to shed more light.
A quick note on terms. Venture capitalists are paid to invest other people's money, while angel investors invest their own. It's not quite clear from your question which you're interested in doing, but there are one or two things you can start doing immediately if you'd like to get serious about investing in startups.
The first thing to do is to see a good lawyer. If you're going to form a firm and raise a fund from large institutional investors, you're going to need some good legal advice on creating a partnership that will last. Go to a law firm that regularly deals with fund formation. There's Gunderson, Wilson Sonsini, Fenwick & West and a handful of others that have seen enough fund managers to be able to steer you away from common mistakes. There's a tendency to marry in haste and repent at leisure--and a good law firm can get you a pre-nup that makes sense.
The same holds true for creating an angel fund with your friends or business associates. People can change pretty quickly when there's money on the table. You may not need a fancy Silicon Valley lawyer to help you pull that off.
Once your structure is in place, the next step is to fund raise. That means putting together a private placement memorandum (PPM) which you'll use to market the fund to others. I've seen simple PPMs and very complicated PPMs. Most of the text is boiler-plate legalese, but there's also a section set aside to describe the investing team, the fund's strategy and its focus.
Circulate the PPM to prospective investors. If you need help finding people who can commit capital to your fund, try working with a placement agent. Firms such as Probitas Partners can help a lot, but will expect a hefty commission of any funds you manage to raise.
Then there's the easy part: find startups to invest in, nurture them through their high growth period and reap the rewards through a sale or IPO.
Alexander Haislip is the author of Essentials of Venture Capital