How do I invest in startups
IMPORTANT: this post and the information below is NOT investment advice and for informational purposes ONLY
I started to invest in startups a few years ago. I did a few investments as an angel investor. At the time, I did not invest with my brain, I invested with my heart. A few friends were launching their companies and I invested in their company to support them. It turned out to be great to keep friends around me, but not good in terms of financial return. As the year started and as I exited Codiga, I stopped any direct angel investment and thought about my strategy going forward.
As I got familiar with the startup ecosystem, I looked at signs that are good predictions to make companies successful in the early stages. I came with the following rules:
Domain Expertise. Founders must have a deep expertise in the domain they are operating. They must not be working in the domain for a few months or years: they must be world-class experts in their domain. If the domain is early, they must have relevant experience and education to quickly execute.
Work Ethics. Nothing replaces hard work. If a founder does not take a call during business hours because of “work-life balance” or if they take more than 24H to get back to me by email, it’s a no-go. In the early stages, the capacity to execute quick is critical, and founders not working hard will likely not make it.
Avoid red flags: weird co-founder dynamics, inflated teams without revenue, founders avoiding doing sales and hiring sales representatives early, etc.
Revenue. If you invest in startups that have and grow revenue, you are mitigating the risks of your investment, and you are very likely to (at least) get your investment back and (more probably) get a good return.
As investing is not my first job and mostly a side quest in my life, I am not actively searching for companies to invest and rather decided to invest in existing investors.
In particular, I invest in/through the following investors: Draper Cygnus and The Syndicate.
Draper Cygnus
Draper Cygnus is an investor who focuses on LATAM companies. I strongly believe in LATAM startups:
Tech skills (understand: programming, product management, marketing) are becoming incredibly good in LATAM and on par with what you see in Silicon Valley. I previously hired many employees from LATAM and never been disappointed in terms of quality.
Labor is 20% to 30% of the US cost, which allows LATAM startups to either raise less, extend their runway (compared to a US company) or grow faster once they reach Product-Market Fit.
Successful LATAM founders inspire the next cohort of successful founders, which will lead to the creation of a strong startup ecosystem.
While I strongly believe in LATAM startups, my communication skills are limited to ordering tacos, and I miss the cultural elements to understand founders and evaluate companies. Draper Cygnus is the vehicle that selects the startups with the best potential. They have a good track record, especially with their exit with Auth0 that got acquired by Okta.
The Syndicate
The Syndicate is an angel syndicate led by Jason Calacanis that invests in startups. The Syndicate is the largest and best angel syndicate today, full stop. As a leading syndicate, hundreds of startups apply to receive funding every year, which guarantees the investment team plenty of companies to choose from.
The Syndicate was an investor in Codiga. I experienced the investment process as a founder and know how it works behind the scene. The investment team does a fantastic job in their due diligence. They do a thorough job to checking that all information presented to investors is accurate. As a founder, they always had my back. And as an investor, I am sure I can invest in the best startups and that the information presented to me is accurate.
The size of deal flow and the stellar job from the investment team are the two reasons I invest through The Syndicate. Jason democratized startup investments for goons like me, and I am happy I have access to high-quality startups to invest in. If you invest you, you need to be an accredited investor per SEC regulation and need to apply directly on Jason website.