Where to invest $300-600k in Silicon Valley?

[tiredkid]

Anon for this. I'm sitting on some cash - I'm not sure buying a condo, some index funds for retirement, or some such "sensible" thing is really my temperament. I'm far more tempted to try some angel investment. Ideally I'd start my own company but I'm a couple of years away from a greencard (will probably be 2 more years and I'll be 35 and ready for a mid-life crisis :*).

I've been here a little while working in large semiconductor companies as a compiler/systems software/architecture guy. But, I'd rather invest in some small groups which are not in such a capital intensive.

I don't have the extensive network of contacts, startup experience or cash that yc has, but perhaps hackers here can suggest a way to dip a toe in the water?

[pg]

You shouldn't invest money in startups that you can't afford to lose. It's too risky. And from what you say, this sounds like money you shouldn't be risking.

[tiredkid]

I've set a budget of ~20% of my liquid capital and can afford to lose it, I believe. I have no debts etc.

What can of financial position do you suggest is a minimum for an Angel?

[sho]

Exactly. My advice: get the condo, it's a great time to buy.

[tptacek]

You probably can't invest in startups even if you want to. SEC Rule 501 limits sales of securities to "Accredited Investors"; to qualify, individuals must have over $1MM in net worth, or $200k in income for each of the preceding two years and a reasonable expectation of the same level of income this year.

[tiredkid]

I'm an accredited investor. The amount I listed was the amount of my liquid cash I was looking to invest; entirely separate from my long term investments which are invested in places where I've already signed the paperwork assuring them I'm accredited etc.

[abstractbill]

YC ran a great little conference called AngelConf[1] a few months back. I'm not sure if it's intended it be a regular event, but if it is you should go to the next one.

[1]: http://www.justin.tv/angelconf/all?order=most_recent

[anigbrowl]

You could contact YC and ask if you can put in $100k.

Or sit down by yourself or with a friend, and draw up some rules: max commitment to any one venture X, min equity requirement Y, time horizon Z. Say you decide to start by investing $50k in $5k chunks. Then read HN and similar as you already do, waiting for things that set your spider-sense a-tingle. Interview them, see which ones excite you, throw some bucks at the ones which won't let you sleep at night. Then your job is to check in with each of these 10 for half a day each week - not too onerous for them, not too consuming for you. Assume that 7 of them will fail, 2 will survive but not thrive, and one will still keep you awake at night in 3 months. Investing $50k in your gut instincts with the knowledge that you'll likely lose 80% of it will probably teach you more than 20 books or seminars.

Edit: the failures will of course result in a variety of emotions, but as long as they fail in an interesting way they could yield great new friendships and contacts.

Your second round of (say) $100k will be better invested, and the result of that process will guide your third round of $250k, by which time you'll either have found your feet or lost your shirt in the process of looking for them.

Edit II: it may sound stupid, but you could also purchase/establish a small coffee shop with fast internet and a good tech library: give solo programmers a place to hang out and hack and later marry them with a business advisor of your own choosing.

[ajju]

In my humble and uninformed opinion, YC is unlikely to take 100K in cash from an angel investor unless they also brought in something with a LOT of real strategic value that they need. I don't know the OP so I can't speculate as to whether he would.

The coffee shop idea is also not an easy one to pull off and next to impossible if you are not doing it full time. See "I opened a charming neighborhood coffee shop. Then it destroyed my life." http://www.slate.com/id/2132576/

[krav]

Quite honestly, as someone who's involved in the Angel world, easiest way to lose money - invest in startups. You have to invest in at least 20 to get an idea of what you're doing. Just structuring a deal so you don't get washed out later is something you'd rather learn from others than by hard experience. You'd be better off joining a group like Sand Hill Angels where you can jump in on deal flow, get advice from people who've been doing it for decades.

[dshah]

I agree.

Angel investment is a very long term game and you'll be dealing with many issues that are separate from the startup you're investing in.

I'd advise joining a reputable angel group or at least finding a few active angels that you can "follow".

[ajju]

If this is 100% of your savings put at least 300K (50%) in something safer than a startup and be prepared to lose the other 50%. If you are not, ratchet down the amount you want to invest to something you can afford to lose without feeling too much pain.

-The remaining 300k is still more than enough for an angel investment in 3 startups.

-Don't rush into investing if you haven't done it before. Read everything pg has written. Go to angel events like angelconf but also to tech events in the areas you are interested in investing (conferences, barcamps, mobilecamps and so on) so you get to see something more substantive and 'real' than a pitch from the founders. (E.g. Zimbra did a lot of demonstrations of their products at events as technical as USENIX).

-Invest in the team, not (just) in the idea.

- Someone else mentioned that startup founders prefer someone who offers not just money but a rolodex and/or advice. This is true for smart founders. You may not be able to contribute to web startups but there are startups in your areas of expertise (compilers, semiconductors) that have potential. I personally know of two: www.accelereyes.com and www.coreopsys.com (no personal affiliation except friendship with founders) - although neither is in the bay area. I am sure there are others like them.

[kicker]

Buy rental property. Here's a crash course.

I bought a house in Salinas last year and have been earning positive cash flow since last August, and the price has come down quite a bit since then. 10% ROI is quite easy. You can get up to 20% ROI on the best deals.

The fact that you have a few hundred K in cold hard cash is a huge advantage. Learn how to do title research and bid at government foreclosure sales at the courthouse.

Check out http://www.fidelityasap.com for the sales in the past 7 days. (For example, choose the city of San Jose, and search for the word "sold". Ignore the ones that whose sales status is Sale Status: Back to Beneficiary, nobody wanted these. We want to see what experienced investors bought). And we see, as an example:

1317 Soto Ct San Jose, a 3/2 1200 sq ft house built in 1969(zillow.com) selling for $220K. Notice that no one bid against this lucky buyer. Spend, I dunno, $20K fixing it up, worst case. Get a mortgage for 25% down, 7%, 30 year fixed. That's $55k down, $1100 a month or so in PITI. You rent the house out for $2000 a month(check craigslist for real numbers).

So you're getting $900*12 / $75K = 14.4 % ROI AND they are paying off your mortgage for you AND you're saving on your taxes. And the house will appreciate in value, you hope.

The general rules is, the ROI is higher for more ghetto neighborhoods. Modesto, Stockton, and Salinas has higher ROI than the Bay Area, but they are 1.5, 1.5 and 1 hour away from Santa Clara, respectively.

It's not rocket science. It's important to be patient, learn the rules, and compare lots of numbers, but the hardest part is having the MONEY, and you've got that already. I'm an young engineer with a day job, the above I picked up over about a year and a half on the side.

The reason I'm posting this is to meet other people interested in this stuff. Drop me a message at istarist @gmail.com, if you are.

[e40]

Just recently looked at the website you mentioned (fidelityasap.com) because a neighbor's house is being auctioned and I wanted to know what was going on with it.

I'm curious, LPS seems to have a lock on the foreclosure/auction market. Are they the only ones, though? Are there other websites that list properties like this?

Speaking of ghetto neighborhoods, according to fidelityasap.com, Oakland has 700+ properties being auctioned.

[garply]

I actually don't think the tech in Silicon Valley will provide the best return on your investment - it's no longer the wild west out here, more like the 3rd generation of settlers setting up small to medium businesses. If you understand the market, I think there are some really good companies (tech and otherwise) in China that would be worth investing in. And if you want to invest in the US, real estate is an extremely sane thing to do: Avoid 'hot' areas, find a quiet but predictably growing area and buy up some land right outside the currently developed areas - the development will eventually grow over your property and you will profit handsomely.

[caffeine]

Buy something risky like U.S. treasury bonds, startups are for wimps :)

Seriously, take a year and BE in a startup. You'll know what to do next. It's hard to beat osmosis.

[timf]

You say "ideally I'd start my own company" -- have you thought about quietly preparing and working on the side on something for a few years? A few years is not all that much time. When it comes time when you can quit and start a company, you will have momentum and a nice personal runway.

Just curious.. that is what I would do.

[tiredkid]

Yes, I've thought about that. In fact I've written some code already, I have what I believe is a good niche and I know how to build what is needed, but I'd also like to get more involved in the startup world in advance of my being able to start my own company.

[joshu]

Are you an accredited/qualified investor?

I recall you have to have a fairly large non-home kitty to be able to actually invest in companies. Something like $1m in savings or > $200k/yr income. Ask your lawyer.

[wheels]

It sounds like you should find some folks that are already doing angel investment and talk to them. I think there are mixed views on the "clubs", but you'll want to find somebody that can take you through the steps and potentially co-invest with you.

You could probably shoot a mail to YC and note interest in upcoming angel events, angels in your area, about demo day and whatnot.

Also, http://www.paulgraham.com/angelinvesting.html

[gaustin]

I've just started working on a web application similar to dailyburn.com, but with a different market emphasis. For $10,000 dollars or so I could build it, launch it this Fall, and maintain it for several years. I have several solid ideas for making money with this.

Sadly, I don't live in a civilized place like Silicon Valley. I'm out here in the sticks of Helena, Montana.

But anyway, let me know if you want to talk about it...

[e-mail]

[jasonlbaptiste]

Get the condo. Save aside 25-50 max. Find a company that interests you, that you would want to be active with as well. Invest the money there, and assume you'll lose it. You'll learn the ropes the right way. From there, assess if you want to do more of it. Angel investing sounds all dreamy and great, but it may not be everything you expect.

Also watch angelconf videos.

[skmurphy]

There are a several good Angel organizations in Silicon Valley. But they will be looking for folks who can supply both money and expertise. I would look for partners and do a software startup given your background. Please feel free to contact me directly (I am not looking for funding but it's difficult to make suggestions without asking more questions).

[thorax]

Well, it's risky to be involved in startup investment. I never recommend anyone put money anywhere unless they know enough about it to predict where it might go (or at least know signs of trouble to look for).

Many companies of people on Hacker News are looking for angel funding. You should reach out to those who seem most promising to you.

[darwinw]

There are a lot of boot-strapped web start ups these days, I would suggest go to their "about us" section or blog if they have one and get to know the developers. Also, $300 - 600K is a big range. I would definitely think any YC funded sites should be interested in getting cold hard cash from angel investors

[manmanic]

Spend at least $50k of that visiting the Valley regularly, attending conferences, and building up a network of contacts. Otherwise you'll get crappy dealflow and almost definitely lose it all (if you decide to invest at all).

[tiredkid]

I live here fulltime. More time networking is definitely on the cards - but I think I need to concentrate on new circles. For example, I know well known processor architects but no web people.

[rjurney]

I would suggest you contact your local representative of the Angel Capital Association and talk to them about it: http://www.angelcapitalassociation.org/

[grandalf]

I'd recommend talking with all YC rejects and picking some and investing $15K. You could spend another $10K on lawyers and then set up VC meetings. It would be risky but that's why you want to invest in startups, right?

[grandalf]

One not so novel idea would be to buy up shares of Facebook from employees.

Chances are Facebook will have a nice exit in the next 5-10 years.

[prateekdayal]

How do we get in touch with you? I can't find a way to PM you here. If you don't mind investing in Indian web startups (with a global market), please drop an email to [e-mail]. Even otherwise, we can have a quick chat!

[mixmax]

Pity you aren't in Denmark, we need some good angels :-)

[planck]

Easiest way to double your money: fold it in half and put it in your pocket. I guarantee no losses.

[darwinw]

if only Bernie Madoff is still alive...

[tphyahoo]

I'll bite.

I am putting together a product for doing simple administration of multi-server configurations, allowing a quickie conversion from in-house servers to the cloud (ec2 or others).

The emphasis is on configuration and management and not dashboard functionality like rightscale, cloudkick, and the aws panel itself. Because why reinvent the wheel? If you're interested ping me and I'll send you more information. I would also be open to shares-for-housing. thomashartman1 at gmail.

[sho]

HERE! Here here here here here (waves hand) over here here here HEEEEERRRRRRREEEEEEEEE

[anigbrowl]

:-) No you didn't use up the space, but I have been looking for ~$250k+ for the company I work for. This is NOT a pitch, I don't think it's suitable for or interesting to the OP (non-tech, big chunk of change, old media business model).

But I would like to ask the OP what kind of overall return s/he hopes to make on a low-mid 6 figures investment, and how soon. I can always use guidance into an investor's goals.

[Shamiq]

Link us?