Average Americans Can Now Invest In Startups – Don’t Do It!

Venture Capital Returns by Artivest

I don't recommend average Americans invest in individual startups. Investing in a fund is a better bet.

The Securities And Exchange Commission recently voted to implement Title III of the Jumpstart Our Business Startups (JOBS) Act. This means that starting in January 2016, average Americans no longer need to be accredited investors to be able to invest in future or current private startups.

If your income is $100,000 or less, you’re allowed to invest up to 5% of your income. Those earning more than $100,000 can invest up to $10,000. Accredited investors who earn more than $200,000 or $300,000 per couple, and have a net worth over $1M excluding their primary residence, can invest what they wish. 

I'm pro Title III because everybody should be able to have the freedom to invest in what they wish. A significant amount of new capital will now go towards startups that in the past might have never had a chance to get off the ground. As a result, crowdfunding platforms like Kickstarter or GoFundMe should swell in interest.

Private Investors In Startups Beware

With millions of Americans now being able to invest in private companies, I'm a little worried about the potential outcome. The $5,000 – $10,000 investment caps seem appropriate because investing in private companies is much riskier than investing in a publicly listed company. Here are three things to highlight about investing in private companies.

Here's why you shouldn't invest in individual startups.

1) Most startups fail.

Paul Graham, the founder of Y Combinator, said that 94% of his incubator class ends up failing or becoming zombie companies with never a potential for an exit. YC only accepts about 5% of applicants, so imagine what the failure rate is for everybody else without mentorship, funding, and instant connections?

Let's forget about internet/tech/mechanical startups. Notice how much turnover there is on your favorite retail store street. Staying in business is tough thanks to ever increasing rents, mercurial customers, changing trends, and competition.

Private investment money is illiquid.

Unlike buying shares of Apple Inc., where you can buy and sell shares in a second, you better prepare to invest for 3 – 10 years before potentially seeing any type of return. In fact, given the high failure rate, it's a good idea to kiss all your startup investment money goodbye as soon as you deploy your capital.

There's a higher chance of getting scammed.

Sure, there are massive public equity scams such as Enron and wealth managers like Bernie Madoff. But there are many more private company scams than public listings. The reason is, in order to be a publicly listed company, you've got to go through auditors and SEC listing requirements. There are many more people carefully scrutinizing your books. A private company doesn't even have to give quarterly investor updates. If they choose not to, very little has to be disclosed.

If you want to invest in startups or private companies, it's a good idea to limit your exposure to no more than 10% of your investable assets e.g. $500,000 in the S&P 500 index, $200,000 in a bond ETF, and $50,000 in private companies. However, I guarantee you there will be a point when you wish you had your private investment money back.

    Angel Investing In Startups Is Tough

    I don't recommend anybody angel invest, unless you have lots of money to burn. All the really good deals have already been shown to the best investors and venture capitalists. What you and I are left with are usually the rejects. The companies might all sound promising, but they weren't promising enough to get funded by the elite.

    If you insist on investing in private companies, you might consider investing in a syndicate run by an established private equity investor on a site like Angelist.co. You can invest alongside people worth over $100M if you wish. You'll have to give up some of the upside, but your chances of actually making a return increase much more.

    Back when I was making a steady paycheck, I invested $75,000 in a college friend's startup. The idea sounded good at the time (they always do) and the company, despite the financial crisis, is still around today. The founder is a great salesman, with a tremendous amount of energy and hustle. He is relentlessly competitive, which is a necessity in founders.

    Despite growing my net worth by several fold since I first made the investment nine years ago, I still find $75,000 to be a ton of money. With $75,000, I could buy three Rhinos (my sexy 2015 Honda Fit EX) and have $15,000 left over to travel around the world for a month with a friend. Unfortunately for me, I have not received one penny in return from my investment.

    If I had just plopped the $75,000 into the S&P 500 instead, it would be worth more than $120,000 by now. Not only is investing in the S&P 500 more liquid, it's so much safer as well.

    Frustrated At The Slow Progress

    I've mentally written off my $75,000 investment that I hoped would one day turn into $750,000. For a couple years, I was at peace with my decision until I found out on Facebook the founder recently purchased a ~2,000 square foot loft in the West Village of Manhattan!

    After doing a quick search online for similar sized properties in the area, I discovered they are going for ~$5M+! The founder makes less than $150,000 a year, and there's been no huge exit. How the hell does he afford a $5M dollar apartment? Even if he found the steal of a lifetime at only $2M, something weird is going on here.

    When I asked him, he coyly said, “I'll never tell.

    With this new information, I'm no longer at peace with writing off my $75,000 investment in my friend's company. I'm now annoyed the founder is living the life of a deca-millionaire when he hasn't returned any money to shareholders. I can't help but wonder whether he siphoned some of the company funds to help pay for his apartment. My “hope” is that the Bank of Mom and Dad bought it for him, which is why he won't ever say.

    Nothing annoys me more in the financial world than when people brag about their unearned financial success. Bragging about your new home, car, or whatever when your parents bought the items for you is low class.

    Don't Expect Any Of Your Money Back If You Invest In Startups

    US Public Markets Vs. Venture Capital Returns By Year
    Investing in a VC fund is considered safer than you individually investing in private companies. Yet the returns are not that great.

    If most private companies fail, you've got no business investing in private companies. I know people who have invested hundreds of thousands of dollars in some of the hottest companies in Silicon Valley. Although they are worth a lot on paper, they haven't come close to gaining back their initial principal. At least with public companies, it's easier to see the writing on the wall before they go to zero.

    10 years is a long time to hold onto a private company that may one day go public. As I just wrote, I've been holding on for nine years with no returns so far. The people who are getting liquid are the founders, who are selling shares at each funding stage to Venture Capitalists hungry to take as large an equity stake as possible with their limited partners' money.

    I wouldn't recommend angel investing. However, if you want to invest in venture capital, such as a mid-to-late stage technology fund, Fundrise launched its Innovation Fund that does just that.

    Fundrise is my favorite real estate investing platform, so I trust them to invest more strategically and do better than the typical venture capital fund. Their management is cautious, smart, and savvy. Launching a private technology fund in 2H2022 after tech stocks have declined by 30% – 80% is good timing.

    Invest In Startups At Your Own Risk

    Don't ever forget companies like Secret, which raised millions of dollars from VCs, cashed out $6M between the two founders, and then closed its doors less than twelve months later. With private companies, minority shareholders get screwed the most because they have no idea what's going on.

    If you want to invest some money in your friend's hot new idea, go ahead. Think of the investment as a charity donation, because chances are high that money is never coming back.

    Most everyone is much better off just investing in a mix of stock and bond index funds or letting a low cost digital wealth manager automatically invest for you. Just keep on contributing to your investment funds over time and you'll be surprised at how much you'll accumulate.

    Invest In Private Growth Companies

    Instead of investing in individual startups, consider diversifying into private growth companies through a fund. It's safer and the general partners at the fund get a better look at the best companies.

    Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

    Check out the Innovation Fund, which invests in the following five sectors:

    • Artificial Intelligence & Machine Learning
    • Modern Data Infrastructure
    • Development Operations (DevOps)
    • Financial Technology (FinTech)
    • Real Estate & Property Technology (PropTech)

    Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

    The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

    Manage Your Finances

    In order to optimize your finances, you've first got to track your finances. I recommend signing up for Empower's free financial tools so you can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their amazing Retirement Planning Calculator. Those who come up with a financial plan build much greater wealth over the longer term than those who don't!

    Retirement Planner Personal Capital
    Is your retirement on track? Here's my personal results.

    Related: Don't Join A Startup If You Want To Get Rich

    54 thoughts on “Average Americans Can Now Invest In Startups – Don’t Do It!”

    1. Unfortunately, the SEC put too many requirements on companies that file for funding from unaccredited investors. For years now Kickstarter has been able to fund projects and give folks no equity in return. It’s so unfortunate.

    2. Sam, I’m surprised that you have no legal recourse to be able to see your “friend’s” company’s finances to see what’s going on with your investment. It’s one thing if discovered that he moved back in with his parents because his company went under. But here? It sounds like business is booming and he’s keeping your investment for himself. I know it’s a private company, but as an investor, doesn’t that make you part owner? As an owner, surely you must have SOME rights.

      At the very least, you should at least have the right to sell your stake in the company. I just can’t imagine that this guy can get away with something like that and you would have no legal recourse. That you can’t even demand to see the company’s financials despite being an owner.

      If I were to ever private invest (which I won’t), I would want it on paper that I would be entitled to X% of the company’s paid out to me each year, or something like that, along with the ability to view the company’s financials periodically.

      But I think I’ll still just stick to my dividend stocks. I’d rather put my money on Colgate-Palmolive selling toothpaste than a Silicon Valley startup creating the world changing computer algorithm.

      Though I do agree with you on Title III. People have the right to choose for themselves how to invest their money. If people want to blow it all on shady private companies, penny stocks, and lottery tickets, then they should have the right to “invest” that way and deal with the consequences.

      ARB–Angry Retail Banker

      1. ARB – that info on paper is called a term sheet. If you’re looking for an annual payout then you’re looking at extending a loan or a note, depending on the amount of equity involved. One of the dangers of investing in the friends and family stage is that valuation for the startup (if any) is usually totally wack. Products have to go through about 7 iterations before it’s fully baked. So if you’re coming in at iteration 0, it’s likely that it’s nowhere near where it needs to be to be successful.

      2. I get a quarterly update and see what they show me. I’m not saying he is misappropriating funds. The real answer is probably that his parents bought the place for him. I just find it extremely poor form to brag about something 1) you didn’t buy on your own, 2) when you still have lots of investors in your company who haven’t seen a return.

        It looks like the firm is raising more money now, and they actually have a decent amount of demand. So perhaps, not all is lost!

    3. Angel investing is not for the faint of heart for sure, and it is very high risk. That said, if you happen to have the right background and network (along with the net worth) it can be profitable. Don’t expect a 100% hit rate. There are certainly techniques to get better outcomes.

      I don’t agree that all the best deals have been snapped up by Venture. Currently, valuations in the Bay Area are pretty frothy and VCs have been funding much larger deals which leaves startups more vulnerable. There are still interesting and promising startups to invest in. Angels tend to get startups to the point where VCs are interested in funding. It’s not the late 90s anymore, there are much less deals done based off of a drawing on the back of a napkin.

        1. None that I can share for the following reasons:
          1) I’m part of a couple of investment groups which does a lot of vetting on the startups – we have structured pitch events + a deal flow.
          2) My investment style may not match yours (or anyone else’s) so I’m hesitant to mention as I’m not promoting any of these – some of my co-investors in the groups are much more risk tolerant than I.
          3) if this is something that you’re interested in – look for “pitch-fests” in your area – they are not cheap to attend and it does give you a sense of what’s “out there”
          4) personally, I would NEVER get involved in the “friends and family” round. It’s simply too high risk for me. I’m post-seed.
          5) Some people invest in a particular industry, some in a range of industries – pros and cons to both – I’m still trying to figure out which I’m leaning towards as I’m early in my process.
          6) I would not invest $75k in one startup, and especially not without a term sheet.

          Sorry to hear about your crap experience with your “friend”. That’s pretty lame.

          re: crowdfunding – I’m fine with it and not getting equity in a company – there’s usually a physical good that is garnered from that model – if people want to do that, they should be aware of what they are / are not getting out of it.

          As you mentioned, if you’re risk adverse, none of these would be a good investment model…

          1. Hi Miss M,

            Thanks for your feedback. That’s cool you are a part of a couple investment groups. Is this part time or full-time work?

            I’ve sat in on a lot of free “pitch-fests” before, as I am in San Francisco and often get free media passes. I went to Plug & Play’s the other week, and got invited to Draper University’s next week. There are endless opportunities.

            I got a term-sheet and full on presentation, dinner, lunch, etc w/ the founders.The $75K was in two rounds, and I had about $500,000 to invest during this time period, so about 15% of my investable capital. In retrospect, $75K was way too much.. and I should have just invested $25K based on my capital and net worth at the time.

            How much of your own capital do you invest? Or are you investing other people’s money and earning a fee? I think I’d love to invest other people’s money for a fee. No risk, right? The VC job seems like the best job in the world. Any job with asymmetric return profiles are the best.

            1. ha! I agree – investing other people’s hard earned cash and not be held liable – must be nice… nope, that’s not me. Just a part time thing – I’m a very small time investor – $1k-$5k per investment as a start. I may hold roughly 20 at any given time. It’s a very very small % of my investable capital. 15% is pretty aggressive! Angels tend to throw in anywhere from 1-10% (at least that’s the rumor…). Also – a lot of angels I know would not invest in more than 1 round.

              1. If you believe in the company, it makes sense to keep on investing.

                We shall see what happens with my current investment. Just got need they are raising more money at 85% higher valuations than last and have 70% of the book filled. At least it ain’t going BK any time soon!

    4. I invested about $15,000 in my college friend’s company. The company didn’t work out, but he is living a comfortable lifestyle in Tahoe. I wouldn’t recommend VC investing either. I know better now and I don’t do it anymore. Now that I’m older and wiser, I like slow and steady investing.
      Good luck talking to your friend.

    5. I don’t think its a good idea to encourage people to invest in unregulated private companies for the very reason you lament your $75,000 investment. You are making a huge gamble because you don’t know what goes on in the boardroom and the government can’t do much to sort out matters like they do with public companies that trade on the stock market. Plus, there’s a really high risk of failure, as you mentioned. I heard 90% of startups fail within the first year because of poor cash flow management, and you mentioned 94% become zombie companies, so the odds of you making millions of dollars in profits one day are pretty slim.

        1. Hahaha. No, I wasn’t referring to you. You’ve made it pretty clear it’s a bad idea. I’m referring to the SEC who have made it easier to invest in startups for the average American. They may not actively encourage the public to invest in this sector but they’re eliminating hurdles for entrance into risky investment pools, which is ‘encouragement’ in the world of government policies.

    6. Sam,

      Sorry to hear about your friend- that would get me fired up as well. How is the company doing in terms of EBITDA and net profit? And if they are generating excess cash, what are they doing with this surplus. As an investor you have the right to know this information.

      I have about 20% of my invested assets into a start up company. It’s not for the faint of heart, and seeing those statistics once again is quite sobering.


      1. EBITDA break even. Actually, now that I think of it. They are looking to raise more money. This is the time to ask hard questions as a result!

        Which startup or what type of startup did you invest in?

        1. It is a hardware / software company that is in the solid state / hard disk drive storage space. Has been burning through cash for the past couple of years but it is EBITDA positive this year. As you said it’s an investment that has no liquidity. Either a goose egg or something positive. We’ll see.


            1. Under a blue sky scenario with no further dilution and a 9 figure exit (possibly but far from guaranteed) the return would be like 10-12X my investment. However I’d be happy with achieving even 25% of that target.


    7. I have been jazzed about the JOBS act. But, I think you make excellent points about why it people shouldn’t do it. Even if you’re an accredited investor, which I believe I was until this year, when you’re being dined by some d-bag that needs another snort so he can catch the next flight to O’Hare and justify to his wife why he left ibanking to sell equity in 7 apartment condos on a $50mm raise.. You kind of wonder why the “good deal” left Manhatten.

    8. Venture Capitalists have a much higher tolerance and appetite for risks than the general population.

      Your advice is sound ans safe for the typical investor; however over the long-run, VC do much better than risk averse investors.

      All it really takes is one winner. Businesses might faill, but the VC guys keep ivesting until they hit the jackpot.

      So yes, in a sense, this is not for the averga American.

    9. Thanks for the insightful article Sam! Longtime and avid reader, yet rarely post. I was just curious your thoughts/suggestions regarding the best way to get exposure to the private investment space assuming one can only invest $10K. I know that you mentioned Angelist.co as an option, but I just wanted to know if there were other alternatives that you would also recommend. Thanks for your posts and feedback as always!

    10. I think this is a good change. I’ve founded a startup. I’ve been an engineer in the valley tech industry for two decades. People should have the right to invest in startups and the intelligence not to.

      1. Would love to get your startup experience if you ever want to share. I’m fascinated w/ the incessant desire for people to start companies when their odds are against them.

    11. As employees we have the ability to invest in our company and since I started working there I have invested large portions of my pay to get larger portion of ownership. After reading this post and the Equity Dilution post, I am starting to realize that having close to 75% of my net worth tied up in the company I work for (private) may not be the best choice. Returns have been great with annual dividends, but I need to purchase more equity with those dividends to retain my ownership percentage each year as shares are offered to employees. Thanks for the thought provoking post Sam.

      1. There is a chance you could have won the lottery with your current private company, but you just never know for sure. Definitely manage your liquidity and shoot to bring that company ownership as a percentage of your net worth below 50%.

        So many employees are blindsided. They think everything is good at one moment and then BAM! Please read about Zirtual’s demise. 400+ employees got let go via EMAIL before coming into work on Monday. And just a month ago, they got a famous angel investor, Jason Calacanis to invest and do a video interview showing how awesome the company was!

        Please check out: Recommended Net Worth By Age Or Experience

        Do your best to use your funny money to buy REAL ASSETS.

        1. I like the the knowledgeable employee exemption for private funds, especially if you work for a VC Fund, real estate fund or other private equity fund. It allows you to invest even if you’re not an accredited investor, and you might be able to avoid management fees and carry as an employee.

          I think you have to think of VC investing as buying a lottery ticket, just like you alluded. It probably also makes more sense to invest in a fund, rather than an individual company, to increase your odds of having a successful liquidity event, and sooner since most funds have a fixed life.

          1. I don’t see investing in a VC FUND as buying a lottery ticket, as a diversified enough fund will return something to shareholders. I see investing in individually investing in a handful of private companies or just one private company to be a lottery ticket.

      2. Kevin, I think it’s a bad idea to have more than 10% of your net worth in any one asset. A single asset class is one thing (dividend stocks, municipal bonds, precious metals, etc.), but not one single company.

        I would immediately cease all investment of this company and start investing elsewhere. Perhaps begin building a dividend stock portfolio with a diversified group of holdings across an array of different sectors. Perhaps throw some bonds into the mix as well. But start now. You don’t want to have everything in this one company only for it to go south (ESPECIALLY if it’s the company you work for; then you’re losing your investment potential, life savings, AND your paycheck on top of that).

        ARB–Angry Retail Banker

    12. Matt Schipper

      Sam, Reach out to your friend and see how his business is doing and see if you can advise him on helping it become more efficient. You have the knowledge to improve things or find a workaround to an issue. Also, 150,000 k a year for a business that is not producing is too much.

    13. FS, sorry to hear. Sounds very personal. My thought is that you have been (rightly) offended by his publicly ostentatious and vulgar display of personal vanity. A great example of why I don’t do Facebook, Instagram, Twitter, etc. “Comparison is the thief of joy” – Teddy Roosevelt

      Now. Get your money. That is your only focus. Not on insulting him, making him feel unethical, judging his character, etc. Don’t do it publicly (at least at the start). Contact him and ask how you can get your money out. If he asks “why”, your answer is “I’ll never tell.” Your reasons don’t matter, you just want your money. “Nem di gelt” (“get the money”) – Henny Youngman You might want to call him to tell him you are sending him a letter, but make the formal request in writing and require a reply by a reasonable date. This is a negotiation now, not a referendum on your ability to judge character or his commitment to a friendship that has greatly benefitted him but not you. Keeping good thoughts, brother, it is always a drag when people let you down; raise your eyes and focus on your goal: get your money.

      1. It begs the question: If you have not yet succeeded, do you have the right to live like a success when other people have invested in you?

        I’m severely disappointed in his public display of wealth, when it seems clear to me he didn’t earn it. If he had sold his company for even just the value we had invested in the company 9 years ago, OK, feel free to brag and splurge. But w/ nothing to show for, I fear the worst.

      2. P.S. – don’t tie his condo to the company. He surely has a legal firewall, and the two are unrelated in your ability to recover your investment. The tactic that has worked for me in the past is to emphasize that the investment is your money, and you want your money after nine years. Conflating unrelated financial events is a non-starter, and will only get his back up; once the conversation is adversarial, recovery of funds gets a lot harder and will become very expensive as your options for recourse get legal. Breathe. Get your money.

        1. But Jay, I don’t see any legal right that Sam has to demand the money. He could ask, and his friend MIGHT willingly give it back, but if the friend refuses, I don’t think Sam has a leg to stand on. Unless there was something in the investment offering documentation that we’re unaware of, Sam probably bought his interest in the company and is forced to hang in there with no guarantee of being bought out later. I wouldn’t want to demand a refund without any legal basis for it and then be forced to back down and come up with another argument to reopen the issue.

          If I were you, Sam, I would ask how he bought the condo, and point out that it seems in poor taste to move into multi-million dollar digs and brag about it when his company is performing modestly and he hasn’t returned funds to shareholders. See what you can learn by doing that.

          What I suspect is that the company bought the condo and is providing it to him to live in rent-free. The company gets to say that it’s a company asset, so it’s not technically misappropriated because the company didn’t give him the condo, it’s just letting him live in it as employee housing. It’s still a shitty thing to do, and you could make the argument in a lawsuit that he effectively misappropriated the money by causing the company to purchase the condo when he knew it would be a direct benefit only to him. The threat of that lawsuit might be enough to make him cough up your money.

          1. I hope the company didn’t buy the condo and allow him to live rent-free. That’s not a proper use of assets.

            I’ll chat with him by the end of the week after letting the dust settle a little more on my thoughts. There will be no threats of lawsuits or nothing.

            I just need to know the truth, not a cagey, “I’ll never tell.”

          2. Yetisaurus,

            The issue, though, is that Sam now has reason to believe that his”friend” used his (Sam’s) money to buy himself an expensive home. That $75,000 was to be invested with an expectation of returns, not used as someone else’s piggy bank.

            It would be different if this guy were just a shoddy businessman that was running the business into the ground. THEN Sam wouldn’t have a legal leftover stand on.

            But here, it looks like the person actually stole Sam’s money. If business is so good, where’s Sam’s cut? And if it isn’t, then where did this new place materialize from?

            I would avoid asking about the new home since that’s none of Sam’s business in and of itself. But Sam should have the right to see the business’s financials.

            ARB–Angry Retail Banker

            1. The “right” to see financials is part of the term sheet negotiation. There is no right, there is only what is negotiated.

    14. Would that apply to quite popular companies as well? I can think of a few companies I’d like to invest in, not for thee potential return, but from an ideology perspective (thinking of SpaceX for example). Will those open their doors as well as part of this change?

      1. Yes. The next hurdle is whether the company will ALLOW you to invest. A hot private company might throw a bone sometimes by allocating a tranche to some crowdfunding platform or fund. A lot of the supply is already mopped up by connected individuals or firms who get first dib on all the good stuff. You and I will get the leftovers.

    15. I was glad to hear about this but agree with you that people should proceed with caution. I think the investing limits they set are fair as there certainly is a lot of risk when investing in private companies.

      Sorry to hear about your investment in your friend’s company. I would be PO’d too if I saw that news about his house, especially because of the way he answered. At least it’s good that the company is still around – most startups don’t last that long, so even though you haven’t gotten any money back, hopefully there’s still a chance you still might.

    16. Re: Title III. It’s a good change to the law. I’m guessing that people with good ideas have always been able to raise money illegally from friends and family, so it’s good that the law has changed so that what was likely happening anyway isn’t subject to prosecution, sort of like what David Simon calls the head shot. That said, most people shouldn’t invest privately. It’s effectively a classier way of gambling. It’s nice if you strike it rich, as Peter Thiel did with Facebook and Palantir, but if you’re depending on some return, it’s much better to stick with Vanguard funds that mirror the S&P 500.

      It sure sounds like your friend needs an audit. Perhaps he just got help from his parents, but it’s also possible that he’s mixing business and personal money in a way that’s unethical. I don’t think you need to ask him directly how he could afford that expensive condo, but I do think his business needs to account for every dollar it raised. For what you’ve put in, I think you’re owed an accounting.

      1. It’s bugging me too much not to ask him in a very frank manner again. I feel w/ 98% certainty the company is operating fine. I just need to squash out that 2% of uncertainty.

        As a small business owner myself, I understand the temptation of using company funds for personal use e.g. a meal. But when big ticket items get purchased that is outside the financial scope of an individual, alarm bells ring.

    17. I can see why you would be annoyed with the friend you invested with buying that condo. It is in poor taste to brag about it when the business does not seem to be doing well.

      However, I don’t think asking him how he paid for it is the best way to go. It is not really your business how he paid for the property. That is his private life. Just because you invested with him doesn’t mean you own him.

      It is your business how well his business is doing, so you should ask about that, and perhaps ask when you should expect return flowing back to you. When you invested with him, though, you should’ve ironed out those details at that time – how much visibility you will get into the business and at what frequency you should expect dividends. It seems like you didn’t flesh out those details early on, but it is never too late to talk about it!

      1. And if the business is being pilfered in order for him to afford a multi-million dollar place, then what? This is one of the reasons why investing in private companies is super risky. You don’t know exactly what is going on.

        It is VERY hard to forecast whether someone will use company funds not for company use. I hope that is not the case, but how does one forecast this? My sincere hope is that his parents bought him the place, yet he says he’ll never tell.

        What private investment experience do you have?

        1. I don’t have any private investment experience, precisely because I agree it is too risky. Just giving my opinion.

          No doubt – I would be pissed off as well. I do not disagree one bit with that.

          But the way I see it is that his mansion is only a problem if he bought it with company profits, or in some other way that is at the expense of the business. So why not just talk about how the business is running and cut out the bit that is simply the trigger and not the actual problem. It also might have a higher chance of success since he might have an emotional reaction to you asking about the mansion.

          And let’s say that the mansion was bought my his parents – great, you have some peace of mind, but I am sure you would still not be very happy that you’ve not seen a return from the business yet. Hence, you still might talk about the business.

    18. I think this is great for those situations where a startup wants to raise money from friends but those friends aren’t accredited and thus, technically, not allowed to invest. I’m sure this gets enforced basically never. :)

      I used to do some startup investing but stopped a year and a half ago. On the whole, I’m “up” so to speak, which gives you a sense of my thinking about it now. :)

      I realized that 1) I’m bad at it, 2) it’s gambling, and 3) I’m not getting access to the best deals because I don’t have a good network for it (as you say “All the really good deals have already been shown to the best investors and venture capitalists.”). You get the leftovers or the folks who aren’t connected enough to get their own deals… and when you consider how easy it is to get attention to a hot startup, that’s a bad sign in an of itself!

      Startup investing is sexy, it’s like investing in a local restaurant, but it’s a bad financial decision.

      1. I agree with Jim on his three points. It really is gambling and, like Sam said, unless you’re filthy rich and can completely afford to lose 100% of your investment, which is probably what will happen, there’s better ways to invest.

        I recently invested $25k in a friend of mine’s artificial intelligence company. I did it to have access to smart people, stay abreast of what’s going on in the private markets, to learn more about the AI and deep learning space and, by offering to help them with PR, opportunity to connect with a bunch of new reporters and analysts. Eventually they brought me on as a paid PR consultant although that was not my original intent. My rule of thumb: only invest in companies that, in addition to giving them money that you will probably never see again, you are also willing to help them out on a pro bono basis. That way you’re excited about it beyond the money.

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