I have the opportunity to invest in a start-up. Founder is a mathematician from let’s just say the top place you could get a math or engineering degree from. The idea is microfinance. Without getting into too many details, what are your thoughts on the space? Room for disruption? Two main competitors in the space (pretty obvious ones) that dominate. This is the first round (friends and family). Securities being sold are SAFE’s (simple agreements for future equity), anyone have experience with these? Any advice is appreciated.
^no experience but this is interesting so following…
Very crowded space. GL
Don’t most VC investors aim to lose on 9/10 investments, and then hit a home run on a small fraction of startups? Unless you have a lot of entrepreneur friends to spread out your investment, the risk to reward is probably not that great.
Like Ohai said, this is massively speculative. You should invest on the basis that it is highly likely that you will lose your investment but with a small chance of making a huge return. Alternatively, you could use the money to bet on horses or buy a lottery ticket.
No clue. Good luck though!
I think I would look at the business plan, network founders/investors network within industry, key product differentiators, product requirements (sourcing investments, loan servicing, recourse), etc. Ultimately, does this guy have a plan for all these? How likely are they to execute successfully on these?
My HS buddy’s dad was a loan shark back in the day and charged high rates and took assets (mostly RE) as collateral. Dude did extremely well.
huge selection bias with a CFA forum giving their view on investing or being involved in a start up. I’ve dabbled in a few over the last 2-3 years. It’s true what others have said that you’ve got to be ok with losing it all.
I don’t know about you but paying someone 1% to beat an equity bm by 2% every other year or a cash plus return of 7% or whatever we’re all being told to accept just doesn’t fucking cut it for me.
Maybe I’m just a simple man but large cap investing is starting to bore me to tears. you can sit and pour over data for all the hours in the fucking day but ultimately you’re just trying to guess what view all the sell side d bags that cover the stock are herding into or otherwise you’re just trying to find a nice little story that will play out and make you some bps above the bm.
Advice would be to do your work on it as if it was a stock you’re covering at work and someones going to come and give you a fucking roasting if you get it wrong. and get stuck in, ask questions and don’t be fobbed off by entreprenuer types as they’ll often not want to get into the numbers, make them. and all the usual stuff about sunk cost etc but it’s easier said than done.
I gave up the CFA path to go over to the start up/venture cap side, so hopefully I don’t have the same selection bias. In our group of people we have 2 IPOs, one successful and one failed, 1 acquistion, and 1 failed start up that ended up breaking even. The first thing anyone will tell you from the venture side is that ideas are worthless, and execution is everything. I don’t believe it is that extreme, but it is close. I have seen terrible ideas make lots of money because of the execution team. Are you coming in just as an investor? Advisor? Employee? Can you add value beyond money? Who is in their camp? Do they have all the people in place to execute the business plan? Usually you need the genius, the fund raiser, the operations, the vision, and someone amazing at business development to get you clients and contracts. How is their network in microfinance? Will they be able to get right partners to get everything up and running? The SAFE is fine, here is a good primer https://www.ycombinator.com/documents/ . There is a lot of info there to know what to look for in the terms. I agree that it is a crowded space, but that doesn’t really matter. I’ve seen people go into extremely crowded spaces, differentiate, and get acquired quickly. If the leadership team knows what they are doing they should be able to make money in some way. Most successful VC’s do much better than 2 out of every 10. Invest in the team and the people, not the idea.
Why not knock out the CFA Exams anyway? Just flip through the books while you’re having drinks discussing your next unicorn. Wouldn’t think it would be much of a thing for someone with the horsepower to compete in VC…
I’ve thought about it. Right now it is the opportunity cost. I am studying Korean and Mandarin full time right now, which is yielding huge dividends. There is a lot of money in Asia that is just sitting on the side lines, and they are looking to get into technology start ups. Level 1 wouldn’t be too much of an issue with minor studying, but L2 & L3 would take a good chunk of time. The other issue is the work experience piece. I was at a hedge fund when I initally started the CFA route, but that ended pretty much in the worst way imaginable. So I don’t think I will meet the work experience any time in the near future. Working in finance was great, but it’s pretty hard to beat the life style of the start ups (unlimited PTO, work from my home office, high technology budget, high travel budget, 100% flexibilty in hours, no real boss or management). Granted job security is always at stake, but if you get in with a solid network, you will always be able to find money quickly.
first round != start up.
a start-up just needs seed funding to create a proof of concept. a microfinance application doesn’t need a lot of seed funding, probably zero.
if he needs the money for his salary, say goodby to your cash.
(first round means everything is in place & he is trying to commercialise the product)
Finance services direct to individuals is very crowded right now.
I have yet to hear of a micro finance offering… maybe help us define what that means?
Knowing absolutely nothing else about this opportunity, I would say that (1) microfinance is one of the most competitive market opportunities and (2) the educational background is far less meaningful to me than the business acumen of him and his bench