Investing in startups has become increasingly popular in recent years, especially among young investors looking for high growth opportunities. Reddit, as one of the largest online communities, has emerged as a popular platform for discussions around startup investing. This article will provide an overview of how to invest in startups based on insights from Reddit in 2020, including researching promising startups, evaluating founders and teams, understanding risk management, and accessing early stage deals as individual investors. Proper research and due diligence are crucial when investing in startups to maximize returns and minimize risks.
Leverage online communities like Reddit for deal flow and research
Reddit forums like r/startups, r/angelinvestors, and r/venturecapital are great places to find interesting early stage startups that are raising funds. Pay attention to startups that gain traction and are recommended by multiple redditors. Thoroughly research the startups, markets, business models, and track records of founders. Reach out directly via Reddit or LinkedIn to learn more and build relationships with founders for deal access.
Carefully evaluate founders, teams, and execution ability
When researching startups on Reddit, dig deeper into the backgrounds and experiences of founders and core team members. As early stage investing is highly risky, the ability of the team to execute is crucial. Look for technical expertise, business acumen, passion and persistence. Relevant industry experience and past successes or failures also provide insight. Validate claims through direct outreach, company reviews and background checks.
Understand magnified risks and position sizing
Investing in startups can produce outsized returns but also carries magnified risks of failure or loss. Follow prudent position sizing and portfolio concentration limits, with any individual startup investment accounting for no more than 5-10% of the total portfolio. Utilize instruments like convertible notes and SAFEs to manage risks. Build a portfolio across multiple startups and industries to diversify.
Leverage platforms and individual deals
While VC firms dominate startup investing, individual investors can also access deals via equity crowdfunding platforms, micro VC funds, angel networks and syndicates. Perform due diligence on any platform or fund before investing. Negotiate pro-rata rights to invest in follow-on rounds. Build direct relationships with founders for access to individual deals.
Reddit provides abundant resources to research and identify promising startups. But careful evaluation of teams, prudent risk management and diversification is crucial for individual investors. Developing relationships with founders can also provide deal flow and investment opportunities.