Where to invest $300-600k in Silicon Valley? | Hacker News Reader

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

51 pointstiredkid65 comments

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?

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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.

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?

10k + a rolodex, from what I gather. Or a couple million in risk capital.

The real question is why would an entrepreneur want your money? Unless there's something else that distinguishes you, the only way anyone would take your money is if you offered ridiculously generous terms.

Buy a condo, put it in a brokerage account, or take it to Vegas. Your odds of seeing a positive return are better there.

A great question!

If that's what I learn here, then its a great piece of information all by itself.

Assuming I and some other angel offer comparable amounts, then you should go with the guy with more contacts and a better track record. That certainly isn't me. If you happen to need excellent technical advice on systems software and hardware then I can help and have amazing contacts for that.

But you raise an excellent point in that it may well be that I'm not at the right phase of my career to be an angel.

Vegas gets boring. I have existing separate long term investments I intend to retire off. No particular interest in the stock market right now. (Been there, wrote the code, made some money).

Hello - I'd be interested in chatting with you. I'm very interested in systems stuff (programming languages, multicore, etc.), and I also have a startup which might want to take some angel investment soon. lincoln@newsbrane.com is my email.

Actually, my team and I could use some help on the systems software and hardware side. If you're interested, I'd love to introduce myself via a brief call or something -- we're working in the real-time relevancy space. Let me know: paul@philtro.com

i would suggest a combo idea: buy a condo and rent it out to a YC startup founders for equity (stock option) in their startups...

this will give you multiple benefits:

1. You will learn 2 fantastic investment trades (angel funding and real estate) at one shot and keep your money safe as you're buying a property which wont loose money. I wish i could do this, seriously.

2. You will make money from both, as price of your condo will definitely go high and if at all your tenants (starup founders) are successful then you will gain from the stock options.

3. Real estate is down so chances are high that you will buy a decent condo at lowest possible price. Remember to buy a condo in a good location even though you might have to pay a little more.

4. You will get a chance to be in touch with startup founders on regular basis and would learn important stuff from them which will help you to become a startup founder in the future and an angel investor once you have money that you can afford to loose.

5. You will also learn about real estate investing by meeting real estate agents, mortgage brokers, lawyers etc. Trust me investing in real estate is also an interesting domain and its one of the best option of getting good return in long term... and fortunately this is the best time to invest. MAN, you're one lucky guy.

6. Go to YC's angel investor's conference with those founders and see how everything works.

7. THE MOST IMPORTANT is, you will make new friends from variety of backgrounds... a huge networking opportunity - knowing people like Pg in particular is no small deal.

The above idea is inspired from a YC posting a while a go, please visit and read: http://news.ycombinator.com/item?id=565493

Now that's an interesting idea I hadn't considered; will need to ponder whether the limited amount of cash (rental equivalent * x months) is sufficient investment. I suppose a club house for hackers has other benefits as well..

Meeting the right startup people is very important to me. As with everyone else I have a list of cool ideas. The trick will be the right people to execute.

I'd open up an apartment or office as a coworking space, rather than for living. You can fit a lot more people, and you might be able to get more money from renting desks than resting a whole place.

That seems like better legal territory too, as there are a ridiculous number of regulations about renting.

For example, someone can just say that a stove doesn't work, and they won't pay rent until you fix it. The stove actually doesn't need to be broken to either make the claim or get a pro-bono lawyer to back it up. You also can't forcibly evict people easily. Generally, the worst case scenario for a residential rental property is far worse than a coworking space.

Buy a studio in SF or Palo Alto, buy an espresso machine & bike rack, and find some good hackers to try it out.

Out of curiosity, how much equity would you expect in return for housing? (i.e., how do you price it?)

Convertible notes: http://www.emergingenterprisecenterblog.com/2009/05/articles...

I will take a stab and assume you mean that as landlord you charge full market price, but take payment in the form of a convertible. This arrangement is fair only if the housing is comparable to what the entrepreneur would otherwise be paying cash for. Otherwise the landlord is getting screwed, or the entrepreneur is too loose with the equity.

As an investor I hate convertible notes- there's no way I would ever agree to this sort of arrangement unless the conversion price was capped.

The form of payment is independent of the price you charge. The advantage of using convertible debt is you do not have to decide on valuation. Many people on both sides (investors and founders) would find this preferable, precisely because putting a valuation on a very early stage startup in a fair way is nearly impossible.

FWIW, pg suggested using convertible debt in such a scenario although someone else on the same thread links to a counter-opinion. http://news.ycombinator.com/item?id=565493

The "advantage" of delaying an assignment of valuation exists only for the founders. The only reason investors sometimes prefer a convertible is because it's simpler and therefore lighter on the legal fees. Otherwise it's insanely bad (if uncapped).

Yeah. I'm close to saying no to further convertible notes.

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

Better than the past, certainly, but by no means a sure deal. And while prices to buy are falling, so are prices to rent.

I suggest the OP use this great NYTimes tool to evaluate the buy vs. rent options: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP...

Keep in mind that the historical rent-to-buy ratio in San Francisco is something around 20x. http://bigpicture.typepad.com/comments/2008/05/housing-price...

Nationwide it's 10-14x http://bigpicture.typepad.com/comments/2008/05/buy-vs-rent-r...

And when you do, try to consider all the value possibilities (appreciation vs. depreciation), not just the rosy ones. Worst case scenario, the Californian government screws up its coming reorganization, and San Francisco could end up like Detroit. A more likely possibility might include more declines due to future mortgage resets and such.

Anyway, no way to know just what's coming, so it's a guess in the end, but a big purchase deserves deep consideration.

Finally, I recommend Redfin (http://www.redfin.com/city/17151/CA/San-Francisco) as a realtor, as they use the web to cut your realtor fees by thousands.

noob question: what's a "condo"?

Short for "condominium"

Think of it as an apartment that you own outright ... and have a joint ownership of the common areas

I think Bay Area housing is still way to expensive as an investment. It's a little different if you're planning on living there for the duration of the mortgage.

I just blogged about the whole "rent vs buy" thing:

http://messymatters.com/2009/06/01/buyrent/

If you don't believe in timing the market then the rent vs buy decision just doesn't matter nearly as much as people act like it does. The biggest factors are the crazy tax reasons and perhaps the leverage you get with a mortgage.

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.

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.

Nice. Good luck!

If you're an accredited investor that's different. Just come to Demo Day at YC this August. (Send me an email to get an invitation.) Though some of the startups at DDay will go straight to series A rounds, most will raise angel money, and most of those would take investments as small as $20k.

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

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.

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/

I agree; I don't think YC would be impressed with my 'strategic value'.

I don't want a coffee shop either - I couldn't think of anything worse.

There's only one way to find out. After all, you're not asking them for money; it would be more like an internship. Best of luck whichever way you jump, it's nice that you want to reinvest in your community.

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.

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".

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.

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.

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.

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.

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.

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.

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.

You obviously don't need to work (600k / 0.2 = 3M), so you're working two more years for the green card.

Did you know that $50K investment in Brazil gets you a 5 year visa, and after 4 years, you get citizenship? Brazil is positioned well for the next several decades, as oil becomes more expensive. The US will suffer in the next decades as US taxes will grow much higher. Perhaps the US green card isn't worth it.

Still, it's only two more years, so perhaps, why not stay and get it? In that case, why not begin your company now? You can outsource a lot of your code development over the next two years, so that you're ready to go live, the day you get your green card.

I don't need to work for the money, but I need to work. More accurately I love building things and having people use them. I could get a greencard, perhaps more quickly, by investing $1m in a company according to my lawyers, and even work on it myself, but I don't want to paint myself int a corner with needing to hire at a certain rate or not being able to drastically change direction.

Yes, I've considered other locations. But, I think California has made me soft - I love it here.

I don't need to outsource a lot of code development. Over the course of 2 years I can crank out a large % myself.

"I don't need to work for the money, but I need to work. More accurately I love building things and having people use them."

God, wish I could high five you for that. I feel exactly the same way. And this is why I always contend that hackers are actually closely related to musicians. I've heard many musicians make similar statements: "Well, who cares if it makes money, I just want people to listen to it". I think they're closely related.

I've never met you, and I likely never will, but kudos to you, fellow traveller - I just want to make shit better, too.

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.

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

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...

gaustin@gmail.com

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.

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).

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.

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

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).

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.

Since you know many well known processor architects, why don't you try to invest in the area you already know(hardware)?

Startups are not all about WEB.

If you are actively looking to invest, contact YC and ask about demo day. I'm sure there will be a lot of YC startups looking for more firepower (in the form of a small angel round) at the end of the summer. Added benefit: YC has already done a lot of the vetting for you.

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

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?

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.

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 prateek@muziboo.com. Even otherwise, we can have a quick chat!

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

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

if only Bernie Madoff is still alive...

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.

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

Link us?

:-) 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.

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