This article is general op-ed post from a group working with some new and innovative strategies and the opinions expressed here are those of the author and not the ACA. This is presented for informational purposes and each investor is left to their own due diligence to assess interest and fit.
The landscape of early-stage startup investment has undergone significant transformation in recent years. Venture Capital (VC) funding has declined across the board due to macroeconomic factors, with 2023 marking the lowest level of venture investment activity since 2019. Despite this, technological advancements and the rise of artificial intelligence have led to an unprecedented surge in new startups. Angel investors have the opportunity to capitalize on this situation by leveraging the illiquidity of traditional larger venture funds.
Strategic Shift Towards Angel Investment
At PIN, we have observed a dynamic shift where founders increasingly seek strategic angel investments. Founders are now prioritizing investors who bring not only capital but also specific expertise and valuable networks. This trend underscores the growing importance of angel investors who can offer tangible support to startups through their knowledge and connections. We have seen this first hand at PIN by powering groups from top companies, (Coinbase, Linkedin, Slack) Schools (Stanford, Berkeley, MIT, Cornell, HBS & more) Accelerators (YC, Sequoia ARC), and many other mission aligned angel groups.
Additionally, there exists a substantial market of untapped capital and expertise, currently excluded from investing due to accreditation requirements. This is an issue that warrants further discussion.
Investment Channels for Angels
Presently, angel investors have two primary channels for investment, each with its unique challenges:
1. Direct Angel Investment:
Challenges:
- Limited Portfolio Size: Angel investors often make the mistake of investing too much capital into too few companies. Given the power law dynamics of venture investing, where a small number of investments yield the highest returns, it is advisable for angels to maintain a portfolio size of 20-30 companies.
- Small Check Sizes: Smaller investment amounts can preclude participation in top-tier deals
1. Special Purpose Vehicles (SPVs)
Challenges:
- Fundraising Effort: Raising funds for each deal requires considerable additional effort from the SPV lead.
- Timing Issues: The time required to raise an SPV can result in missed opportunities for high-quality deals. Additionally, there is the challenge of filling the full allocation.
- High Costs: On average, each SPV costs approximately $7,000 to $8,000.
Both of these methods also face difficulties in fostering community engagement and providing clear, ongoing support to portfolio companies post-investment.
Unlocking Investment Opportunities for Non-Accredited Investors
Most early-stage investment opportunities and access to equity ownership are restricted to institutions or accredited investors. The barriers to entry are high, and these thresholds have largely remained unchanged since 1982.
According to The Brookings Institution, only 18.14 million households, or 13.85% of US households, met the criteria for accredited investors in 2020. To qualify, an individual must have a personal income of at least $200,000 ($300,000 for combined incomes) or a net worth exceeding $1 million, excluding the value of their home.
Broadening Access to Capital
A more inclusive system is needed to democratize access to investment opportunities. A model that formalizes and incentivizes community-based investment structures would be beneficial. For instance, university alumni cohorts or industry peers could pool their resources and invest together, enhancing community robustness and mutual benefit through economic alignment.
The future of investing is:
- Inclusive: Broadening access to capital for non-traditional investment communities.
- Value-Aligned: Investors leverage their unique expertise to support founders, thereby increasing the chances of success for the startups.
- Easy to Manage: Streamlining the investment process to eliminate the high costs and administrative burdens associated with traditional SPVs.
This is why PIN exists: to facilitate a community-centric, accessible, and efficient investment model.
The PIN Advantage
PIN simplifies the process of collective investment in startups. The platform handles all back-office tasks, including legal and tax support, allowing community members to focus on raising capital and supporting portfolio companies. PIN currently supports groups from top MBA programs, company alumni, accelerators, and other mission-aligned groups.
Differentiation from SPVs
PIN emerged from the founders’ experience with the 20|20 Fund, an investment club at Stanford GSB. Unlike traditional fund structures and SPVs, PIN is designed to be more cost-effective, logistically simpler, and more engaging for investors while adding significant value for founders.
Why Choose PIN?
- Streamlined Fundraising: Fundraise once rather than for each deal, ensuring no missed opportunities.
- Inclusive Participation: Both accredited and unaccredited investors can participate with check sizes as low as $3k.
- Community-Centric Approach: Facilitates engagement among members and with founders.
- Reduced Administrative Burden: Community investment reduces administrative tasks and fosters greater member engagement.
- Access to Competitive Deals: PIN boasts a high win rate in securing top deals.
- Transparent Pricing: Upfront and straightforward pricing for setup and maintenance, without per-deal fees.
- Increased Portfolio & Check Size: Pooling capital allows you to raise your investment size into each company, while also allowing you to invest in a larger amount of startups.
Features of PIN
- Comprehensive administrative support, including legal and tax work.
- Online platform for easy fundraising and compliance management.
- Invite your community in a few clicks
- Every investor can easily commit to the fund all through PIN – compliance info, document signing, important document access, wiring their investment, etc.
- Community voting tools for investment decisions.
- Annual tax filings and K1 forms for investors.
- Bounty features to support portfolio companies.
- In-house chat for discussing opportunities and sharing successes.
Is PIN Right for You?
Choose PIN if:
- You need a manageable, easy-to-administer investment vehicle.
- You want to access competitive deals and fundraise once to invest in multiple opportunities.
- You belong to a community with aligned investment interests and clear value to offer founders.
- You value community engagement and relationship-building.
Choose an SPV if:
- You have the time and resources to manage the administrative work for each deal.
- Your community prefers individual investment choices.
- You plan to make fewer than 4-5 investments.
Go online for more information.
Author:
- Daniel Wiegand, PIN
