I've been diving into this over the last few days, and have leaned a lot of stuff from the blogs of Suster and Calcanis.

That Tucker Max article was very informative. Poker mindsets shouldn't be too intimidated with the payout structure of a good VC; we are used to playing tournaments where 80% busto is standard. The emotional and financial payoff of backing an idea that leads to jobs and success for other people is enticing.

That said, I find the most important barriers to entry are:

- Knowledge capital
- Crowding
- Commitment

Knowledge capital: often investors are chosen for being able to provide wisdom and guidance for dealing with tough situations. If I'm coming into this without a business background, really I'm just a checkbook. I'm only going to be picked by companies that have nowhere else to raise money or companies that value total control in operations. In the early stage of my VC life I'd have to hit the books and relearn a lot of business concepts and I'd have to wing it. That still might not be enough since I don't have a great education background.

Crowding: Related to knowledge capital, the better ideas are going to get picked up by people with more money than me and people with more experience than me.

Commitment: Like the tucker max article says, to be good at this you have to be obsessed with it. This doesn't sound too intimidating, but it could be stressful to invest so much time and money on something that isn't even paying the bills. I had hoped to tackle this complex with a bankroll that is a small portion of my net worth, but it sounds like I would need to invest a lot more hours per week on that small portion.

Based off my few days of research it sounds like the best way to get into this industry as a noob is go to a lot of VC/startup gatherings and just get to know a lot of people and ask a lot of questions. The best opportunities come from knowing someone who knows someone or having a shared passion with a bright person.

the other thing to know going into this is that the founders are going to feed you a ton of bull****. No one is more full of **** than a tech founder.

Sorta depends on which area tech is tackling, right? If the founder is trying to sell me an idea that hinges on either creating a new space or disrupting a space dominated by an 800 lb gorilla, I think I'm passing about 100%. Feels like the industry is drugged up on lottery ticket seekers trying to bink unicorns. I am a boring nit and I don't think there's anything wrong with not seeking out the home runs, being more content with singles and doubles. Obviously can't comment further without actually attending a lot of these things.

In my experience very few tech founders have the doubles kind of attitude and the ones that do are almost outcasts. It's a bizarre ecosystem.

The other problem is like you said knowing 80% busto in a tournament is standard, but like many things it follows a power law distribution and the reason tournaments are +ev is because of how top heavy the results are.

When seed investing you really are forced to go after the home runs. If you are trying to only go for singles and doubles you are limiting your upside to a point where it is likely way -ev.

This.

There are other ways to invest in small businesses without investing in startups. Those may be more toward your abilities/risk/reward/etc. Angel/VC investing is all about dealflow and luck.

yeah, that makes sense. i guess my hope was that the rate of failure would be smaller when going for singles and doubles. doesnt seem that way.

I think in that case it depends on the entrepreneur and their history. The issue is entrepreneurs that fit this case of consistently building small but successful companies that exit (10-30 million exits) has so many connections in the VC world that they often are taking a million or two right off the bat with only their name and a business idea and skipping angels altogether (except for friends/family, etc.).

If you are looking for people that need a) seed funding and b) are looking to build a modest business, you are essentially describing something so rare as to be nearly impossible to find. These entrepreneurs are thrown into the market where everyone wants home runs so the investor seeking 3-10X returns is as much of a unicorn as they are.

The seed funding world is essentially full of bright, broke, ambitious young people who are trying to build something that can eventually achieve hockey stick growth. Because of cloud infrastructure and other recent innovations, it is easier than ever to build something and scale it rapidly, so now all anyone wants to hear about is the next Uber, Facebook, etc.

You can also sell your shares to a future investor, but that is about as absurd as a business model as finding the modest businesses. (Lifestyle businesses come with a host of issues for the investor btw.)

But really, just look beyond tech.

With a double, you need to have a very high conviction you do not lose the money. Like Buffett said, if you multiply 90% several times, it becomes 50% pretty quickly. A lot of people tend to forget that simple math in investing.

You have to be sure about:
-got to know that they will not waste the capital if they are successful (pretty high risks with start ups.) They could earn 2 million on a 150k$ investment, but reinvest it in a stupid way on some other pipe dream, and kill your return. Empire building seems like a major and hard to quantify risk here.

-The idea actually pays off in the first place

-You do not really have much in the way of assets, so everything has to come from future cash flows, without much past proof they can really make the margins they claim.

-You get in at a decent valuation. Most start up owners are usually overly optimistic. I doubt you can buy in at 5x earnings, unless they are about to go under. Usually they say: "target market is a billion$+, and if we only get 2% of that, the company is worth millions! You should feel lucky to get in at 5x revenue while we still lose money!" Yeah no thanks.

-There is no good way to exit. Unlike the stock market you cannot flip the shares. Someone who does this told me he usually lets the founders buy him out at 7-8x earnings when they are successful. But he runs his own business and usually picks start ups where he has experience (I doubt many people on this forum are in his position).

-Risk of getting defrauded, or the opportunity is there but they are too incompetent/lazy to execute. Heard some horror stories in the dotcom boom, where the founders would just use the money for living expenses and play quake all day. Some people are really good at looking motivated and energetic and intelligent, but are completely useless. I think this scene draws in a fair amount of sociopaths these days.

So if you take a 80% probability on most of these things right, you need to make 6-7x your money on average for it to pay off, and you are dealing with high variance. Only way it is worth it vs stock investing is if you have a extroverted personality imo. And you enjoy the constant networking.

It seems more +ev to start your own start up int his climate. It seems very easy to get funding on good terms nowadays with all the cheap money and start up hype laying around. And if you make some bank you invest it in others when the economy turns, and founders are begging for money when all liquidity dries up!

Relevant tidbits from yesterday's AMA with Sam Altman on Hacker News:

Yeah, in recent history a lot of the VC industry has focused on the greater fool theory, there's been plenty of extremely business savvy 40+ year old types with industry knowledge and a great idea getting passed over in favor of the 25 year old asian/white founder with a social media idea.

Why? Because it looks like a startup, the business didn't really need to function it just needed to get to the bigger rounds of funding and that was accomplished by having the Silicon Valley feel.

I'm not as connected now but things seem to be coming back down to reality and focusing on actual profitability. Not totally there yet though, still plenty of craziness going on. I wouldn't go into angel investing as an outsider or at least without 16 hours a day dedication to it.

Also, that dude talking about his exits at 7-8x earnings sounds like a full on mouth breather.

Individuals looking to invest in tech VC startups are very likely to lose lots. websites that promote these ideas are generally pitching companies that have already pitched smart money and now move onto you. The websites take a piece and are just a broker and want to get investing done. Better off trying to find a small emerging company but not sure where you could even look for legitimate companies in need of capital especially small businesses that are vetted.