At Deal Report, we focus mostly on operating companies or companies that are close to beginning operations. Those companies are the ones that tend to raise money under Regulation A and even under Regulation CF. They are the ones that also have extensive disclosures to help investors make their own decisions about whether to invest. 

But what about extremely early-stage companies? Companies that are little more than a founder and an idea are where investing “angels” have been highly successful. Sun Microsystems co-founder Andy Bechtolsheim invested in Google and his $100,000 investment grew to $1.7 billion[1].

At the time, Google had not yet even been incorporated, and the search engine business was dominated by Yahoo and AltaVista, with other search engines like Lykos and Excite. It took a big leap of faith to believe that Google would grow to dominate search and use that dominance to become one of the largest technology companies in the world. 

Could there be a future Google somewhere raising money under Regulation CF right now? There’s no reason there cannot be. Many startup companies prefer to raise money from the public because it allows them to maintain control and because they can both reward and increase loyalty among their early customers and other supporters by allowing them the opportunity to invest. 

However, finding the next Google is no easy task. As an investor, there are a few things you need to know about investing in a company when it is little more than an idea. A lot of these rules apply to private investments generally and even to some public investments but are even more important at the earliest stages. 

Invest only money you can afford to lose. This maxim is true of most private investments, including most Regulation CF and Regulation A investments. But it is even more true for companies in their earliest stages. 

An idea is not enough. Throughout this article, we have referred to the earliest stage companies as “little more than an idea.” That can be true, but there should be at least a little more. A friend with industry contacts might invest in nothing more than an idea, but as a public investor you should expect some market analysis, a pathway to a viable product, and some indication that the person with the idea might be able to succeed in bringing it to fruition. 

Be prepared to buy several deals. If you strongly support an idea and want to invest in it at its earliest stages, there is nothing wrong with that if you go back to the first maxim of not investing more than you can afford to lose. But if you want to be serious as a startup investor, you should be prepared to make several such investments. A study by VC tracking firm Crunchbase found that as of 2018, only 33% of seed-round companies had raised any more money, and only 10% of them had seen an exit event. And most seed-round companies never succeed at all. Most angel investments end up worth zero. That’s why Deal Report and others emphasize that you should only invest what you can afford to lose and that you should have a diversified portfolio of seed investments. 

Have a lot of patience. Some private investments are fairly close to a potential exit event or some other form of direct shareholder return like a dividend. The earliest-stage deals are usually far from an exit, and if they do exit you may be disappointed. Famously, Google offered to sell itself to Yahoo for $1 million even before Andy Bechtolsheim invested, and later for $1 billion. That $1 billion price tag would have been a nice return for Bechtolsheim, but of course, waiting turned out to be the even more successful path. That same Crunchbase study found that even after seven years, only 15% of seed-round companies had seen an exit event. 

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Like the idea. Deal Report has discussed this idea before. As an investor, you should be prepared to invest in all kinds of companies that can generate growth for your portfolio, including sometimes companies that do not inspire you. For example, you may not watch much television, but an investment in Netflix has been extremely rewarding for long-term investors, even after a recent precipitous drop. For seed-round investing, something about the investment should resonate with you. It can be the management, the idea, the possibility of being part of something disruptive, or any of a number of things. But at its root, seed-round investing is as much about passion as it is about scouting a successful investment. 

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Important Disclosure! These are not official recommendations. Investing is risky. Before making any

investments, we strongly advise you to discuss your investment options with your financial advisor, including whether any investment is suitable for your specific financial circumstances and needs.

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Your action items: Think about how much money you can afford to lose in seed-round investing. For some it will be very little, for others it could be millions. Whatever that amount is, that is your maximum budget for investing at the earliest stages. Be prepared to spread that money among more than one deal if you intend to be serious about seed-round investing, and be patient when you have found the opportunity that most excites you. 

_{[1] https://www.quora.com/Who-is-the-worlds-most-successful-Angel-Investor}

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