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.
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.
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).
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
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.
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.
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.
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
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.
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.
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.
What can of financial position do you suggest is a minimum for an Angel?