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Comment by lisper | Hacker News Reader

I've done >20 seed investments, and here is my Rule #1: you can do seed investing as a hobby, or you can do it as a business.

If you do it as a hobby, count on losing every penny you put in, and treating that as the cost of pursuing your hobby.

If you do it as a business, count on working on it full time, i.e. AT LEAST 40 hours a week, and probably more like 60-80. The competition is fierce. And I would not do it with less than $1M in LIQUID assets which I could afford to lose. The reason you need this much is that in order to have a good shot at a return you need to be able to do two things: 1) invest in a pretty broad portfolio (i.e. at least 10 companies) and 2) have enough money to participate in follow-on rounds so you don't get diluted into oblivion.

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Mileages vary, but I haven't found dilution to be a big problem. Dilution only gets large when companies go through near-death experiences, and those are often followed by real death.

Follow-on investments are economically just like making later-stage investments. The average return can be good, but you can also lose all your money and you need much more capital to participate.

Sure, but if the company does good and you believe in it, why not throw some extra money at it and get a bigger part of the pie :)

Sure. But you should think of it like a new late-stage investment, on par with investing in any other late-stage company whether you were in on the seed round or not. Concern about not getting diluted sounds like a sunk cost fallacy, which can lead to suboptimal decisions.

That was my first thought as well.

Is there any good reason why these opportunities for follow-on investment might have higher expected returns than, e.g. putting the same amount of money into other seed investments? e.g. is it possible that if you participate in the follow-on, that you get some extra leverage to convert your previous shares into a more favourable class?

Doubling down on your winners can exponentially lift your returns. When you're an investor at an earlier stage, you have the best information and insight on how the company is really doing (information asymmetry) and have access to deals you would have no access to otherwise. (An angel doesn't get to invest in a good hot Series C unless they're already on the cap table.)

> If you do it as a business

> And I would not do it with less than $1M in LIQUID assets which I could afford to lose.

IMHO -> Rule #2: If you do it as a business, don't use your money and use a standard 2/20 model. Why someone would do seed investing working 60-80 hours a week and use your own capital is beyond me.

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