Earlier this year, Johnnie Yu heard about a new startup looking to raise a small round. He liked the idea, so he cut a check. Yu is 21 years old and a junior at New York University. He’s also an angel investor, funding startups at their earliest stages. His investments are small—usually around $2,500—but they’re real: In exchange for the money, he gets a fraction of future equity in the companies, should they succeed. He sees his investments in emerging tech startups as a way to complement his parents’ portfolio, which is made up of more traditional assets like real estate.
Yu is part of a growing cohort of Gen Z investors who are beginning to make their mark on the startup ecosystem. Some of them are now old enough to work in VC firms or pursue careers as investors. Others, like Yu, are newcomers to angel investing, as new platforms and recent regulatory changes widen the aperture of who’s eligible to participate. Like-minded young people congregate on TikTok and Twitter, where talk of startups can lead to valuable connections and deal flow. A Slack group called Gen Z VC has more than 7,000 members, many of them still in their teens.
For many of these Gen Z investors, angel investing is less about getting rich and more about participating in the startup economy for the first time. “Everyone obviously hopes to get returns, but most of the time you’re going to lose your money,” says Dayton Mills, a 22-year-old founder who has started making angel investments. “A lot of the time you are buying access, and you’re hoping to get closer to people. That can have bigger effects than your investment itself.”
Historically, angel investing has been off the table for young people, because of wealth requirements set by the Security and Exchange Commission. Anyone can buy stock in a public company, but investments in private companies are riskier and more speculative, which has led to tighter regulations from the SEC. Since the 1930s, only people with an income greater than $200,000, or at least $1 million in net worth, could make angel investments—which excludes most Americans, and certainly most young people, from taking part.
Two regulatory changes have made investing more accessible: In 2016, the SEC created new rules allowing startups to raise more money through equity crowdfunding, taking smaller checks from people who don’t meet the definition of an accredited investor. And last year, it separately loosened its requirement for accredited investors, allowing for people with an “understanding of private markets” to become angels. Now, people who work for private funds or who have passed a licensing exam to demonstrate their “financial sophistication” can take part, even if they don’t meet the SEC’s wealth requirements. And those who don’t can still funnel money into a special-purpose vehicle, where a lead investor represents a group of individuals and combines their investments into one syndicate.
Mills and Yu, who are both members of the Gen Z VC Slack group, recently participated in a syndicate for a new dating startup called Snack. Its founder, Kim Kaplan, an older millennial and a dating industry veteran, actively courted Gen Z investors and set aside $500,000 of Snack’s latest round for a Gen Z syndicate on AngelList, a platform for matching startups to investors. Kaplan has also raised money from traditional VC firms, but she felt that it was important to involve young investors, too, because it gives her direct access to her target user. “I’m surprised that more companies haven’t gone down this route yet,” she says. “Why not have your customers on the cap table?”
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