Earlier this year, Johnny Yu has heard of a new startup looking to scale up a little. He liked the idea, so he snapped a check. Yu is 21 years old and a student at New York University. It is also Angel investorAnd startup financing is in its early stages. His investments are small – usually around $ 2,500 – but they are real: for the money, he gets a fraction of his future equity in companies, if they succeed. He sees his investments in tech startups as a way to complement his parents’ portfolio, which consists of more traditional assets like real estate.
U is part of a growing group of Generation Z investors Who are starting to make their mark on the startup ecosystem. Some of them are now old enough to work in venture capital firms or pursue jobs as investors. Others, like Yu, are newcomers to angel investing, as new platforms and recent regulatory changes widen the slot of who is eligible to participate. Like-minded young people congregate on TikTok and Twitter, where talking about startups can lead to valuable connections and deal-flowing. Slack’s group called Gen Z VC has over 7,000 members, many of whom are still in their teens.
For many Generation Z investors, angel investing is not so much about getting rich as it is about participating in the startup economy for the first time. “Obviously everyone is hoping for a return, but most of the time you’re going to lose your money,” says Dayton Mills, the 22-year-old founder who started making angel investments. “A lot of times you buy access, hoping to get close to people. That can have bigger impacts than your investment itself.”
Historically, angel investment has been off the table for young people, due to wealth requirements set by the Security and Stock Exchange. Anyone can buy shares in a public company, but investing in private companies is more risky and more speculative, leading to tighter regulations by the Securities and Exchange Commission. Since the 1930s, only people with incomes over $ 200,000, or at least $ 1 million in net worth, have been able to make angel investments – which excludes most Americans, and certainly most young people, from participating.
Two regulatory changes made investing easier: In 2016, the Securities and Exchange Commission created new rules that allow startups to raise more money through equity crowdfunding, taking smaller checks from people who do not meet the definition of a certified investor. And last year, it separately relaxed its requirements for accredited investors, allowing people with a “understanding of private markets” to become angels. Now, people who work for private funds or who have passed the licensing exam to prove their “financial development” can participate, even if they don’t meet the wealth requirements of the SEC. Those who cannot are still able to transfer funds to a special purpose vehicle, where the principal investor represents a group of individuals and pooles their investments into a single union.
Mills and Yu, both of whom are members of the Gen Z VC Slack group, recently joined forces for a new dating startup called Snack. Its founder, Kim Kaplan, an older millennial expert and dating expert, actively courted Generation Z investors and allocated $ 500,000 from Gen Z’s latest Snack rounds on AngelList, a platform for matching startups with investors. Kaplan also raised funds from traditional venture capital firms, but felt it was important to engage young investors as well, as it gives them direct access to the target user. “I am amazed that more companies haven’t gone that way yet,” she says. “Why aren’t your customers at the maximum table?”