Over the last few months, I’ve encountered something that has been fascinating me. I call it “Microinvesting”. And I think it can only exist in the world of internet businesses.
Microinvesting is very much like angel investing. You put in very small amounts of money, in the range of $10K to $50K, and still can make great returns. But the difference between a $25K investment going into a traditional business and an internet business, is that the $25K can take you to market with at a minimum a working beta, and sometimes with an entire site.
A few things that have created such a possibility:
1. Lots of entrepreneurs who have made small fortunes during the first dot-com run-up, and now can support themselves while developing their website.
2. The cost of development for internet products is significantly lower than in other businesses. Chalk it up to open source code and outsourcing to places like India.
3. The possibility of acquisition at small amounts of cash to a larger entity. By small, I mean producing an exit at $5-$20MM. Large companies like Yahoo or Google are looking for great engineers to join their team, and will acquire them and their technology for relatively low amounts of cash. This still can generate huge return on money invested. And Yahoo and Google aren’t the only ones doing the acquiring…
4. Certainly development of a prototype, working beta, or full blown site creates opportunity for a true series A fund raising round, as you show that you have developed something and it’s not vaporware.
I’ve started looking into this area. I think it brings a whole new meaning to early stage investing and the entrance of a new class of angel investors at the lower end of traditional angel investments.