The Five Doors Into Investing
Angel, scout, SPV, fund, or fantasy portfolio — pick your entry into investing by autonomy vs. effort tradeoff
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 90%
For people who want to start investing, Hoover lays out five distinct paths, each with a clear autonomy-vs-effort-vs-capital tradeoff. The fifth — a 'fantasy portfolio' of written memos — requires no capital and lets anyone build a track record before they have the job.
Origin
Ryan Hoover, who converted a tweetstorm into a blog post on this after repeated inbound questions; he chose the fund path himself in 2017. Vetica's memo-writing before joining is the fantasy-portfolio example.
Core principles
- 01Angel investing gives maximum flexibility but needs disposable income you can afford to lose
- 02Scout programs are easier to enter but you rely on the sponsoring fund and have less autonomy
- 03SPVs give deal-by-deal carry but require a fundraise per company
- 04A fund gives the most flexibility to deploy many checks but is the most work and responsibility
- 05You can prove ability with zero capital by writing investment memos
How to run it
- 1
Angel investing — if you have capital now
With disposable income you can start immediately, no sign-offs, maximum flexibility. But you must be willing to lose all of it and wait ~10 years for returns.
Watch out Only deploy money you can afford to lose entirely — returns, if any, take about a decade.
- 2
Scout — if you want an easier on-ramp
Join a scout program: some give you capital to deploy on your own, others require approval but pay you carry on deals you send. Easier to start than raising a fund.
Watch out You have less autonomy — you may be restricted in what you can and can't invest in, and you rely on the sponsoring fund.
- 3
SPV — for deal-by-deal participation
Raise a single-purpose vehicle from LPs to invest in one specific company. You get deal-by-deal carry (paid when that company exits) and can pull strategic people into the round as value-add.
Pro tip Use the SPV to bring genuinely helpful, strategic investors into a founder's round as a value add.
Watch out It's a lot of work — you essentially run a fundraiser for every single company you invest in.
- 4
Fund — for maximum deployment flexibility
Raise a fund to deploy many checks into many companies. Most flexibility to invest without per-deal fundraising, but the most capital-raising work and ongoing management responsibility.
Pro tip A smaller fund (Hoover's is $21M) lets you write smaller checks, fit into competitive deals, and be more collaborative — a better 'product' for founders.
Watch out Managing a fund carries significant ongoing responsibility beyond just picking companies.
- 5
Fantasy portfolio — if none of the above is possible
With no capital or relationships, 'pretend angel invest': write memos on companies you're excited about and build a fantasy portfolio documenting who you'd have backed and why.
Pro tip Bring the memos to fund applications as proof of your thesis and thought process — do the job before you have the job.
In the wild
'this is what vetica before she joined join me was doing to some extent she was writing memos about companies she was excited about ... doing the job before getting the job.'
→ The memo track record demonstrated her ability and thought process, contributing to her joining the fund.
Hoover keeps Weekend Fund at ~$21M: 'it really allows us to be like really collaborative we can write smaller checks we can fit into competitive deals i think it's a better product for founders.'
→ Smaller fund size becomes a competitive and collaborative advantage rather than a limitation.
Common mistakes
Assuming you need capital to start
Many would-be investors think they're locked out with no money, when a fantasy portfolio of written memos builds a demonstrable track record at zero cost.
Underestimating SPV workload
Choosing SPVs without accounting for the per-company fundraise means signing up for a fresh, time-consuming raise for every single investment.
Is it for you?
Best for
Operators and would-be investors deciding how to break into angel investing or venture
Not ideal for
Those who need near-term liquidity — every path here has a roughly ten-year payoff horizon
From the transcript
“angel investing is one so great thing about that is if you have the capital angel unless you do it today tomorrow like there's no…”
“they're scouting that's another opportunity they're more and more scout funds probably than ever before”
“sdvs are essentially like a single vehicle investment into one company”
“the last thing i'll say actually is let's say none of those are really an option ... you can also do is just like pretend…”
“she was writing memos about companies she was excited about and in some ways she was like doing the job before getting the job”
From the episode
How to launch and grow your product
Ryan Hoover of Product Hunt and Weekend Fund