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?”
Since the SEC relaxed its rules on crowdfunding, platforms like WeFunder and Republic have popped up to “democratize” startup investing. (WeFunder actually started in 2012, when the new rules were first proposed.) These platforms don’t require that investors have any accreditation; instead, the SEC requires they limit how much funders can spend on these platforms: no more than 10 percent of either their net worth or annual income, whichever is higher. As a result, anyone can invest a small amount in a startup, similar to funding a project on Kickstarter. “The upside is, you have millions of angel investors all investing in startups they personally really believe in,” says Nicholas Tommarello, WeFunder’s founder. “Before, there were like 20,000 rich people allocating most of the capital for startups. We’re letting anyone vote with their dollars on what a society should fund.” And many of them are young: Tommarello says that 9 percent of WeFunder users are under the age of 30.
Gadi Borovich, who is 21, has made about 30 angel investments on WeFunder. (He also works for a fund associated with the company.) They have mostly been ideas he believes will improve the world, like a startup that provides internet access to students in developing countries and a company creating therapeutics with gut microbes. The investments are “not big check sizes, because I can’t afford that yet,” Borovich says. But even a small amount gives him a way to participate in the startup economy and signal what kind of future he wants to live in. “I’m not rich, and $500 or $1,000 won’t make a difference to a startup’s runway,” he says. “It’s less about getting a return on that money and more about letting that team know that I am willing to put my money behind them.”
Investors can, in some cases, get rich on equity crowdfunding. Their money goes toward a small amount of future equity in the company. If the valuation balloons, so does the return. “The very first company we launched went from a $10 million valuation to a $4.5 billion valuation in about a year, and one of their investors made over $1 million,” says Tommarello. Still, he cautions that most investments on WeFunder don’t have those types of returns. Angel investing is risky, and most investments don’t return anything. “It’s more like buying a lottery ticket,” he says.
For many Gen Z investors, it’s a lottery ticket that’s meant to send a message. Younger people are “much more apt to take a stance with their investments,” says Karthik Senthil, the founder of Hax, a new startup that offers financial services for Gen Z. It doesn’t have to be just with funding startups; it can be the stock market, too. Funds that focus on socially responsible investments have become more common in recent years, attracting growing interest from investors of all generations. During his customer research, Senthil found that Gen Z was interested in stocks such as Tesla, because of its bet on electrification, or Etsy, because of the way it supports creators. “They’d much rather support that than, like, JCPenney,” says Senthil. Apps like Robinhood have made trading more accessible and appealing for young people; Fidelity recently opened its brokerage accounts to teenagers, with parental supervision.
In public markets, some younger investors are using their dollars to send a message to Wall Street institutions, like with the GameStop rally earlier this year. “Most people I know are on the YOLO bets,” says Pranavi Cheemakurti, a 24-year-old investor. “One of my best friends made $150,000 on GameStop.” Cheemakurti has taken a more measured approach to investing, both in her own stock portfolio as well as in her role as a venture capitalist at the fund Acceleprise.
In private markets, Cheemakurti says that she sees investing as “more than just giving money. It’s a form of advocacy and influence.” Recently, she met a founder who she believes in more than anything, and with some of her recent savings decided she wanted to back her. Now, Cheemakurti is about to write her first check as an angel.