Have you given startups some thought? You could invest money in one and get a potentially rewarding return on investment. Perhaps you have heard tales of early investors in businesses such as Uber or Airbnb turning little bets into gains that would go on to transform their lives. It sounds fascinating and hard to believe – but the possibility is truly legit!
Investing in startups allows one to explore fresh markets, be part of the “next big thing,” and unleash one’s creativity. Naturally though, in the world of investment, every big swing comes with its risks.
Startups fail, markets change, even some of the best ideas fail to ever flight. Why then are so many individuals pursuing it? Online platforms and greater access to early-stage businesses have made startup financing more popular and accessible. Getting involved doesn’t require a wealthy venture investor.
In this guide, we’ll discuss the possibilities and difficulties in investing in startups without convoluted language, just useful observations. We’ll also lead you through a real-life scenario so you can observe what success (and patience) may manifest in your venture. Ready to take advantage of the secrets of startup investing?
Did you ever feel like paying into Airbnb when it was only a scrappy concept? Investing in startups allows you front-row access to creativity. You’re supporting audacious ideas and innovative goods before they go popular, not just funding a business.
Investing early means you could buy in at a very low valuation. If the startup becomes successful, you could earn back many times your initial investment. Some angel investors have made 100x or even 1000x the returns on a single investment.
Startups come with risks, indeed, but the upside can be dreamlike. Many times over, a little investment in the right company at the right time could pay off beyond what you thought possible. Not every startup becomes a unicorn, of course, but the ones that do can bring about dazzling compensation
Already have bonds and stocks under investment. Including startups on your portfolio will allow you to even out your risk. Startups are a great bet for balancing things out, even if they can be more erratic and do not always follow the same trends as the stock market.
Helping an entrepreneur whose goals appeal to you presents great benefits. Investing in startups helps you put your money where your ideals are, whether that means a software business tackling practical issues or a green energy startup. Fundamentally, startup investing is about promise, meaning, and a cause.
Risks of Startup Investing
Most startups, to be honest, fail. Actually, over 90% fail. For every success story, many more falter. So what if your bet failsl? You could lose your whole investment.
Startup shares are not straightforward to unload, unlike stocks, which you could sell off in a click. Your money could be locked in for years, sometimes even a decade, until the business is acquired or listed. This might not be the best choice if you want rapid returns. Many go bankrupt within the first five years. You must be comfortable with the possibility of losing your entire investment.
How can you tell what a startup is actually worth from what little you know? Actually, the truth is sometimes like a guessing game. Startups lack comprehensive financial accounting or an extended history, unlike public corporations. You are depending on potential, which can be difficult to gauge.
Business crowd lending
Another option is lending the business money, which will have to be paid back. In this case, you are helping the company too, but instead of your money being locked away long-term, you get interest payments back on the regular.
Some peer-to-peer lending platforms for businesses render loans much more accessible. One of the leading such platforms is 8lends by Maclear. They back loans with digitally pledged collateral, mitigating the risk for investors while offering a whopping 15% interest rate.
On paper, some startups sound fantastic, but their business plan doesn’t match. A few are clear scams. Startup investments are not like stocks. Thus, conduct your research and avoid being caught up in flashy pitches or granulations. Though it carries some risk, startup investment can be lucrative. Coming with your eyes peeled and a wary attitude will help.
When Startup Investing Works
Imagine coming across a small business known as GreenSpark back in 2017. Operating on a new type of environmentally friendly solar panel intended for city rooftops, they were a scrappy enterprise. Their concept? Make solar energy more sensible and reasonably priced for flats and small houses. The Australian Power Ledger eliminates intermediaries enabling neighbors to trade rooftop solar power.
Things started out slowly at first. Despite facing limited money and fierce competition, they had a bright idea. Still, the founders were driven, and their fight against climate change captured your interest. Then you made the decision to commit $5,000, not a lot but enough to make you feel as though you were involved in something important.
Six years later, GreenSpark became an industry leader in urban solar technology. The big sustainable energy firm got noticed after acquiring traction in a few key cities and working with builders and made an acquisition offer. That meager five-thousand-dollar investment? Following the buyout, it amounted to $100,000. Brooklyn’s Lo3 Energy is another success story.
It did not transpire overnight. There were hiccups along the road, and your money stayed tied up all the way through. However, the payoff was magnificent. Such is the dream scenarios for startup investors. It's a wonderful illustration of why some individuals decide to take the giant stride, since occasionally it turns out very well.
Tips for First-Time Startup Investors
If you’re just starting out, avoid any kind of all-in behavior. Invest just what you would be really comfortable losing. Consider it as rent money or money you’re saving for a high-risk, high-reward adventure, not your emergency fund.
Stay with reliable crowdsourcing sites, such as SeedInvest, Republic, or Wefunder. Before you invest, these sites vet companies to provide you with a little more peace of mind and access to useful information. Search for indications that a startup is more than simply an idea. Are they open to paying clients? Teams? Perhaps media highlights or awards? These hints will enable you to identify organizations with actual promise.
No guarantees exist. Startups fall short. That simply means you need to enter with open eyes and reasonable expectations; it doesn’t mean don’t invest. Just don’t be overexposed to one basket. Share your money among several businesses and startups. This means one loss won't completely destroy your portfolio. Although it might be fascinating, startup investment is also erratic. Consider it like planting seeds; some will surprise you. Exploding Topics counts 1,245 startups worth over a billion currently.
Bottom Line
There are many opportunities in startup investing; however, be aware that it comes with risks. Though not every investment will pay off, you are entering a world where little ideas can grow into major corporations. That is exactly the gist of the game. Still, if you approach it with the appropriate mindset, starting small, doing your homework, and distributing your investments, you give yourself an opportunity to be part of something exciting.
You might even help finance a project or ideas you support. Could one of your next investments shape the future? One could say that is plausible. Still, go one step at a time. Discover the terrain, probe intelligibly, and follow your gut feeling. Startup investing is about sowing seeds and being patient rather than about becoming rich fast.
If you’d prefer to go the P2P crowd lending route, you’d have a much lesser risk involved in the money you put up by contributing to loans alongside numerous other investors, which you get a collateral share should they default.
