How to Effectively Invest in Startups?

Startup Investment

In the recent years local and worldwide markets have seen a sharp rise in the number of startups that have more and more to offer. It means an emergence of various investment opportunities but also big competition between the new establishments, which makes it harder for startups to survive their early stages. It goes to show the high-risk, high-reward reality of startup investment. The art of startup investment might not be easy, but with time and after doing proper research, you might just be able to find yourself enthusiastic about the prospect of starting your activity in this type of investment. So, how to pick ventures to invest in? How to make profits and minimize the risk? Let’s find out.

The potential and risks of startup investment

The many stories of people making fortunes after investing in companies in their early stages led to many people opening their eyes to the virtually endless possibilities of startup investment. Let’s tackle down the exact reasons investors might be interested in becoming shareholders in startup companies:

  1. Diversifying your investment portfolio
    A considerable advantage of startup investment is the large variety of businesses you can put into your portfolio. Startups provide investment opportunities in virtually any field you might be interested in.
  2. Rarely a fast return on investment
    It takes time to get a startup going. Startup investment is a long-term commitment and it’s likely you will only be able to access the money you put in the business only after the startup goes public or gets bought.

Understanding startup investment

Here we are going to explain about investment in startup. Startup investment is no longer only possible for the wealthiest. Many different ways of investing in startups allow for a lower investment threshold mean more opportunities for beginner investors. The only thing between you and many lucrative business opportunities is a short research. You can look for startup investment opportunities via:

  1. Indirect investment via VC
  2. Equity crowdfunding platforms
  3. Investor events
  4. Syndicates
  5. Personal connections

You know what are the potential benefits from investing in early-stage businesses, but how does it look like in practice? How exactly does one gain profits from startup investment?

  1. Startup is merged or acquired by a larger company.
    This is the quickest way for startup investors to see profits.
  1. IPO (Initial Public Offering).
    When a private company goes public it offers the first sale of stock to the public, which in turn is a chance for the shareholders to reap their gains.
  1. Company you invested in begins paying dividends.
    When the owner of a successful business is not interested in IPOs or merging with a larger company, they might offer their shareholders payment in the form of ongoing dividends.
  1. Selling shares to other investors after the company gains value.

Things to consider before making an investment

Choose startups that have been pre-vetted. It is smart to invest in multiple startups, preferably representing different fields or industries. It lowers your risk, increases your chances of success and helps to diversify your portfolio. Try to invest in what you understand and believe in. If you want to make a change, invest in businesses that are characterized by innovation and which you think might strike a chord with their target audiences. Choose a method of investment suited to your needs and financial capacities. If you’re only starting off, consider getting your experience via crowdfunding platforms. They are possibly the easiest and most accessible method, available for people with smaller capital than that of professional investors. Don’t forget the risk of startup investment and make informed decisions – instead of investing blindly into a number of startups, which will most likely fail, select a few you really believe in. Best of luck!