Startup Investing – How The Next Big Thing Gets to Market

Everyone thinks about investing in a startup at least once in their life, especially when people get done with mundane routines and stagnant incomes; they think of investing in something that can pay them back in the future. Reality shows and movies have tricked people into thinking that it’s really easy and simple to invest their money into a startup and gain profit from it, but the reality is completely different. Before investing your money in any startup, you should have adequate knowledge about the industry and evaluate the pros and cons rationally; otherwise, all your hard-earned money will go in vain.

Today, we will discuss with you all that you need to know about startup investing, from the pros and cons of investing in a startup to the ways through which you can invest in one.

Pros of startup investing

Exponential growth and profit

The main reason why people invest their money in startups instead of buying shares of established and stable companies is that startups have huge growth and profit potential. Your investment will remain safe if you invest in established and stable companies, but there are very slim chances of generating a massive amount of money from them quickly as they have limited growth potential. If a startup succeeds, the investor can get an exponential return on his investment.

Investors can invest with less money.

Most investors don’t want to invest a lot of money in a business and want to start their journey with less risk and investment. Through equity crowdfunding and other investment ways, investors can invest something as little as $100 and get a business’s equity in return.

Startup invest can lead to contentment and satisfaction

For some people investing in a business is more than getting profits and money as their target is to support a mission, or they believe in a certain ideology. Investing in businesses that align with their ideology and vision gives them a sense of contentment, and they feel as if they are giving back to the world.

Cons of startup investing

Startup investing is high risk

The risk factor of investing in a startup is very high, as almost 90% of startups fail, among which 18% fail within the first year, and it has been going around for the last ten years.

Time-consuming

Gaining significant money and profits from a startup is a time-consuming process as, on average, a startup takes at least 3 to 5 years to become successful and profitable. Even though some startups became an overnight hit and started generating massive profits within the first year, this scenario is very rare.

Low liquidity

Your startup investment has low liquidity, and you can’t easily sell it as you can do with stocks or any other investment. When you invest in a startup, your investment gets locked for a few years, and you can’t pull your investment.

Ways of investing in a startup

There are multiple ways through which an investor can invest in a startup.

Equity Crowdfunding

Equity crowdfunding is the easiest and most popular way of investing in startups. In equity crowdfunding, Business owners add their business idea, financial statements, and other important information on crowdfunding websites, and investors can see the projects and invest in them after evaluating them. People can start investing from just $100 with equity crowdfunding websites.

Investing in Startups Pre-IPO

Investing in a pre-IPO company is another way of investing in a startup. Many websites share the details of pre-IPO companies with investors on a daily basis, and you can pick your desired startup from there. Investing in a pre-IPO company opens a wide room for generating massive profits with minimum investments, but it can also be quite risky.

Venture capital funds

Some investors don’t prefer to go through the time-consuming and attention-intensive process of finding the right startups and investing in them and want someone to take their investment and put it into a viable business. Venture capital funds are ideal for such people as they take their investments, merge them with the investment of other investors and invest them in businesses in their Pre-IPO stage.

Invest during IPO

Buying shares or stocks of a company during an IPO (Initial Public Offering) is a great way of investing in a startup at later stages if you cannot invest it in the initial and pre-IPO stages. Even though it can be more expensive than investing in the basic stages, if the startup becomes successful, you can profit from those stocks and shares.

Give a loan to a startup.

Investors give loans to startups and take regular payments with interest in return. Investing in a startup by giving them a loan with a good interest rate is a guaranteed way of getting profits from your investment, and most investors give loans through crowdfunding websites, which is known as debt-based crowdfunding.

Invest in startups of people you know.

Investing in the startups of your family, friends, or close ones is another way of starting your investment journey, and if the startup becomes successful, then you can get massive returns on minimum investment as most new business owners go to their family and friends for investment before going to any funding website or platform and you can get equity of their business with a very little investment.

Conclusion

Investing in a startup is a great way of building wealth and generating income. People have built fortunes by investing in startups that became massive companies later. However, investors should be extremely careful with their investments and avoid making rash decisions, as they can lead to the loss of their hard-earned investment. Startup investment has some amazing pros like; as they have a huge room for growth and profit; investors can start with little investments and can support their ideology while earning profits, but startup investments have an equal number of cons as well like the risk factor is extremely high, the investment takes approximately 3 to 5 years to grow, and during those years the investment is tightly locked in so investors can not pull out their money on their convenience.

To further your education when it comes to investing in startups I suggest the book Angel Investing.