Startup investing is becoming more prevalent nowadays. Angel investing and seed investing are the two stages of early-stage startup investing in which individual investors can get involved before the institutional investors start to invest in early-stage startups. More people are investing in startups, and a lot more people are considering to invest in startups. Some of the reasons for the increase in interest about startup investing include a substantial increase in the number of startups, the emergence of notable angel investors and seed investors, many investors reaping the rewards of investing in startups that have become successful, and the advent of crowdfunding in startups.
A startup can be a public company or a private company. It is not common for an early-stage startup to be a public company, though there are a large number of early-stage and late-stage startups that have gone public in various stock exchanges across the world. Current and future performance of some public companies is analysed to a great extent by many people and firms, while the remaining public companies are analysed to a lesser extent. The market price of the public stock reflects this future expectation on that stock. So, the below discussion is on startups that are not public companies.
Leading an organization and working hard to run it or endowing money in the venture and earning profits? Which one will you choose; the instant choice would be the former option. Millennials perceive that running the organization is a more lucrative deal than thoughtfully investing in a niche company. Attaining returns on the investment is something that can go along with managing your own business. Giant companies like Microsoft, Dell, Apple and Amazon didn’t establish merely by personal savings. The investment was crucially needed to raise and expand the business. Similar to the present day, investors were actively sought by then entrepreneurs as well. Potential business strategy, discrete business idea and financial soundness are core factors that are observed by the investors.
Suppose, if someone invested one or two thousand dollars in the mobile company, Apple or e-tailer, Amazon. Then, the dividends of those shares or resell value of those shares would be a lump sum. Recognizing the hidden potential in the startups, require keen observation, market analysis and studying the business model. Even, in this digital era, there are a plethora of investment platforms available, wherein investors can register themselves and seek companies to endow money. Angel kings, Seedrs, Our Crowd and OneVest—are some popular digital investment platforms. Though, it takes an abundant time for entrepreneurs to garner investments through this model while some entrepreneurs consider it essential to raise money without directly approaching the investors.
So, after learning the investment-seeking approach, you would not have fully realized what the crux of investment is, why you should endow money in the startups, how you can be on the safe side while investing in the startups and lastly, how to choose the right startups for the investment.
Here’s Why You Should Invest In The Startups
Huge returns are one of the core reasons why you should invest in the startups. Besides the returns, there are various other reasons for initiating the investment.
1. Higher Returns
Thoughtful decisions of investing in the startups can be hugely beneficial as the returns (above inflation) are higher than other types of investments. Furthermore, it diversifies your portfolio investments.
2. Recognition In The Market
The startups you have chosen if, in the future, get recognized in the industry. Then, this recognition acts as a catalyst for your fame too as you are directly related to the organization.
3. Lifetime Savings
Besides receiving returns, the investment is done to secure one’s future. Many investors seek companies who are thriving and expanding in the sector. By investing in startups like other veteran investors, you can collect large chunks of savings that can help to lead the life post-retirement.
4. Create Positive Changes
Green financing is nascent investment type, which is highly prevalent in the sector. Millennials contribute in the startups which envision to bring positive changes in the society. By opting the green financing, you can become a part of the positive societal changes done by the organizations.
Advantages of investing in startups
The main advantages of investing in startups that are not public companies:
- You get to benefit from the tremendous upside if the startup succeeds. The return on investment can be superlative at the event of startup exit.
- If your investment is significant, you can negotiate with the board to get some insider information on company performance. This privilege will help you to observe better the industry in which the startup is operating.
- If you are part of some notable startup exits resulting in a high multiple of your investment, your reputation as a startup investor is burnished. You can make use of this reputation capital for personal gain in many different ways.
- Depending on the jurisdiction the startup operates from or the location where you live, you may avail certain tax benefits for the amount you invest in early-stage startups. Please consult your tax adviser for more details.
