One of the best ways to generate wealth is to invest in promising startups, but investing in startups is intimidating to newcomers with little to no experience. How do you get started in a field you barely understand?
The Value of Startup Investment
First, why is investing in startups so valuable?
- Early stage access. Most people love the idea of investing in startups because you can get in at the ground floor. Investing in Apple in 2023 might be a strong investment, but it’s nowhere near as strong as an investment in Apple in 1984, or 2002 for that matter. Plus, getting involved in a startup that’s just beginning to get momentum could be the beginning of a great life experience and a great story to tell later in your life.
- Unlimited growth potential. It’s true that the majority of startups either fail or become stagnant after a few years of operation. But for a small percentage of startups, explosive growth is all but an inevitability. If you can find one of these promising startups early in its development, you could easily multiply your investment many times over.
- Removal from market volatility. Because most startups don’t start out on a public stock exchange, they’re not subject to the same market volatility that publicly traded stocks are. You’ll be shielded from some of the ups and downs of market dynamics (potentially at the cost of liquidity).
- Potential influence. On top of that, startup investors sometimes invest with the intention of claiming an equity stake. In other words, you’ll have partial ownership of the business and partial control over how the business develops.
Options for Investing in Startups
So what are your options for investing in startups?
- Consider traveling abroad. One rarely considered option is moving abroad to invest in startups in other countries. According to MBersaniLaw.com, with an Italian investor visa, for example, you’ll be granted access to the country of Italy if you’re planning on investing a significant amount of money in Italian startups or companies. It could be a great way to visit a country you’ve always wanted to see – and achieve some of your financial goals at the same time.
- Look for equity crowdfunding opportunities. A more common route for startup investment is equity crowdfunding. Equity crowdfunding works much like other crowdfunding campaigns, with the exception that your investment entitles you to a partial share of equity in the company you’re funding. There are many different equity crowdfunding platforms to choose from, so shop around before you select one as your main platform.
- Seek out new IPOs. An initial public offering (IPO) is also known as a “stock launch” because it’s the first time shares of a company are made available for public purchase. In the early phases of a startup, an IPO usually isn’t on the table – but if you search through upcoming IPOs, you can still find promising investment opportunities for young and emerging businesses. Just be careful with IPOs; not all emerging businesses are strong investment opportunities.
- Get involved as a private equity investor. You could also consider getting involved as a private equity investor, working with venture capitalists or as an angel investor. If you’re totally new to the world of private equity investing, you’ll likely find it hard to discover new opportunities and be taken seriously by upcoming entrepreneurs. Associating yourself with investors who are already known and experienced in the community could give you a powerful leg up.
- Start networking. One of your best options is to start networking, especially if you’re not sure which direction you want to go. Meeting other investors and entrepreneurs is the best way to learn more about the startup investing environment and make connections that could lead you to valuable opportunities later on. As an added bonus, networking can be good for your career – and you can make new friends along the way.
Additional Tips for Success
These additional tips can help you increase your chances of success as you look through your first startup investment opportunity:
- Find a mentor. If you find a mentor willing to advise and teach you, you’ll be halfway to better investing results. Mentors are able to close your experience gap, providing you with advice and insights you wouldn’t be able to get on your own. Just make sure you remain respectful of their time and show appreciation for their willingness to help. There are many ways to meet prospective mentors, such as by straightforward networking, through targeted outreach, or through mentorship programs. All that matters is that you find someone kind and experienced who’s willing to help you on your journey.
- Start slow. Don’t invest your life savings into the first startup you find. Start slow and invest gradually. Even if a startup investment opportunity looks exceptional, there’s never a guarantee of success; you might lose everything if the company takes a bad turn. It’s much better to diversify your holdings across many different startups and minimize the amount you initially invest. You can always scale up later as you gain more knowledge and experience in this field.
- Do your due diligence. Never make assumptions. Always do your due diligence and make sure you fully understand what you’re funding. Before investing in any startup, you should take the time to familiarize yourself with the business model, the business plan, the leadership in place, and a thorough SWOT analysis of the company.
- Learn from your mistakes. Mistakes are inevitable – but you can always learn from them. Pay attention to what you do wrong and avoid repeating your flubs. If you treat every setback as a learning opportunity, you’ll be in a much better position to succeed.
Investing in startups isn’t for everyone. If you’re just getting started in the investment world, or if you’re unsure that startups are a good fit for your portfolio, consider beginning your journey with larger, publicly traded, established companies.
That said, investing in startups is relatively easy and accessible if you’re willing to look for the right opportunities.
