Many of us have great stories of startup founders who were the reason for the success of the company. And you may have wondered that if you had invested in companies like Apple, you would have gained great returns now. But you still have time. Investing in startups should be done with utmost care to get a proper return. So in this article, we are going to have a look at how you can invest in startups.
Why Invest In Startups?
As an investor, it is crucial to understand your specific aims and appetite for risk before making any investment decision. It is the same when it is about investing in startups. So here are the reasons on why you should make investments in startups.
- There is an old saying that “do not put all your eggs in one basket” is apt in this case. It is important to spread your investments funds across varied classes of assets, and mainly those that are uncorrelated with the public market. So as an investor you should grab the opportunity to invest in varied projects to increase your portfolio diversification.
- Startup performance does not inevitably correlate with the financial returns of the broader industry, so having startups in your investment portfolio implies you have some protection and diversification created into your investment portfolio.
- These days, the word ‘impact investing’ is becoming very famous. Impact investing is the place where investors can direct their funds to startups functioning in meaningful areas like healthcare, quantum computing, transportation, and sustainability.
How To Choose The Sector For Investment?
Startups function in a broad range of industry sectors. Selecting a sector with the desired balance between reward and risk is a crucial consideration that goes beyond the idea of this simple guide but is an important part of your due diligence. Startups taking advantage of the advances in technology and science across sectors present a chance for investors as the potential for growth, the inherent value of their typically prominent intellectual property, and their potential to have an effect beyond just monetary returns. If you are wondering how to invest in startups with little money, you can do that as well. You just need to know the right strategy to do so.
Is Investing In A Startup Correct For You?
Investing in startups is not for the impatient or the faint-hearted. Investing in a startup is highly fluctuating, and financial returns can take several years and you can lose your complete investment. It is crucial to evaluate your personal risk profile and resilience before planning to invest in startups India and across the globe.
It is also usually highly illiquid, even less liquid compared to real estate, and then you are putting your hard-earned money into an unproven and very early venture. When it is about science and technology startups, the timelines are lengthy, and financial returns, if there are any, can come a long way down the line.
How To Invest In Startups?
There are various startup companies to invest in 2022, you just need to know the right one for you. There are four important components of investing in startups, as stated below:
Knowing where to find curated, high-quality deals is the first piece of the puzzle. If you are a novice to angel investing, finding promising investment chances can be a prominent hindrance. Accessing “quality deal flow” is an important first step to establish yourself as a global angel investor.
Once a good deal has been sourced, it is important to understand the risks and find out the potential chances so that an informed decision can be taken on the industry sector along with the entity. This process is known as “due diligence.” Techniques and strategies for due diligence will differ between investors, and it is important to find an approach that functions for you because all of us have varied investing risk and goals appetite.
Marketing The Investment
Once you have made a decision, the next action is to plan how much amount you can afford to invest and then create the framework of the investment. The main choices are stated below:
- Direct Personal Investment: This is a high-value investment that has direct involvement and engagement with the entity and a minimum investment typically nearly $25,000; or
- Syndicates: Syndicates make angel investing available for more people by decreasing the minimum investment, where people join pools and force their money to invest with others.
Monitoring The Invested Deal Until Exit
Investing in a startup is not “set-and-forget”. Investing your own funds in a startup implies taking responsibility, following the entity for updates, and keeping track of what they are actually doing with your money.
Knowing the potential exit strategy of the company and the chance for a potential liquidity event enables you to be ready for action when the right time comes. For instance, attending meetings with shareholders is a chance to gain direct access to the key participants in the company.
Also, there are various platforms to invest in startups that can help you to guide about the right companies, their potential, and also help you to keep a track of all the companies where you have invested. Indiegogo is among the best startup investing platforms.
The initial step for investing in startups is performing your due diligence as a whole and then on prominent startups to make sure your money is invested wisely. If you want to invest in startups then you should start working towards it from now. There are still great opportunities and because of these unicorn startups, you will get lots of chances to make your investments in. Just ensure to go through the company details and try to diversify your portfolio as much as you can and do not put all your money in one company.