How to Invest in Startups and the Factor to Consider

Startup Investment Criteria

Looking to invest in startups and generate lucrative returns? Well, everyone wants a lucrative return on money, but the real question is how to do it.

If you ever invested in the Initial Public Offering of companies such as Apple, Google, or Microsoft, you would have been a millionaire just from the time of investment. However, when investing in startups, you can expect to lose money before making some profits.

Investing in start-ups is an art, and there are certain practices you need to follow to reap the maximum gains.

Reasons Why You Should Invest in Startups:

• Generating potential returns and providing for portfolio diversification.
• A desire for improved returns.
• Craving to drive positive change.
• Investing in smart and intelligent alternatives to available options.

Investing in new ventures is now no longer reserved for the wealthy, and is now open to every authorized investor. The key is to analyze your budget, your business goals, and then get started towards channelizing funds in startups to help achieve a diversified portfolio.

How Do You Get Started with Investment?

Ways to invest in startups include the following:

• Invest via venture investment platforms.
• Investment through self-directed 401k (Companies such as PENSCO and Equity Trust provide this service).
• Attending startup events.
• Join a website such as AngelList to follow and connect with other investors.
• Connect and build connections with entrepreneurs and startup Founders.

List of Popular Platforms that can Help You Diversify Your Investment Portfolio: 

• Republic

It is an online platform that allows individual investors to purchase a stake in startups for as little as $10. The company selects startups based on a four-stage screening process and analyzes their mission, products, and growth scope.

In addition to investment services, it also allows for discussion and advisory services between investors and startups.

• SeedInvest

It is a crowdfunding platform that allows individuals to invest in early-stage startups, which have been pre-screened for having potential viability. The company claims to have been successfully funded by over 150 companies.

When you sign up on the platform, you are presented with a list of companies that seek money. While most are open to receiving investment from anyone, some companies require accredited investors with a certain income level.

You are also provided with the option of building a portfolio of investment through the auto-invest feature, where a minimum investment of $200 is required.

• Wefunder

Using the Wefunder platform, an average investor can provide funds to an array of companies. It allows an investor to purchase stocks, convertible notes, as well as, debts.

The money you invest is placed in an escrow account, and if the company succeeds in raising funds, your investment goes to the startup, or your money is returned.

• MicroVentures

The Mictor venture platform allows anyone to invest in early-stage startups for $100. The company has dozens of startups on the platform for one to invest in, ranging from mobile games, digital marketing companies to manufacturers of high-end products.

Like other companies, it focuses on analyzing the mission, scope, and growth of startups before approving it for investment.

How to Generate Cash from a Startup?

The gains via investment in startups can be realized in the following ways: 

• When another company acquires or takes control of a startup (for example, Facebook, Google, Amazon).
• When a company pays out dividends.
• A company makes an Initial Public Offering.
• When you sell your shares to other market participants.

Investment Strategies to Help You Get Started

The golden rule of investing in startups is always to be wary of the risk involved and always invest prudently, as you cannot risk everything on a single startup.

Be smart by ensuring the following:

• Invest in pre-tested and vetted startups.
• Aim at creating a diversified portfolio.
• Create a buffer capital in case of contingencies.
• Invest in only what you seem to understand.
• Invest to create value.

Identifying the right type of startup is important as you don’t want to spend all your time at research. Whenever possible, save on the time involved in the investment process. You can use one of the platforms listed above to get started. Besides this, you can also attend exclusive startup events to expand your network.

Diversify Your Portfolio

Are you looking to utilize your funds on a single game-changing plan? Diversification of portfolio is essential, and it’s understandable considering the low rate of startups’ success.

Focus on diversification and choose your investments wisely rather than blindly investing and praying. Consider routing funds to a handful of startups, which resonate with your ideas.

Prudently choose which companies to invest in. As most platforms offer vetteMPAd information, you can utilize it to read and understand the startup’s goal and vision prior to investing. Diversifying across verticals and staying updated on the market condition in order to cash in on the benefits accrued are crucial steps of investment.