Investing in startups is a risky business, but if you invest in the right one, there will be plenty of rewards. In this article, I’ll discuss these rewards and risks, so you can decide whether investing in startups is worth it.
Becoming an Investor
Investing is a startup is different to investing in stocks and bonds, but it is a good opportunity to build up your portfolio with diverse projects. Before you invest in a startup, you should go through their business plan and the market research they did for evidence that you’ll get a return on investment.
You can invest in a startup at different stages of the project. You can become an angel investor and provide seed capital to get a company started, or you can get involved later down the line and provide venture capital to a startup that has shown signs of growth and potential.
Another way you can invest in a startup is by investing in a crowdfunding project, which usually involves a group of people individually invest different amounts of money in a project on a crowdfunding platform. Once the project has been successfully funded, you’ll receive the item (also referred to as a reward) offered by the startup. Crowdfunding is frequently being used by startups to initially fund their projects.
The Benefits of Investing in Startups
Investing in a startup can be rewarding and the benefits of investing can sometimes outweigh the risks.
Take a look at what’s out there. You’re about to find a niche product or service that will fill a gap in the market. Investing in a startup will also give you the opportunity to get involved in a project that you are passionate about and make a difference. By investing in a startup, you’re also creating more jobs for other people.
When it comes to some startups, you can have input in the project. You can invest your time as well as your money, and you can work as a mentor and provide advice to the startup team to make improvements to the product or service, and use your industry connections to promote the startup and find someone who is interested in collaborating, which could give the startup a bigger chance at becoming successful.
The Risks of Investing in Startups
As I mentioned earlier, there are quite a few risks of investing in startups. Because only 10% of startups are successful, you have to do a lot of research before you decide on a startup to invest in. Startups are unpredictable and there is a chance that you may not get a return on investment (ROI). In the worst-case scenario, you may lose capital, so you should only invest you can afford to lose.
If there is a project you are particularly enthusiastic about and are involved in, you should know that the more investors that enter the equation, less the less input and influence you will have on the decision-making process. You may also find that the startup team decides to pivot in a different direction, which might cause you to rethink your investment
A startup may fail due to unrealistic expectations of the startup team, legal issues, poor business management, lack of marketing, the market being too small, bad market timing, poor business model, changing strategy, burning through cash too quickly, losing investors, their competitors providing a better product, losing interest and a lack of passion for the project, and not taking into account customer feedback to improve the product or services.
Image Credits: Startup Stock Photos