5 Major Advantages of Investing in Startups

There has been a lot of talk in recent years about investing in startups. Major market players are keen to invest in Successful Startup because, in recent years, startups have shown what they are capable of. After all, the number of high-profile startup company success stories may have made it seem that putting money into a startup is a surefire way to get a return on your investments.

However, for every successful startup, the are a number that fails, taking down investors as well as the company itself. This doesn’t mean that startups are a poor investment; however, it does indicate that they generally work best as part of a diversified portfolio.

To know more in detail, kindly continue to read about five reasons to invest in startups.

Why should you invest in Startups?

1. Detach Yourself From Market Trends by Diversifying.

2. Start innovating with fresh and ambitious entrepreneurs.

3. High Risk, But high Reward.

4. A Promising Future.

5. Expansion Of Venture Capital Investors.

Let’s begin the journey and stay with us till the last to get some solid reason why you should invest in a startup?

1. Detach Yourself From Market Trends by Diversifying.

It is well-known that continued diversification of your portfolio expands its overall performance, and introducing private equity and venture capital into the mix is a powerful method to do so. The performance of startups is less likely to be affected by macro-level market shifts, in part due to their ability to pivot, and so there is often little correlation between early-stage private companies and the behavior of the overall market. Hence, keeping at least a small portion of your portfolio in startups can help reduce risk while increasing returns.

2. Start Innovating with Fresh and Ambitious Entrepreneurs.

The entrepreneurial spirit rarely leaves a person once it settles in. Any aspiring or former entrepreneur can attest that there will always be a need to problem solve, strategize, and create. Suppose you’re an investor who is looking for a way to experience the thrills and excitement of running a startup, collaborating with other entrepreneurs to provide your unique insights, suggestions, and opinions. In that case, providing funding next to advice can prove to be an ideal way to do that.

3. High Risk, But High Reward.

Investment in a startup is indeed risky, like investment in a share market; if you’re good enough to suffer loss, then you should invest in startup. Why are we saying this? Because no startup from day one can give you returns. But if you have invested in that startup after your research by checking the startup funding procedures from every aspect, it will provide you returns plus profit after some years.

Betting the farm on a 6-8 month-old company that’s burning $100,000 per month is an excellent way to lose a farm. But, as is often the case, the risk pairs with the potential for a significant win. Here’s an eye-popping figure: 6,000 times. That’s investor Garry Tan’s return on his $300,000 investment in Coinbase from 2012. His stake was worth about $2 billion at the IPO.  One of the most significant differences is that startups necessitate investors to imagine what could go right. In contrast, a big part of stock-market investing is understanding what could go wrong. 

Additional Tips: Investing in a blue-chip stock is always accessible and involves less risk, but investing in small stocks is riskier, but when it grows, you get the maximum benefits. The same goes for startups, the risk is involved, but opportunities are endless in startups.

4. A Promising Future.

When you invest you think about the future, investment is all about securing the future and getting good returns in the coming years.

This promotes an ever-evolving world by supporting innovations that have the potential to be revolutionary. Investing in startups means that you can be part of something bigger and allows you to become more involved with the company’s process. Although it has some risk, in every business there is a potential risk, you can’t escape from that, all you can do is to minimize risk by investing in a promising startup.

5. Expansion Of Venture Capital Investors.

Investing in innovative ideas can certainly have a huge positive impact on the face of investors. Recognition, as well as fame, is sure when investors back a startup. It shows that an investor is working towards the development of the economy. He does that with the purpose to make more companies interested in business with investors.

After understanding the benefits or advantages of investing, it is equally important to know the tips for investing in startups if you’re a first-time investor?

Below we have listed some tips you might find helpful. But there is one thing we would like to accentuate: Be careful when investing in startups. Although everyone can invest now: but startup investing is not for everyone. To get the maximum returns, you have to think about future and long-term investments. We are saying this because, being a newbie, you might start thinking about returns from day one. And this won’t be going to happen so early; make sure you don’t invest money you can’t afford to lose.

Enough introduction; let’s highlight those four tips when dealing with startup investing for the first time.

1. Mentally Write Your Investments Off.

2. Set up a Good Information Flow.

3. Be Ready for a Long Term Relationship.

4. Ask for Advice and Follow Angel Training.

Let’s Begin

1. Mentally Write Your Investments Off.

Facts and figures on startup success and failures are flying around, and still, investors would like to take the risk by investing in a startup. Some reports say 7 out of 10 fails, and some say 9 out of 10. Some say that startups in accelerators are less and more likely to fail; some say that blue logo startups have a much higher/ lower success rate than startups with red in their logo; these are just information provided on their website and data. However, things are slightly different when comparing it with the stats provided when it comes to real-life performance.

Investment in a startup is like either you make or break. Unfortunately, the market is still in its infancy, and putting together sensible statistics is quite challenging. 

The first piece of advice anyone should give you: only invest money that you can lose. You should be willing to write off your investment when you start mentally.

2. Set up a Good Information Flow.

If you are used to investing in shares of listed companies, you are used to checking the daily share price of a stock and all the latest online news. With startup investing, this is not possible. 

You can’t build trust in an instant. So startups should send updates once a month from the beginning. Then, if they are smart, they will use the updates to ask for advice, introductions, and support. And if you are an intelligent investor, you will stand ready to give that support.

3. Be Ready for a Long Term Relationship.

You will probably need to re-think if you want to make quick money because startup investing is a long-term process. It’s most common; most startups are cash flow negative for the first couple of years, meaning they lose more than they make.

Another thing we would like to highlight is that the success of your investments won’t only depend on picking good companies. It is also about what you add to the company after investing. You can support the company from your network and personal experience. So after investing, don’t become too inert. A startup is all about having a mindset that is set on innovating and exploring opportunities. 

4. Ask for Advice and Follow Angel Training.

Startup investing is a skill that you can learn. So always be on the lookout to know more, and try to educate yourself. 

Some places offer angel investment training. These can be found online with an angel investment platform and at startup accelerators, for example. If you get to know more angels, you will be able to share your potential investment opportunities, learn from each other’s way of looking at things, and perhaps decide to invest as a syndicate.

The final question…

Should You Invest in a Startup?

If you have a vision, want to be an investor, or believe in creating opportunities, you should invest in a startup as per the above information. Above, we have not highlighted the profit because you should not expect profit from the initial years when it comes to startups. Always remember investing in a startup is a long-term investment, and you have to be patient if you want to achieve your reward from startups.

Currently, as per the latest data, there are approximately 472+ million entrepreneurs globally. Statistically, there are about 305 million total startups created in a year. So as per the data, can you imagine who is funding these startups? The answer is angel investors, crowdfunding, independent investors, and multi-billionaire companies like Apple, Google, Microsoft, Facebook, Walmart, and many other companies on the list.

Last but not least, if you’re an investor, we believe you have a backup in the case of loss,  so always remember if you’re investing in a startup, don’t think about profit because you will get profit only after in the long term investment.

Think you’re boosting the innovation, promoting and creating new opportunities for others by funding in a startup–and last, you will get good returns from your investments as well.

Also Read: What are 3 Realistic Ways to Fund Your Startup?

Karan Jain

Born in the family of entrepreneurs and have inherited the same. Started building applications in order to pay for my tuition. Later founded a tech company, marketing agency, and media outlets.