When it comes to investment, it is always a tough decision to make as you see plenty of options online or offline that attract you for investing.
Let’s understand all about investing in startups in depth.
Table of Content
- Who Should Invest in Startups
- Where can You Invest in Startups
- Return from Investing in Startups
- Ways to Invest in Startups
- Why Invest in Startups
- How to Invest in Startups
Who Should Invest in Startups?
Not everyone has the capacity to invest money in startups. If you think anyone can invest, you are definitely right. But when we talk about startups, it is quite the opposite case.
If you qualify for the following conditions, you can invest in startups:
- You have surplus funds of at least $100,000 apart from your owned residential and commercial properties.
- You are ready to take the risk for high returns. High returns are always accompanied by higher risks.
- You have multiple sources of stable income.
- You want to own equity in projects that are likely to grow at blazing speed.
Where can You Invest in Startups – Platforms to Invest through
There are a lot of platforms that allow investors to choose from a variety of startups.
Here is a list of platforms where you can find startups to invest in:
We have listed the platforms where investors can find startups which they like and can invest in them. However, we recommend investors to hire an investment consultant and make a deal through them.
Why hire a consultant while investing in a startup?
It is often a good idea to take help of a consultant in evaluating the startup and analyzing the projection report of returns based on the claims made by the startup. Investors cannot go in depth of every niche as the startup projects may or may not be of a similar niche as of the investor’s interest.
Return from Investing in Startups
Return from investing in startups can vary from business to business. Every business has a different scope and a different projection based on the target audience.
It is a good idea to expect a return between 20% and 25% from an investment in startup. If you are expecting a return more than this, or a startup is offering more return than this, then you either are taking a higher risk or the startup is trying to befool. Remember, higher the return, higher will be the risk.
Ways to Invest in Startups
Give a Loan to Startup
Giving out a loan is one of the ways to invest in startups which can give out a fixed return to the investor, usually more than banks. The startup business and the investor may agree upon a certain rate of interest and the investor can earn the interest irrespective of what the startup earns. There is one drawback when providing a loan to startup i.e., investor may get a none or very small equity in the business as he already opts for fixed return on investment.
Take a Convertible Note
Convertible Note is one of the most popular ways of investing in startups. 60% investors prefer investing through convertible notes. Convertible Note is an agreement mutually signed by the startup and the investor which states the terms of return the investor will on achieving certain objectives decided initially.
Buy Company Stocks
Usually, people invest in stocks within the stock exchange but this is not the case in startups. A company cannot sell stocks to the public unless it is listed in the stock exchange. But company stocks can be purchased with agreements based on the money that the investor has to put in.
Why Invest in Startups?
This is a question you might ask as an investor while considering other options for investment. Well, there are a lot of things that should be considered while thinking of investing. Here are the points that prove you should prefer investing in startups instead of other investment options:
startups can lead to an unimaginable growth and numbers resulting in immense return over investment which can never be a case in any other kind of investment. Other options that offer high returns are usually dangerous and suspicious in nature. Startups have a definite source of revenue of which audience is pre-defined, so there is no risk of suspicion.
Opportunity of being in the News
Startups when become successful, often attracts media which results in press release and all the publicity that you ever need. The news floods on the internet at a blazing speed. It gives an opportunity to give you a brand image in the public. People start recognizing you as the funder of the startup you invested in.
How to Invest in Startups
Here are the ideal steps involved while investing in startups:
Analyze the Business Model of the Startup
The first and foremost thing to do is to analyze the business model. There can be cases when you like an idea but do not know what the business will lead to because you are from a different industry. So, it is always a good idea to hire an investment consultant who will take care of the analysis part by diving into the depth of the business.
Understand the Scope of Business
Every business that is looking for startup funding has a scope of business document ready which is sometimes also known as the whitepaper. It is always better to know the scope of business before investing because it lets you know what you can expect from it.
Talk to the startup owners
No one except the startup owners can tell about the business in depth. So investors must talk to the startup owners and not to someone who represents them may it be their mangers, secretary or whatever.
After the investors have followed all the steps above, it is safe to invest further.