If you’re a unicorn founder who wants to invest in Silicon Valley startups or a serious businessman
with the status of an accredited investor, this guide can help you to understand the most important
aspects of startup investing.
First of all, you don’t need millions to invest in startups, even though investing big bucks in the most successful young companies can become quite a profitable endeavor. The trend of startup investing is currently on the rise due to being one of the most lucrative opportunities for all kinds of investors.
Startups ensure a profitable and steady source of income. However, the trick is to make the best investing decisions to ensure high returns on your initial investment. Let’s talk about the most significant reasons avid investors look for startups and how to make money from your startup investment.
Top reasons to consider startup investing
Here are three top reasons to invest in startups.
For both accredited and non-accredited investors, financial returns play a vital role in business investment decision-making.
Unicorn founders are ready to invest big money, and it’s only natural that they expect high returns. Since startup investing can lead to outsized profits, all investors are interested in the promise of massive ROI.
Building a trustworthy financial portfolio
Serious investors, accredited or not, look for top investment opportunities to secure their future and amass capital they can count on in retirement.
The more they make smart investment decisions, the more comfortable and prosperous their future will be.
Startup investments usually take a while to yield profits, which is why they are perfect for business founders looking to build meaningful and prospective financial portfolios.
Coping with the latest trends
Avid investors take pride in keeping up with the latest trends and being part of new solutions that can reshape industries and disturb global markets. Investing in the biggest, most prosperous, and promising startups is a surefire way to drive positive change in your market and beyond.
Silicon Valley startup investing
Up to 2016, Silicon Valley startup investments were reserved for accredited investors such as unicorn founders. These are serious earners with annual incomes of over $200,000 or investors with $1 million net worth.
Because of their funds, these investors were allowed to invest in private business organizations. In return, they were given access to the returns in equity. However, things changed in 2016 when the JOBS Act Title III made it possible for anyone with some money saved up to make a startup investment.
The act changed the order of things for both investors and startups and raised the bar for ordinary investors. Nowadays, anyone can choose how much they want to invest in a startup in exchange for equity.
In other words, non-accredited investors or people who don’t have a million dollars in assets or earn $200,000 can still invest in Silicon Valley startups.
Things to know before investing in startups
Startup investments are only profitable if you make the right investment decisions. Here are a few guidelines to point you in the right direction.
Choose your startups wisely
As a startup investor, you should look for the startups with the highest growth potential. Since new companies need a lot of time to mature, you should look for companies that allow you to add value to your investment later.
Diversify your investments
Countless startups are looking for potential investors these days. However, that doesn’t mean you should go with every opportunity you encounter online. To avoid unnecessary losses, take your time to find the few most promising startups that will grow and mature quickly.
That would require you to reach across multiple industries. However, while doing your research, keep in mind any potential industry and market fluctuations. We recommend focusing on individual businesses.
Assess the risks
Startup investments take time, effort, and lots of patience. Such investments require time to yield returns. As usual, things may not go as planned, and there are always unexpected risks to keep in mind.
Startup investments come with high risk. If they don’t mature well, you might be facing huge losses. Sometimes, it takes up to 10 years to see a return on your money. In some cases, you may not see ROI at all.
Take your time to review the company and look into the management’s past and present qualifications. Pay special attention to the tiniest detail to ensure you don’t miss a thing.
Avoid risking your money by looking for startups with wise and strong founders with lots of experience with investments. You should also consider investing in pre-vetted companies.
Startup investments are viable options for both accredited and non-accredited investors. They offer a promise of high returns and several ways to cash out. The moment the target startup goes public or is purchased by another enterprise, investors can start reaping the gains.
In the first case, investors make a profit by collecting the percentages of their initial investments. When the startup goes public by selling its stock, an investor can either become a part-owner by owning shares or choose to cash out.
Startup investors can also reap benefits when the startup begins with the payment of divides. Finally, they can sell their shares to other prospective clients to earn ROI earlier than planned.