Entrepreneurial Tips.
Up until the last few years, startup investing was limited to the ultra-wealthy and hard-to-access investment funds. For one thing, regulators imposed restrictions that were designed to protect smaller investors from complex investments or worse scams.
Those protections are well-intentioned, but as investors became acutely aware that much of the gains in high-growth companies come before the IPO, they demanded a more equitable system. The most widely available solution to this is equity crowdfunding.
It is a significant risk when you invest in startups. But why do many people and organizations continue investing in them? Find out why investing in startups is a smart financial move.
#1. A killer opportunity
Startups that spot an addressable market that can be exploited or disrupted, with lucrative results, have greater chances of securing investment. Recognizing such growth opportunities as an investor isn't always easy. Often the shrewdest angel investor are those who spot a winning market opportunity that others have overlooked.
#2. Become an integral part of a team that needs you
Investors of startups and smaller firms tend to take on more active roles in advisory and management than those of more established or publicly traded companies. In part that's simply because getting in early gives you a higher proportion of voting shares and by the same token influence over the direction your company takes. Another reason, though, is due to a legitimate need of many companies and entrepreneurs for mentorship, industry connections, strategic management etc., which go far beyond simply providing funding. Investing in a startup will give you a voice and a position to be an integral part of the most consequential decisions the company will make in the future.
#3. Diversifying your portfolio
In investment, it is not ideal to put all your eggs in one basket together. To avoid losing big in their investments, investors take steps such as portfolio diversification. Portfolio diversification means spreading your investments into different asset categories. Thus, it will significantly reduce financial risks. This is where startups come in. Startup investment is substantially different from traditional assets, bonds and stocks. Additionally, unlike stocks and bonds, startups are less prone to market fluctuations. Therefore, this type of investment helps mitigate financial risks by diversifying your portfolio.
#4. Start innovating again with fresh and ambitious entrepreneurs
The entrepreneurial spirit rarely leaves a person once it settles in and any aspiring or former entrepreneur can attest that there will always be a need to strategize, to problem solve and to create. If you're a potential investor who is looking for a way to vicariously experience the thrills of running a startup, collaborating with other entrepreneurs to provide your own unique insights and opinions in addition to funding can prove to be a great way to appease your need decision-making in the unknown.
#5. High potential for buyouts
Aside from investors, large companies are also looking out for startups. These companies usually buy out startups for two reasons. Firstly, they look out for startups that have the potential to be their competitor in future. Instead of waiting for these competitors to grow, the large companies will procure the startups. Secondly, because startups are usually in the field of innovation, they develop mew technologies. Large companies who see that they can leverage these technologies to further their businesses will buy them out. Hence, if the startup you invested in sells at a high price, you will enjoy high returns on your investment.
Final thoughts...
The things mentioned above are just a few of the many reasons why you should invest in startups. However, just like any other investment, startups are high-risks because only a small number of them succeed.
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