Invest in a Startup Even if You’re Not a Millionaire
by Kaitlyn Ranze
I think the last time I was in a country club, I was in the 8th grade. I’ve never been a fan of golfing or tennis, and I’m too cheap to pay for memberships willingly. (Ask my twin brother how long I’ve used his Netflix password.) Life never leads me to them.
But there’s one elite club I want in on: startup investing.
Here’s how I’m investing in start-ups without being a millionaire.
First, learning the rules of the game. Let’s break down what a startup is.
What is a startup, exactly? A startup is a company that’s in its early stages, and usually has fewer than 50 employees. Technically, any new business is a startup, but when most people use the term, they’re referring to unicorns like tech companies like Airbnb, Klarna, and Uber. Sometimes, these companies are still searching for a viable business models which is why the fundraising through accredited investors is so important.
Why is startup investing so exclusive
In short, if you’re not an accredited investor, you might not be able to invest in a startup.
What is an accredited investor
An accredited investor status specifically allows certain individuals to access investments that aren’t available to the general public. In order to be an accredited investor, you must meet certain criteria set forth by the U.S. Securities and Exchange Commission (SEC). You either have to have a net worth of over $1 million, or earn an annual income of over $200,000. In other words, you’re pretty well-off. (Spoiler alert: that’s also not me.)
Start-ups often rely on money from accredited investors, angel investors and venture capitalists to get off the ground.
So why do accredited investors exist?
The simple answer is money. Accredited investors reap the benefits of having a ton of money to get them access to more wealth generating opportunities like investing in early stage start-ups. It’s access that others with less money don’t have (hello, wealth gaps) and that start-ups and other high-growth businesses depend on for growth.
Why do startups even need the money from investors?
There are a few reasons for this. First, startups typically don’t have a lot of revenue or profits at first, and they may not even have a product on the market yet.
Second, startups often need large sums of money to get off the ground. Most people don’t have the money to invest in a startup, but accredited investors can afford to put up a lot of money.
Finally, startups are often located in high-growth markets. These markets offer the potential for big returns if the business is successful. But they’re also risky, which is why most people don’t invest in them. Again, accredited investors are typically more comfortable with this risk.
So what makes a successful start-up?
There’s no one answer to that question, but there are a few things that are essential. First, the start-up has to have a great idea – something that people want or need. Second, the team behind the start-up has to be passionate and driven; they can’t give up easily. Third, the start-up needs money to survive in the early stages, and it needs to be able to attract investors.
So is money the most important thing for a start-up? No, but it’s definitely important. A start-up can’t succeed without money to support it in the early stages, when there’s a lot of risk involved. And investors are more likely to invest in a start-up that has a solid business plan and is led by a passionate team.
Examples of a successful startup
Airbnb is one of the most successful startups in recent years. The company disrupted the traditional hotel industry and now offers a unique way for people to travel.
But how did Airbnb become so successful?
It all started with an idea. In 2008, two friends, Brian Chesky and Joe Gebbia, were struggling to pay rent. So they came up with a plan to rent out air mattresses in their apartment to make some extra money.
Their idea was a success and they soon realized that there was a big demand for short-term rentals. They decided to launch a website called Airbnb.com to connect people looking for a place to stay with people who had a spare room to rent.
The company quickly grew, and in 2009 it was named one of the best new startups by Time Magazine.
Airbnb has continued to grow over the years, and today it is a global company with more than 3 million listings in 190 countries.
So what makes Airbnb so successful? There are a few key factors.
First, Airbnb offers a unique product. There are many other websites that offer short-term rentals, but Airbnb is the only one that offers a truly unique experience.
Second, Airbnb has built a strong brand. The company has worked hard to create a brand that is associated with trust, community, and adventure.
Third, Airbnb has a strong team. The company is led by experienced entrepreneurs who have a deep understanding of the travel industry.
Fourth, Airbnb has been able to scale quickly. The company has grew rapidly despite a few hurdles.
How much did investors make?
Sequoia Capital invested $585,000 in the home-rental platform for about 58 million shares in 2009, paying about $0.01 a share, The Information reported. The venture-capital fund has plowed a total of $280 million into Airbnb over the years, giving it a stake worth almost $12 billion at the close of [market on December 10, 2020.]
Business Insider
That’s why I want in.
That’s why I want to join the startup investment club. Because startups can offer investors high potential returns if they’re successful.
Fair warning though…
Investing in startups is not all sunshine, missions and money.
According to Investopedia, “21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year.”
You may be asking, but if so many startups fail, and even the ones that succeed may not be profitable for years, why would anyone want to invest in them?
There are a few reasons other reasons. Investing in a startup can be a way to get exposure to new and innovative technologies or businesses. And finally, investing in startups can be a way to support the local economy and help create jobs. But…
Before you invest in a startup
There are a few things you should keep in mind. First, do your homework. Research the startup and its founders to make sure they have a solid plan and are well-funded. Second, don’t invest more money than you can afford to lose. Third, be prepared for a long wait. Many startups take several years to become profitable, if they ever do.
Choose an platform
There are a few different ways to invest in startups. One is to directly invest in the company by buying shares. This can be done through a broker or an online platform like AngelList. Another option is to invest in a startup fund, which pools money from multiple investors to invest in a number of start-ups.
So how can anyone invest? Say hello to the startup investment platforms:
Choosing a startup to invest in
Investors are attracted to startups because of the potential for high growth. Start-ups have the ability to scale quickly and reach a large number of customers with their innovative products and services.
However, start-ups are also high risk investments. Many startups fail due to inadequate planning, poor execution, or simply because their product or service is not viable. For investors, the key is to carefully evaluate the potential of a startup before investing.
So how do you choose a startup to invest in?
Here are some factors to consider:
– The team: Is the team passionate about their product? Do they have the skills to make their vision a reality?
– The market: Is the startup targeting a market with potential? Is the market growing?
– The product: Is the product innovative? Is it something people will want to buy?
– The business model: How sustainable is the business model? Can the startup generate enough revenue to keep going?
– The financials: How much money does the startup need to get off the ground? How much money has it already raised?
When you invest in start-ups, you’re getting in on the ground floor of something new and exciting. These businesses embody the values of innovation and risk-taking, and they have the potential to grow into something truly great.
Plus, start-ups offer a unique opportunity to get in on the action early. Many of them are still in the early stages of development, so there’s a lot of potential for growth. If you’re looking to get in on the next big thing, start-ups are definitely the way to go.
Related Reads:
Risk, Return, and Diversification
How to Invest in a Startup for as Little as $100
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