A growing number of youths today are very keen to start out on their own. They are highly skilled and very motivated but often lack the funds needed to build up a business. That is where investors step in. Gone are the days when it was only the super wealthy that used to invest in startups. Today, many views investing in startups as a wise investment choice.
Let us consider some reasons why you might wish to initiate investing in startups:
Startups can have a very high rate of return. This is all the truer if the startup is based on a bright business idea and has a sound business strategy. Peter Thiel invested in Facebook. His initial investment grew 2,300 times before the company was first made public. True, investors should not expect to find many ‘Facebooks’ to invest in today, but the fact still remains that investing in good startup ideas yield very handsome returns.
Investing in a startup diversifies your portfolio. While it certainly is unwise to put in a large percentage of your savings into startups, most investment houses advice setting aside 5% of your savings for investing in startups. Studies indicate that this results in an increase in overall returns by about 12%. Investing only in stocks and bonds could be compared to putting all your eggs in one basket.
3) Recognition or fame
Investing in a startup has the potential of earning you much recognition. Since your name is attached to the startup when the business blooms your reputation and fame does too. Added to it is the joy you have of being a part of the startup’s journey from zero to being a recognized brand.
4) Long term savings
Investing in a startup is actually building up a retirement plan. Your investments could yield rich results, especially in your later years, giving you a carefree retirement life. A factor to keep in mind is that a very huge percentage of startups do not go public. Rather, they are acquired by larger companies. In either case, those who have invested in the startup have the option of receiving shares of the company. That is a substantial growth of the invested funds and also a source of revenue for the future.
5) Become a cause for change
Some startups have the potential of bringing about significant changes in society. These might have to do with environmental or natural resources. Being associated with such startups as a financer will mean that you become a cause for the change. You can contribute to the success of products or services that contribute positively to the betterment of society at large.
For many, owning a business has only been a dream. However, investing in a startup is like living that dream. You have a share in running the business. The investor plays a key advisory role and often has other strategic responsibilities to fulfill in connection with the startup. The investor can make a difference in the direction the startup is heading.
Your investment gives you a voice and voting power that could shape the most consequential decisions the startup would make. Then, there is the feelgood factor as you are a part of something new, exciting, and happening. Besides, this often gives investors an opportunity to work with innovative and cutting-edge technology and products.
7) Job Market
Investing in startups also means that you are creating jobs for people. Your investment in the startup will mean that the startup would need to employ people to carry forward its business ideals. This, in itself, is a way you are contributing positively to society at large. You would be making a personal contribution towards boosting the local economy.
Most often, successful startups help your investment grow by 6 to 10 times in about five to ten years. However, much more than the returns themselves is the journey towards that end. Being part of a startup, the joy of being able to work with them and join their journey to success, that often is a source of much joy and personal satisfaction. Therefore, investing in startups is not just an option, but a very wise and fruitful option.