Unfortunately, there's not a lot of easy ways to invest in startups. Many of them aren't publicly traded companies and may never be, so how do you cash in on the next big thing? Well, recently people have seen this problem and have started to allow greater access to investing in hot new companies. Before what was only accessible to venture capital funds with millions of dollars, can be used by anyone.
Of course, some of this wouldn't even be possible without the help of the 2012 Jumpstart Our Business Startups Act (JOBS). This act allows investors to invest in startups through methods like crowdfunding. This means that you don't have to be an accredited investor to invest in startups anymore. It's also important to ensure that you are in a good state to invest and that you are ok with the possibility of losing some money.
Find a Company that Invests in Startups
One way to get access to some of the fastest-growing companies is to find a company that invests in startups already. Some publicly traded companies, such as Suro Capital, invest in startups. So, just by owning a piece of their stock, you also own a piece of the companies they invest in. They've invested in some large companies, such as Facebook and Dropbox before they went public, so this could allow you to get in on the next big thing. One of the problems in investing in a firm like this, is that you are at the mercy of their decisions. You won't have freedom over what gets invested in, but you can rest easy knowing that they do their due diligence and have expertise in startups. And this method only costs as much as the stock itself!
Invest in startups through the founder
If you personally know someone who started their own company, you can always reach out to them. I'm sure they would be more than happy to get an investment from a friend of theirs. This is the most direct way to get an investment, but it is limited to people in your network. And sometimes they may be asking for more money than you can provide for them. However, this is one way to have freedom over which company you get to invest in.
Crowdfunding
Crowdfunding puts you in the drivers seat of your investment and gives you the best of both worlds. Using this, you aren't tied down by the decisions of the fund and can reach a wide variety of different companies. Many companies, like Title3Funds, will let you invest for as little as $50. This can give you access to many of the newest companies and lead to explosive returns. One of the problems with crowdfunding is that not every company will use this method, instead of traditional methods. However, this lets you choose which startups you're interested in and gives you control of your investments.
Know the risks before you invest in startups
Investing in startups can be extremely risky, so make sure you do your due diligence before deciding to invest. 90% of startups end up failing, so there's a good chance you could end up with nothing. With that being said, they can also be very rewarding and bring back many times what you bought in for. While the risk of investing in a startup is high, so is the reward. The strategy for many venture capitalists, those who specialize in investing in startups, is to cast a wide net. Because, while many of those companies may net you a return of -100%, all it takes is one company to get you a return of 30 times or more of what you put in to make up for those losses.
It's important to look at the information for the company and don't be scared to ask for more information. You want to be as informed as you possibly can be before deciding to invest. While the risks are great, they can also be minimized by looking at the information and deciding whether there is traction there. An idea can be interesting, but an idea is not what makes an investment great. It's also the work of the team to pull off their idea and rise above competitors. So, don't just invest in an idea, but also a team you believe in.
