Investing in fledgling companies is a popular option for highly successful investors. If you watch the show Dragon’s Den, you’ll see that, like the billionaire hosts of the show, many well-off people are interested in listening to new innovative ideas. New ideas revolutionise the business world, and the ever-changing demands of consumers make startups true game-changers.
If you invested about $5000 in Amazon, Apple, and Dell when they were startups, the chances are you’re most probably a millionaire by now, according to the IPO Playbook.
Apple’s stocks alone rose by over 4,500% from 2002 to 2012, which means that a good investment back then could’ve made you a millionaire over the space of 10 years. Apple currently has a market capitalisation of US $600 billion, and its share price has skyrocketed by over 20,000% since it first went public in 1980.
In 2012, the USD/EUR valuation was at 1.794. Today, the valuation according to FXCM’s live market scanner is at around 1.12. The dollar may be weaker now against its strongest competitor the Euro, but a 4,500% market valuation in a span of 10 years is pretty impressive, and could’ve potentially given investors enough money to retire very comfortably.
Here’s another example to give you a clearer perspective on how startups regularly change the business landscape. Uber founder Travis Kalanick surpassed Mark Zuckerberg’s net worth in 2016 when reports suggested he was worth more than $6 billion. Uber has been operating for less than 5 years in most of the territories across the world it’s active in which makes the feat even more impressive.
But the million-dollar question is how do you invest in startups? There are 4 ways to do so:
1. By investing via venture investing platforms like 1000Angels for direct investments
2. Via personal connections with business professionals and founders
3. By joining a syndicate on AngelList where you can follow the decisions of veteran investors
4. By attending pitch events where you can invest on the spot
You can invest in startups by making the investment in person or via an online channel, and receive preferred stock or SAFE notes, which turn your interests into stocks.
Of course, you can cash out your investments via a number of ways:
1. The startup is acquired by another company, which means the sales money will be divided among the investors
2. The company begins paying annual dividends to investors
3. By selling your shares to other investors
Scouting for startups
How you look out for startups is the most important part of your investment process. You don’t really want to spend a considerable amount of time in search of investment opportunities without making any progress. Whatever you do, it’s important to optimise the process and costs so that you can make every investment efficient.
Web platforms like 1000Angels as mentioned above enable investors to attend events exclusively around the world where startup companies talk about their business plans and visions. Instead of paying hundreds of dollars for plane tickets, you can simply pay an annual membership fee and conveniently assess startups that are of interest.
Of course, not everything is straightforward when investing in startups. A lot of startups fail, so it’s always important to assess a startup’s business plan before investing your hard-earned cash.
This article is written by James Crowley who is a business consultant specialising in growth and development of SMEs. Along with his professional dealings, he also shares insights through writing and currently works on his guide book, ‘Tidbits of Continuity – How Consistency Drives Growth’.
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