What Do You Need to Know About Investing in a Startup?

Interested in the idea of a particular startup and want to invest in it? There are risks, but the return could also be lucrative if it is managed well. Let’s see some of the points to be considered while investing in startups!

1. Trade Your Time and Skills for Company’s Share

For most matured companies, they’ll prefer cash as investment for they are already strong and stable. However, for startups, if your time and skills are as valuable to help the company grow, most will accept that as the currency instead!

2. Cut Down on the Risk You May Face

When you sign an investment agreement, you should set your own conditions. If the company is unable to fulfil these conditions, no transactions will be involved, which helps reduce the financial risk you’ll bear.

3. Diversify Your Investment Portfolio

There are startups in almost all sectors. Hence, if you are planning to invest a lot while reducing the risk of putting your egg in one basket, the smarter move will be investing in various startups.

4. Startups Have Lower Valuation

Startups often have a lower valuation when they first look for investment. Hence, the value you get from this investment will be lower than other kinds of investment. At the same time, investing in startups can make you become a major shareholder in the startup in the future if they are successful.

Risks You Should Be Aware Of

No matter how good it may sound, investing in startups has its own risks:

• High chance of failure: Not all startups can become successful. While you may earn a lot from this investment, the risk of losing money is also high.
  
• No short-term profit: When investing in a startup, you need to be ready for a longer commitment. That means, you cannot expect to divest or liquidate your cash to use at any point until a few years later. Only when the startup goes on public listing, you may withdraw your investment.

Have any startups in mind now?