The Advantages of
Investing in Startups
Startups have been creeping into the public’s consciousness, especially in recent years. The pandemic may have caused a massive hit to the economy. But startups saw opportunities to thrive amid the challenges lockdowns presented.
Despite business risks, the most successful startups have reached tremendous value. In the United States, startups reached an accumulated market value of $929.38 billion.
No business is risk-free, but startups do have some unique advantages. Below are several factors that might sway your investment decisions.
Potential for Greater Rewards
No matter the amount of research you do, startup investments can be pretty risky. Investing in new ventures heavily relies on speculation, which can be unreliable. This is why experts often tell people to invest what they can only afford to lose.
But, when you invest in the right startup, it can be very lucrative. Since you’re investing near the beginning of a company’s journey, there is much room for growth.
For example, investor Garry Tan put down $300,000 for a 2012 startup called Coinbase. This year, the company reached $86 billion in value. That is a massive return of investment.
Tom Schryver, a lecturer at the SC Johnson College of Business at Cornell, said, “There’s so much opportunity for expansion.” He added that “there’s an enormous multiplier effect that could be huge.” Schryver stressed that it’s a “part of what an investor would be buying.”
Portfolio Diversification
Startups are an easy way to invest your way in different industries. There are a lot of new businesses popping up across various sectors. Some of the most popular are business-to-business services, healthcare, and consumer goods. Investing in a startup is an excellent way to diversify your investment portfolio.
A diverse portfolio is ideal for investors. In investment, diversification is a technique that aims to reduce risk. You distribute your investments across different industries and financial instruments, among others.
This way, different economic events will not be downright disastrous. Some of your investments might not do well, but others could still prove lucrative.
Company Involvement
Most startups are still finding their way and have relatively smaller teams. There is a lot of room for creativity, experimentation, and innovation. Due to this, investors can have more significant stakes and opportunities for collaboration.
Investing in a startup is a great way to get involved in the experience of running a business. These beginning stages are all about innovation, which can be rewarding in itself. You won’t be only another source of funds. With startups, you’ll be likely to find a team that values your advice and expertise.
The Bottomline
Investments always come with risks. However, it can be worth the money and more with the right startup. Not to mention investing has become a lot easier with user-friendly online platforms.
