Let us take a look at some of the common categories of alternative investments for startups, and how you can find one that has the best chances to give you big returns. For many conventional investors, it is likely you will need to make additional moves in order to find investment opportunities in startups. If you have a little bit of capital that can invest in more startups, consider ways you can be exposed to a variety of opportunities.
If you research companies in those areas, and you leverage a few networking skills, you may be able to identify startups that you could invest in. You can use several different tools that will help you to discover incredible startups that you should be looking at for your next investment opportunity. If you are looking for investments, you will find startups here from food, eCommerce, and beauty industries.
Startup Investment Platform
It is on Startup Investment Platform that startups will be able to find more diverse types of investors. The vast majority of the capital invested comes from angel investors (accredited investors), venture capital funds, institutional investors, and corporations.
While early-stage companies may receive investment as Angel investors or via crowdfunding, later rounds of funding are typically raised by venture capital firms and private equity firms, and non-Accredited investors may find it challenging to invest across multiple stages of a startups financing. If you do not meet the criteria of an accredited investor, you may still invest in start-up companies through some equity crowdfunding portals, but your options are more limited.
Non-accredited investors may also invest in startups through purchases of shares in publicly traded SBICs, BDCs, and PE firms. With investment crowdfunding, you can find a startup on a crowdfunding site and purchase an equity stake in the company at much lower cost than it would cost to get in with VCs or angels. With investment crowdfunding, you contribute a small amount, and if the company is successful, you will receive a portion of the success.
You may invest in the start-up, and continue to work with the company, even after exercising stock options and turning it into a different investment. You earn back money from your investment as soon as the startup is acquired by another firm or ultimately goes public. Investing in startups is different than traditional assets, as stocks or bonds are public investments, while startups are private investments.
In contrast, angel investors invest in entrepreneurs who are bootstrapping their businesses. Investors who wish to invest in startups in a less hands-off manner may look at venture capital funds, where they pool their money with other investors and depend on fund managers to select early-stage companies for investment. Now, however, there are many crowdfunding websites and platforms that combine the money from dozens or hundreds of different investors looking to invest directly in startups. That is not necessary anymore, though, and regular investors can easily get their hands on a slice of a hot startup opportunity using crowdfunding sites.
Crowdfunding for Startups
The JOBS Act provides an avenue for average investors to invest via equity-based crowdfunding, opening an entirely new door for startups to raise money, and also a new mechanism by which investors can invest in startups. Fortunately, it became easier for the average investor to invest in startups in 2012, thanks to the Jumpstart Our Business Startups (JOBS) Act, which relaxed certain federal securities regulations and made it easier for companies to solicit investments via crowd-funding.
In the past few years, Congress has expanded investors options for getting into startups, by authorizing crowdfunding of investments. Legislation has made it easier in recent years to participate in investments for startups, but the process is still difficult.
Best Practices for Investing
If you have decided that you would like to pursue an investment in a start-up as part of an investment strategy, there are some things that you can do to improve the odds that you will succeed. There are several different strategies that companies can adopt in order to seek out opportunities for high-growth investments.
Experts generally also advise making multiple smaller investments in several different startups instead of a single large investment in one. Seedinvest promotes the importance of diversification, suggesting that instead of investing in a single startup, one should instead build up a portfolio of up to 25 companies.
If you are not interested in investing in a single startup, you can create an investment portfolio via the companys Auto-Invest feature. EquityBee is an outstanding alternative investing platform that provides investors access to startups and growing companies. Investors can use EquityBee to diversify investments, access companies without IPOs, and even to make their first investment into private industry. At the same time, companies with great ideas can reach out to retail investors via EquityBee – expanding their scope.
Online Funding For Startups
There are also a handful of online platforms, like AngelList and FundersClub, where startups can ask for funding, and angel investors can find deals for investments of just $1,000. Most crowdfunding sites allow startups to begin receiving investment for just $100, whereas SeedInvest requires a minimum of $500. AngelList is another leading startup investment platform, but they admit only accredited investors who earn at least $200,000 ($300,000 when married) or have net worth of at least $1 million, not including their primary residence.
Angel.co is democratizing the investing process, making it easier and quick to find startups. Crowdfunding has several advantages: Crowdfunding allows for validation of a business idea, allows startups to raise money with a valuation that is more favorable to the founders, and it prevents the numerous rejections that occur when you apply for VC funding.