The first important point to invest in startup is to understand the concept of this type of company. After all, what are startups?
Basically they are innovative companies with low maintenance costs, but that manage to grow quickly and generate profits. Due to their different profile and highly linked to technological innovations, startups are excellent investment options.
One of the main advantages of investing in a startup is exactly this: high profitability in a short time, despite being a considerable risky investment.
So, let’s talk a little more about the benefits of investing in a startup. Check out!
One of the main positive points when investing in a startup is the possibility of doing something totally different and challenging, thinking outside the box is essential in this process. The whole concept of a startup is to value innovation, new processes and opportunities. Therefore, investing in a startup is investing in an out-of-the-box idea.
Above average financial returns
Whatever the investor’s profile, they all seek the same thing: gain. From a simple savings account to the most complex variable rates, investments are ways to reach personal financial goals.
Unlike fixed income investment , in which the return is stable, investing in startups is considered a variable income investment. Despite the possibility of unlimited gains, in theory, it is necessary to pay attention to market volatility.
It may be that the company you choose to invest in grows exponentially, making your investors have great returns. This means that, if the company succeeds, the value of your investment rises proportionately, including for later sale purposes.
Startups manage to generate profit quickly and their investors are looking for exactly that, an application that gives them returns with the least amount of time spent as possible.
This is a great advantage for those who want to diversify their investments. Betting on a startup that you believe will be successful and using the profits to diversify your investments in others, in different fields, is a great idea.
new economic activity
The money invested in startups encourages the growth of an innovative company that develops relevant activities.
In fact, the investment money is usually used to add even more value to the enterprise, whether by hiring more employees, outsourcing services or purchasing raw materials. In the end, it’s a benefit to everyone. Both for the startup owners and for the investor partners.
Support for rising companies
Being a startup investor means creating a close relationship with the companies that are in your investment portfolio. Thus, being able to support them and influence their growth.
Have you, as a consumer, ever felt dissatisfied with services provided? Ever wished certain products were better? Precisely for this reason, investment in startups can be a way to support rising companies that produce and support causes that are of interest to them.
In Pak, access to investment capital is very difficult, especially for new ideas. As an investor in the industry, you will be able to understand more about new ideas and support them or not. In this way, you leave the passenger seat and become a decisive player in the development of innovative products and services essential to the development of the country.
Risks of investing in a startup
Now that you know the benefits of investing in a startup, let’s also talk about the risks of doing so. We talked earlier about the financial advantage of this investment, which arrives quickly. It happens, however, that investing in startups has another side: risks . See what they are below.
high risk investment
The biggest disadvantage of startups as an investment is that they are a high risk way of investing. Already in fixed income investments, it is possible to know exactly what the return on your investment will be. After all, this is defined at application time.
For example, the savings account is directly influenced by the Selic rate. Government bonds also have a payment set at this rate, plus 3% per annum. These types of fixed-income investments are a means of offering stability and predictability, but limiting earnings.
Furthermore, the more you invest in startups that are starting, the greater the risk. However, if a company that is just starting out manages to achieve commercial success, these gains will be much greater than any type of fixed income investment.
As it is a way of investing their money in emerging companies that innovate and are still looking for their “slice” of the market, investors cannot expect any guarantee of return. After all, there is no certainty of success or not. Help for companies is done in a “blind” way, and may or may not work.
In this sense, the best tip is to diversify investments in startups to compensate for any possible failure, in addition to knowing more about the current market and consumer behavior. The latter is who will dictate the success, or otherwise, of the business.
long term investment
Despite being difficult to predict, investments in startups that give great results in the short term are the exception. The rule is to bet on a company you believe in, encourage its development and wait. With luck, the good results appear soon. However, due to the high volatility of investing in startups, it may take years for the good results to finally arrive.
This can be a problem for investors looking for short-term returns. It is best to always have an emergency reserve and not commit all your income. An investment that presents risks does not mean that it is prohibited. Just that you need to be more careful when doing so. Therefore, try to inform yourself as much as possible about the modalities of this type of investment and follow our tips on how to invest in startups, as indicated below.
How to invest in startup optimally?
Now that you know the pros and cons of investing in a startup, we can help you with the most practical part of the business: see how to invest optimally.
Evaluate the possibilities
Before investing in a startup, it is necessary to evaluate the product or service offered by the company. Is it a disruptive and innovative idea? Are there real chances of success? If you like the idea and want to support it, it’s worth moving on to the next steps.
In addition, it is good to analyze some documents, such as the financial reports of the business and the mission, vision and values of the company. A frank conversation, in the position of a person who will inject a lot of expectations into the business, will be illuminating.
Know the market
As investment in startup brings greater possibilities in income and profits, it is necessary to be aware of the market in which the company will operate. Regarding this topic, it is not necessary to be an expert on the subject to understand when a company will or will not be successful.
Although there is no general rule, it is possible to read about trends and the most suitable forms of investment for the current market. Especially the performance of your preferred company for investment purposes.
count on capital
After checking the opportunities, it is necessary to have the necessary capital for the investment. It is recommended not to commit all your income to the investment, even if there are high chances of return. After all, volatility is real.
Choose the ideal mode
There are some types of investment in startups. There is the accelerator, which is a way to boost the company in its first years of activity, through mentoring and professional assistance. This modality ends up involving the investor more in the business, it is common in startups that are starting.
The angel investor is a person (individual or legal) who invests in startups, but not merely financially. In return, the angel investor has more autonomy in the company’s decisions, including business opinions.
There is also the seed investor, similar to the angel investor. The focus of this modality is groups of people who pay for slices of the company. Due to this characteristic, this investment has lower values. Most of the time, a council is instituted for decisions.
These are the main types of investment in a startup but there are other ways to invest. So research to find out which one fits your profile and needs the most.
Among the most promising and interesting startups in Pak, there are several that stand out. In this way, this type of choice ends up being a personal decision, according to your preferences. After all, variable income investments are called that way exactly because of their volatility: they can go both up and down.
Investing in startups is certainly an opportunity for anyone who likes this niche market. However, one must be careful and assess the risks to make this investment optimally. There are some types of investment, so find the one that best fits your reality and enjoy the benefits!