5 Reasons You Should Consider Investing in a Start-up
Start-up investments are highly risky, we know that. But have you asked yourself why do people still invest in them? The likes of Meta, Apple and Microsoft were all start-ups at first, weren’t they? So, here are 5 of the most solid reasons why you should consider investing in a start-up.
Early investors enjoy greater rewards
The earlier you invest in a young business, the more chances you have to derive benefits. The emergence of crowdfunding has gradually dimmed the boundaries of early-stage investment. This translated to lower overhead capital requirements and the potential of considerable rewards in case of exits (no earlier than three years under the EIS or SEIS) is attractive enough for angel investors.
Great portfolio diversification
Parking all your spare capital in one investment is not a solution. To ensure you lose as little as possible and derive as high profits as you possibly can given the market context, it’s best to diversify your portfolio. But what does this mean?
In plain English - putting your eggs in more baskets. By investing across different asset classes, say blue-chip stock shares and start-ups, you limit your risk exposure significantly.
Unlike other types of investments, start-up investments offer greater stability. In comparison to bonds or stock shares, start-up investments are less sensitive to market fluctuations, thus helping mitigate risks.
Choice of options
The start-up space offers plenty of options across industries and markets. Business in fields such as technology, agriculture, healthcare, and education look for investors. From these, you can choose that suit your goals.
Additionally, some governments such as the UK government have created specific start-up funding programmes such as the EIS and SEIS, offering i nvestors great incentives in the form of tax relief. We have tackled this aspect in our blog post about SEIS and EIS, so we encourage you to tak e some time to read it and find out more.
Make an impact
When investing in a start-up, not only do you encourage job creation, but you also power innovation in a specific field. In 2021, for example, start-ups generated over 3 million jobs, data collected by Statista shows. Therefore, if you’re one of those investors looking to make a difference in their community, investing in a start-up is a good way to start.
Moreover, start-ups develop products and services that cater to the needs of general consumers (including your own). By investing in a start-up, you’re also supporting innovations and new discoveries in domains such as green tech, renewable energy, healthcare IT and others. This is what makes impact investments so important to society as a whole, not only to business, as it nurtures revolutionary ideas and helps them materialise.
High buy-out potential
Start-ups present great interest to large corporations or hedge funds. They usually buy out start-ups for two reasons: to eliminate competition - as they look at start-ups that might pose a threat when they mature and lastly, to capitalise on the pioneering technology and innovation that start-ups develop.
Instead of investing time and considerably more resources (human capital and funds) in research and development, large corporations find it more efficient to buy out a young business who’s already walked down the green mile of research, development, trial and error and has already found the winning solution. This brings us to the most important point.
If the start-up you’ve invested in sells at a hefty price, this automatically increases the value of the stock you own- if you decide to sell, that is.
These are only a few of the numerous reasons why we believe you should invest in a start-up business. However, do your research before you jump in at the deep end. First, make sure the start-up idea is viable and the founders are guided by a solid vision likely to attain market validation.