Seven years ago, Congress legalized startup investing for everyday Americans.
But many investors weren't even aware it happened.
Fortunately, Money Morning can show you how to invest in startups successfully.
For most of the market's lifespan, startup investing was exclusive to Wall Street and Silicon Valley.
If you didn't have a spare $50,000 in cash, you couldn't even think about startup investing.
But that changed for the better once Congress passed the JOBS Act in 2012.
One specific clause called Title III enabled 240 million Americans to begin investing in startups.
So, anyone that's 18 years old or older can lock in a ground-floor opportunity.
In fact, you don't need to be a Silicon Valley millionaire to invest in startups anymore. All you need is $50 and the right network.
And folks who don't know about it are missing out on one of the most lucrative opportunities to generate wealth ever.
That's exactly why we've created an investment strategy to help everyday people have a chance at generating life-changing windfalls through startup investing.
And you can see exactly how to invest in startups in a minute. First, we're going to take a look at what a startup investor is, the risks and rewards, and questions to ask before investing in a startup.
What Is a Startup Investor?
To put it simply, startup investors are those that invest in firms before they trade publicly on the market.
Every startup needs seed money to get off the ground. So, startup investors offer an investment for a stake in the firm.
So if a company takes off, startup investors own a part of it before it starts trading publicly. And in most cases, they're greatly rewarded for the investment once it does go public.
Startup investors typically receive preferred stock and convertible bonds over common stock.
And what's great about startup investing is that you can do it yourself and put your money into firms that really capture your interest.
But startup investing does offer both risk and reward. Fortunately, the reward can be much greater.
What Are the Risks and Rewards of Startup Investing?
Because startups are very small companies, they're riskier than investing in publicly traded companies. And startup investing, in general, is a speculative play.
Not every startup will be successful. In fact, many will be losers. But all it takes is one great startup to take off for you to score big.
So, in exchange for the risk, the rewards are potentially much higher.
And we'll show you how you can capture big returns in a second.
But company size isn't the only risk. There's also the chance of share dilution.
Dilution can happen when a startup releases new shares prior to going public. Newly issued shares can lower the value of your startup investment.
Fortunately, with the right strategy, you can protect yourself from startup investing risks. Check out our expert information, below...
How to Invest in Startups Successfully
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Before you commit your money, it's important to have questions to ask before investing in a startup. Some questions might include:
- Do the founders know their advantage, market size/potential, risks, and competitors?
- What problem are they solving?
- Is the business plan well-crafted, and does it have realistic financials and a path to profitability?
- Is the company's valuation accurate and realistic to the market and what it can do?
- What would your share rights be if you invest and new shares are distributed down the line?
And these questions are just a good starting point for investors. Once you go through the motions and decide to invest in startups, you'll get to see how much the rewards can outweigh the risks.
To do that, you'll need to know how to invest in startups.
At Money Morning, we suggest using the 50-40-10 investment strategy. With 50-40-10, you're putting 50% into defensive stocks, 40% into growth stocks, and 10% for speculative plays.
And startup investing falls in that 10%. But really, startup investing should only consist of money you can afford to lose.
With safe stock picks, you can typically expect returns of 10% a year. But what makes startup investing exciting is the fact that you could see returns of 1,000% or higher.
Savvy investors that follow this portfolio model also know it's important to invest in many startups rather than one or two. This way, if you invest in 10 startups, nine could fail, and you could still see a windfall of returns.
Beyond that, it's good to have an exit point in mind.
Startup investing gains only exist on paper until you decide to sell. While you may want to watch shares grow indefinitely, it's better to have an exit point.
So, establish a time for when you'll sell at least some, if not all, of your shares. For many startup investors, the exit point is if the company launches its IPO. But other exit points typically include buyouts and mergers as well.
Now you know how to invest in startups successfully.
But there's still one big question: What's a good source to help you find the right startup companies?
We've got you covered. Check out how our startup investing network could help you find the best startups out there, step by step...
Anyone Can Invest in Startups Successfully with Just $50 and the Right Network
By now, you've probably heard about the billions of dollars the startup investors in Amazon.com Inc. (NASDAQ: AMZN) have made. If they were one of the original 22 from 1995, their shares are now worth $8.5 billion each.
The lesson here is pretty clear: The sooner you invest in the right startups, the bigger windfalls you could see.
Startup investors that claim their stake before a company goes public have a long history of generating life-changing returns that you just won't see with IPOs or traditional stocks.
And now, everyday folks could be in a prime position to profit from this lucrative opportunity.
Shark Tank's Robert Herjavec is helping everyday people lock in a ground-floor opportunity for as little as $50. You can stake your claim here.
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About the Author
Daniel Smoot is a Baltimore-based editor who helps everyday investors with stock recommendations and analysis. He regularly writes about initial public offerings, technology, and more. He earned a Bachelor's degree from Towson University.