Beginner's guide to investing via crowdfunding platforms
Why should you invest in early stage startups?
There are several benefits associated with investing in early stage startups such as high profit success, being part of the next big thing, contributing to the culture of innovation and supporting an idea you are truly passionate about.
What are you investing in?
Investing in startups via crowdfunding is about choosing high growth potential businesses. You provide them with the necessary capital in exchange for a portion of equity. If the business succeeds then the shares you own will be worth more than what you paid for them. However if the business fails then you will lose or all or some of your investment.
What are the main risks of investing in startups?
The three main risks when investing in early stage startups are:
1) Lose all your money
2) Your investment will likely be illiquid
3) Risk of dilution
Diversify to succeed
Diversification is the key to mitigating the risks above. In order to achieve strong returns, you need to invest in a few of the big winners.
The main way you can make money from your investments is by selling your shares in the businesses for more than you paid for them. You will not be able to sell them immediately as there is no active secondary market in private business. However if the startup is either sold or floats on the stock exchange then you will be able to sell your shares for a significant profit.