There are multiple online platforms out there supporting startups. Websites such as Younoodle.com have created an ample database of people wanting to invest in technological advance. But, is it really a good idea to invest in startups? Actually, there are compelling reasons why you should do it.
In this article, we are going to discuss a few. Now, consider that this is a relatively new asset class for investors, so many are dipping in instead of going in one foot, which is probably for the wiser.
The investment feels real
Investing in startups provides the opportunity, unlike essentially every other type of business, to feel real ownership in companies being invested. Investors can become a part of the company. Many times, they become advisors and provide important connections, among other things.
Investing in the future
Technological advances are moving forward at a really fast pace. But that is nothing new, of course. Investors get to fund the future. This is a promising sector where growth has been substantially higher than other markets.
It is relatively safe
Investing in startups seems to be a great option for those who have not been able to start their own company. Obviously, this would be ideal but then funding a startup is the next best thing. Now, it is important to note here that backing startups is not like investing in public stocks. There is a lot of risk involved. However, as explained before, given that the market has been so favorable to former entrepreneurs, the risk can only be associated to financial mistakes. Besides this, remember to follow the advice on not placing all of your eggs into one basket.
Pretty good asset returns
The asset class as a whole delivers pretty impressive asset returns. There is enormous potential for exponentially multiplying the investment. In 2012, for instance, according to the Thomson Reuters Venture Capital Research Index, U.S. angel investors had an average 2.6x return on their investments. Reuter has also reported a rebound on venture capital investments which suggest a substantial yearly increase.
The main discussion here is to increase portfolio efficiency while reducing volatility. This is done by placing a small percent of your portfolio into early stage investments. It is never wise to assign a large percentage, simply because it is not prudent. Investing in these young, private companies, say a 5%, could give a 12% increase in return. The reason for this is due to the low correlation of these companies with stock and bonds, or any other traditional asset class.
If you are willing to diversify your portfolio, you should be able to back up startups in small percentages. Getting solid business help is always recommended to guarantee educated decisions.