Before you part with your hard-earned money, it makes sense to learn how to invest in startups. While all types of investment come with risks, a startup investment can be especially tricky. New companies don’t always make it, and you could lose your entire investment.
For companies that do pull through, though, the return on investment could be very high. Imagine investing in Amazon, Microsoft, or Apple when they first started.
While investing in startups is not for the faint of heart, it’s a great option for those looking to diversify their portfolio.
Benefits of investing in startups
Overall portfolio diversification
If you’re already investing in stocks and bonds, adding venture and private equity investments is a great way to diversify. Because investing in a startup is risky, experts recommend only making it a very small part of your overall portfolio. Numbers recommended vary between 2 and 10 per cent of your overall investment strategy. This allows for a more efficient portfolio, reduces volatility and provides long-term growth options.
Startup investing allows you to back projects you believe in. You can choose anything from rapidly growing tech companies to companies that are chasing a positive social or environmental change. Such investment offers a unique chance to be part of something new and different without a major investment on your side.
Perks and benefits
When you invest in a startup, you usually get shares and equity in the business. As a company grows, shares increase in value and so does your investment. Many startups also offer additional benefits to investors – from special discounts for their products to VIP access to new developments.
Low investment limits
Startup investing usually has low thresholds, so investors can find opportunities no matter how little money they have available.
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The UK government offers two tax incentive schemes for investors who support early-stage businesses. While not every startup qualifies, the ones that do could provide 30-50 per cent of the value of the investment in tax relief or up to up to 50 per cent capital gains tax relief.
How to invest in startups and where to find them
The easiest way to invest in startups is via venture investing platforms. Investing this way provides safety, as all transactions are handled directly through the platform. Using a platform also presents you with multiple investment opportunities in one place, so you can easily build a portfolio and buy/sell shares.
Here are some of the most popular venture investment platforms currently available:
One of Europe’s largest crowdfunding investing platforms, Seedrs allows you to start with investments as low as £10. Plus, they offer selected investment opportunities in different areas (tech, health, food and drinks, and more) and no charge for investing or maintaining your account. Seedrs also has a secondary market where you can sell your shares to other investors at any time.
CrowdCube has been around since 2011 and has helped some very successful companies crowdfund through them – including Monzo, Revolut and Freetrade. Investments start as low as £10.
Startup Funding Club
SFC is an award-winning investment fund manager and one of the most active seed investment platforms in the UK. Although they offer investment opportunities in all areas, they particularly focus on early-stage digital startups.
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