Three Myths About Investing In Startups

Posted on: 16 June 2016

Sound investing can be an excellent way of growing your money and net worth. Unfortunately, there are many people that may not have much experience when it comes to investing, and as a result, they may not be very informed about the various options that are available. While stocks and bonds can be common investment options, startups can also represent an excellent option for investing. However, if you have limited experience with investing in startup companies, you may need to have a few myths about this type of investing dispelled.

Myth: You Must Be Rich To Invest In Startups

There is a particularly common notion that investing in startups is only for the wealthy. While it is true that some startups will require a relatively large amount of capital for an investor to purchase a stake in the company, it is also possible for smaller investors to utilize this option. This is possible through the use of crowd financing. When using this option, your investment will be pooled with other small investors, and the profits from the startup will be divided among this pool of stakeholders.

Myth: You Should Only Base Your Decision To Invest On The Quality Of The Company's Product

When evaluating a possible startup for investment, it can be easy to be exclusively focused on the product of the company. While the quality of the company's product is a critical factor in determining whether the company will succeed, this is far from the only factor that will determine the success of the startup. For example, you will also need to research the history of the management team. While past performance may not indicate future results, choosing to invest in a company that is led by experience management may be better able to respond to the challenges that startup enterprises must face.

Myth: Investing In Startups Is Too Risky

There is a common misconception that investing in a startup will be far too risky. While it is true that a startup can be a risky investment, the same can be said for any type of investing that you do. Rather, the key to success to is to balance the high-risk investments with safer options. For those that are inexperienced with balancing these risks, there are professional investment advisors that can help you to create a strategy that incorporates investing in startups with safer options to help you keep your risk profile at manageable levels.