5 Unique Characteristics of Startup to Consider Before Investing

5 Unique Characteristics of Startup

This article provides more information about startup investing and its characteristics. Moreover, it helps to understand how to get started startup funding as a part of your investment portfolio.

Every business starts as a startup and can grow becoming a large company like Google or Facebook. However, investors may be hesitant to invest in startups as they need to take high risks. 

What is a startup?

A startup is any new business starting. The following two principles differentiate startups from other small businesses:

  1. Startups usually grow very quickly. 
  2. Startups are designed to solve problems in novel ways.

First and foremost, you need to make sure that startup investing matches your goals. To know if this investing fits you, let’s take a quick look at startup characteristics:

  1. It can be both a high risk and a high reward investment. Startups cannot guarantee the future, and there is a likelihood that you will lose all your money. However, it also offers huge returns if you choose to invest in the next biggest company.
  2. Startups are usually good for long-term investment. You need to invest around at least 5-10 years before receiving any return. Indeed, if you invest regularly, you can see the returns more often as your portfolio builds up.
  3. Highly illiquid due to limited trading. Unless you find someone to buy your shares, or you have to wait until another big company buys it or starts to be traded publicly (IPO). 
  4. You should create a diversified portfolio: If you start investing in one startup, you should consider investing in other 10 to 20 startups over five years. Of course, it ensures to balance out the risks as many startups you have invested in may fail. Consequently, you can cover the losses of other stocks, diversifying your portfolio. 
  5. You must be ready for some capital requirements: Startups are long-term investments, the first 3-5 years, you will be investing without much return. Usually, many startups ask you to have minimal investment, not less than $5,000. Each year, you should set aside around $10,000. So, you may want to set aside approximately $50,000 over five years.

We got to know what a startup is and for whom startup investing suits. Finally, we will learn how to begin startup investing! Generally, depending on your time and risk acceptance, you may want to choose any of the below options when you want to get into startup investing.

Invest Through Crowdfunding Platforms

Any investor can easily invest in startup companies with a few hundred dollars on equity crowdfunding websites. Crowdfunding is a method of raising funds for startups by accumulating small investments of as little as $10 from a large number of people. SeedInvest and AngelList are among the sites used for equity crowdfunding. These sites help you understand how startup investing works and will teach you how to differentiate whether it is a promising startup or a lousy startup.

Find and invest in a startup yourself

You can create new relationships with people who have the same interest. Then you can try searching for startups in your local area. It gives you a chance to meet with startup companies directly and control your investments. However, the minimum investment amount might be higher, ranging from 20,000$-50,000$ 

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