How to Invest in Startups
Most people think of startup investors as venture capitalists or other wealthy members of society funding the biggest tech companies. And while this is the case in some instances, there are many startups that are funded by a number of smaller investors. In fact, investing in startups as an individual is straightforward and quite common.
In this article, we discuss how “ordinary” people can invest in startups, how much you can invest, and what kind of investments you can make.
Startup Investment Platforms:
The most common way to invest as an individual is through a crowdfunding platform. The way it works is as follows: Startups apply to list their companies on various crowdfunding platforms for people to view. To make a long story short, if you like what you see, you can invest in the company.
We will discuss how much you can invest in each company in the next section, but first, here are four of the most popular crowdfunding platforms, according to Forbes Advisor:
How Much You Can Invest in Startups:
The crowdfunding platforms above have minimums and limits for how much you are allowed to invest in each company as an individual. While some platforms have minimums of $100, others make you spend at least $1,000 to buy in.
The government also regulates how much you are allowed to invest in companies. If you are not an accredited investor, you have 12-month investment limits depending on your net worth and annual income. I don’t want to list the exact requirements here, since they can change. So, if you are interested in becoming an investor, please visit the SEC’s Guidelines for Crowdfunding Investment to see how much you are allowed to invest.
What Kind of Investments Can You Make In a Startup?
When you invest, there are four main types of investments you can make, according to Forbes:
Debt: This is essentially a loan that collects interest. The startup collects your loan and then pays you back with interest over an agreed-upon timespan.
Convertible Notes: Convertible notes are like loans, but instead of paying you back in cash, they pay you back in stock once the startup has achieved certain milestones.
Stock: For later-stage startups, you can sometimes buy stock in the company. That being said, note that you cannot sell your shares until the company goes public or is bought out by another firm.
Dividends: Some startups allow investors to buy stocks that pay annual dividends as well.
About the Author -- Joshua Ferdman
Joshua Ferdman is a Los Angeles-based entrepreneur, specializing in technology, finance, and real estate. He started working in the mortgage business at the age of 16 and hasn't stopped since. Joshua always said that the most important job you can ever have is phone sales. He writes about entrepreneurship, leadership, and succeeding in the professional world.