Is It Risky To Invest In Startups?

Is It Risky To Invest In Startups

Investing in startups is not for everyone. It has the potential to be one of the most stressful and riskiest investment prospects, due to the high rate of failure for startups.

Startup investing is hard because unlike gold it involves more than just tracking gold price today in Odisha or Kolkata and asking your broker to buy it.

The rate of failure for startups is very high, and it’s often hard to tell the difference between a certified flop and one that might succeed. It takes time to figure out how to invest in startups.

Even experienced investors go through a period when most of the startups they fund fail. Despite this, investing in startups can reward investors with multiples of their initial investments.

There are a few different ways to invest in startups. One way is to invest via angel investing platforms that focus on startups. You’ll generally need a fixed minimum amount to sign up for these platforms.

Alternatively, you can invest directly into startups through a variety of channels. You might prefer this option if you want to see the business before you invest or have more questions about the company’s potential.

Look At Some Pros And Cons To Help You If Startup Investing: 

1. Get in contact with what’s latest and best: 

When you invest in startups, you get access to startups, which means access to some brilliant minds who are working to solve some big problems that matter.

You get to learn from them and you can leverage their knowledge in your own business or career.

2. Possibility of great returns: 

Going by the statistics, the probability of a startup making it big is extremely low. However, if it does, the return on investment can be humongous.

If you invest in an ordinary stock or bond, there’s usually no way to get back more than 100 times your original investment.

If your startup fails and goes to zero (which is what happens to most of them), you lose everything. But if your startup succeeds, you might make 100 times as much as everyone else who invested.

3. Save on taxes:

Investing in startups can be a great way to gain significant returns and help you on the path to early retirement.

When you invest in startups and new businesses depending on the industry and the place you may be entitled to gain considerable tax advantages.

This can be particularly attractive for those looking for higher returns but willing to take more risks.

4. Your opinion will have more weight:

The conventional model for investing in startups is to give them money in return for ownership. Ownership percentage varies from startup to startup, but it can go as high as 90%.

That’s a huge amount of control for an investor to have; you would never get anything like that from publicly traded companies.

Hence it is nothing like investing in gold where you just keep tracking gold prices today in Kanpur or any other city and feel like an outsider waiting for the wind to be in your favor.

With startups, if you are invested in them you can actually bring changes to the system.

However, there are disadvantages of investing in startups that you should know, especially if you want to invest in early-stage startups.

The chances of startup success are very low. For every Google or Amazon, there are hundreds of failures. This is especially true for early-stage startups where there is a massive amount of risk involved.

To make matters worse, many investors do not do adequate due diligence and end up investing in startups that are not ready to be funded.

Such mistakes by investors can lead to a high failure rate for startups and poor returns on investment for investors.

The risk of failure does decrease as the startup matures and has more traction with customers and revenue, but even later-stage companies have a good chance of failing.

A well-performing later-stage startup still has the risk that it might not be able to get the desired exit, resulting in mediocre returns for investors.

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