3 ways to invest in startups: find out how
Startups are a new investment destination because they generate promising ROI. A business that fails is a business that doesn’t make a profit no matter how many customers it has. But, if it is a startup and has a lot of support from potential clients, it could be a good destination for investments.
One thing to understand about startups. A startup does not necessarily prioritize profit because it is in its initial phase of building the business. Startups, without making a profit, operate when an established business might not be able to. Most startups focus on the “broad growth” strategy. In fact, many startups are bought out or go public years later without ever making a profit. Whereas this strategy of “growing” is not achievable for self-funded businesses unless they produce enough money to keep growing.
Do you want to invest in startups but don’t know how to go about it? If you are an individual investor or want to be an investor and looking for ways to invest in startups but don’t know how? It is best to have a good knowledge of startups and their work culture if you want to invest in startups.
There are 3 ways to invest in startups and become a minor or major promoter in the business / startup. These 3 ways are:
The private placement of substantial blocks of shares before the share is listed on a public market is known as a pre-IPO placement. Under this method, investors and traders buy and sell shares of companies before they are listed on a stock exchange. The actions offered to you are purchased from employees via ESOPs.
If you are a professional and don’t have enough investments before the IPO, you still become a startup investor. You can safely work in a startup where they issue ESOPs, and you believe in the vision and the founders of the company. There are a number of startups that pay ESOPs as part of their employees’ salaries.
Pre-IPO funds are slightly different from pre-IPO investing, as the name suggests, it is a fund. In pre-IPO funds, the investor invests in companies in an advanced stage of development which plan to go public soon. These funds often invest in private companies with a proven business plan and good fundamentals that have already secured funding from private investors. According to this method, several funds are offered by several wealth management companies such as Edelweiss Wealth Management and Trifecta Capital which invest in upcoming IPOs. Do some research on how to invest in a pre-IPO fund?
Private placements are widely used by people who are aware of the risks and rewards of investing. Private placements allow the issuer to sell a more complicated instrument to qualified investors. In private placement, instead of selling stocks or bonds in the open market, private placement sells stocks or bonds to pre-selected people and institutions. For a business seeking financing for its expansion, this is an alternative to an IPO.
You can approach a Broker, a professional Wealth manager, or one Investment banker to complete the private placement. All of this can help you analyze and value an unlisted company, and connect with its promoters who own a portion of the shares.
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Article first published: Friday, December 24, 2021, 2:58 PM [IST]