The Rewards (and Possible Risks) of Investing in a Startup
As an investor, you may reach a point at which you’re no longer just looking to buy stocks from established companies. Instead, you might want to fund something new. Before you take that leap, though, you should be aware of the rewards and possible risks that come from investing in a startup.
Reward: Getting in on the Ground Floor
Perhaps the greatest reward of investing in a startup is the ability to get in on the ground floor of something special.
In fifteen or twenty years, you can tell your friends that you were there when the company was just a couple of guys with a computer.
In realistic terms, this also means that you’re ahead of the curve when it comes to picking out investments—something that’s going to be very beneficial going forward.
Risk: Backing the Wrong Horse
At the same time, you do run the risk of backing something that’s not only going to lead to a loss, but that’s going to tarnish your reputation as an investor.
Not every product can be the industry leading credit risk analysis technology that was promised, after all, and you may find yourself with quite a mess on your hands.
Instead of telling people that you were there when it all started, you’ll have to sheepishly admit that you were taken for a ride.
Reward: Potentially Big Payouts
Working with a start-up also gives you the potential of striking it rich.
Investing in the right start-up and in the right way could conceivably put you on the path of making millions off of the right investments—you only need to look at those who got Apple or Amazon stock early on to see how this could work.
While there are certain risks attached, the rewards can also be enormous.
Risk: Investing in Empty Promises
Finally, you must also understand that predatory start-ups exist just to get investments, never actually intending to turn a profit for the investors.
While not exactly legal, this isn’t something that’s going to help your financial situation and something that can absolutely cause you long-term issues. Investing with care is always a must, especially when you are dealing with an unproven start-up.
Investing in a startup has both its benefits and its drawbacks. When you do well, you can win big.
Losses are always possible, though, and you should protect yourself. If you are careful, you should be able to weight things in your favor.
Category: Business
