Startup!! This is one of the biggest developments in the business world since the great industrial revolution. There has been a lot of buzz around Startups in the last decade alone, and every investor is looking to add the Startups to their portfolio. We, like you, have been curious about what is so special about startups that every investor is after them? Today, we have listed down a few points why Startups are so attractive to investors.
1. Investing early for a greater reward
At a nascent stage, the startup has fewer overhead expenses and the valuation is generally below intrinsic value. Disruptive startups have huge growth potential with their product offering. For investors investing in the early stage or pre-seed round is very beneficial, as they get good value in terms of equity in the startup for a very nominal price. Once the startup grows to its full potential and has a huge customer base, the investors exit the investment with a huge reward return.
For instance, Peter Theil had invested a mere $500,000 in Facebook for 10% equity at a valuation of $5 Million in 2004, when Facebook was just a small company limited to college campuses. It is estimated that Peter made more than $1 Billion from selling Facebook equity after the Facebook IPO in 2012.
2. Diversification of Portfolio
Diversification of investment is one of the full-proof strategies for hedging the portfolio. Portfolio diversification means spreading your investments into different asset categories. Thereby reducing the financial risks substantially.
Investments in startups are substantially different from traditional assets, bonds, and stocks. Additionally, unlike stocks and bonds, startups are less prone to market fluctuations. Therefore, this type of investment helps mitigate financial risks by diversifying your portfolio.
3. Impact of Investment
Some investors have diverse goals than just booking profits. Some investors are looking for startups that have significant environmental, social and economic impacts. By investing in Startups with diverse backgrounds, investors are able to generate employment in that particular region or with Environmentally focused startups help to decrease carbon footprints or find alternatives to pollution-causing products.
Some startups can be so impactful, that they altogether create a new category of products and help Investors save the earth by just being a portfolio investor in them.
4. Access to technology/patents before available in the open market
Startups with disruptive technology or unique patents are attractive to investors who have significant investments in a similar industry. By Acquiring decent equity in the startup, the investor gets access to the technology that they can use in their current organization to enrich their product offering. This way the Investor can increase can add value to its own organization and bring in additional revenue for the startup by licensing its technology. Thereby increasing the valuation of the startup.
5. Past success story of the Entrepreneur
This reason is purely based on the human psyche, many investors are attracted to a startup because of the past success of the Entrepreneur. A Serial Entrepreneur attracts more investors to their current startup if his old venture has been able to generate rewards in quantum for the investors.
To conclude, the investors are attracted to any startup with a long-term vision to either increase their investment by 10X or have a social impact, or to acquire technology to increase their portfolio value.
About Bestvantage investments
Bestvantage investments is an investment platform that offers one stop solution to all Startups investment needs by offering investors an opportunity to invest in verified startups that are poised to be the unicorns of tomorrow. Visit https://www.bestvantageinvestments.com/ for more such startups.