Risk & Return: Tips on Investing in Startups as a Millennial
The road to choosing my Finance major was a long and winding journey, but now that I've graduated college and have reached one destination, it's now time for me to fill up my gas tank and head down the road of building my brand and adulthood. It took me a long time to understand financial concepts and terms, and quite honestly I'm still learning the ropes of all things financial. My classes in school were challenging and since my family does not work in this field, I was really starting from the ground up. However, I know that going into business and being a part of the financial field is the right move for me, as I find it interesting and filled with a myriad of exciting opportunities.
I remember on the first day of my Investments class, my professor had us go around the room and list the stocks we follow/invest. I was one of the only students in the class who did not have an answer, and barely understood the question to begin with. I was under some assumption that only the extremely wealthy individuals of the world could invest. The thought never occurred to me that someone like me, in her 20s, could purchase a stake in a company. But the better question is, why not?
In that same year during my winter break I was able to travel to San Francisco. I had been to California a few times before and consider it my second home, but I had never been to the Silicon Valley area. It was an eye opening experience for me because I was able to visit various startups and law firms and met several innovative people who all play a key role in entrepreneurship. In that moment, it occurred to me that I could invest in startups. I could play a role in funding a new company that is placing a positive impact on the world and shaping the future. The only problem was that I had absolutely no idea how to get started.
Fast forward to now, where I am a few months into the post grad life which has been an interesting transition to say the least. It became habitual for me to check my Financial Times, Wall Street Journal and New York Times apps on my phone on the daily. I also started to read and subscribe to blogs that specifically discussed tech, startups and venture capital. I even have a 'word of the day' sent to me by Investopedia. All of this was helpful of course, but I wanted more. I wanted to begin to build my portfolio as an investor, not only to be more attractive to schools and employers, but also as a personal goal for myself and my brand.
One day, I randomly received an email about a company called Republic, which is essentially a funding portal that allows anyone over the age of 18 to invest in startups for as little as $10. All you have to do is create a profile, browse the companies who are trying to raise funds, pick one you like and start investing. Depending on how much you invest, the company will offer you perks in return for your investment. You will start earning money once the company you invested in is acquired or becomes public at a higher price than what you paid. The website is simple, easy to navigate and has all the information you need. You can even talk to other investors in an open forum and speak directly to the startup founders if you have any particular questions about the investment you made.
Republic is how I began investing in startups and if investing is new to you then I highly encourage you to check it out. I am definitely not an expert and still have a lot to learn, but along the way I have acquired a few tips when it comes to investing, specifically investing in early-stage startups, which is an extremely risky decision to make. It's risky because there is no guarantee that you will receive any returns on your investment, nor is there any assurance that the startup will achieve its goals and perform well. However, if you choose your investments wisely, then you'll be well on your way to becoming a successful investor.
1. Do your research.
Making the decision to invest in a startup is a process that should not be taken lightly. Be sure to do in depth due diligence on various companies before you decide to invest. Think of it as reading reviews on a product before you buy it. Invest in companies that you understand and that you believe will add value. In addition to researching the startup itself, take the appropriate protocols necessary to ensure that you are financially able to make your investment. Even if you invest as little as $10, it is essential to stay on top of your goals, both financial and non-financial, and be aware of how this investment may affect your future.
2. Diversify your portfolio.
This is a fancy way of saying don't put all your eggs in one basket. After you've done your research and found companies that you believe in, make investments across different industries (tech, retail, healthcare, etc.) and put your energy into those select companies that you feel have promise. I pick my friends like I pick my fruit, and I'd rather have 4 quarters than 100 pennies, but that's just me.
3. Expand your network.
Get on LinkedIn, listen to podcasts, travel, send emails, make phone calls, do whatever you need to do to expand your network with founders, investment bankers, venture capitalists and anyone else who plays a key role in the entrepreneurial space. Building your network will help you to learn more about the business of investing and how to do so successfully. Who knows, maybe one day you will be the issuer seeking funding instead of the investor. You never know where the connections you make will lead.
The truth is, there isn't really a rule of thumb when it comes to making startup investments. Just be sure to understand that by making this decision to invest, you are taking on risk. Also, it is important to take caution by not investing more than you can afford.
I would love to hear your experiences, tips and tricks when it comes to making investments. If you found this article interesting and helpful, I can make it into a series and keep you updated on how my particular investments are doing. Leave a comment and let me know!