If you're looking for a way to make your savings work for you, you might be considering investing in startups. Startups are specifically designed for rapid growth and can be a great option for investing your money.
But do you know the advantages and risks of investing in startups, and how to get started?
Don't worry, because in this article, we'll explain everything you need to know to start investing.
While people often confuse them with SMEs, the truth is that the business model of startups is different from that of traditional small businesses.
Briefly, we can say that startups are small businesses with innovative business models based on the use of new technologies and geared towards exponential growth, much greater than that of a traditional company.
Most SMEs aim for, at best, 10% annual growth, whereas startups aim for their business volume to double, triple, or quintuple in months.
The main characteristics of startups are the following:
Before you start investing in startups, it's also good to know that while they all share some basic characteristics, there are different types of startups.
Depending on the product or service they commercialize, we can talk about, among others:
All of these are scalable startups with very ambitious growth objectives, which makes them perfect for anyone willing to take on the risk of investing in startups.
There is also a second type of startup, social startups, which aim to offer a quality service or product to a large number of consumers.
They can be non-profit organizations or simply aim for a certain level of social responsibility in business. These startups are not a good investment if the goal is to make a lot of money, but they are a good option for investors with a social vision.
A third type of startup is "acquirable" startups, meaning those that only reach the idea phase. Some entrepreneurs have great ideas but don't want to or can't develop them themselves, so they turn their ideas into a source of income.
Finally, it's worth distinguishing between primary startups, which are businesses developed by their originators, and secondary startups, which function as "subcontractors" or idea labs for the primary ones.
Investing in startups means injecting capital into a company even before it generates any profit. This is why business angels and other potential investors don't always have data available to analyze the risks they are exposed to.
However, in return, the investment opportunities and potential returns are very high. The main advantages of investing in startups include:
Among those who invest in startups, the business angel is one of the most common profiles.
These are individuals who typically have some business experience and act as mentors for small business owners, especially startups.
The system involves the angel investing a specific amount in exchange for a certain level of management control. In other words, the business angel does not lend money, but rather acquires a portion of the company, such as shares or equity.
This is a mutually beneficial relationship because the business angel can provide knowledge, advice, or even contacts in addition to money, which improves the chances of success and, consequently, profits.
Now that we know what startups are like and what they offer to potential investors, let's list the steps to follow for investing in startups.
We've already seen that investing in startups can be very beneficial, but it also carries some risks, the most significant of which is their high failure rate.
In fact, it's estimated that only 40% of them survive beyond 6 months, and only 1% succeed with their product.
The reasons for this high failure rate are numerous, as shown in the following chart, although the most important one is creating products for which there is no demand.
The 10 most common reasons for startup failure (based on the stories of 101 companies that closed their doors)
Once you are sure you want to invest in a startup, you need to choose which one to trust.
It's important to thoroughly understand the company, the people running it, and its future potential. The best approach is to follow these steps:
A startup needs to offer an innovative solution to an existing problem, addressing a market demand, but that alone isn't enough for success.
Its solution also needs to be better, more innovative, or cheaper than what its competitors can offer at the same time or shortly thereafter.
The startup market evolves rapidly, and what might seem revolutionary today could be commonplace in months, or even weeks. That's why it's also important to understand the competition before investing in a startup.
For any investment, you must be very clear about what you will invest and under what conditions, including your involvement in business decisions and your percentage of profits.
Diversify your investment and be realistic about your expectations. You should always evaluate ****future potential**** to be realistic about what can be expected in terms of growth.
Startups either grow rapidly or fail; you must be prepared for both possibilities.
Work with the Startup
As mentioned earlier, some investors require a degree of control over the business in exchange for their investment. This will allow you to apply your knowledge and experience and help the startup get off the ground.
Ultimately, it's important to seek the best training to invest in startups with the greatest confidence. And one way to gradually educate yourself without overspending is to follow the careers of the country's top investors.
That's why, below is a list of five Spanish business angels you can observe to learn from:
In short, investing in startups can be a great option for you if you want your money to generate returns quickly, but it also carries high risk. That's why any options that facilitate the investment process and guarantee returns are welcome.
One of those options is Domoblock, a proptech dedicated to real estate investment with tokenized properties based on blockchain technology that offers investors the possibility to invest small amounts (collaborative investment) in real estate projects through the real estate crowdfunding.
Ultimately, it's a simple way to start investing with low risk in real estate, without needing significant capital, and in a 100% passive manner (the investor is not involved in any management).
In conclusion, investing in startups can be an exciting and potentially profitable opportunity, but it also carries significant risks. It's important to conduct thorough research before investing in any startup and carefully consider the risk factors and potential rewards. Furthermore, it's crucial to remember that most startups fail, so it's important to diversify your investment portfolio and not rely entirely on a single investment. If you decide to invest in startups, be sure to work with a professional financial advisor who has experience in this type of investment and can help you make informed and strategic decisions.
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Funded
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Target
598.506,15 €
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