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5 FAQs About Startup Investments

Mihir Gandhi

Investing in startup businesses can be risky. Nine out of 10 new businesses fail, and many investors lose their money. However, there are still many reasons why this type of investment is worthwhile for both the entrepreneur and the investor. When considering the option of investing in a startup, there are many questions that potential investors ask. The most common of these are:

Why Should I Invest in a Startup?

Startup investing is risky and expected returns on investment can’t really be accurately calculated. However, fortune favors the brave, and if you understand and accept the risks, you stand the chance of making high returns. The benefit of diversification, of having alternative assets in a stock-heavy portfolio can’t be ignored. Some studies have shown that by allocating just 5% of your investment capital to private placements and the rest to stocks and bonds, you can expect up to 12% higher returns than by investing in stocks and bonds alone.

What is Crowdfunding?

Crowdfunding is a groundbreaking new opportunity that allows pretty much anyone (with some restrictions) to become an investor in a new business. In equity-based crowdfunding, investors receive shares in the business in return for monetary investment (from as little as $1000).

Are Startups Safe Investments?

No one can predict with any great degree of certainty which startups will succeed and which will fail. The important rule is to never invest more money than you can afford to lose. Even if the business does work, you won’t see an immediate return as all profits will be reinvested. Investing smaller amounts in many businesses is safer than a lump sum in one company.

Does the Startup Need Investment to Survive?

In some cases, “friends and family money” has gotten the startup off the ground, and capital is now needed for growth and expansion. If a business is already a proven concern, it’s a safer investment than a brand new startup.

What Kind of Exit Strategy Should I be Looking For?

You need to know what your likely exit, or disinvestment from the business will be. Is the startup likely to go the merger or acquisition route, or is an initial public offering a possibility in the future. Have a good idea of how you’re going to get your money out and buckle up for a fun ride.

For more information on how to become an accredited investor for a startup business, visit .