There has been a lot of talk in recent years about investing in startups. A number of high-profile startup company success stories may have made it seem that putting money into a startup is a surefire way to get a return on your investments.
However, for every successful startup, the are a number that fail, taking down investors as well as the company itself. This does not mean that startups are a poor investment; however, it does indicate that they generally work best as part of a diversified portfolio.
These are four of the advantages of including startups in you investment portfolio.
1. Winning Startups Are Profitable
Not every startup can turn the profits of Facebook, Uber, Twitter, or other successful outliers. However, this does not mean that investing in a successful startup is as unlikely as winning the lottery either. Choosing startups to invest in takes a little savvy and an eye for upcoming trends, but with a little practice many investors can get quite good at spotting winners. Look for a startup that fills an unfilled niche or answers a question that seems to be on many people’s minds. Remember that a great idea isn’t everything, though, so also make sure the startup founders seem competent and have a clear business model and plans for the future of the company.
2. Startups Are Rewarding
Since startups can be founded by practically anyone, investing in them allows you to support the companies created by friends or family members. Even if you don’t know someone who is starting a company you would feel comfortable getting behind, you still have the ability to invest in companies that you feel passionate about. This allows you to build a personal connection to the items in your portfolio and help deserving people realize their dreams.
3. Investments in Startups Can Be Crowdsourced
You don’t have to support a new startup all on your own. Startups often draw from a number of different donors, which is a great way to find out if your own investing instincts are good. Follow the crowd and choose a startup with a lot of positive buzz behind it to ensure that you are making the best possible investment.
4. Startups Create Jobs and Drive the Economy
Startup companies create a lot of new jobs for people in a variety of industries. By getting them off the ground you are helping not only the business owners but also the programmers, designers, and other employees who are needed to make the startup run.
Remember to your research before choosing a startup to invest in, and don’t neglect other sources of income, such as stocks, mutual funds, and possibly even more diverse investments like Manhattan real estate opportunities, for your portfolio.
Image Credit: Philippe Lewicki