From the smallest needs of a consumer to the biggest ventures – an app exists for everything. A customer may use it to order groceries, check the weather, listen to songs, call a cab, plan their daily schedule – amongst other things that are made easy through these apps. Our lives revolve around them. But if one takes a moment to observe, what these apps are actually doing is solving necessary problems belonging to different market segments. And, before they became well-established, these apps used to be mere startups at one point.
As a startup, all they carried was an idea; one that could help to make their consumer’s lives a bit simpler. It’s clear that not only have these startups become part of their consumer’s lives while cashing in through their products and services but have also made it to the top list of companies.
Startups begin their journey as small ventures, working on developing their idea from scratch. Initially, they look for additional seed funding from investors such as venture capitalists and angel investors to build on their idea to make it into a giant company. This is the stage where investors and startups can both benefit themselves. Startup investment is a considerably better option for investment than stocks in the present-day and age.
Types of investment in startups
Here are some ways that one should definitely try if they are looking to invest in a startup:
Who are angel investors and what is angel investing? Angel investors are individuals and businesses who are looking for an opportunity to invest their money in the right place. They help startups to grow and contribute to the expansion of that particular brand. They look for profitability as well as security of their investment. The kind of investment that interests them is seed funding in a startup, as well as providing smaller amounts of finances to more companies as their aim is not to focus on just making profitable returns.
A convertible note is a short-term debt instrument that can later be converted into equity with the next round of financing. Convertible notes/bonds are a hybrid form of venture equity and debt. Convertible debt instruments allow startup companies to quickly be able to earn their own capital through seed funding. In this type of investment, the investor loans money to the company without arriving at a valuation figure. There is a settlement based on the fact that the convertible bonds would typically convert into equity in the future when the startup has raised its next round of funding.
With debt financing, the borrowers agree to take a sum amount on loan from the issuer, with the condition that the funds borrowed will be returned at a specified time with interest. Those that are providing money to the startup are rewarded in return with additional interest on their funds, although they don’t carry any authority such as equity owners. Knowing the fact that there are high risks of failures in the early stages of a startup, investors may choose to secure their debt investment. In secured debt financing, the borrower will attach a valuable asset in exchange for the funds.
When people think of investing, equity financing is the first thing that comes to their mind. The process of equity financing involves investing in a startup in exchange for a share of their business, which will be under ownership. Equity involves a permanent investment in a company. Equity financing allows the investor to share in the company’s profits. The investment should be properly documented in a formally maintained business identity. Startups may even design the stocks in such a manner that controls the authority to vote amongst different shareholders. For instance, a common shareholder carries the authority to vote while a preferred shareholder doesn’t.
Venture Capital Financing
In Venture Capital Financing, the startups that are financed by individuals and businesses have started selling their products and have started making some profit. They can provide the necessary guidance that any startup needs. Usually, investment firms are focused on building their investment portfolio through venture capital financing.
Initial Public Offering
This is the first time when a startup raises money by directly selling its shares to the public. It’s where private firms and startups go ‘public’. Anyone can buy shares directly from the startup and become shareholders. A startup with a strong foundation has better chances of growing well. Also, you get the share price of a startup at a much lower price. There is a reason why IPOs are seen as a big event for investors. If you invest in the right startup, chances are you’ll earn good returns. The only trick here is to identify a startup with strong and consistent performance.
Now that you’ve learned about ways to invest in a startup, here’s another guide to help you in case you’re new to investing and want to learn further – top 10 ways in which you can start investing. And, if you are ready to invest in Artificial Technology companies startups, visit our guide.