A start-up is a new business venture with innovative ideas and has just initiated the process of product development and market research. If turned out to be successful, the profit potential from investing in these businesses is very high. However the possibility of high returns is accompanied with high risk factors. Every 9 out of 10 start-ups are failures and the investors end up losing all their money.
Ways to Invest in a Start-Up
Investment in a start-up fund is usually done in five stages and provides you with five methods of investing in a start-up.
Seed Capital
As the name suggest, this is the first investment in the business and usually consists of founder’s personal savings or borrowed funds from friend, family, and acquaintances. Seed capital can be borrowed in exchange of stakes in the business. So, do you have a friend with an awesome business idea? If yes, then this is your chance to invest in his start-up.
Angel Investor
These are the affluent people who invest in the business at an early stage in exchange of the convertible debt or equity stakes. Often a number of Angel Investors come together with their respective expertise to form Angel Network or Angel Groups. These investors are usually retired or current executives with their own ample field expertise and hence provide managerial, operational or technical guidance to the team.
Venture Capital Funds
Venture Capital (VC) funding is done in three rounds; Series A, Series B, and Series C.
- Series A is the first institutional funding in a start-up and is based on management’s efficiency and utilization of seed capital.
- Series B is larger financing than the Series A and is done when the revenue streams for the product are taking shape. Series B funding aims at operational development and developing a steady revenue flow.
- Series C mainly focuses mainly on the financial health and stability of the company.
Now a days many VC platforms, like seedfund, yournest and vccedge are available which offer an opportunity to the individual to invest in start-ups through a venture capital fund. Under VS, the investment is often done against preference stocks
Mezzanine Financing and Bridge Loans
Mezzanine Financing and Bridge Loans - As the name suggest this type of financing forms a bridge before the Initial Public Offering (IPO) and the time period is usually limited to 6 to 12 months. The proceeds from the IPO are used to pay back the investors.
IPO (Initial Public Offering)
An IPO is the process of raising money through selling stock to the public. After an IPO, the stocks of the company is traded in stock exchanges and this stage is the final and the exit strategy for the investors.
Investing in start-ups is inherently very risky. Only as much capital should be invested as one can afford to lose without it impacting the overall financial strength. Also these are not liquid investments and can take three years or more to exit the venture and earn returns.
Recommended Read :
- How to Get a Bridge Loan?
- How to Source Fund for a Start Up Business?
- Top Fundraising Ideas for Entrepreneurs
- Bridge Loan Start Ventures
- What is Venture Capital?
- Pros and Cons of Venture Debt
- What is Vendor Financing?
- What is Peer to Peer Lending?
- What is Crowdfunding?
- Crowdfunding Vs Peer to Peer Lending
- How to Get Venture Capital Funds for Start Ups?
- Raising Fund From Family and Friends for Start Up Venture
- How to Secure a Micro Loan for Start Up Business?
- Angel Investor vs Venture Capital vs Private Equity
Hi, I am interested in start up investment. I read lot of articles around the web about start up investment but i can’t find a clear solution. This article has given a good solution for me. After reading this article Seed Capital is good for me. Using this method, we can borrowed from our friends or relatives. So i choose this. Angel Investor have some difficulties. Because of their build the network even we don’t who will come.Venture Capital Funds also nice to invest.
Everyone dreams to have their own businesses and be their own boss. This article gives a good overview about how to go around a start-up. Seed capital is indeed the best option for initial stages where the once who invest are your close acquaintances and also are good motivators. Besides one can also look out for Various Government policies which are specifically designed for start-ups (thanks to the ‘Make in India’ movement.
START-UP- a term most commonly used these days. Success of many start-ups have geared up the flourishment of more and have given the people courage to invest in their ideas and forming their own business. After reading the article i came to a conclusion that seed capital is a good and a safe option for investing for the start-ups in the beginning times.
In the current trend where entrepreneurship is gaining more fame, it is a good way to start investing in startup companies. This article is useful for both investors and entrepreneurs who are looking to fund organizations and raise funds to begin a new venture respectively. I am sure entrepreneurs can look for the best type of investors for their company and plan the stakeholders of the company effectively
Everybody dream about having their own business but we have to be realistic that not all people have the right qualities to work by them self or be someone else’s boss, that’s why we need to think about it carefully because we’re talking about investment and a new refreshing start-up idea. You have to be 100% sure of what you’re about to do because you can lose all your money.
If you have some savings and you don’t know what to do with the money, investing is a start-up is not a bad idea entirely. As any other investment, it has some risks but also a lot of advantages as keep your money growing, remember to study the market first before invest your money in a business.