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3 Ways You Can Invest In Startups: Check Out How
Startups are a new investment destination as they generate a promising return on investments. A failed business is one that does not make a profit, regardless of how many clients it has. But, if it is a startup and has significant backing with potential customers then it might be a good destination for investments.
One thing that needs to be understood about the startups. A startup does not necessarily put profit first as they are in their initial phase of establishing the business. Startups, without making profit runs while an established business might not able to do this. Most startups focus on "grow large" strategy. In fact, many startups are purchased or go public years later without ever making a profit. Whereas, this "grow large" strategy isn't feasible for self-funded businesses unless they're producing enough money to keep growing.
Wish to invest in startups but have no idea how you can? If you are an individual investor or want to be an investor and looking for ways to invest in startups but have no idea how? It's better to have a decent knowledge about the startups and their work culture if you wish to invest in startups.
There are 3 ways you can invest in startups and become a minor or major promoter in the company/startup. These 3 ways are as follows:
Pre-IPO Investment
Private placement of substantial blocks of shares before the stock is listed on a public market is known as a pre-IPO Placement. Under this method, investors and traders buy and sell shares of companies before they get listed on the stock exchange. The shares offered to you are bought from employees through ESOPs.
If you are a professional and don't have enough to go Pre-IPO investment, you still become a startups investor. You can without taking a lot of risk-work at a startup where they issue ESOP (Employee Stock Ownership Plan), and you believe in the company's vision and founders. There are a number of startups that pay ESOPs as part of the salary to their employees.
Pre-IPO Funds
Pre-IPO funds are slightly different from the Pre-IPO placement as the name suggests, its a Fund. In the pre-IPO funds, Investor invest in late-stage firms that are planning to go public soon. These funds often invest in private firms with a proven business plan and good fundamentals that have already obtained funding from private investors. Under this method, multiple funds are offered by several wealth management companies like Edelweiss Wealth Management and Trifecta Capital which invest in upcoming IPOs. Do research on how to invest in Pre-IPO Fund?
Private Placements
Private placements are widely utilized by individuals who are aware of the risks and rewards involved in the investment. Private placements allow the issuer to sell a more complicated instrument to accredited investors. In Private placement, instead of selling stock or bonds on the open market, a private placement sells stock or bonds to pre-selected individuals and institutions. For a firm seeking funding for expansion, it is an alternative to an IPO.
You can approach a Broker, a professional Wealth Manager, or an Investment Banker to conduct the private placement. These all can help you analyze and value an unlisted company, and connect with its promoters who hold a portion of the shares.
