Savers who star investing in companies can maximize their capital while supporting the business projects of the people around them
With a market capitalization of more than three trillion US dollars, Apple’s market value has already doubled Spain’s GDP. A small (or large) sample of the benefits of investing in companies.
Not everyone wants to inject capital in the early stages of a company when it is still in the process of birth or stabilization. However, if you wait long enough and the firm eventually succeeds, the returns to the savers who supported it in its early days can be very substantial.
Let us return to the example of the Californian technology company. Its share price has increased by more than 900% in the last decade. Who would not want to have invested then?
Of course, it must be stressed that the bitten apple brand is one in a million. For every success story, hundreds of thousands of businesses fall by the wayside or never get off the ground. Many factors play a role in tipping the balance one way or the other: market acceptance, management management’s stewardship, the socio-economic environment… and even luck.
This is where the investor’s expertise and intuition come into play: before investing in companies, they must be able to glimpse their potential. Patience is also important, as companies do not usually explode overnight. They must be given enough time to establish themselves and grow since investing in companies is generally a journey of ups and downs.
Investing in large companies… and small companies
Generally, when discussing investing in companies, most people think of large multinationals. IPOs, shareholder meetings and meetings of suit-clad executives. These firms offer extremely attractive investment opportunities, but a world exists beyond them. And sometimes the conditions are better.
Let’s take a look at the Spanish business fabric. Small and medium-sized companies in our country account for more than 99% of the total. That is to say, practically all organizations have fewer than 250 employees, an annual turnover of less than 50 million euros or an annual balance sheet total of less than 43 million euros.
Often, these firms offer more advantageous conditions than the market giants. But the benefits of investing in companies of this size are not only economic. Investing in SMEs boosts the local business fabric, supporting the projects of people around us: friends, neighbors, relatives, acquaintances…
Investing in small and medium-sized companies means contributing to the promotion of employment in towns and cities. Wealth is generated in the streets where we walk instead of in the pockets of managers from other countries. In short, it brings about real and tangible change, which we can witness first-hand.
But what mechanisms can we use to start investing in companies, whatever their size?
The stock exchange, one of the most popular options
The stock market is, without a doubt, one of society’s most deeply rooted investment instruments. Many Spaniards have participated at some time in this system, and many do so continuously, with a solid investment strategy based on the reinvestment of profits to maximize earnings.
The functioning of this market might seem complex to the eyes of less knowledgeable citizens. But it is far from complicated. Financial assets are constantly traded on the stock market and are bought and sold incessantly. The most common of these are shares.
These are securities issued by corporations in need of financing. The people who buy them become co-owners of the companies since they own part of their capital stock. As such, they have access to a series of rights, such as attending shareholders’ meetings, voting on certain decisions and receiving part of the profits through dividends, which are paid annually.
But investors’ earnings come not only from this passive income. They also come from share price changes, which fluctuate constantly according to supply and demand. If, after some time, the value has risen and the saver sells his shares, he will make a considerable profit. This is minus, of course, the commissions derived from these operations.
However, in this market, it is only possible to invest in a limited number of companies: those that have been listed on the stock exchange. In addition, the level of risk and uncertainty is very high, as hundreds of factors influence the price. There are no certainties. You never really know whether it is going to go up or down. And the losses, therefore, can also be very significant.
The first steps in alternative financing
When you play the game on the stock exchange, you have to accept all the conditions. For this reason, people who want to circumvent its drawbacks tend to opt for other mechanisms for investing in companies. Alternative financing instruments, which have become popular in recent years, are an alternative to be considered.
Crowdfunding is one of the best-known methods. This system uses the power of the crowd, as it brings together the capital of different savers to launch a given project. Like the rest of the alternative mechanisms, its takeoff is due to the landing of the Internet. Hence, these operations are carried out on online platforms.
Originally, crowdfunding had a voluntary nature. It consisted of a donation. The investors were interested in promoting and seeing the initiative grow, and, except for some gifts, they received nothing in return. However, this instrument was soon adapted to people wanting an economic return.
This is how crowdfunding equity came about, where savers receive a share of the company’s capital as a reward for their contribution. Although he does not get back the initial sum, he becomes a kind of owner. And, if the project is successful, he will participate directly in the profits. This way, it could fully amortize the original amount, although there is no guarantee.
Finally, crowdlending was created for those who did not want to take big risks. In this modality, the company is also financed with contributions from different people. However, in this case, it is not a donation but a loan.
The firm must return the money in full at the end of the established term, including a certain interest rate previously negotiated between both parties. The investor does not risk losing money by investing in companies since, in principle, their profits are guaranteed.
Investing in companies with Inversa Invoice Market
But another mechanism shares many similarities with the two previous ones: crowdfactoring. Another participatory financing system in which the contributions of several individuals are added together to provide a company with the capital it seeks. This opens investment doors to more people since many could not finance it individually.
Crowdfactoring is, in a nutshell, the financing of unpaid invoices. It finances businesses that have not yet been paid for services they provided to their customers but have other debts to deal with urgently and do not have sufficient liquidity.
These companies decide to upload such invoices to alternative financing platforms such as Inversa Invoice Market, where all registered users seek to start investing in companies. They can set parameters such as risk level, repayment term and interest rate to find the right firm.
This solution solves two needs simultaneously: it provides cash flow to companies in critical situations and, at the same time, allows investors to make a quick return on their savings with guaranteed security. Investors know all the conditions in advance and can choose insured invoices that expire after one or three months.
Inversa also focuses on promoting the real economy. Investing in companies from countries such as Germany, Switzerland, or Belgium is possible in this marketplace. Still, it is also possible to find family businesses with a long tradition in Spanish towns or cities.
A platform where, besides investing in companies, people invest in people.