Investing in startups and earning money by supporting emerging projects

Savers that start investing in startups enjoy an economic benefit while allowing new companies to establish themselves in the market

Investing in startups requires foresight. You have to have a highly developed business sense and know how to glimpse the growth possibilities of a company that, as of today, is not a sure bet.

What would be the current profits of a person who had invested in Netflix during its first months of life? When it went public, its share price was less than a dollar. Today, its price is over $400. While it is true that the streaming company is one of the biggest success stories in recent history, it perfectly exemplifies how investing in startups can skyrocket investor returns.

However, this journey must be traveled hand in hand with patience. Returning to the example of the Californian firm, it took more than ten years for its share price to reach $50. Therefore, investing in startups is not always a recommendable option for all savers who prioritize quick profits.

Some companies can experience a sudden boom, multiplying their value from one year to the next. But in other cases, it can take more than a decade before profitability begins to be substantial. And the shadow of failure always lurks: other companies will never fully take off, which increases the level of risk considerably.

This information cannot be known in advance, and predicting it is practically a matter of chance. For these reasons, investing in startups seems to be an alternative reserved for fortunes with an economic cushion that can afford not to dispose of part of their assets for long periods. However, this is not always the case.

What is a startup?

Before understanding what startup investment consists of, it is essential to know what a startup is. The Spanish Chamber of Commerce defines it as "a company of new creation or early age that presents great growth possibilities and commercializes products and services through information and communication technologies."

These companies, born in the heat of the Internet and the digital revolution, are characterized by a modern and youthful atmosphere. They take advantage of the potential offered by new technologies to scale their business and thus accelerate their growth. At the same time, they try to contain their production costs as much as possible, opting, for example, for coworking spaces instead of renting an office exclusively.

This sector continues to grow and, every year, sets new highs, as indicated by the Global Startup Ecosystem Report 2022, a study that has shown the growing importance of this type of company for the past ten years.

In short, startups propose innovative solutions to everyday problems. And, to make them a reality in the real world, they need funding.

In this search, some resort to crowdfunding and receive donations from individuals interested in seeing them grow. These generally correspond to the 3Fs: family, friends, and fools. Three actors who decide to start investing in startups and thanks to whom they can obtain liquidity in the short term.

And others find business angels: private investors with experience in this sector who inject their capital into firms in their early stages and advise them in exchange for a stake in their capital.

Minimizing risk when investing in startups

All investments have their risks. But investing in startups even more so. After all, these are companies that are not yet established. This means that if the market accepts your proposal, the benefits for the investor can be very significant. On the other hand, it can incur losses if it is not well received.

But is there any way to reduce the risk when investing in startups?

As with all other mechanisms, any investment strategy aimed at increasing security must be based on diversification. Putting all your eggs in one basket can go very well. But it can also be very bad. It is preferable to spread the capital among different initiatives so that, even if one of them is not successful, the investor will hardly notice the repercussion of that loss as long as the profits of the rest compensate for it.

Likewise, it is necessary to analyze the company in which one is considering investing, studying its past behavior, the financial results it may have presented, or the possible debts it may be facing. This information provides a very accurate and transparent perspective on the economic situation so that the saver that starts investing in startups is aware of what he is doing with his money.

It is also helpful to examine your value proposition: What is your business based on? What is new? What differentiates you from the competition? Is the market ready for you? Are there other investors interested in financing you? The answer to these questions will allow us to discover whether the project has a solid foundation.

Investing in startups with Inversa

Earlier, we mentioned that, on many occasions, investing in startups seems to be an option that is not very accessible to people with more limited economic resources. But this is not entirely true.

While it is not advisable to invest money that may be needed in the short term, the new alternative financing mechanisms have opened the doors of this world to all types of investors—even those with less purchasing power.

Through crowdfactoring platforms, for example, savers have access to an infinite number of companies requesting financing. Online spaces where startups can upload their outstanding invoices so that investors can advance them that amount and thus enjoy liquidity at critical moments. In exchange, the saver enjoys an interest when the term ends, which generally does not last more than a couple of months.

Inversa Invoice Market is one of these platforms. An initiative that focuses on ethical investment and the real economy, where people finance people, allowing sustainable projects to make a positive impact on the world. And where all invoices are audited to show users the level of risk they face when deciding to invest in startups.

Unlike other investment methods, such as the stock market, in Inversa, you don't have to wait years to enjoy the benefits. As soon as the transaction is closed, the investor receives the interest due immediately. And when the maturity date arrives, which in many cases is less than three months, he gets back the original amount.

In addition, the Startup Law introduced several incentives for investors to opt for this type of company. Thus, people who invest in new or recently created companies will enjoy a deduction of up to 50% in their income tax return, with a maximum base of 100,000 euros per year.

In short, thanks to alternative financing systems and platforms such as Inversa, it is possible to invest in startups safely and without waiting for years to enjoy profits.