Investing in start-ups makes
investors an integral part of the start-ups team where their inputs, insights,
domain expertise and mentorship are sought-after.
In conservative or traditional
settings, people chose those instruments and avenues to invest, which could
provide assured returns at a low risk, even if it meant lower returns. So, a
majority of the people would typically choose time deposits with banks and post
offices or invest in Government bonds and savings certificates.
Investments in stock markets, now
more popular, are still not preferred by many since they are considered to be
high risk, with a high probability of losing money. People get even more
jittery at the thought of investing in start-ups since there is a widely held misconception
that start-ups are an even higher risk than stock markets. It is true that both
types of investments, start-ups and stock markets, involve high risk
But investing in
start-ups has some advantages worth considering
Promoting
Innovation By Investing In Start-ups
The most important advantage of
investing in startups over the stock markets is this. The core of a startup is
innovation whether in product design or marketing or business model or
strategizing or problem-solving. Investors get an opportunity to not only
promote innovation but also become innovators themselves by providing unique
insight, valuable feedback and handholding support to the entrepreneurs.
The
Timing Of Investment Is Not An Issue
While investing in stock markets,
investors must exercise caution and choose an appropriate time to invest;
investing in bearish and bullish markets have implications on returns. But the
timing is not an issue with startup investments (non-IPO investments).
Diversification
Of Portfolio
Investments in startups are a good
long-term strategy. Stock markets have easy access and flow of credit, and
little friction to participate. This, in turn, leads to speculation and
creation of bubbles. When these bubbles burst, markets crash and cause high
volumes of losses.
Fostering
Ideation That Contributes To The Larger Good Of The Society
There are startups that ideate
solutions to societal problems or that offer life-changing solutions for the
greater good of the society or disrupt the market in ways that benefit many.
When investors put their trust and thereby, their money in such startups, they
are essentially contributing to social welfare and positively impacting the
lives of many.
Promoting
Job Creation
Startups are vehicles for large-scale
job creation. Through their investment in startups, investors are essentially
creating positive externalities and contributing to job creation, better income
and a better standard of living.
An
Integral Part Of The Startup Team
Investing in startups makes investors
an integral part of the startup team where their inputs, insights, domain
expertise and mentorship are sought-after. It also gives investors a certain
amount of power and control on the working of the startup.
In summary, investing in startups
instead of investing in stock markets will help investors diversify their
portfolio, increase returns, reduce risks and promote ideation and innovation
for the welfare of the society as a whole.
Similar to the other investment avenues,
investing in startups should be done with careful consideration and after a
thorough vetting process. It is advisable for first-time investors to take the
help of and leverage investor platforms and have the vetting process and other
heavy lifting done through them.
