What are Startup Projects? Startup project is a new company (<5 years old) that plans to get bigger quickly. To do that, the entrepreneurs look for funding to develop their ideas or projects. In turn, the investors funding those entrepreneurs get shares for the project. The more investment the project gets, faster the project starts.
Startup investors actually buy a piece of the company putting down capital for equity. That leads to form a partnership. If the company makes profit, the profit is shared based on the proportion of equity in the startup. However the investors lose their money if the startup fails.
As you know, every good project starts with a small step and then gets bigger. For example, if you had invested some money on Uber, Airbnb, Amazon, Dell, Apple, Microsoft etc… when they were just startup projects, you would have been a billionaire in a few years. 10-15 years ago no one could imagine that ideas such as Uber or Airbnb would value billions of dollars. You should always remember that not all startup projects are successful. Dotcom bubble is the best example for startup project failure. So, startup project investment is always risky and risk management must always be done before investing.
Investing in a project early does not mean that the project will be successful and most startup projects fail. Investors should consider that buying a startup project means buying risk as well. People who invest later buy less risk and so less profit. So, there is high risk-high reward relationship.
What are the risks?
- Funding: Money is always the key for business. So if a startup project cannot acquire enough funding, the project fails at the beginning. Collecting enough funding is so important for the first step.
- Market Demand: For business, market demand is also crucial. Before starting a project, investors must learn about market demand very well in order to evaluate if it is worth investing or not. Misjuding market demand may lead to failure or less profit.
- Talented Employee or Team Members: There are thousands of people who has projects and look for investors. Investing in a project whose team members are not talented enough to conduct will lead to absolute failure. Therefore, before investing, the investors must know the project team members and their experience to decide if they are capable or not for the project.
- Balance in Growth: All companies wants to grow in time but growing too fast or too slow may lead to failure. Growing too fast would increase staffing costs and market demand. Growing too slow would decrease momentum and miss competition. Therefore, investors must check the companies’ growth plans before investing and there must be logical steps in the plan to decrease the risk for investment.
EXAMPLE with NUMBERS
Facebook: Peter Thiel had invested $500,000 in 2004. After eight years with Facebook IPO, he earned above $1 billion. If an investor had invested in Facebook on first day trading, he would earn up to %650 by 2020.
So it is so crucial that if you plan to invest on a start-up project, you must do your own search without any recommendation coming from outside including experts. Believing that the project would make money in the future, you can invest.
Some websites to see the startup projects:
Netcapital.com: buying or selling stock in startups and private companies.
Republic.co: Lots of small projects are present to invest.
Crowdfunder.com: Big projects are present for ICO or start-up investment.
Indiegogo.com: a rewards-based website providing benefits based on the amount of money.
Investing in a startup project is briefly explained here. If you have further questions, please feel free to ask.