The Process of Startup Investing

I’m about to demystify the startup investing process…

… and share the exact steps you can expect (it’s not scary, I promise). 

But first… I have something to share. 

Earlier this year I invested in a company which was featured on Shark Tank

The startup makes a suite of collaborative office products.

Now, here’s where it gets better… 

They’ve just given me the green light…

To allow more people to invest in them and our members will be alerted first, once it opens.

If you’re not a member yet, this would be a great time to change that.

And you don’t have to wait for that deal to drop either.

We have startups sitting on our deal flow waiting for you once you join.

Moving on…

Never invested in a startup company before? 

I’ve got you covered.

I’m about to walk you through the investment process I’ve used over the last few years that’s made me millions of dollars. 

It’s completely different from how I trade stocks. 

After reading this… you’ll feel like a seasoned V.C.

 

It’s easier than you think

 

Most investors know by now how easy it is to invest in stocks through online platforms like Fidelity or TD Ameritrade.

But did you know investing in startups is just as easy? 

The secret — Regulation Crowdfunding platforms.

These websites offer a smooth entry into the ultimate wealth-building security type. That’s right, seed investing is no longer for the super-rich. It can be done by anyone, anytime, with very low investment requirements. 

I’m going to show you the differences between stocks and angel investments and walk you through the process of placing your first investment on a Regulation Crowdfunding platform.

 

Is Angel Investing Open to Anyone?

 

Before 2016, angel investing was a high-roller’s game. 

To be an angel, you had to be accredited. This meant that your net worth had to exceed $1 million or your income had to be greater than $200,000 for two years straight.

Now, with Title III of the JOBS Act, non-accredited investors could take part in startup investing through online crowdfunding platforms. This means anyone with a couple of hundred bucks lying around can invest in high-risk, high-reward startups.

 

Stocks Vs. Seed Investing

 

There is a misconception around angel investing. Many think there must be a barrier to entry they can’t pass — like a net worth minimum or some legal red tape to navigate. 

In reality, startup investing is incredibly straightforward and accessible. The barrier to entry is amazingly low.

With the advent of major equity crowdfunding platforms, the process of investing in startups is now as easy as what you’re used to with investing in stocks. You can put your money to work for you in just a few clicks.

I’m going to show you exactly how you can start investing on an equity crowdfunding website to demystify the process so you can start building wealth. 

But first, it’s important to understand how investing in startups is different than investing in stocks.

  • Risk – Investing in startups is much riskier than investing in public stocks. Most startups fail — plain and simple. But with this high level of risk comes great rewards. The returns on angel investments are much higher than any other type of security. This is why it’s important to understand the angel investing strategy and make sure it fits in your portfolio.
  • Hit-or-miss – With startups, you either win big or lose your money. Stocks can dwindle over time and you have the option to sell to cover your losses. This isn’t possible with angel investments. Once you’re in…you’re along for the ride!
  • Long-term – Most angel investment returns don’t come for around 5 years, but can take up to 10 years. Again, you won’t be able to back out halfway through. Your money is locked in until the company succeeds or fails. 
  • Impact – One feel-good aspect of startup investing is that your money goes directly to small businesses and entrepreneurs. The companies you invest in aren’t established giants, they are newcomers. It adds to the fun knowing that you are shaping the futures of real companies in a meaningful way.
  • Perks – Some companies offer perks to their investors. You can get discounts, access to new products, store credits, and more.
  • Connection – Investing in startups gets you much closer to the action. You become a part of the startup’s community. You are encouraged to ask questions and work towards the success of the company. For some investors, this is a very rewarding part of the experience.

 

Getting Ready to Invest

 

Once you have done some research and understand the basics of angel investing, you are ready to find a platform and make an investment.

 

Choosing a Site

 

An important factor that will define your investing experience is the equity crowdfunding platform that you choose.

The most important thing to consider is the company’s track record. There are many long-running and healthy investing platforms, so never take a chance on a site without adequate information.

Some of the most popular equity crowdfunding platforms are Wefunder, Republic, and StartEngine. These are reputable sites that have large followings of investors and entrepreneurs. 

Our members get to see our favorite startups across these platforms through our hand-picked deal flow.

 

Regulations

 

There are different types of crowdfunding regulations that affect who can invest and how much. 

Here are the three levels of regulation that you’ll run into on these platforms — Regulation, Regulation D, and Regulation A+. 

In this article, we will be dealing with Regulation Crowdfunding due to its popularity and accessibility. 

 

The Process of Investing in a Startup

 

There are a few simple steps to complete before placing your first investment. 

  • Signing Up – You will need to create an account on the platform and enter in some basic information. Apart from your username and password, you need to provide your net worth and income, accreditation status, and select the industries that interest you.
  • Finding Your startup – Based on your areas of interest, you will be recommended startups. You can browse startups by industry, number of funders, area, or what’s trending on the site.
  • Due Diligence – It’s important that you study the startups that interest you. Each startup listing will have a page with valuable information. Here you can see the founders, investment goals, updates, and FAQs
  • Know Your Security Types – There are different types of investments you can make on Regulation Crowdfunding platforms. The most common types are common stock, preferred stock, SAFE agreements, and convertible notes.
  • Invest – Now you’re ready to invest. You can choose how much you would like to contribute and in a few clicks, you have invested in a startup!

 

Post-Investment

 

There are a few things to follow up on post-investment. An angel investment is a long term investment, and you will need to keep track of it over time. Here’s what to expect.

 

Proof of Purchase

 

You will receive a proof of purchase that shows your share, when you purchased it, and what steps to take next. This is like your receipt for buying a part of the company.

 

Where Did My Money Go?

 

An equity crowdfunding platform can’t legally touch your money. 

When you make an investment, your money is transferred to an escrow account. The money will be handled by a reputable financial institution until the crowdfunding campaign is finished. 

If the campaign succeeds (meaning they hit the minimum required level of funding), the money goes to the startup. Otherwise, your money goes right back to you.

 

Startup Updates

 

Startup founders will send you periodic updates. This usually happens once a quarter, but some teams do it more often. 

You also have the chance to ask questions in the Q&A section of the startup page.

Finally, companies are legally required to send out a detailed Annual Report 120 days after the end of their fiscal year. This is a comprehensive update on the company’s latest financials, board members, and accomplishments.

 

Payouts

 

If things go well, you will have some money coming your way. You will be paid through the crowdfunding platform depending on several factors.

The type of security you purchased is important. Stock without dividends will take the longest to yield a return. Your return will come only once the startup reaches an Initial Public Offering (IPO) or is acquired (bought) by another company. 

If your investment agreement offers dividends, you may see a return much sooner, depending on the company’s revenue.

Lastly, returns from revenue shares depend on the projections for future revenue. The faster the startup makes money, the less you will have to wait to see some green.

 

Takeaway

 

It has never been easier to invest in startups. Once you’ve decided on a startup to invest in, it takes just a few minutes on your phone or computer to lock in your stake.

Recent changes in regulations have opened the doors for everyone. Instead of going through an accreditation process based on your net worth, you can just make a profile and start investing in a few minutes.

Stocks aren’t the only game in town. Angel investing offers a unique and satisfying experience. 

You will feel closer to the company and the people behind it. 

Your money matters — in the early stages of a company, small amounts make a huge difference.

Lastly, due to the high-risk, high-reward nature of startups investing, you will have the chance to multiply your wealth, not just sustain it.

For now, this is investing’s best-kept strategy. Hopefully, in the future, more people will see the incredible opportunities these regulation crowdfunding platforms have to offer.

Ready to start your angel investing journey and access the startups we have on our radar? Angel Investing Insider has a spot open for you. Click here to learn more.

 


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