If you’re planning to invest in the stocks of major multinational companies such as Apple, Yahoo, and Google, stop! These front-line companies have been in the limelight for years and their returns of investments have been guaranteed. But, maybe it’s time to consider those small, rising startups at the back that have loads of hidden potential only to be unlocked by a small portion of your investments.
Generating an increase of returns and diversifying your portfolio
Research has shown that allocating 5% of your portfolio to angel investments can increase returns up to 12%. Yale University’s investments in startups through venture and private equity investments demonstrates this. Ever since 1973, Yale University has earned a 29.9% of returns from their initial investments in startups. Though, this is only a modest look in the positive result of investing in startups. If the startup you’ve invested on gets bought and shown in public, best-case scenario is that returns will definitely multiply 10 or 20 times of your initial investment.
Other than generating positive returns from your initial investment, investing in startups can diversify your portfolio as well. Yale Endowment’s 2013 Annual Report states that the traditional 60% equity 40% bond portfolio is not for long-term investors looking for great returns. According to Deutsche Asset & Wealth Management Report, investing in startups can reduce volatility and increase the efficiency of your portfolio.
Communicating between investor and company
An overlooked reason to invest in startups is the communication between investor and company. Startups companies like Cinco talk with their investors regarding the further improvement of their products or services. This kind of close relationship between investor and companies integrates investors into the history and development of the company. It has been shown in startups to have investors take strategic advisory roles and offer contracts to the company. With this close relationship between investor and company, investors can ensure the growth of the company that they have invested in, along with the future of their initial investments.
Supporting innovative products and services
Startups have shown to create life-changing products and revolutionizing different fields and discipline. For example, Robinhood is a startup company that uses the latest app technology to allows users to buy and sell stocks with one tap of their phone. According to VC investor Josh Elman, it is beneficial to beginners, particularly millennials, to go into stock trading without spending expensive professional fees. For this reason, the company earned $66 million worth of investments.
Another example, BetterHelp used to be a startup company that is revolutionizing the telemedicine industry. It is now considered as the world’s biggest online therapy and counseling platform with more than about 2000 licensed therapists. You can get started with their services by visiting their homepage for more information about online therapy.
Lastly, Hooked is one of the companies listed under the startups to watch-out list of Forbes. An innovative twist to posting stories online, Hooked turns long stories into bite-sized, chat-style messages for readers to see. It also allows amateur writers to post their own stories. It has earned $3 million worth of investments.
Let’s wrap up: Investing in start-up companies may not be such a bad idea. In fact, a lot of the major dominating companies in the market started as a start-up. You never know that the next start-up company you might be investing in will be a huge hit and develop into a multi-billionaire enterprise.