How Do I Invest in Startups?
Investing in startups can be an exciting way to get in on the ground floor of potentially disruptive companies. While high risk is involved, angel investing allows you to diversify beyond traditional assets. Here are some of the main ways for accredited investors to invest in startups:
Investing in Syndicate Deals
One of the most accessible ways for accredited investors to invest in startups is through angel investor syndicates. A syndicate is a group of investors who pool their capital together to invest in deals sourced and led by an experienced angel investor or venture capitalist known as the "lead." The syndicate model provides several advantages:
Access to Deal Flow - Syndicate leads have proprietary pipelines and connections to source high-quality startup investment opportunities that individual angels may not have visibility into.
Diversification - Rather than having to fund an entire round yourself, you can spread smaller amounts across multiple startups to build a portfolio.
Reduced Workload - The syndicate lead conducts due diligence and negotiates terms, so you don't have to go through that process for each deal.
Lower Minimums - Most syndicates allow investments as low as $1,000-$5,000 per deal through special purpose vehicles (SPVs).
Popular platforms like AngelList, Syndicate Room, and StartupXplore allow accredited investors to browse active syndicates, see past performance, and apply to join syndicates that fit their investment criteria and interests.
Equity Crowdfunding
Thanks to regulations like the JOBS Act, equity crowdfunding has emerged as another option for investing in startups and early-stage companies. Platforms like Republic, StartEngine, and Wefunder allow companies to raise capital by selling equity to accredited (and in some cases non-accredited) investors online.The benefits of equity crowdfunding include:
Low Investment Minimums - Many deals have minimums as low as $100-$500, making it easy to build a portfolio.
Diverse Opportunities - From consumer products to tech startups, a variety of companies raise on these platforms.
Investor Resources - Most platforms provide startup data rooms, Q&As, and other materials to evaluate deals.
Potential for Liquidity - Some platforms offer secondary markets to trade private securities.
While equity crowdfunding is open to non-accredited investors depending on the offering type, it's still considered a high-risk asset class. Investors should carefully review startup fundraise materials and invest prudently.
Other Options
In addition to syndicates and crowdfunding, accredited investors may also be able to invest directly in startups they discover through networking, angel groups, demo days, and other channels. However, this requires taking a more hands-on role in sourcing, vetting, and negotiating with companies.
In the End…
No matter which route you take, investing in startups requires a long-term outlook, diversification across many companies, and an acceptance of the high risk involved. But for those willing to do their homework, it can be an exciting way to potentially earn outsized returns.
