For a long time, private investment in new companies was the domain of the very wealthy almost exclusively. Money men for tech companies in the 80s and 90s frequently came from a background in finance and not technology, and they provided the deep pockets that allowed those companies to finance the breakthroughs that have defined an era. One of the biggest side-effects of that rising tide of technological innovation has been increased access to opportunities for investment, employment, and commerce that were previously limited by the infrastructure and investment they took to realize. Retail businesses can now rent warehouse space and contract for order fulfillment, running entirely out of a home office. Similarly, investment in tech startups has democratized, and that means more people than ever now have a chance to get involved early.
Capital Investment Funds
The rise of investment funds providing backing to startups is a big part of that increased opportunity. As successful venture investors rack up launches, it’s become common for them to incorporate, creating investment groups that allow smaller investors to pool their funds and back companies without needing a single, deep-pocketed investor. Of course, many startups find a finance specialist who can provide strong financial backing as a first step even today. The difference is that those individuals often bring a firm with them now, providing funds that don’t necessarily require them to dip into a personal fortune.
Peer To Peer Investment
For those looking to break down traditional investment hierarchies in order to approach the process from a new direction, there’s also peer to peer financing. Startups seek financing from small individual investors who provide backing. Individuals can invest a little in a wide range of startups or put all their efforts into one they really believe in, and entrepreneurs are not dependent on a single person they need to win over. Instead, they can ask a lot more people for a much smaller commitment, and that often makes it easier for them to say yes. If you’re just starting out, this can be an opportunity to see what investing in a startup is like without a large sum upfront.
Private Funds
Investment funds that are made up of a limited number of partners or participants can be difficult to get into, but it’s often easier to exert influence over the investment choices of a fund with a small number of consistent partners than it is when you’re participating in an investment fund that anyone can buy into when they have the inclination and cash on hand. Often, these groups are put together by experienced investors who want to handle the concerns of a limited number of medium to high-value individuals, so you might need to start with another investment style and wait to grow into them.
What To Look For When You Invest
Whether you’re choosing a firm to help you pool your investment money with others or you’re vetting a prospective startup you plan on backing as a sponsor directly, you need to know how to make a good decision about where your money goes. The vast majority of all startup firms do not become blue chip tech stocks, and many don’t even make it to an IPO. You can’t always predict when a company will rise and when it will fail to reach its full potential, but you can look for a few characteristics in its makeup that make the odds better:
- Do they have an experienced finance person in their core group of officers? Apple had Markkula to bring in other investors and communicate the company’s potential. Look at the people soliciting your investment and their records. If you see an established name like Mark Stevens with several launches and board positions in their CV, there’s a good reason they are on board.
- Will the product bring a truly new idea to the market? Novel ideas that speak to consumers are pretty rare. Many companies are making a living off incremental improvements or niche-marketed versions of existing applications, and there’s nothing wrong with that but those companies are not likely to cause the level of disruption needed to rise to dominance in the sector. It’s a lot easier to dominate a market you created, after all.
- Will it be easy for consumers to adopt the product? Technical tools and applications are useful, especially in enterprise applications, but the learning curve can slow down adoption with the general public. Look for products that are intuitive to use in addition to ones that are filling a niche that has gone unfilled to date.
It might not be time to get involved in this kind of investment. The best way to learn more is by talking to money managers who connect clients to venture opportunities in both individual and group fund formats. They can provide you with more information about how much wealth it takes to get started, in addition to providing useful information about the companies currently seeking sponsorship investment.