How to Invest in Startups [Complete Guide]
Published: 12 April 2021 by Andrew
Most people start to Invest in Startups because nowadays it is very fashionable. The fact of being able to find the new Facebook or the new Google when it is still in its infancy attracts many investors, but how do you choose? And above all, is the risk worthwhile?
This and other questions are buzzing in the head of people looking for highly speculative investments. Because this is the main reason that leads people to invest in startups: Profit.
It is a challenge, very risky but with incredible possibilities of economic return if the right choices are made.
In this guide we will see:
- What is a Startup
- How to invest in startups
- If it is worthwhile to invest in startups
We will also give you technical advice, proposing the best trading platforms, so as to use safe intermediaries such as eToro, reliable and without commissions:
Min. Deposit: 50€
Min. Deposit: 100€
Min. Deposit: 50€
Min. Deposit: 250€
Min. Deposit: 100€
Min. Deposit: 250€
Invest in Startups: what is this about?
Before explaining how to invest in startups, let’s briefly explain what a startup is.
It is a company in the literal “start-up phase” or still to be started, it can be a small, medium or large company and is looking for funding to implement its business project.
What are the 3 characteristics of a startup?
- Has a market
- Be profitable
The team that has been working on the startup since its creation must be competent and must strongly believe in the project.
How to Invest in Startups
We know that you are in a hurry to understand how to invest in startups but it is better to go step by step, even if it may seem a simple thing, in reality it is one of the riskiest investments that exist, even if the potential for realization is considerable.
There are steps to take to invest in startups and they are:
- Deciding how much capital to invest is a risk capital, so you cannot bet your savings on a startup, the company could fail miserably.
- Evaluate whether to invest in Crowdfunding, even before the listing on the stock exchange or wait for the IPO and do Online Trading.
- Carefully choose the company to invest in, analyzing it and evaluating the idea, the market and the possibilities of generating profit.
This last point is fundamental, if you make a mistake in choosing the startup, it will be useless to have dosed the capital and have chosen a platform (Crowdfunding or Trading) of the highest level.
The choice of a startup must be made by retrieving all the information available, evaluating the market, studying the competitors, the financial situation of the company and how it intends to earn.
Often the share prices of some startups go up but the fundamentals are fragile because the companies are not profitable, a bit like Uber, Lyft, or Lemonade.
In this case we are talking about Growth investing, which is opposed to Value investing, based on the fundamentals and the real value of a business idea.
Where to invest in startups
If you are interested in investing in startups, you have two choices in front of you: Crowdfunding and Online Trading.
But before deciding where to invest in startups, it is essential to choose serious and reliable platforms.
In fact, whether it is Crowdfunding or Online Trading, you must rely exclusively on platforms regulated and authorized by CONSOB or CySec (or similar entities).
Unfortunately, the web is flooded with numerous trading scams, so the first step to successfully investing in startups is to choose the platform to use.
Basically, crowdfunding is a fundraiser and can be organized by a company, even in the simple project phase.
The online platforms that deal with crowdfunding are varied, what matters is to rely on those with regular licenses.
The entrepreneur makes a sort of business plan, exposes the idea and if it is accepted by the platform, anyone can invest in it.
The differences between the various types of crowdfunding concern what the investor gets, here are the main ones:
- In Reward crowdfunding, the lender receives a non-monetary reward.
- With Equity crowdfunding, the investor obtains a stake in the company (as if they were shares).
So if you are interested in investing in companies when they are still at startup, you can take a look at the major crowdfunding platforms that are online.
If you prefer to invest in startups that have already started, maybe just listed, then we recommend an online trading platform from those listed at the beginning of this guide.
The easiest way to trade online and invest in newly listed startups, perhaps on the New York Nasdaq or any other international exchange, is to use CFD Brokers.
These brokers offer financial derivatives (Contracts for Difference) that allow you to trade listed securities both up and down, without paying commissions.
CFDs have the same price as the underlying stock but are much simpler, cheaper and easier to use.
To do online trading you will not have to open any securities account, you will not pay stamp duties or trading commissions and you can invest even a few euros from the comfort of your PC or even your smartphone.
The important thing is to choose safe, reliable and affordable CFD brokers, top tier platforms such as eToro, ForexTB and Trade.com.
eToro is the online broker with the most users in the world, over 10 million and this makes it the most popular broker and also one of the most reliable on the market.
Its trading platform is intuitive and full of highly customizable indicators and allows you to invest in newly listed startups, with a wide choice of stocks available.
eToro’s security is guaranteed by numerous international authorizations.
How do you invest in startups on eToro?
- Register for free on eToro
- Log into your Demo or real account (by depositing at least € 200)
- Select the CFD of the startup you are interested in and click on “Buy”
- Decide whether to buy or sell the shares and how much to bet in the operation
This broker also offers an automatic trading system, for those who do not like to study charts and trading strategies and would prefer someone more experienced to operate in their place.
With Copy Trading you can copy the operations of the best eToro traders, you only have to choose them, the software will do everything automatically by copying their operations on your account.
How much does Copy Trading make? It depends on the results of the traders you copy, here are some examples:
Click here and choose which trader to copy
ForexTB is a very innovative intermediary, with a regular CySEC license and particular attention to the needs of investors.
To offer a wide range of choices, it offers two trading platforms to its members:
- The Web Platform is simple, intuitive, fast and accessible from any device, without installing anything.
- Metatrader, on the other hand, is much more professional, complete and full of indicators of all kinds.
Among its most popular services stands the Trading Course, a pdf that has become one of the most downloaded ebooks in the world in this sector.
This ebook explains the basics of online trading with many examples and a focus on investment strategies. It is also free and to download it just use the link below:Click here and download the Trading Course for free
How do you invest in startups on ForexTB?
- Register on ForexTB
- Choose the trading platform
- Select the CFD of the startup you are interested in and click on Buy (or on Sell to sell short)
- Decide the amount to invest.
Trade.com has tried to encourage investments with small capital and for this reason has set a minimum deposit threshold of only 100 euros.
This Broker has regular licenses and offers a very detailed Trading Course, suitable for anyone, because it uses simple terminology.
This is a pdf and can be downloaded for free, just use the link below:Download the Trading Course for free by clicking here
The trading platform made available by Trade.com is very innovative, fast and easy to learn.
How do you invest in startups on Trade.com?
- Register for free on Trade.com
- Log into your Demo or real account (by depositing a minimum of € 100)
- Select the CFD of the startup you are interested in and click on “Buy” to buy or “Sell” to sell short
- Decide how much to invest in the operation.
Is starting to Invest in Startups worthwhile?
This question is simple but requires a complex answer.
Obviously investing in startups is worthwhile but must be done very carefully, especially if you want to participate in a Crowdfunding.
Raising funds before listing on the stock exchange can reserve bitter surprises, so if you like the idea, study the business project thoroughly and make small financial investments.
Now let’s see the main pros and cons of investing in startups.
Pros of investing in startups:
- Potentially very high profits, a startup has unattainable growth potential for an already well-established company.
- Possibility to diversify the portfolio, startups are innovative and offer a wide choice of sectors to focus on
- Generating jobs and growth, this type of investment helps create jobs and growth
Cons of investing in startups:
- High risk of losing capital, the chances of failure for a startup are very high.
- Difficult to evaluate, even by analyzing the project, it is very difficult to really evaluate a company when it has not yet fully started up.
Invest in Startups: earnings
When choosing a winning horse, the chances of earning are very high.
Given that the greatest difficulties when investing in startups concern the selection phase of the company on which to bet, if you have chosen this choice it is very easy to earn.
Especially after the IPO (Initial Public Offering) a “winning” startup increases in value and the share price tends to rise rapidly, so unlike trading on famous stocks, with an innovative startup it is more likely to see some leaps in the stock.
If we analyze some examples of famous startups such as Zoom, we immediately realize how much the share prices of these companies can grow, even if they have just been listed.
Invest in Startups: the best ones
We have already talked about the risks of Crowdfunding, so we prefer not to express opinions on companies that are still in the start-up phase and do not allow a realistic assessment of growth prospects, nor of the economic return.
We leave crowdfunding to experienced investors or at most we advise you to invest very small amounts in the first rounds of financing.
But there are some companies that have been listed on the stock exchange recently and can offer excellent investment opportunities for those trading online, preferably with commission-free CFD brokers.
Top 10 Newly Listed Companies:
- Lemonade (LMND)
- Wish (WISH)
- Shift4 Payments (FOUR)
- Snowflake (SNOW)
- Unity Software (U)
- GoodRx Holdings (GDRX)
- Palantir (PLTR)
- DoorDash (DASH)
- Airbnb (ABNB)
- Asana (ASAN)
Investing in these startups is not a certainty but they are very interesting stocks, with an excellent business idea, an available market and the real possibility of becoming profitable in a short time.
Startups that can turn out to be profitable
Now let’s see the startups that (probably) will be listed in the near future and that represent great opportunities to follow carefully if you want to invest in startups.
IPOs coming in the coming months:
- Ant Financial
Don’t be seduced by a famous name rather than by stock market rumors, study the stock carefully before investing, evaluate the real growth possibilities and negotiate carefully, they are still startups!
Investing in startups is a very risky but equally profitable strategy, there are no tricks or secrets, in reality no one knows the future.
Follow the advice in this guide, evaluate the project, decide the amount of the investment and carefully weigh the real development opportunities of the company.
You can evaluate both Crowdfunding and Online Trading but what matters is to use regulated intermediaries.
The CFD Brokers that we have presented in this guide are safe and also allow you to do investment simulations through their Demo accounts.
With these accounts you will have unlimited virtual money and you can evaluate your best strategy for investing in startups, without taking any risk. Then you can switch to real investments very easily, just make a small deposit into the account of one of these brokers:
- Access the eToro Demo account for free by clicking here
- Log in to ForexTB and try the Demo account by clicking here
- Register on Trade.com and try the Demo account by clicking here
With crowdfunding when the startup is in the start-up phase and with CFD brokers after listing on the stock exchange.
What matters is to choose authorized intermediaries with regular licenses.
First you need to inquire, evaluate the economic situation, the idea, the market and growth prospects.
Yes, but it is also very risky, do it with caution, preferably by investing in companies already listed, with safe brokers like eToro, which allow you to trade without commissions.