Are there regulations that allow individuals to invest in startups? Not too long ago, the answer to this question was NO. Startups were not allowed to source funds from non-accredited investors. However, the 2012 JOBS act changed everything. The 2012 JOBS Act revolutionized how startup companies are funded by allowing them to raise funds from non-accredited investors through online platforms. This shifted startup investing from a nice, high-net worth activity to a mainstream activity that everyone can get in on.
How can you invest in startups?
Online platforms such as the investment club Blast.club provide non-accredited investors to invest in startups and become shareholders. How is this possible? This is primarily thanks to the democratization of capital, which was brought about by the 2012 JOBS Act. While it seems like a complicated concept, it is actually simple to understand.
Understanding the democratization of capital
The democratization of capital means that average individuals cannot invest in early-stage companies alongside professional venture capitalists. This allows anyone to gain access to cutting-edge technologies. It also means that there is a lower bar to entry. Investment platforms can allow people to invest small amounts instead of thousands for initial checks. As a result, the democratization of capital has made it possible for individuals outside the wealthy cycle to become venture capitalists. Something else to understand about this concept is that it allows diverse investing. This allows investors to align their capital with their values. This has promoted impact investing, especially with the conscious investors.
Important things to understand about startup investing
Now that you know that you can invest in startups, there are a few important things you need to understand. The key ones are:
The current startup ecosystem
You also have to understand that there has been a shift in the startup ecosystem. For instance, startups have more options for raising funds, such as crowdfunding, which allow them to maintain more control of their businesses. Something else worth mentioning is that since there are more investors looking at startups, founders have a responsibility to be more capital efficient. This implies using funds to create growth instead of frivolous spending. Thus, the startup ecosystem has become more focused on capital efficiency.
There is a new risk/reward landscape
Another thing that is worth understanding about startups as a possible investor is that there are high failure rates. While startup investing is accessible, risks remain high. Studies show that roughly 25% of businesses fail within their first two years, while almost 50% of them fail within the first 5 years. With startups, the rates are even higher. However, this should not deter you from taking a chance to invest in startups. The key is to perform ample due diligence. Individual investors have to perform and rely on thorough research to avoid losing their capital in this risky sector. Something else that individual investors have to understand is that success when it comes to startup investment usually depends on a few winners. This means that most investments may yield little. Therefore, if there are several investors, then the percentage of the benefit will be lower while fewer investors may mean more win.
Conclusion
Investing in startups is no longer something that only professional investors can do. Anyone can get in on the trend and reap the benefits. The key is to choose the right investment platform to help you with the process. Also, you need to understand what you are getting into. Make sure you do thorough research and seek advice before you make any move.