How To Invest In Startups And Make Gains

April 17, 2019

When Peter Thiel, the billionaire venture capitalist, put  more than $500,000 in Facebook in 2004 making him the very first outside investor in the company, little did he know that his stocks in the company could grow so much that he could sell  20 million of his 26 million shares in Facebook at the time for $400 million in 2012. Peter Thiel has not only invested in Facebook, but has gone ahead to invest in Airbnb, Lyft and Spotify, which are today all profitable ventures.

Peter Thiery is no different human being. Investing in start-ups has got to be one of the most risky things to do; the venture may or may not succeed. Here are a few points, however, on how to invest in startups and make money.

Join Existing Startup Investing Platforms:

Connect with Acquaintances and Your Networks:
  • This may be through personal connections and relationships with entrepreneurs and founders
  • Attend investment pitch events

In general, such investments are usually made in person or through an online trusted platform an online platform. You could either subscribe to a number of stocks in the company or have other options such as convertible interests through which you convert your interest to stock at the next major milestone.

How to Cash Out of Investment in Startups

There are so many ways to cash out from startups after such investment:

                                                  
1. Acquisition by more other companies

The startup may be acquired by other companies. When this is the case, you stand a chance of taking away more money, or even less (think Instagram and Facebook)

2.  Initial Public Offering.

The benefit of investing in startups is that the company may go for its Initial Public Offering in the future

3. The company begins paying dividends

4. Investors sell their shares to other investors

Ways To Be More Strategic While Investing In Bonds

While there are so many rules to investing in startup a few general ones deserve mention.

Due Diligence:

Invest Smart, Efficiently & Profitably By:

  • Investing in  startups by relying on skilled expert due diligence on the startup
  • Take a portfolio approach and invest in a number of deals
  • Reserve a portion of capital for follow-on rounds
  • Invest in what you understand’
  • Invest in startups you may be able to add value


How You Invest is Important

  • Take calculated moves to look out for opportunities
  • Platforms like Nigeria Angel Investors  or Lagos Angel Network enables investors to build network, plan meetings and attend exclusive events around the country. This platform may also increase your chances towards funding your startups, if any.


Be Strategic and Intelligent While Investing

Diversify:

Diversification is a common strategy today. This is expected given the uncertain nature of startups. We way not likely get another Facebook-like success stories out of the many new start-ups in town.

Peter Thiel Advice:
  • Thiel warns that if you are constantly making $250,000 blind bets, you are going to need some pretty big wins just to stay even. He says ‘spray-and-pray’ is likely to produce a whole portfolio of flops. This could be taken care of by focusing on more highly curated startup opportunities with potential for success.
  • In the book Zero to One we learned how Andreessen Horowitz invested $250k in Instagram. Two years later it was bought for $1B by Facebook, returning a 312x return, or $78M on that initial $250k. If you had been one of the early investors in Facebook, or Uber, none of your other investments would likely even register on the scale in comparison.
  • Diversify, if you can, but make sure you invest wisely. By spraying and praying all over the place, you would surely make one big loss, that may be devastating.
  • You can diversify across different sectors such as FinTech, healthcare startups, real estate startups, and something else just to be cushioned against potential industry shakeups. But focus on funding individual companies with promise. By putting your capital and energy into fewer select firms you will make far more positive impact on the success of that venture.
Charles Rapulu Udoh

Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.