Finding and Investing in Hot Startups

Thanks to the JOBS act signed into law in 2012, investing in hot startups is no longer the privilege of the uber-wealthy. Any accredited investor can now take advantage of investment opportunities in hot startups. This has exciting implications for the future, especially when considering the successes of recent startup investments such as Google’s purchase of Waze for $950 million, Yahoo’s acquisition of Tumblr for over $1 billion and Facebook’s acquisition of WhatsApp for $19 billion. Here are a few tips for accredited and private investors wondering how to invest in startups.

How To Successfully Invest in Startups

For those of you wondering how to avoid the risk inherent in investing in hot startups, the simple and unfortunate answer is that you can’t. At least, there isn’t a sure-fire way to avoid the risk. Investing in startups is more of an art form than a simple math equation. As First Round puts it, “there is no such thing as a formula for success.” You’re probably going to lose some. But you wouldn’t be an accredited investor if you didn’t know that the higher the risk, the higher the reward. Here are a few ways to get started:

  • Build a network full of founders and entrepreneurs
  • Attend pitch events
  • Invest via online venture platforms
  • Invest via your self-directed 401k or IRA

When it comes to hot startups, investments can generally be made in person or via an aforementioned online platform and in turn receive preferred stock or convertible notes.

How To Manage Your Investments Wisely

Just because a prospective investment has potential, doesn’t mean it will all pan out. Successful startup investors have found that by following a few important guidelines, they can minimize risk. Pre-vetting the startups you invest in is a very important step. Don’t put all your eggs in one basket either. Save a good portion of capital for those future rounds. It’s also crucial to diversify your hot startup investments, while also investing in fields you understand. When it comes to diversification, it’s important to do so wisely. There is such a thing as over-diversifying. It’s common advice in the investment world to diversify with a “spray-and-pray” method, but in reality it’s much more wise to curate startup opportunities that have been pre-vetted and have a high probability of success. Find startups that you personally believe in within several different industries, such as machine learning, artificial intelligence, advanced medical diagnostics, real estate, and so on so that you will be protected from natural economic fluctuations. Just be sure to expect risk regardless, and don’t invest any more than you can lose to afford in a single investment.

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19 Jul 2017


By Howard Ng
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