Venture Capital – 5 Reasons Why Everyone Should Invest in Startups

Since 2011, there have been many debates on the topic of equity crowdfunding. Is the risk of venture capital bearable for everyone? Is the investor capable to make the right decisions?

We have at least five reasons why everyone should invest in a startup at least once.

Through venture capital, one is at the heart of entrepreneurship

Investments in venture capital promote entrepreneurship. Nowhere else are you so close to the starting of a business, unless you happen to be a founder. When an investor invests in a company at such an early stage, he or she experiences what needs to be considered in his or her own company.

In addition, you can find out what the business plan looks like, which components belong to it or how to create a target group. The investor finds out which new technologies and future-oriented industries with growth potential are currently emerging. 

Venture capital investments in early stages offer opportunities for high returns

Naturally, the chance for a very high return is an important reason to invest in startups. Investment opportunities that entail high risks also can provide a higher return on investments. Investors who are willing to take great risks in early stages expect correspondingly great returns. In order to limit great portfolio risk and still generate high returns, professional investors use a variety of venture capital strategies to spread risks, which crowd investors can apply as well.

Investing in startups can pay off with a three-figure return with the so-called exit, i.e. sale of the company, an acquisition, or initial public offering (IPO). One example of this was the case of erdbär (fruit mousse for children), in which investors achieved a 300% return on their investment. The investments of the first investors in doxter and Foodist were also very close to the three-digit return on investment.

Companies with growth potential as an alternative to low-interest rates

So far, it is unclear how long Mario Draghi will pursue the zero interest policy in Europe. For some time now, savers and investors have been confronted with minimal or even negative returns on relatively secure financial products such as call money accounts, fixed-term deposits or government bonds.

In order to generate returns that offset inflation, investors need to include riskier investments in their portfolios. There is a trend toward increased risk, as can be seen among the best investments of 2017. Investors achieved the highest returns through stocks, equity funds, investments in startups, and cryptocurrencies.

In order to further diversify the portfolio, investors can invest in startups, for example. The founders need growth capital to turn their ideas into reality. Both parties benefit when investors achieve high returns with this venture capital.

Portfolio companies offer special conditions for investors

Equity crowdfunding campaigns often entail investment premiums. The companies’ products are often offered to investors under special conditions that are frequently available only during financing rounds.

Whether they are boxes of delicacies, electric scooters, or sound systems depends entirely on the product of the startup.

You only know what everyone’s talking about if you invest

Ever since the introduction of equity crowdfunding in Germany and Europe in 2011, there’s been a lot of talk about investing in founders and their business ideas. A multitude of media reports, investor insights, and studies deal with the topic of investing venture capital in startups. Naturally, the VOX series "Die Höhle der Löwen" ("The Lion’s Den," equivalent to "Shark Tank") contributes to the public interest.

However, it is those who invest who have the complete picture of equity crowdfunding. What experiences and profits have investors made? What is it like to invest in a young company? What things do startup investors pay attention to and how much information is available?

The best way to find out is trying it out for yourself.

For what reasons do you invest in young companies?

If you want to invest in startups, our article "Investing in Startups" explains how to do it.

If you want to become an investor, you can register here for free.