Every business has to start somewhere. Even the largest corporation began as a small business enterprise. Due to the large potential returns, startups might be an appealing investment option, but it is critical to thoroughly examine the dangers.
There are over 4,00,000 new firms established in the United States each year, so there are plenty of startups to invest in. However, the majority of these businesses will fail within a year or two. Investing in these small firms has a high risk, but it also has the potential for a large return due to their strong growth potential.
Advantages
- More investing opportunities: Larger, more established companies only sell stock to investors. However, for startups, there are other possibilities, such as obtaining a convertible note that can subsequently be converted to shares.
- Methods for lowering your hazards: You can, for example, invest in a warrant, which is a contract that stipulates how much you’ll contribute at a specific date if the firm accomplishes a certain target. You will not be required to invest if the startup fails.
- Most startups do not require a large sum of money: This means that with your investment, you may gain ownership of a major chunk of a tiny firm and even vote on its board of directors.
- There are a lot of choices: There are startups in a wide range of marketplaces and industries. These tiny businesses are an excellent way to diversify your portfolio across capsizes and markets, particularly emerging markets.
- There is a lot of room for expansion and profit: For a startup to be successful, all it takes is a unique idea and excellent execution. If the startup in which you invested does well, you could get a significant return on your investment.
- Potential for a buyout: Many startups are acquired by larger corporations because the larger corporation sees the startup as a possible rival or because the larger corporation wishes to leverage the startup’s technology. If you buy a small firm at a decent price, you should obtain a good return on your investment.
Disadvantages
- It is possible that the company will struggle to thrive. Some markets are oversaturated or excessively competitive, and some business ideas just do not succeed.
- Take the time to thoroughly research the company you’re considering investing in order to determine the startup’s potential.
- Failure could be caused by the company’s owner. The willingness of the entrepreneur behind the idea to work hard is an important factor in the success of a startup.
- Get to know the entrepreneur better to mitigate this danger. Learn about their previous business activities.
- Failure is unpredictable. Even the most promising startup can collapse owing to unforeseeable or uncontrollable causes.
Let’s take a look at the example of a start-up – Nykaa.
Why should you apply?
- Even after the IPO, promoters have a lot of skin in the game. After the IPO, the promoter’s stake drops from 54.22 per cent to 52.56 per cent.
- Every product on the platform has hundreds of reviews. Customers gain trust as a result of reading genuine reviews.
- Nykaa takes great care to ensure that its consumers receive only genuine products.
- With so many national and international brands available on their website, Nykaa transforms into a one-stop-shop for all cosmetic and fashion products.
- Nykaa predominantly markets its products through Instagram influencers. This gives their customers a sense of genuineness. Nykaa even has its own YouTube channel, Nykaa TV, dedicated to educating people about beauty goods and personal care.
- Foreign brands that were not available in India, such as ‘Huda Beauty,’ could be obtained via NYKAA’s website. Nykaa obtains these brands on behalf of its clients.
