You may not know this, but the average millionaire has seven different streams of income. Why? Because they know that one of them might dry up at any time. They diversify their resources and investments to protect their financial future.
One way to build your wealth is through investing in early stage companies or stocks that are likely to grow exponentially in the future. For instance, a $100 bet on Amazon during its early days could have netted you $14 million. If you invested in LinkedIn during its startup phase, you could have increased your investment by 261,900 percent.
Numbers like these are inspiring, but the sad truth is most startups fail. Therefore, being an early stage investor requires a high risk tolerance and the ability to identify the right early investment opportunities. Here are some tips to help you do exactly that and get in on the ground floor with these types of investments.
What is Early Stage Investment?
Prior to launch, a startup requires early stage investment. Also referred to as seed capital, early stage investment is the first initial stage of investment in which startups receive just enough money to provide proof of concept or become profitable.
If the business proves itself viable and can successfully get off the ground, then investors can move on to series A, B, and further funding rounds. At this point, you can begin seeking out other early investment opportunities.
Where to Find Early Stage Investments
Unless you have the inside scoop and a friend or family member with a viable startup in need of direct funding, the best way to find early stage investments is by finding angel syndicates, venture funds to invest in or being part of a group like Urban Capital Network.
Angel groups or syndicates allow you to invest a smaller amount of about $25,000 (if they are not a crowdfunding site). However, they require a four to five-year commitment before you may begin seeing a return on your investment.
Each angel syndicate has its own membership process and format. Some require a larger investment commitment than others and offer direct funding opportunities in addition to seed stage funding.
Angel groups are available in most major cities. On the national level, the Angel Capital Association is a non-profit providing seminars, conferences, and educational resources for those seeking early investment opportunities.
Venture funds typically require a greater capital investment but less of your time. These professionally managed investment funds accept limited partner investors and on average require a $250,000 minimum commitment for up to four years.
Venture funds usually charge a two percent fee to manage your money. Meanwhile, profits made from the fund’s investments are typically shared with limited partners according to an 80/20 split.
Like angel groups, venture funds are located in most major cities, but most can be found in Silicon Valley and the Pacific Northwest.
Urban Capital Network
The Urban Capital Network is a fantastic network of people and partners. Although there are many networks for all kinds of investors, UCN is trying to make it easier for more people to invest.
UCN has enhanced the public’s access to investing with their forward-thinking and easy-to-use investment process.
Through UCN people are able to get more access to early investment opportunities. The network is packed with only viable investment opportunities that are vetted for their potential. Because of this, both beginners and experienced investors can get access to various early investment opportunities.
How to Spot The Next Big Thing
In many ways, the next big thing is already here and all around you. If you think about it, not long ago, people thought Amazon and Netflix couldn’t possibly get any bigger. However, they continue to grow at impressive rates.
Other areas of interest still considered the next big thing include streaming video, e-commerce, digital payments, and software-as-a-service. Each of these has been around for a while, but their adoption rates continue to grow, proving there is plenty of room for growth and both existing and new investment ventures. In other words, they are still the next big thing.
Nonetheless, when thinking about the next big thing, it’s important to expand your vision. According to several sources, here are some innovations on the verge of becoming the next big investment opportunity:
- Artificial intelligence
- Virtual and augmented reality
- Online DNA analysis
- Autonomous driving
- Immune system engineering
- Large-scale desalination
- Reusable rockets
The key is finding the right opportunity or investing in an angel group or venture fund targeting startups in these burgeoning fields.
Risks Involved with Early Stage Investments
Despite the possibility for staggering gains of up to 1,000 percent or more, investing in early stage opportunities is a risky business. The majority of new products or companies simply fail to make it, so investing in startups takes a high risk tolerance. It takes someone willing to take a risk and lose their entire investment in the hope of a big payoff.
That said, there are several different types of risk associated with early stage investing, including:
Loss of Investment
Obviously, the biggest risk of investing early in opportunities is losing all of your money. Many startups fail completely or manage to survive with little to no growth ad profits. In these cases, you will most likely lose your entire investment.
Another risk is illiquidity of your investment. Even if your chosen investment opportunity does prove successful, it may take years to exit your position and see your money again.
As an early stage investor, you also run the risk of dilution. Since startups tend to have several rounds of funding to continue raising capital, new investors may also receive a share of the equity. This means the issuing of additional shares, which dilutes the ownership percentage of current investors.
Bottom Line on Early Investment Opportunities
Getting in on the ground floor of an investment opportunity can yield tremendous gains and explode your wealth virtually overnight. However, it might take several years to get to this point, if you get there at all.
The fact is most startups fail. To succeed as an early stage investor, you need a high risk tolerance and the right opportunity.
The good news is there are plenty of opportunities out there. With the right due diligence and risk appetite, you can discover the next goldmine and reap the rewards.