Download now: Gold and Silver Mining Stocks

Investing in Start-Ups

If you've ever faithfully watched a company go from small start-up to booming public success, you may have wondered if you could have gotten in on the action in the early stages, when you were one of just a few who knew it would do great things.

More often than not, it's the angel investors that get in early — the wealthy, early-stage investors that bet on a start-up in exchange for ownership or convertible debt.

For the average investor, this may not have seemed like an option. After all, in order to make a significant enough investment in the early stages, a decent sum of money is required.

But this is no longer the case. On April 5, 2012, the Jumpstart Our Business Startups Act, or JOBS Act, was signed into law.

This law gives average investors a power they never before had: it enables the process of crowdfunding.

Before, crowdfunding was possible in a very limited sense. The investments would be considered donations, and the investors could not legally receive equity shares.

Under the Act, small businesses can raise up to $1 million a year in crowdfunding, or small, compiled investments from multiple investors, in exchange for equity shares.

Now average investors — not just the big boys — can profit from these promising start-ups.

How to Crowdfund

The easiest way to get involved in crowdfunding is through websites that connect small investors with start-ups.

Others allow you to make angel investments or even smaller investments.

If you choose to invest this way, do you due diligence to ensure your investment is secure and the site is legitimate.

Here are some websites to consider.

Wefunder

Wefunder is one of the companies awaiting the crowdfunding portion of the JOBS Act to kick in at the start of next year.

After 2013, Wefunder investors have been able to actually purchase stock in a start-up for an amount of their choice, starting at $100.

The average person can invest between $100 and $5,000 in their favorite start-ups. Accredited investors (who have over $1 million in assets or make more than $250,000 annually) can invest even more: between $10,000 and $250,000.

The site allows investors to discuss the companies among one another, and it will offer weekly investment tip videos from professional investors.

Learn about Wefunder here.

MicroVentures

MicroVentures is a website for angel investors.

With MicroVentures, investors can contribute anywhere from $1,000 to $30,000 to a start-up company in exchange for equity.

MicroVentures acts as an investment bank for peer-to-peer investing. The money will be removed from the investor's account upon their contribution and stored in U.S. Bank. If the venture capital target is reached, the money will then go to the company. If not, it will be returned to the investor in full.

Investors interested in MicroVentures must first complete an application questionnaire to see if they qualify before they are approved for investing.

In turn, start-up companies receiving investments through MicroVentures must send semi-annual updates to the shareholders.

The site acts as a sort of filter to make sure both the investor and the company are secure.

MicroVentures helped now-public companies like Facebook (NASDAQ: FB) and Yelp (NYSE: YELP) raise capital.

You can learn more about MicroVentures here.

Grow VC

Grow VC connects users from over 190 countries in an effort to help companies raise up to $1 million.

It allows investors to invest smaller amounts than MicroVentures, though in this case crowdfunding cannot be done in exchange for equity. However, angel investors can also get involved in Grow VC for larger investment sums.

Users choose a micro investment subscription plan to begin donating, anywhere from as low as $20 a month.

But users can also make a free account to get to know the companies and opportunities Grow VC offers. They can follow companies to learn more about them and their business plans.

Grow VC users can offer advice and feedback to the start-up companies, commenting on their profiles and business models, and more qualified investors can offer their professional advice through the site.

Grow VC has already helped companies raise over $34 million in venture capital.

Learn more about the company here.

If none of these sites seem right for you, keep looking — there are plenty more out there.

And if you want to get even more involved, you can try joining an angel network. Look around for one closest to you. Angel networks consist of a small group on investors interested in raising investments for startups, and they often meet in person to get a feel for the companies and discuss investments.

The Baltimore Angels Network, for example, meets one Tuesday a month, and investors pay an annual fee of $250. The group invests in companies with a pre-money valuation of $500,000 to $5 million and seeks to raise between $50,000 and $1 million.

You can also attend networking events on your own, meeting startups and getting involved with the small businesses of your community.

Make sure to do your own due diligence in deciding what is best for you. Since less information is readily available with these types of companies, investing in startups requires a lot more research than investing in publicly traded companies. And the risk is certainly higher.

But if it's ever appealed to you, there are plenty of ways for you to start getting involved. 


Related Articles

Only Invest in Car Companies that Build Electric Cars

If you're looking to invest in a car company, stay away from any that aren't actively building out their electric vehicle fleets.

The iPhone: Tomorrow's Flip Phone

Just like the Macintosh, the iPhone changed the cell phone industry. Suddenly, everything else was obsolete. Now, the next big thing is here.

Three Reasons Amazon (NASDAQ: AMZN) is a Screaming Buy

Buybacks, bots, and brick and mortar: Amazon takes its recent stock sell-off in stride.

Tech Investing 2016

The Consumer Electronics Association has somewhat shifted its focus away from trendy gadgets and into the bigger trends: driverless vehicles, the Internet of Things, and drones.
Buffett's Envy: 50% Annual Returns, Guaranteed