We live in a time and age when we cannot imagine a society devoid of technology. From your early-morning coffee to your late-night read, everything is a product of innovation. And tech startups are the inventors, propagators, and drivers of this change.
Given that leading angel investors and venture capitalists are increasingly investing in tech startups, one may wonder if it is a one-time upswing in response to the global pandemic or a ripe long-term opportunity to grow your wealth. To eliminate the confusion surrounding this topic, here are some notable advantages of venture capital and investing in tech startups in 2021:
Larger Share Volumes
In the initial stages, tech startups require an affordable capital investment to start operations. As a result, if you are investing in a tech startup in the early stages, you can get more value for your investments by holding larger shares or gaining larger ownership. Consequently, the large investment volume will translate into higher profits when the startup gains traction.
In contrast, if you were to invest in large tech companies, your share of the investment will be relatively minuscule.
Enhanced Social Capital
In continuation with the above point, it is also worth noting that the investment you make towards a tech startup, when contrasted with the investments in a large corporate, will contribute to social capital – the core driver behind impact investing.
Your contribution could help innovative startups discover new solutions that someone may not have thought of! Almost all modern-day startups are chasing socially relevant goals of discovering ways to help humanity and simplify their lives. It also unlocks the opportunity to invest in a tech startup whose objectives may align with your personal values and goals.
Experienced investors are well aware that they must diversify their investment portfolios to mitigate risks and balance opportunities. Ideally, a diversified portfolio must contain a hearty mix of investments across all sectors and all verticals.
As a result, no matter how lucrative it may be to invest only in large companies, you need to take some amount of risk. Similarly, investing purely in industrial sectors like consumer goods or financials will skew your portfolio. For a diverse and balanced portfolio, prepare a mix of consolidated businesses and upcoming startups in the tech industry.
While investing in established and financially sound companies promise stable returns, the proportionate return is quite tame. But as the saying goes – high risks, high rewards.
So if you have a risk appetite bordering on the higher side, investing in startups can be your ticket to gain accelerated returns. Of course, there is no knowing how the startup may wind out, but that’s where your expertise comes in.
Enterprises like Uber, Facebook, Airbnb are testament to the potential that tech startups can reach. To put the returns in perspective – if you had invested USD 1,000 in Airbnb in 2009, your returns would hover around at an impressive USD 2 million right now!
Room for Growth
Did you know that Amazon started off as an online bookstore? And with time, it evolved into an eCommerce giant that sells anything, from floss to gaming PC parts!
And Amazon is not the only shining example in this regard. Nintendo, a popular Japanese consumer electronics manufacturer, also ventured into food and hospitality and owned a TV network!
Startups are generally poised for scalability, growth, and diversification. As tech startups do not have to invest extensively into the infrastructure of their venture, they are more flexible and ready to pivot as per the market requirements. By their very nature, they are progressive and innovative, not to mention that they are technologically adept, which allows them to grow and adapt on demand. As a result, they are more resilient, with ample room to diversify their operations across various segments.
Governments and local regulators are always finding ways to incentivize entrepreneurship to boost the economy. And in the pursuit of offering startups a thrust, they often declare tax breaks, deductions, and rebates to attract more investors.
Such sponsored initiatives can prove to be highly beneficial in two mutually beneficial manners. First, investors will pay lower taxes on capital gains, making the startup an attractive investment destination. And second is that tech startups have a deep and penetrating effect on the economy, offering a cyclic stimulus in growing the startup and the industry that harbors it. This positive feedback loop is yet another way to extract more value from the tech startup investment!
Tech startups have immense potential to revolutionize their respective industries. Hence, it would only make sense to make the best of the opportunity and harness profits. Even if profit-building is not your primary goal, it allows you exposure to social causes and innovation like never before. Hence, it goes without a shred of doubt that investing in tech startups is the way to go in 2021.