How you can invest in start-ups

Did you ever hear about someone who joined a company in its infancy who then, some years later, received a windfall when that company got bought or IPO’ed?

Incredibly, at the age of 30, a friend of a friend became a millionaire when, iZettle, the company he worked for, was bought by PayPal. I guess anyone that joins a start-up always has this hope, somewhere in the back of their mind.

Until more recently, you had to be one of these pioneering employees, an Angel Investor or, later down the line, a Venture Capitalist to get a piece of the start-up sale pie. That was before the arrival of crowdfunding platforms like Crowdcube and Seedrs.

What is crowdfunding?

For some reason, I always thought of the crowdfunding definition as something close to philanthropy. “Pledge £100 and we’ll send you a t-shirt”, being the sort of thing you get on Kickstarter. But Crowdcube and Seedrs are different. You genuinely own a stake in the businesses you choose to invest in.

Of course, investing in start-ups is risky- there’s no denying that. Don’t forget that 60% of new businesses fail within their first three years of trading. But with greater risk comes greater reward. For those businesses that succeed i.e. get acquired or IPO, the returns can be astronomical.

Which companies have been successful since crowdfunding?

Crowdfunding success stories include challenger bank, Revolut, which raised a round of funding via Crowdcube back in 2016. Just two years later, in April 2018, Revolut raised a further $250m, which valued the company at $1.2bn and rendered it a unicorn. Crowdcube investors were at this stage given the option to sell a portion of or the entirety of their shares for 19x what they had purchased them for: a phenomenal return on investment!

In December last year, I was one of 36,000 individuals who invested in Monzo. Having used Monzo for some time now, I’ve gone #fullmonzo and made it my main bank account into which my salary is paid etc. I’ll write a post on why I love Monzo so much soon. For now, all I’ll say is I’m very confident this will be a fantastic investment over the next few years.

Seedrs vs. Crowdcube

In my view, it’s smarter to focus more on the start-up you’re thinking of investing in, rather than the platform they’re using to crowdfund. That being said, there is one big advantage Seedrs has over Crowdcube and that is the ability to sell on your shares before the company you invest in has been acquired or floats on the stock market, via Seedrs’ Secondary Market. That’s important for anyone who needs the option to be able to liquidate their holding, or simply invest over a shorter period.