One of the things that people enjoy most about early-stage investing is getting in at the ground floor of something really exciting. Rather than just analyzing PE ratios and balance sheet strength, early-stage investor are typically investing in the products and technologies of the future.
One of the other things that makes it special, is that you often get to meet, speak with, or even advise the founders that you are investing in. You’re investing in more than just a product or a patent, you’re investing in a team and a vision. You, as an early-stage investor, are literally changing the future!
A few of the things that make early stage investing attractive include:
Relationships - early stage investors have the opportunity to develop great relationships with founders if they can be helpful. And today’s startup founder might be tomorrow’s Elon Musk.
Board Opportunities - Would you like to be on the board of a high-growth, exciting tech company? Being one of their early investors is a great way to be considered for the board. This experience can be valuable to help you secure other board positions as well.
Financial Returns - Early stage investors are typically purchasing their stock at a price that is 10 to 100 times lower than what the founders expect the company to be worth at maturity. This gives you significant financial upside should everything go as planned.
Preferential Tax Treatment - The PATH Act provides capital-gains tax exempt status on qualified small business investments up to $10 million or 10x your investment.
Uncorrelated Assets - Venture investment returns are typically uncorrelated to the public equity markets, real estate markets, or commodity markets. So adding them to your portfolio can increase the overall expected risk adjusted return of your portfolio.
These are just a few of the reasons startup investing can make sense for accredited investors who would like to increase the return potential of their financial portfolio.