Imagine if a complete stranger walked into your office and started pitching his mind-blowing idea to you. Would you trust that man and invest your money in his project? Most people would overwhelmingly agree - no way! But when this exact scenario happened to Mike Markkula in 1977, he trusted the stranger, making Markkula one of Apple's first CEOs. While such investments carry a higher level of risk, "if you'd taken a one-third stake in Apple back then and held on to it, that stake would be worth $190 billion today, based on the company's current market capitalization." (par.2) These Apple-like investment opportunities are extremely rare. But with a growing number of new companies, investors have more opportunities to be part of something with massive potential and may invest in a startup company that will one day become a renowned business.
(photocredit: Andrey Kozlov)
Recent federal regulations make it easier for investors to fund new, innovative startups. According to Ryan Caldbeck, CEO of CircleUp, opportunities that were once reserved for wealthy and well-connected investors are going to become more accessible. In the past, private investments typically required a minimum of $1 million and months of networking. (par.4)
(photocredit: Viktor Hanacek)
CircleUp demonstrates how a company with an innovative idea can achieve great success in the private equity space. A relatively new tech company, CircleUp allows accredited investors (those with at least $200,000 in income or assets valued at $1 million, excluding their homes) the opportunity to invest in consumer-brand startup companies. (par.6) Although the number of startup companies is growing, investing in these opportunities does not guarantee monetary success. In fact, you might not make any money at all.
Clay Christensen, a Harvard Business School professor, insists that in order for a startup to be successful there needs to be an element of 'disruptive innovation', meaning that "almost always they need to either create a huge new market where there wasn't one before, or find a new way to be more profitable serving the least attractive customers of existing markets. If a start-up's ambition is to beat well-established incumbents by building a better mousetrap, their odds of success are extremely low." (par.9) Below are some ideas on how to find disruptive innovation companies:
1) Try crowdfunding
Many great startups have been funded via crowdfunding platforms. For example, "since 2006, Terrafugia has raised over $10 million on WeFunder in order to design and develop the Transition, a flying car that is said to be market-viable and ready to deliver in 2015."
2) Become an angel investor
CircleUp allows anyone who is an accredited investor to become an angel investor in consumer-brand companies. Companies on the platform are currently growing their profits at an average of 80% per year, and a few of them have received investments from venture capital firms. AngelList is another crowdfunding platform to consider: it provides investors with companies that are raising money as well as other investors who might be accepting limited partners in venture capital funds.
3) Remember to be skeptical
Groundbreaking companies like Apple or Microsoft arise only a few times in a generation. Investors should be careful to invest only as much as they can afford to lose. Startup investing is a high-risk, high-reward game, but as the story of Oculus Rift shows, there are many chances for individual investors to become wealthy and successful by investing into the right idea.
Fund Wisdom makes choosing the right crowdfunding platform a much easier process. We help investors and entrepreneurs connect through our aggregated system and compare platform fees across the major equity-crowdfunding platforms. Using the services we provide, you will be able to choose the crowdfunding method that is right for you and watch your business grow.