Investing in startups is often a risky but rewarding venture. If you invest in the right tech startup and it gains incredible success later on, you get to reap incredible rewards for your investment. However, if the startup fails or crashes because of some reason, it can mean a direct loss of all your investment funds. This duality of startup investments is what keeps many investors wondering if investing in them is the right choice.
According to Richard Fox, one of the industry’s leading investors and entrepreneurs, investing in the right tech startups is worth the risk considering the path our world is evolving towards. There are several pros and cons of investing in late-stage tech companies but unfortunately, many investors are unaware of them and go blindly investing in startups without doing any prior research.
If you too are an individual who is looking to invest in tech startups that are in their late-stage funding rounds, but don’t know what aspects you should consider, then don’t worry because we have you covered. In this article we will be listing several pros and cons of investing in late-stage tech companies that will help you make an informed decision. Read the article till the end so that you don’t miss out on crucial details.
You get the company’s stocks!
The best thing about startups is that most of them allow you to buy their stocks as investments before they go full public with their business. You can buy these stocks just as any other company’s stocks without any problem as long as you have the investment to back them. When the startup goes full public with its business and starts growing, these stocks can tremendously increase in value.
You are looking at returns that are 10x to 100x the times of your initial investment depending on how successful the startup gets. You might need to wait a few years for the startup to mature and achieve success but if you invest in the right startup, the wait is often worth it. Having a majority of the startup’s stocks also gives you premium access to the startup’s board and a say in the company’s major decisions.
You get an idea of the startup’s growth potential
Investing in the late-stage of a tech startup gives you a fair estimate of how successful the company is going to be in the coming future. The late stage of any company is when the company has developed substantially and its product has already hit the market. This stage is the closest you can get to predicting a startup’s future because after the late-stage is done, investors miss out on the opportunities that funding rounds offer.
That’s why investing in late-stage tech companies is considerably less risky than their early-stage counterparts simply because you have a better grasp of how successful the company’s product is, how effective their business plan is turning out to be and how much the users are liking the startup’s product.
You get to invest in a company for your own fulfillment
The best thing about investing in a late-stage tech company, or any new company for that matter, is that you get to invest in an idea or product that you personally believe in. There is a unique sense of fulfillment when you invest in companies like these and they grow to be extremely successful and popular.
This unique feeling can only be achieved when you invest in startups because seeing an idea rise from its seed form and transform into a growth that doesn’t have any limits is something that cannot be felt with any other investments. While it may not sound like much of a financial advantage or pro, we strongly think that the very idea of watching your investment grow in this manner is an irreplaceable and priceless feeling.
You are forced to buy stocks
While one of the most major advantages of late-stage companies is that you get to buy their stocks, it is also a major disadvantage from a particular point of view. Buying startup stocks may sound like a lucrative deal at first considering how cheap you can get them, but there are several problems that come along with these investments that every investor should know about.
Firstly, these investments are strictly illiquid and take a considerable time to mature. Once you invest in these companies, you can expect your money to be tied up for at least 3-5 years till the company goes public and matures. Secondly, all startup investments, even those done in the late-stage, are still super risky. About 90% of startups fail and there is a very large chance that whatever money you invest in them goes to a total loss.
You miss out on early exponential returns
Another problem with investing in late-stage tech companies is that even if they do get extremely successful and popular, you miss out on tons of investing chances that you could have otherwise gotten if you had invested in the company when it was in its early stage.
The stocks for these companies at this stage are available at extremely cheap prices mainly because the company itself doesn’t know if their product will be successful or not.
There is still a chance that you can go in loss
Many investors believe that investing in rising late-stage tech companies is a literal guarantee that your investment is going to be successful because of the growth rate of their business and products. While we do agree that most of these companies end up being successful major companies and you get tons of return value on them, there is still a considerable chance that they end up shutting down because of a sudden problem.
It is not uncommon and in the business world it happens all the time. As a startup investor, it is your responsibility that you acknowledge this risk and only invest money that you are okay with losing.
There are several pros and cons of investing in a late-stage tech company and we hope this article was insightful for you in realizing most of them. If it was, please consider following our website for regular updates as it will help us out immensely.