💸Economics of startup investing

Investing in startup companies is a very risky business, but it can be very rewarding if and when the investments do pay off. The majority of new companies or products simply do not make it, so the risk of losing one's entire investment is a real possibility. The ones that do make it, however, can produce very high returns on investment.

Let's look at the journey a startup goes through -

Stage 1 - Every startup begins with an idea. In this first phase, they do not yet have a working product, a customer base, or a revenue stream. These new companies can fund themselves by using founders' savings, obtaining bank loans, or issuing equity shares.

Stage 2 - At this point, company founders may pitch their idea to angel investors. An angel investor is usually a private individual with some accumulated wealth who specializes in investing in early-stage companies.

Stage 3 - This is when venture capital steps in. Venture capital can refer to an individual, private partnership, or pooled investment fund that seek to invest and take an active role in promising new companies that have moved past the seed and angel stages. Venture capitalists often take on advisor roles and find a seat on the board of directors for the company.

Fun Fact - Around 90% of startup companies funded will not make it to initial public offering (IPO).