When investing in a startup company, there are a number of pertinent questions that come to mind. How to buy startup shares? If one has never ventured into the arena of investments before and is absolutely new to buying shares in a startup, then one would most likely be thinking; how to start up in share market? Before taking the leap, it is advisable to equip oneself with some basic knowledge on how investments in a startup work and how to buy shares in startup companies.
It is advisable to bear in mind the fact that though startup investments can be potentially lucrative, there is always the element of risk as a large number of startups fail due to various reasons, insufficient funding being only one of them. Therefore it is always beneficial to do your research on how to invest in startup companies before taking the plunge.
CoffeeMug.ai is an AI-powered networking platform that seamlessly connects individuals, investors, and corporate leaders in the business landscape. Besides assisting the members on board in exploring innovative business opportunities, this global network provides 1:1 mentoring for entrepreneurs and assists them in generating funding for startup businesses.
Investors may opt to buy shares in a startup for various reasons such they may believe in a new idea or envision its potential for growth. In addition, many people choose to buy shares in a company because they are part of a network and wish to be supportive of a project they know or one that is close to their heart. And there are those who choose to invest in startups simply because they enjoy the feeling of fulfilment that comes with it when they have helped someone find a business or start something new and creative.
How to buy shares in startup companies?
If you are wondering how to share equity in a startup even though you are new to investing, you should know that ordinary people can buy shares through one of the numerous platforms that guide one on how to buy shares of startups. There are basically three ways in which you can invest in startups.
Pre-IPO Investment: Private placement of substantial blocks of shares before the stock is listed on a public market is known as Pre-IPO Placement. This allows investors and traders to buy and sell shares of companies before they are listed on the stock exchange. These shares are ESOP’s which have been bought from employees of the concerned companies. In case you are a working professional and do not have the big bucks to go all out, you can work at a company that allows employees to purchase ESPO’s especially if you have faith in the company’s vision and founders.
Pre-IPO Funds: Many potential investors are often in a quandary and have questions on how to buy shares in startups. Well, Pre-IPO Funds is one of the ways in which to do so. In this case, investors invest in late-stage firms that are planning to go public on the stock exchange soon. Investments are usually made in private firms that have a proven business plan and have already acquired funding from investors. Numerous wealth management companies such as Trifecta Capital, Avendus and Edelweiss Wealth Management offer funds to such companies.
Private Placements: Those individuals who are aware of the potential risks and rewards involved in investing may choose to invest by way of Private Placements in the form of common stock, promissory notes and preferred stock. Instead of selling in the open market, the stock is sold to pre-selected individuals and institutions. For those firms in search of funding in order to turn expansion plans into reality, this is an alternative to IPO. A Broker or Professional Wealth Manager or the more commonly known Investment Banker can help one connect with analysing and valuing an unlisted company and ultimately connecting with promoters who hold a certain number of shares.
How CoffeeMug.ai can assist with startup investments?
CoffeeMug.ai is an AI-powered for startups that offers an easy-to-use interface for them to get the right guidance, receive mentoring and explore funding opportunities from interested businesses and individuals. The various features that CoffeeMug provides make fundraising for startups simpler by connecting them with the right people. The platform often works with entrepreneurs at an early stage, assisting them in achieving product-market fit and scaling beyond the first point of the scale.
FAQs
Q. How do you allocate equity in a startup?
A. The process of allocating equity in a startup can be divided into simple steps:
- Divide the shares within the company
- Allocate the shares among the company founders
- Divide shares among the investors
- Divide the option pool into three categories: board of directors, advisors, and employees
- Make a vesting schedule
Q. How much equity should I give up in a startup?
A. In a seed or series A financing, founders often give up 20-40% of their company’s stock. However, depending on a variety of circumstances, the percentage may be decreased or increased.
Q. Who gets equity in a startup?
A. In the beginning, the company founders own 100% shares, but over time, they give away the majority of their equity to co-founders, investors, and employees.
Q. How do I get investors without giving up equity?
A. There are several options of generating funding for your startup without giving up all the equity, such as
- Crowdfunding
- Family and friends.
- Small business loans
- Business grants
- Government loans
