Looking To Invest in Startups? Here’s Everything You Need To Know and Platforms Which Can Help You Do So.
I think we have all heard of Ronald Wayne.
If you haven’t, he actually co-founded Apple Computer Company as a partnership with Steve Jobs and Steve Wozniak.
He then sold his 10% share of Apple Computer Company back to Steve Jobs and Steve Wozniak for US$800. He, later on, accepted an additional US$1,500 to forfeit any potential future claims against Apple making his total exit of Apple shares at US$2,300.
Apple Computer Company is now Apple Inc., and Ronald Wayne’s 10% share could have been worth US$237 billion today.
If you have invested in companies such as Amazon, Google or Apple in their early startup days, you would have profited quite a bit from it. A startup is traditionally defined as a newly established private company designed to scale quickly. These companies are usually less than 10 years old.
Most startups started as very small operations while they develop their initial idea. During this phase, they also actively seek out additional funding from venture capitalists and angel investors as they build out their businesses.
Looking To Invest in a Startup? Here’s a List of Startup Investing Platforms.
If you are looking to be an angel investor of a startup, here are some platforms that can help you do so.
|Platforms To Invest In Startups||Area||Website||Minimum Sum|
|acquity||Only for Grab||https://acquity.io/||Depends on Grab's market price.|
|Angel Investment Network||Global||https://www.investmentnetwork.sg/||Depends on deal|
|AngelCentral||Singapore & Southeast Asia||https://www.angelcentral.co/||Depends on deal
Membership ranges from S$800 to S$5,000 per year.
Portfolio (150 - 200 deals): US$50,000
(Unicorns and pre-IPO)
|https://capbridge.sg/||US$10,000 for single-company funds/ SPVs.
Can go up to US$250,000 for single direct investments.
|Gust||Global||https://gust.com/investors||Depends on deal|
|OurCrowd||Global||https://www.ourcrowd.com/||Depends on deal|
|Republic||Global||https://republic.co/||Depends on deal
Platform-wide minimum is $10, but companies can select somewhere between $50 and $250.
|Start Engine||Global||https://www.startengine.com/||Depends on deal|
|Startupxplore||Global||https://startupxplore.com/||Depends on deal|
|Wefunder||Global||https://wefunder.com/||Depends on deal|
Risks of Being an Angel Investor in the Startup Space
Before you dive right in, trying to spot the next Unicorn startup (privately-owned startup with a valuation of over $1 billion), here are some statistics that you need to be mindful of.
In the year 2019, around 90% of the startups failed.
Research has also shown that
- 21.5% of startups fail in the first year
- 30% of startups fail in the second year
- 50% of startups fail in the fifth year
- 70% fail in their tenth year
This includes 75% of venture-backed startups.
In short, most startups end up running out of money and exit the market with investors making losses from their investments. Hence, it is very important that you only invest money that you can afford to lose completely.
Making Money as an Angel Investor of a Startup
Assuming that the above statistics do not deter you from wanting to invest in a startup, here are some ways where you will profit from your investment.
Like any other long-term investment, the expected time frame for your angel investment can range from 3 years to 15 years, depending on the exit opportunities available.
Here are a few exits where angel investments make money:
- IPO (Initial Public Offering)
This is a situation where the company offers its stock to the public and allow public investments. Most companies that went IPO would have already established themselves to be a leader, or attained significant market share in the industry.
They should also have a proven track record of growth to allow them the confidence of going public.
This is a situation where a bigger company buys a smaller company for various reasons.
The upside of investing in high growth startups is that the returns you can potentially get from the success of some of these startups are exponential.
How Profitable Is Angel Investing?
Like any other investment, diversification is extremely important too.
When it comes to angel investing, the number of startups in your portfolio can help diversify your risk.
AngelList once analysed the portfolios of 10,665 angel investors.
The median Internal Rate of Return (IRR) depends on the number of companies in the portfolio.
Here are some of the findings:
|Number of Companies||Median IRR||Percentage of Investors Who Lost Money|
|1 to 5 Companies||0%||All|
|10 Companies||About 6%||32%|
|20 Companies||About 7%||16%|
|50 Companies||About 10%||11%|
Tax Incentives for Angel Investors in Singapore
There is currently no tax incentives for angel investors in Singapore.
There used to be an Angel Investors Tax Deduction (AITD) scheme, where the government look to incentivise approved individuals to invest at least S$100,000 into the startup scene. These approved angel investors will receive a tax deduction of 50% on their investment amount, up to S$250,000. The AITD scheme has since lapsed after 31 March 2020