SA Crowdfunding Blog

Tuesday, 18 September 2012 10:56

Supporting entrepreneurs through online investing

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Venture capital and start-up investment have traditionally been dominated by the big players. After all, they have usually had more resources to help them choose a good startup business than the others. Moreover, entrepreneurs have traditionally preferred wealthier investors because they get more capital. However, start-up investments are slowly but surely becoming accessible to the average investor. To understand what this means for entrepreneurs and investors, it is important to learn about startup investments first.

Startup investments

The terms venture capital investment, start-up investment, and angel investment are different in their own way, but they share the same common concept, which is that of investing in a new firm or a new product or service that is being launched by a firm. The money that is invested is used as capital by the company to carry out its plan.

If the investment is for a start-up, the money is generally used to begin product of a company until its revenue stream increases to the point where it can sustain its capital. Of course, the investors who provide the money to the company get something in return as well. This can either be a certain number of equity shares in the company or a certain percentage of equity ownership.

Why invest in start-ups and support entrepreneurs

Every year, several entrepreneurs think of new and promising ideas for a business, but fail to turn them into a reality. One obstacle that stops a great business idea from getting into the real world is capital, or the lack thereof. The large money lenders, including banks and financial institutions, are very cautious about funding any business idea, and so, a lot of promising ideas go to waste. However, startup investments or angel investments can help such promising and radical ideas to see the light of day.

As an investor, you can provide the necessary funds to help these entrepreneurs realize their business idea, and the best part is that you can profit from it too. If the business takes off, you can get profits with your equity shares. When the time is right, you can liquidate your shares to cash in on your profits.

Where does online investment fit in?

The internet has already been used for several years as a platform for trading. In the past decade, online investing has become a norm among individual investors, and you can find most brokers offering online services via their own trading platforms. With this kind of convenience in place, it only makes sense to extend an investor’s powers to startup investing. This form of investing has been reserved for wealthy investors, but the internet can allow even the average individual investor to take part in this form of investment.

There are several websites available that act as a community in which entrepreneurs can put up their idea and explain it to prospective investors. They can convince the investors about the potential growth of their business idea and the profits in store for them.

If the investors are convinced, they can choose to put in a certain amount of money into the business. Once the total amount of pooled money is equal to the estimated capital required for the business, the entrepreneur takes care of the rest. Of course, the process of choosing the right startup to invest in is quite tricky, and that is where the risk lies. Despite the risks, the fact is that the right choice can also ensure that you earn a tidy profit from your investment.

The South African business environment has not been very kind to startups that were powered by angel investments, but this is changing rapidly. A growing number of entrepreneurs have begun to trust angel investors and are opting for it as their source of capital. As an investor, you can hop onto the bandwagon and get your slice of the action too.

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