How to Invest in Tech Startups

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Contributor, Benzinga
October 13, 2023

Just like California was flooded with gold prospectors, the private equity market is filled with investors and venture capitalists looking for the next big score. The tech industry is always pushing the envelope and expanding, and big tech has developed ways for retail investors like you to buy into tech startup communities.  

Ready to invest in tech startups? Learn more now with Benzinga’s guide.

Why Invest in Tech Startups

There is scarcely an industry in the world that hasn’t been radically changed by technology in the past 20 years. These changes will likely become more profound in the years to come. 

Thanks to tech startups, you can use your phone to do any of the following things:

  • Watch TV and movies
  • Take professional quality photos
  • Bet on sports
  • Browse the internet
  • Invest in stocks
  • Shop for anything from cars to houses and insurance
  • Play video games
  • Send money to anyone in the world

This is possible because of a constant stream of innovations brought about by the tech industry, and innovation and money go hand in hand. Any company that’s able to advance an existing industry, or invent a new industry through technology, is going to be profitable. If you’re able to invest in that company early, you could literally make more money than you can dream about. 

Just imagine how healthy your portfolio would be if you were an early investor in a company like Google or Paypal. The potential of companies like these is a reason to consider investing in a tech startup. Even if it’s only a small part of your portfolio, a solid investment in a tech startup can literally change your life. 

Where to Find Tech Startups to Invest In

The problem with finding tech startups is that most of the hottest startups don’t look for money where you are. It’s not as if you’re just driving down the freeway and see billboards advertising equity in tech startups the same way you might see for a new home development or a shopping mall. Most tech startups get their initial funding in the venture capital (VC) or private equity markets. 

There was a time when you need to know business owners, review their business models in secret or hear about business plans through the grapevine. The startup ecosystem was built around a business idea and some friends with cash. Look at Jeff Bezos. He borrowed money from his parents to get started. The same was true of The Limited and Les Wexner. That’s not the case anymore.

In fact, you may not have seen a return on investment until the firm became a public company. Today, a successful startup needs a ton of money at the outset and a business partner or two.

Historically, both of those financing options are closed loops, with access to them determined mostly by personal or professional connections. If you lack those connections, it can be hard to find tech startups at the earliest, and most potentially lucrative, stage when you can get the most equity for the least amount of money. However, the sheer volume of capital necessary to get tech companies off the ground has opened the door to retail investors. 

Online Equity Investing Platforms

Online equity investing platforms have created an incredible opportunity for even retail investors to get in early on tech startups. Even though you may not be a venture capitalist, these platforms give you a chance to buy equity shares of exciting startups or funds that specialize in tech startups. 

Alumni Ventures, a well respected investing platform, has focused funds that specialize in several key areas of the tech sector. Specifically, it has an artificial intelligence (AI) focused fund, a blockchain focused fund and a deep tech fund that seeks out disruptive technology ventures like Uber, which disrupted the taxi industry. 

Wefunder is another investing platform that has a number of high-quality offerings in a wide range of tech-oriented businesses. Unlike Alumni Ventures, which has fund managers who choose the investments, Wefunder puts you in the driver’s seat. You can browse their offerings and put your money into whichever startups you believe have the most profit potential.  

The good news is that the tech industry, which exists to expand and push the boundaries of what’s possible, has created an ecosystem that allows retail investors like you to join the club. You no longer have to be a venture capitalist to buy into tech startups. That means the only thing stopping you from investing in tech is you!

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How to Choose Which Tech Startup to Invest In

Tech startups have many obstacles to their growth, and most of them won’t survive. This makes picking tech startups an inherently risky business with a high failure rate, but any experienced investor will tell you that the high risk comes along with high reward. 

When it comes to picking tech startups as a retail investor, it’s probably best to get some input from people more experienced than yourself. That’s why buying into VC funds or other types of funds that specialize in tech may be better in the long run than trying to decide which tech startup will boom and which will bust. 

Without the benefit of the experience and knowledge VC investors bring to the table, you’re taking shots in the dark when investing in tech startups. If you’re determined to go it alone, your next best option is offerings from online investment platforms that also have an equity share in those offerings. At a minimum, the professionals who run those platforms have done a high level of due diligence on their offerings.  

Invest in Tech Startups Today

Tech startups carry risk, but that’s the case with all investments. The fact that almost every business in the world becomes more dependent on technology every day makes it impossible for any serious investor to ignore the tech sector. 

If you’ve been thinking about investing in tech, you’re likely on the right road because cryptocurrency, biotech, supercomputers and the internet aren’t going anywhere. Start with Benzinga’s recommended funds to invest in tech startups today.

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See also: How to Invest in Startups

Frequently Asked Questions

Q

Should I invest in tech startups?

A

Tech startups can offer high potential for growth and returns, but they also come with significant risks. It is crucial to thoroughly research and analyze the specific startup, its market potential, team expertise, and financial stability before making any investment decisions. Additionally, diversifying your investment portfolio is advisable to mitigate risks associated with investing in startups.

Q

Is it profitable to invest in startups?

A

Investing in startups can be profitable, but it also carries a high level of risk. Startups have the potential for significant returns on investment if they are successful, but the majority of startups fail. Therefore, investing in startups requires careful research and a willingness to accept the possibility of losing the investment.

Q

Is it risky to invest in startups?

A

Yes, investing in startups can be risky. Startups are often in the early stages of development and may have limited track records or unproven business models.

About Eric McConnell

Eric McConnell is an alternative investment writer interested in rare collectibles, fine wines, art and sports memorabilia. He developed his love for sports during his childhood, where in addition to being an aspiring professional baseball player, he was an avid baseball card collector and reader of the Robb Report.

As is the case for many aspiring young sluggers, Eric’s baseball career came to an end the first time he encountered a pitcher capable of throwing 90 mph and a wicked curveball. However, his delight in the finer things of life never waned, and after a career in real estate, Eric branched out into writing, where he joined Benzinga as an alternative investment writer in 2021.

Although he covers breaking news in all areas of alternative investments, Eric’s favorite subjects harken back to his childhood days of reading the Robb Report and collecting baseball cards. He has a passion for writing about fine art sales, whiskey auctions and sports memorabilia.