4 Ways to Invest to Fund Your Startup
In the aftermath of COVID-19, startups are likely to be facing a more difficult landscape when it comes to funding. We suggest starting an LLC which is a business structure that provides the benefit of limited liability protection for company debts and flexible tax options for the owner. How to start an LLC
That’s not to say there won’t be venture capital investment available. As we noted when looking into startup investors with regard to COVID-19 though, some “may tighten investment criteria or stop investing altogether.” Naturally, this is a problem for prospective founders looking to get their companies off the ground.
Again, that doesn’t mean that there simply won’t be investors, nor that those who have slowed down won’t begin to ramp up their activity over the course of the year ahead. In the meantime however, founders who are preparing to launch would do well to consider how they might invest their own money (or money borrowed from friends and family) to establish funds internally.
A few common methods come to mind.
An index fund is a type of mutual fund that is composed of a bundle of stocks and bonds developed to “match or track the components of a market index.” It is in other words a sort of curated portfolio that you can invest in based on an overarching assessment of what it’s tracking — rather than having to invest in stocks individually, or form your own portfolio. There are some cons to the arrangement (such as a lack of direct control over where your money is being invested or when decisions are made). But generally it’s viewed as a simplified means of market investment.
As for the strategy of using index funds to raise capital, it’s a mixed bag. There are bad funds, and even poor strategy investing in a good fund can yield poor results. With the right approach though an index fund can help you to grow some wealth over time, such that you have a bit extra to put into your business.
We’re mentioning gold here because it’s commonly referred to as a “safe” or “reliable” investment — something that might appeal to a prospective startup founder looking to grow a fund without risking much. There’s something to be said for that logic. Gold is not a guarantee, but it rarely swings dramatically, and it can be a means of gradual growth that can make a founder feel somewhat more at ease putting his or her own money into a business.
We should also note though that direct gold investment can be somewhat cumbersome (what with the need for storage, fees charged by dealers, etc.). By contrast, gold ETFs allow you to invest in gold’s price movement without actually buying or selling any. Think of these almost like index funds tracking gold’s value by bundling related assets (from physical gold to mining company stock). It’s a more convenient option for most investors.
For prospective startup founders who really want to minimize risk, and who might have a little bit more capital stored up, high-yields savings accounts are also among the alternative options. These accounts allow you to basically stash some of your own wealth for a prolonged period of time, and earn more interest than you would in ordinary savings in the process. It’s about as simple as that.
Two important things to keep in mind here are that returns are still not lucrative, and your money will be tied up. This is not a means of growing significant wealth with which to fund your business venture. Rather, it’s a way of putting away what you can afford to so that in time, a modest return can help to replenish some of what you’ll have spent on your business in the meantime.
Despite the fact that its value has skyrocketed early in 2021, bitcoin investment is still viewed as a risky prospect — certainly by comparison to the ideas listed above. Cryptocurrency is simply a volatile type of commodity, which ultimately means that one’s investment in Bitcoin can be either lucrative or disastrous. And it’s usually difficult to determine which.
We’re mentioning bitcoin anyway here simply because it is becoming such a trendy asset in investment. Of all of the methods mentioned here, it is far and away the most likely to help a startup founder gain significant funding via personal investment; there’s always that chance. However, it is also the most likely to cause a founder to lose what capital he or she chooses to invest to establish funding.
Personal investment as a means of raising startup capital is an odd proposition, and not the most traditional method. These options are unlikely to solve all of a new startup’s monetary needs, at least in the short term. Founders may need to be a little more creative seeking capital in the aftermath of COVID-19, however, which makes it worthwhile to explore any and all possibilities.
Once you’ve decided on your start-up’s location, the next order of business is to create a brand and logo for your marketing strategy. Luckily, our remote team here at LiftOfff has your back for that.