So, without further ado, let\u2019s get started. <\/p>\n\n\n\n
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How Can I Invest In Startups?<\/h3>\n\n\n\n
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As an individual investor there are a number of ways you can invest in startups. Unlike larger companies, very few startups will be listed on public stock exchanges \u2014 as they\u2019re still private companies \u2014 which can make the process of investing a little more complicated. While the risk of investing in early stage companies is greater, there can be considerable upside if the business you invest in early performs well. <\/p>\n\n\n\n
Direct Investment<\/h4>\n\n\n\n
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When startups are first created, founders will typically need money to get the business off the ground. Some will finance the business themselves, building the business alongside another job. Others may choose to loan money from the bank if they’re able to get approved for a loan. Many entrepreneurs choose to sell shares in the business in exchange for capital, often from angel investors. <\/p>\n\n\n\n
Angel investors typically invest directly into businesses, interacting and negotiating with the founders personally and handling their own due diligence and legals. For founders, finding and agreeing angel investment is a time intensive process, so they will normally only accept investments of \u00a310k and above. For angel investors, investing directly can be very high risk as the businesses are often at an early stage, and all due diligence needs to be completed by the investor. Hiring lawyers makes the process expensive, so typically angel investors will only invest directly if they want to be directly involved with the business, and are investing a large amount of money. <\/p>\n\n\n\n
So, where can you find startups looking for Direct Investment? High Net Worth and Sophisticated Investors can meet businesses to invest in directly on Republic Europe Private Deal Room<\/a>.<\/p>\n\n\n\n <\/p>\n\n\n\n Individuals may want to invest in a business because they love that brand, they are a customer of that business or because they believe in the idea or mission that the business is on. If these brands look to raise funds, then these individuals may be able to buy shares through a community fundraise on a platform like Republic Europe. When you invest in a community fundraise, the platform\u2019s legal entity (Seedrs Ltd) is the shareholder in the investee business, and full beneficial ownership of the shares is given to the underlying investor. Investors exchange money for equity in the business via Republic Europe, and so share in the potential success of the business in the future.<\/p>\n\n\n\n <\/p>\n\n\n\n As the platform you choose pools investment from lots of individual investors, you can buy shares for as little as \u00a320. The platform ensures that everything the company shares in its pitch is \u2018fair, clear and not misleading\u2019 \u2014 and runs basic background checks to ensure that the founders and business are above board. We encourage all investors to do their own research and complete their own due diligence before making any investment decisions. This ensures that the investment decision you make is well-informed.<\/p>\n\n\n\n Community fundraises are a way that you, as an individual investor, can invest in businesses that you know and love, and have the opportunity to share in their potential success, from as little as \u00a320. <\/p>\n\n\n\n Eligible individuals can invest in a business’ community round, once they have set up a Republic Europe account. If you\u2019re interested in learning more about the types of businesses who are looking for investment from their communities, you can see live investment opportunities here<\/a>.<\/p>\n\n\n\n <\/p>\n\n\n\n Some businesses will choose to raise funding from institutional investors, like Venture Capital (VC) firms. VC firms raise capital from investors to invest in a portfolio of early stage startups that they believe will succeed, and work with the businesses to help them do so. The money VC firms raise is pooled into funds that are invested as per each fund\u2019s investment strategy.<\/p>\n\n\n\n Investing in a VC fund is different to investing in an individual business through a community round or directly, as investors are investing in the full portfolio of companies that the fund invests in. One benefit of this is that an investment in a VC fund is diversified across multiple businesses, rather than all invested in one. While VC firms aim to identify the best opportunities and minimise risk, investing in startups and early-stage companies is inherently risky, and there is always the potential for loss of capital.<\/p>\n\n\n\n VC funds have a fixed time within which the firm must invest all its capital and return initial investments and any returns to investors. This is typically 10 years, so VC fund investments should be considered just as long term as investments into individual private businesses.<\/p>\n\n\n\n There are a number of different types of venture capital funds, with varying degrees of accessibility for different types of investors \u2014 read more in this article – The Venture Capital Acronym Decryptor.<\/a><\/p>\n\n\n\n These opportunities are exclusively available to investors who self-certify as \u2018High Net Worth\u2019 or\u00a0 \u2018Sophisticated\u2019. Following their self-certification with Republic Europe, they will be able to access a range of opportunities on Republic Europe Private Deal Room<\/a><\/a>, that restricted retail investors cannot.<\/p>\n\n\n\n The world of start ups can often be littered with confusing terminology and concepts, and at Republic we\u2019re committed to demystifying that world, opening up more investment opportunities to more investors. There are a number of nuances and phrases that it\u2019s worth getting familiar with when investing in startups. Here\u2019s what you need to know: <\/p>\n\n\n\n <\/p>\n\n\n\n \u201cPrimary shares\u201d<\/em> are new shares being issued by a company in exchange for equity, to finance growth. In a community fundraise, investors typically purchase primary shares. <\/p>\n\n\n\n \u201cSecondary shares\u201d <\/em>are existing shares that are being sold by an existing shareholder to realise a return. The money paid for secondary shares allows the buyer to invest in a business and receive the same exposure as they would from primary shares, but the funds go to an existing shareholder, rather than to the business to fuel growth.<\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n Investing in a regular equity campaign is the simplest and most common way to invest in a startup. You decide which business you want to invest in, and if the campaign hits its funding target then you will become a shareholder in the business. As the company becomes more valuable, so do your shares; allowing you the opportunity to share in the future success of the business.<\/p>\n\n\n\n Convertible campaigns are often used by businesses when there is a large fundraising round on the horizon, but they want to raise a smaller funding round in the meantime. By offering a convertible, the business doesn\u2019t need to put a specific valuation on their company at that moment in time, and therefore avoids potentially affecting their negotiations with the future investors.<\/p>\n\n\n\n When an investor purchases equity in a business, the purchase price of the equity implies a company valuation. For example, if an investor purchases a 10% stake in a company and pays \u00a310,000 for that stake, this implies that the company is worth \u00a3100,000. <\/p>\n\n\n\n Convertible campaigns avoid the need to agree a specific valuation on the company and instead offer investors a discount (referred to as the \u201cDiscount\u201d). When the convertible converts to equity in the future (usually when there is a new round of funding), it will be converted based on the discount to the valuation at the time of the new round of funding, sometimes subject to a maximum valuation (referred to as the \u201cValuation Cap\u201d).<\/p>\n\n\n\n Investing in a convertible campaign allows you to invest today, with your investment converting into equity in the future, at a discount compared to other investors in the future funding round. This is a very common structure used by angels and VCs all over the world.<\/p>\n\n\n\n While this is the standard approach to convertibles, each one is unique which is why we attach a document to each convertible campaign on Republic Europe outlining exactly what the specific terms are for that particular campaign. We strongly suggest that a potential investor familiarise themselves with this document before deciding to invest.<\/p>\n\n\n\n For example, if you invest \u00a31,000 in a convertible campaign on Republic Europe, and a new investor invests \u00a31,000 at the time of the new funding, you would receive more shares than the new investor.<\/p>\n\n\n\n <\/p>\n\n\n\n All investments carry varying degrees of risk, and investing in early-stage and growth-focused businesses is no different. The main risk associated with investing in startups is that the business may simply fail, and investors won’t get their money back. Due to the potential for losses, this asset class is high risk. You can learn more about the risks of investing in startups in our guide, \u2018What Are The Risks Of Investing In Startups’<\/a>.<\/p>\n\n\n\n When selecting a business to invest in, you should consider a number of factors and do as much due diligence as possible. Platforms like Republic Europe will do some of this work for you, but you should still spend time reading the documentation, familiarising yourself with the structure of the deal and understanding the type of investment you\u2019re making. Some things to look out for include: <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n You can learn more about selecting startups to invest in in our guide ‘How To Select Startups To Invest In’<\/a>.<\/p>\n\n\n\n There are some key considerations when choosing a crowdfunding platform that\u2019s right for you:<\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n Crowdfunding platforms use different legal structures to pool funds from individuals to invest in startups. Some of the options are:<\/p>\n\n\n\n <\/p>\n\n\n\n Seedrs Ltd (trading as Republic Europe)’s managed nominee is a legal entity that acts as a nominee shareholder on behalf of investors in a startup, and is one of the most important features of the platform. <\/p>\n\n\n\n A Special Purpose Vehicle (SPV) is a legal entity that is created for a specific investment purpose. SPVs are commonly used to pool together funds from multiple investors to invest in a single startup or group of startups. An SPV is usually structured as a limited partnership or a limited liability company (LLC), giving investors limited liability protection. This means that the investors are only liable for the amount they have invested, and not for any additional debts or obligations of the SPV.<\/p>\n\n\n\n Whilst often the cheapest and fastest option, off-the-shelf SPVs can be basic and lead to challenges for founders and investors down the road. These will typically be set up on a deal by deal basis, and will have an appointed lead investor for each deal. This appointed individual manages investor rights and administration, and as an investor you\u2019re entrusting that individual to manage your investment effectively. Given the off-the-shelf and repeatable nature of these structures, typically legal documents are templated and customisation and additional review comes at a cost to the individuals administering the SPV.<\/p>\n\n\n\n If you become a regular investor through SPV structures and build a startup portfolio this way, as an investor you\u2019ll be responsible for tracking your investments and will likely be dealing with different lead investors operating through different platforms and communication methods.<\/p>\n\n\n\n <\/p>\n\n\n\n Investing into private startups is a long term commitment. Companies are remaining private for longer, with the average time to exit (from initial funding to a public listing) increasing from three years in 2000 to eight years in 2020, according to data from ThomsonOne.<\/p>\n\n\n\n The majority of startups fail. There are many conflicting figures on the overall percentage that fail, but some quote that up to 90% of new businesses fail. You can learn more about the risks of investing in startups in our risk-focused guide here<\/a>. <\/p>\n\n\n\n Of the startups that do succeed, there are 2 main methods for startups to exit and generate a return for early investors: being acquired or merging with another business through an M&A transaction, or listing on the public markets through an IPO or direct listing. In broad terms, in these situations a valuation will be agreed at the point of sale\/listing, and investors will receive a return on their investment based on the valuation that they initially paid for their shares. You can learn more about how investors can make money in our guide ‘How Do Startup Investors Make Money?’<\/a><\/p>\n\n\n\n For investors that want to realise returns before a full exit event, shares can be sold through a secondary share sale. For direct investors, these share sales are complex, typically have to be approved at board level of the issuing business, and often require the services of a specialised broker (incurring considerable fees). This option is normally only feasible for large shareholders, as brokers in the market will often have a minimum transaction size.<\/p>\n\n\n\n However, thanks to clever legal structures like the Seedrs nominee, some platforms like ours offer more accessible liquidity options that are available to shareholders of all sizes.<\/p>\n\n\n\n The Republic Europe Secondary Market allows buyers and sellers to trade eligible shares in private companies. The market represents an opportunity for early investors in startups and other private companies to potentially realise liquidity before a formal exit opportunity, and is the only fully functioning early-stage equity secondary market in the UK. Shareholders can list their shares for sale in lots as small as \u00a310. You can learn more about the Secondary Market here<\/a>.<\/p>\n\n\n\n For larger shareholders, Republic Europe Secondaries can enable an early exit through Secondary campaigns. In a Secondary campaign, shares are offered to Republic Europe investors and whatever is committed to be purchased is then bought from the original investor through a secondary trade. You can learn more about shareholder secondaries here<\/a>.<\/p>\n\n\n\n <\/p>\n\n\n\n For platforms to offer investment opportunities to individual investors, a certain level of due diligence must be completed. Certain platforms decide to take due diligence a step further, offering investors enhanced protections, and Republic Europe is among them.<\/p>\n\n\n\n Republic Europe\u2019s standard due diligence process requires the fundraising company to verify and disclose information both before the campaign launches and again before the investment transaction is completed. If a founder chooses Republic Europe, it demonstrates that they believe that they have nothing to hide from our enhanced scrutiny. <\/p>\n\n\n\n Republic Europe provides all types of eligible investors with the opportunity to invest in exciting early-stage and growth businesses, structuring deals to ensure that when there are returns, everyone shares in the success \u2013 including investors and founders.<\/p>\n\n\n\n You can learn more about our Due Diligence in Due diligence: The Seedrs Standard here. <\/a><\/p>\n\n\n\n 1 – Use the free text box to enter how much you\u2019d like to invest<\/strong><\/p>\n\n\n\n 2 – Read and understand the investment details and fees:<\/strong><\/p>\n\n\n\n <\/p>\n\n\n\n 3 – Read and agree to the investment agreement<\/strong><\/p>\n\n\n\n <\/p>\n\n\n\n 4 – Click proceed to payment, where you can select your payment method of choice and process your payment.<\/strong><\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n We know that we\u2019ve covered a lot of information in this introduction, and there is plenty more to explore, and so perhaps the best way to get familiar with all the information above is to have a look around for yourself. You can explore the site and then sign up<\/a> for a free Republic Europe account, check if you’re eligible to invest, and start your journey with Republic. Once you\u2019re up to speed on how to invest in startups on Republic Europe, next up we\u2019ll talk about the risks associated with startup investing<\/a> and how you can manage them as a diligent investor.<\/p>\n","protected":false},"featured_media":0,"parent":0,"template":"","categories":[],"class_list":["post-1175","guides","type-guides","status-publish","hentry"],"yoast_head":"\nCommunity Fundraises<\/h4>\n\n\n\n
How do community fundraises differ from buying shares directly? <\/h5>\n\n\n\n
Venture capital funds<\/h4>\n\n\n\n
Investing In Startups \u2014 What You Need To Know<\/h3>\n\n\n\n
What are primary and secondary shares?<\/h4>\n\n\n\n
![\"\"](\"https:\/\/investors-site-cdn.seedrs.com\/investors-site\/wp-content\/uploads\/2023\/09\/15131753\/Guide-2-How-to-Invest-in-Startups-type-of-share-graphic.jpg\")
<\/figure>\n\n\n\nWhat is the difference between an equity round and a convertible note?<\/h4>\n\n\n\n
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<\/figure>\n\n\n\nWhat are the risks of investing in startups?<\/h3>\n\n\n\n
How To Choose A Business To Invest In<\/h3>\n\n\n\n
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How to choose which crowdfunding platform is best for you<\/h3>\n\n\n\n
Legal structure<\/h5>\n\n\n\n
Managed Nominee Service<\/h6>\n\n\n\n
This structure is used in private investing to simplify the process of managing multiple investors in a single startup. The managed nominee holds the shares on behalf of the investors, and is responsible for managing the administrative tasks associated with the investment, such as receiving and distributing dividends. In short, this means that investors do not need to worry about administering their investments. Republic Europe ensures that their investments are protected using both the statutory provisions afforded to shareholders as well as the professional, contractual protections that are in place under our subscription and shareholder agreements with each company. You can read more about our nominee structure here.<\/a>
One of the key benefits of the Seedrs nominee is powering the Secondary Market. As the nominee is the legal shareholder of all investments made by platform investors, we can enable trading within the structure by transferring beneficial ownership between underlying investors. The Secondary Market, powered by the nominee structure, is solving the liquidity problem of private investing. You can learn more about the Republic Europe Secondary Market in our guide here<\/a>. <\/p>\n\n\n\nSpecial Purpose Vehicles<\/h5>\n\n\n\n
Key Considerations When Investing in Startups <\/h3>\n\n\n\n
Liquidity and Exit Timelines<\/h4>\n\n\n\n
Due Diligence<\/h4>\n\n\n\n
Investing on Republic Europe – What Is The Process?<\/h3>\n\n\n\n
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<\/figure>\n\n\n\nWhat Happens After I Click ‘Invest’?<\/h4>\n\n\n\n
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