How to Invest in Startups: 7 Companies That Can Help You Get Started

Apple. Google. Amazon. These giant companies all started small, and early investors made it big. Although investing in startups used to only be an option for the ultra-wealthy, regulators have eased up on small businesses in the past decade, which makes it possible for everyday people to invest in startups through crowdfunding.

Whether you have $200 or $200,000, a variety of platforms allow you to invest in a portfolio of early-stage companies. Investing in a new business can be a great way to earn passive income.

You should be aware, however, that investing in startups is risky. Not every startup will grow to become successful, and you could lose your investment if a company goes under. Therefore, look at investing in startups as a way to diversify your portfolio with alternative investments rather than as your sole investment strategy.

This is not investment advice, be sure to do your own research if you're going to invest.

Who can invest in startups?

There are some limits as to who can invest in startups and how much you can invest. Let’s talk about the requirements for both accredited and non-accredited investors.

Accredited investors

Some startup crowdfunding platforms only allow accredited investors to invest in startups. An accredited investor is any person who meets one of the following requirements:

• Earns at least $200,000 per year (or $300,000 combined with a spouse) for the past two years and expects to do so again in the current year
• Has a net worth of at least $1 million, either alone or combined with a spouse
• Holds a Series 7, 65, or 82 license in good standing

If you’re an accredited investor, there are no legal limits on the amount you can invest in startups, though some platforms may have a maximum investment.

Non-accredited investors

Though non-accredited investors can invest in startups on some platforms, there are limits on how much you can invest. The amount the Securities and Exchange Commission (SEC) allows you to invest is based on your income and net worth.

If your income and net worth are $124,000 or higher, you can invest up to 10% of your income or net worth, whichever is higher. For example, if you earn $124,000 and have a net worth of $500,000, you can invest up to 10% of your net worth — that’s a limit of $50,000 in a one-year period.

If either your income or net worth is lower than $124,000, you can only invest 5% of the greater of your income or your net worth, or $2,500, whichever is higher.

5 startup crowdfunding platforms to consider

If you have limited funds and an appetite for high-risk, high-reward investments, several online platforms allow you to invest in startup businesses. Each one works a little differently, and the best one for you will depend on your desired strategy and budget.

Here are five companies that allow you to invest in startups:

• StartEngine
• WeFunder
• Republic
• AngelList
• MicroVentures

1. StartEngine

StartEngine is an equity crowdfunding platform that has raised more than $700 million for hundreds of companies since it was founded in 2011. You can start investing with little money — some startups don’t have a minimum investment. Most of StartEngine’s offerings are common stock, but you can also find companies fundraising through convertible notes, debt, or revenue shares.

StartEngine also acquired the popular crowdfunding platform SeedInvest in 2023. If you had a SeedInvest account and portfolio, it would have been automatically transferred over to StartEngine.

2. WeFunder

Since 2012, WeFunder has raised more than $500 million for thousands of companies. The platform allows you to invest in a variety of companies, from local businesses to new technology.

You can get started on WeFunder with as little as $100, and many companies offer perks to investors, such as discounts and early access to new products. Investment options on WeFunder include debt, convertibles, and stocks, both with and without dividends.

3. Republic

Republic is an online crowdfunding investment platform that has been around since 2016 and has helped raise more than $2.6 billion for more than 2,500 ventures.

Republic offers a wide variety of investment options, including equity, future equity, digital assets, debt, revenue shares, and hybrid securities. While investment minimums vary by opportunity, they can be as low as $50.

In 2020, Republic acquired another NextSeed, which was another popular crowdfunding platform for local businesses.

4. AngelList

AngelList is a website that connects investors with investment opportunities. AngelList, which is only available to accredited investors, offers several different ways to invest. First, you can invest directly in startups and build your own portfolio. Alternatively, you can invest in a venture fund, which is a managed portfolio with multiple different startup investments.

It’s worth noting that AngelList’s investment minimums are higher than some other platforms. You can find opportunities with minimums as low as $1,000. AngelList is also more particular about who can invest — you must be able to prove you’ve either worked for, invested in, or advised a startup before.

5. MicroVentures

MicroVentures is an equity crowdfunding platform with more than 1,200 investment opportunities designed for everyday people. Founded in 2009, the site has raised more than $550 million for startup businesses from more than 200,000 investors. Past investment opportunities have included Airbnb, Slack, and Uber.

You can start investing on MicroVentures with as little as $100. Some of its options include equity crowdfunding for pre-vetted starts for all investors, early and late-stage primary and secondary investments for accredited investors, and secondary trading for both buyers and sellers of late-stage private stock.

Why invest in startups?

Investing in startups could be an opportunity for larger returns than you could see from traditional stock investments. Over the long term, the stock market provides an average return of about 10% per year. A successful startup could yield far greater returns.

Startup investing could also be a way to diversify your portfolio. If you invest primarily in diversified stock and bond mutual funds or ETFs, startups could add a bit of diversification and risk to your portfolio while still ensuring you’re hedging your risk.

Finally, startup investing can be very fulfilling, especially if you find a company you really believe in. It can be exciting to get in on the ground floor of a new company or idea you’re passionate about, not just for the financial payoff but also for the personal gratification.

Risks of investing in startups

Startup investing offers some major benefits, but it also has some important risks to consider. First and foremost, startup investments have a high chance of losing money.

If you invest in the S&P 500, history has shown us you can reasonably expect your investment to increase over time. This simply isn’t the case with startups. In fact, the vast majority of these companies fail. And when a startup fails, its investors aren’t likely to get their money back.

Additionally, if you do earn money on your startup investment, it could take a while for that to happen, and your funds are illiquid in the process. You can’t simply sell off your startup investment in a secondary market like you can public stock shares.

Instead, your money may be locked up for years, with you unable to touch it. For that reason, you should definitely consider startup investing to be a long-term strategy rather than a quick win.

How to choose a startup to invest in

One of the most challenging parts of startup investing is choosing which startup to invest in. Yes, the crowdfunding platforms we discussed can help narrow down your options, but you’ll still have to choose the right investment for you. Here are a few steps to follow to invest smartly in startups.

• Choose an industry you’re knowledgeable and passionate about
• Know the founding team
• Review the numbers
• Get to know the legal documents
• Understand your risks/timeframe

1. Choose an industry you’re knowledgeable and passionate about

If you find a startup with a mission you care about in an industry you have experience with, that can be an indicator of a smart investment for you. It's not advisable to invest in something you don’t understand. If you invest in what you love, you’ll feel good about helping the company, even if it doesn’t succeed.

2. Know the founding team

A business can fail if the leadership team doesn’t have the knowledge or experience to make their idea work. Research the founders’ backgrounds, including their education and previous work experience, to ensure they have both specialty expertise and business experience.

Also, what are their hiring plans? To succeed, the startup may need professionals in marketing, sales, or finance. Ensure there is a plan to fill any gaps in knowledge and experience. You may also want to ask questions of the founding team to evaluate their competency and evaluate their business plan so you have a clear picture of the market opportunity.

Check to see whether there is already buzz around the founders or media interest in the business as well. This can be a good sign that the business could potentially succeed.

3. Review the numbers

The company you choose should have provided fundraising documents with the SEC. These documents are typically available on the investment platforms we mentioned, and you can also search for them in the SEC’s EDGAR database. When doing your research, you’ll want to find out:

• Financial projections for the next several years
• How your investment will be used
• How quickly the business expects to break even
• Any disclosed risks
• Disclosed dealings between the company and stakeholders

4. Get to know the legal documents

You’ll want to check to make sure the startup has the legal aspects of the business in order before you invest. How is the company structured? Does it have the proper licenses and permits to conduct business? Does it have someone doing bookkeeping and paying taxes? Does it have or plan to hire legal counsel? If the startup runs into legal issues after you invest, that could be a problem. Do your research to make sure the company is well-protected.

In addition, review the deal terms for your investment and make sure you understand your rights and how you will receive returns.

5. Understand the risks/timeframe

Startup investing is extremely risky. For example, you might find a thoroughly experienced founder who has even had success with a past company. But that doesn’t mean the new business will be successful. And even if you review a startup’s plans, the business could change course at any time.

Finally, know that you’re in it for the long haul. Most startups won’t undergo an exit for five to seven years or longer. While you may see a return before you reach retirement, you should be comfortable with having your money tied up for a decade. And you should also be able to afford to lose your investment if the business fails.

FAQs

Alternatives to investing in startups

Learning how to invest money in startups is a type of alternative investment that comes with high risks and high rewards, and it’s not for everyone. If you’re looking to diversify your portfolio, there are other options that may be safer for you, including ETFs, mutual funds, and other alternative investments.

If you’re interested in art, consider whether you’d like to own a share in a famous painting. With Masterworks, you can invest in a work of art. You can get started with as little as $1,000.

If that’s not quite the right fit for you, another way to expand your portfolio is to learn how to invest in real estate. Although buying up commercial properties and selling them at a profit isn’t an option for everyday investors, it is possible to invest in property with as little as $10 with Fundrise. The investment platform allows you to invest funds that are allocated across private real estate asset portfolios. You can buy shares of commercial or residential properties. Real estate investors have seen higher average returns than the S&P 500 in the past, but that’s no guarantee of future success.

Bottom line

Every once in a while, a unicorn startup makes it big and leaves investors rich. But startups can fail, leaving investors with nothing. That’s why you should never invest more than you can afford to lose, and you should pursue less risky investments in addition.

When it comes to investing in startups, taking that risk gives a small business owner a chance to succeed. So if you invest in something you care about, you can feel good about doing good for your community, even if you don’t make out with millions.

If you want to explore other ways to easily invest from your smartphone, check out our roundup of the best investment apps.