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Building your Investment Portfolio with Startups

If you ask a dozen people, how to build an investment portfolio, you will end up with a dozen different answers. The simple truth is that there really is no simple truth when it comes to structuring your investments. Strategies vary, as do preferences; what’s important is that you do your homework ahead of time—especially if you plan on dedicating a portion of your portfolio to riskier investments such as startups.

Given the array of investment opportunities in public markets, it’s fairly easy to select investments that align with your preferred level of risk. On the more conservative end, for example, there are stocks, bonds, and commodities. Yes, relatively speaking, stocks are more conservative when you consider that on the other side is the higher-risk world of startups. In a sense, these young companies are less an investment in anything concrete, and more an early-stage commitment to support a burgeoning idea—that is, the founding team actually needs your money to try and prove out their concept by building some sort of product (or refining and scaling an already built product).

Decisions in risk-taking are almost entirely personal, but the following considerations surrounding the building of a portfolio—especially one containing startups—are invaluable:

  • Begin with what you know, but don’t be afraid to explore. Lean on your domain expertise. If you know a lot about law and the legal industry, explore the rapidly growing number of legal startups. Avoid feeling compelled to jump on what hot by focusing first on what’s familiar. Blindly throwing money at young healthcare companies may sound safe when it seems that everyone else is doing the same, but it’s not the most well informed decision, nor an investment in which you can critically consider the venture. Don’t shy away from what you don’t know but leverage the resources that will prepare you to make a qualified decision – that certainly starts with what you already know.
  • Stay balanced. Just as you balance your 401k, a diversified portfolio of startup investments should be balanced. Decide how much you want to allocate to specific asset classes, and stay true. Balance helps ward off the losses that might occur and carry more weight in over-emphasized segments of your portfolio, while heightening the chance of seeing satisfactory returns to your other investments. An easy way to diversify is by pooling your investments—yet another reason crowdfunding has become increasingly popular and something MicroVentures makes readily available through the various funds we develop as opportunities alongside direct investment in specific offerings.
  • Don’t be short-sighted. Remember, the return on startups—if there is a positive one at all—will most likely be years down the road. There are glamorous and notable counterpoints to this (of the occasional Airbnb or Uber do exist), but these are few and far between and moreover , there needs to be some sort of “liquidity” event (any type of exit, from a merger to an IPO) before you will see any return.
  • Find some guidance and do your own due diligence (or join a group or investment platform which does). Hunches and “gut reactions” may be all the convincing you need, but remember, there is a wealth of research and data out there that can better prepare you before you make most any investment decision—from how diversified your portfolio should be, to the specific performance metrics of the companies you’re considering investing in. A platform like MicroVentures will do the first round of due diligence for you. We will meet with the team, review their financials, projections, marketing strategy, competition and size of market and provide investors with a summary that they can review when performing their own due diligence.
There are no secrets to building the “right” investment portfolio. But today, given the abundance of available information resources, there is every reason to be educated about your investments—and to begin building your investment in startups.
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