The Importance of Portfolio Diversification in Startups

The Importance of Portfolio Diversification in Startups

A new variety of investor types has been attracted by the prospect of varied investment portfolios owing to the soaring success of equity crowdfunding. Equity crowdfunding has now begun to provide tangible returns for its early supporters.  Although individual appeal is behind these investments – entrepreneurs wanting to support a particular company or admiring their individual products, all kinds of investors have become attuned to the benefits of a diversified portfolio.  Equitise examines the main perks of how investing in startups through equity crowdfunding can enhance your portfolio, no matter how experienced an investor you may be.

Equitise has examined how investing through crowdfunding platforms can, despite initial industry detractors, provide liquidity. ‘Mum and dad’ investors become inured to the essential notion that there is a high risk-high reward component to investing in unlisted businesses. For a first-time investor, startups may prove to be a riskier prospect, despite being a healthy aspect of any investment portfolio.  Before the time of equity crowdfunding, diversification required extensive advisory services, time and nuance. Experienced investors like business angels could diversify easily, so too could wealthy individuals investing via EIS or SEIS funds.

Today, those seeking long-term investments can adopt crowdfunded equities into their portfolio. These investors can typically expect to wait a minimum of five years before seeing returns. It pulls them towards a broader arrange of sectors and industries than hitherto imagined, but this can be off-putting for retail investors. Allocating your divided investment amount towards an array of industries allows for true diversification. Indeed, investors who have wisened up to this save on the typically costly due diligence and fund management fees. Accordingly, larger sums of capital can be apportioned for investment purposes. This additional capital is necessary for the extra fundraising rounds that can occur when your company decides to expand.

Ultimately, equity crowdfunding employs a new array of investor types, the full range from VCs to Angel investors, who legitimise companies and deals in a democratic fashion for which the sector has become renowned.  As equity crowdfunding raises offer reduced capital requirements, retail investors can diversify more easily than ever before, spreading small investments through different businesses, in different industries, at different stages of maturity. Savvy investors understand that diversification is key to responsible investment, and this is now easier than before thanks to equity crowdfunding.

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