What do investors get from investing in startups?

Investors essentially buy a piece of the company with their investment. They are putting down capital, in exchange for equity: a portion of ownership in the startup and rights to its potential future profits.

Why investors are interested in startups?

Venture investors choose to invest in startup companies (private companies) because they stand to make outsized gains if the company goes public, or if another liquidity event occurs, such as an acquisition by another company.

Do startup investors get a return on investment?

Standard startup investment gets a return only when the startup company generates actual liquid money for its owners by selling its shares. Since it’s all case-by-case, you could offer investors dividends or some other drip compensation, but that’s not the standard.

How do investors see their returns?

Investors see returns in a variety of ways. The sale the company is the most straightforward, if you own 10\% of the company and it sells for $10,000,000 you get $1,000,000 minus debt obligations and fees. If you invested $100,000 you have a 10x and you are happy. If you invested $1,000,000 you are either slightly unhappy or relieved.

How do investors get their money back from investments?

Investors get their money back by selling the investment, IF it is worth as much as they paid for it. But in general the goal of investing is not to “get your money back”, but to get additional money from the success of what they invested in. This usually means dividends or selling off portions of the investment that represent appreciation.

Is investing in a startup a good idea?

That’s unusual. Always compare the investment in your company to what the investor would get with much less risky investments like certificates of deposit or mutual funds. All startups are risky. Investors should expect a higher payoff. Sometimes people invest in a startup for non-monetary reasons, like family support.