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3 Simple, Unconventional Ways to Invest in Startups

By Dalton Brewster

Startup companies can have the potential to become the next Facebook, Google or Amazon. Being able to invest early in these companies can skyrocket your wealth. For example, if you invested $1,000 in Amazon 20 years ago, then you’d have over $218,000.

While startup investments are riskier, they’re becoming more appealing with the advent of new industries like blockchain and data science. Luckily, you can use several tools like self-directed IRAs, initial public offering (IPO) exchange-traded funds (ETFs) and crowdfunding sites like StartEngine to invest in startups.

Self-directed IRA

A self-directed IRA is similar to a traditional IRA since you can earn upfront tax deductions and save for retirement on a tax-deferred basis. You can also choose to have a Roth self-directed IRA, meaning that you pay taxes on the contribution to earn future tax-free growth.

The biggest difference in a self-directed IRA is that you can invest in alternative investments like real estate, precious metals and startup companies with this account. Alto IRA is one of the more established players in this space, and you can invest in private equity, pre-IPO and other alternative investments.

Alto IRA has partnerships with over 75 partners including AngelList and Republic, which you can access for just $25 per month. It has other fees for wire transfers, account closure and partner investment fees. You can also filter its partner sites based on several factors like industry, investment minimums and accreditation status.

IPO ETFs

IPO ETFs invest in companies that have recently IPO’d or have begun trading on public stock markets. They don’t have holdings in pre-IPO companies, but these ETFs focus on mostly U.S equity. Some IPO ETFs include international holdings, including First Trust International Equity Opportunities ETF (NASDAQ:FPXI), with Goldman Sachs Access Inflation Protected USD Bond ETF (BATS:GTIP) having fixed-income holdings.

These unique ETFs can provide exposure to newly IPO’d companies while providing liquidity and proven track records. Many of these companies have low trading volumes, which limit liquidity and result in lower stock prices.

With ETFs, trading volumes are much higher, leading to more price stability. Many IPO ETFs have been around for several years, making it easier to analyze the fund via important online forms like the 10-K.

Crowdfunding via StartEngine

Many crowdfunding sites for various investment classes like real estate, private equity and startups are available. StartEngine helps everyday investors invest in startups for as little as $100. This platform offers more than 200 startup investments in several sub-niches like aviation and fitness.

Investors can also access presentation decks and research for each investment. All startups on StartEngine have passed anti-fraud and background checks. Regardless, not all company information is available, and these vetting processes aren’t as strict as those that public companies have to undergo.

Bottom Line

Investing early in the right startup can greatly increase your wealth. Investing $1,000 in household names like Apple even just 15 years ago would have resulted in gaining tens if not, hundreds of thousands of dollars.

Startups are even more popular as technology is advancing randomly and new industries like data science are starting to grow exponentially. In the past, it was harder to invest in these companies, but even average investors can access these opportunities via self-directed IRAs, IPO ETFs and crowdfunding sites like StartEngine.

Photo by Austin Distel on Unsplash

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Dive Deeper:
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One subscription that gives you access to news from hundreds of sites
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Get all your news in one place