Investing in companies

As a retail investor, there are several ways to invest in companies. You can trade on stock exchanges or buy shares in a company directly, or invest privately in startups or other unlisted companies through online platforms or crowdfunding campaigns.

Retail investing in smaller companies

retail investing in companiesIf you have some assets, you can use them to become a retail investor. This means that you invest your own (private) funds in companies. Most people invest in the larger companies on the stock market, but beyond that, you can also invest money in a small or mid sized enterprise. These SME-companies can give you good returns as an investor, although investing in companies without a stock exchange listing is risky. It is advisable to spread your risks.

Please note: investing in SME or unlisted companies involves high risks, you may lose (part of) your investment.

By spreading your money over several investments or even several investment opportunities, you run less risk of losing your entire investment. If you end up investing in the new success formula, you can have an attractive return, even when you have had a few other misses.

Investing in startups

If you want to generate more significant returns, you can invest in new companies, like startups. But with investing in startups, there is a real risk that you may never see any return on your investment.

Innovative companies usually have less equity built up, sales of the company are still low and it can take years until a profit is made. This makes investing in startups risky. The chances of something going wrong are high. However, if a startup succeeds, this can generate significant returns for investors.

Seedrs is a platform for equity crowdfunding-campaigns all over Europe. It also includes a Secondary Market, wehere investors can trade their investments.

investing in startups

Risks of investing in startups

Entrepreneurs with startups often invest all of their capital and are not quick to repay financing. Investors who successfully invest in startups, therefore, often focus on equity. If you want to invest in new companies at an early stage, you can participate in stocks or a convertible loan through platforms that operate with equity crowdfunding.

The chance losing your investment in a startup is greater than making a return.

All SME companies can run into trouble, but due to all the uncertainty, the chance of this happening with startups is usually greater than making a return on your investment. Success takes a long time, and in the meantime, these stocks are difficult to trade. Sometimes platforms have a secondary market, but that does not mean you can always find a buyer.

If a startup is successful, however, you can really earn a lot of money with stocks or a convertible loan. A return of a thousand percent or more is truly possible. Because of that, it is quite impossible to estimate the future return on your investment.

Investing in small or mid sized companies

financial advisors so a startup succeedsWould you prefer to generate returns by investing in non-listed companies that are already in a later stage and even making profits? Do you want to see more sustainable companies in the future? Better education? Or should more money go to social organizations?

You can invest your capital in small businesses through crowdfunding. You can truly choose which entrepreneurs or projects to support or to skip, thus making a real contribution to the future of SMEs with your investment.

On crowdfunding platforms, you are shown the risk and return per campaign.

Through crowdfunding platforms and online lending platforms, you can invest in loans for regular SMEs. The advantage for you as an investor is that you are able to see the return and risk per campaign on these platforms. That helps you to decide for yourself whether or not it is a company you want to fund.

Crowdfund loans from companies

Investing in crowdfunding projects on a platform is pretty straightforward. Typically, crowdfunding platforms offer corporate loans through non-negotiable bonds. You invest in a company but do not become its owner. Instead, you lend your money, and your return consists of a fixed interest rate.

Crowdfunding platforms usually have a minimum turnover and age requirements for applicants. Additionally, they assess profitability and repayment capacity. Thus, a serious credit score and risk analysis are conducted in advance. Although the outcome of this analysis remains uncertain, compared to startups, you are investing in companies that already have customers and have been operating for several years.

company loan

Buying shares

If startups are not your thing and if you think the returns on loans are too low, you can also invest in public traded companies by buying shares. You can do this by selecting and purchasing stocks or other investment products on a trading platform. As an investor, this makes you a partial owner of companies. You will then share in the profits and losses.

Companies that are listed on the stock exchange are required to share information about their finances.

Listed companies are required to share a lot of information about their finances. This allows you to quickly discover what a company does and easily determine whether you want to invest in it or not. However, large companies typically inform shareholders retrospectively and with general figures. This means that it is still difficult to have an idea of what is actually going on with the company.

Advantages and disadvantages of investing in stocks

The advantages of investing in stocks are that it is easy to get started and that listed companies usually have a long history and a solid earning model. A disadvantage is that on the stock market, you can only invest in large companies. As a shareholder, you cannot easily take a peek inside these companies.

If you do not have that need, you can invest with even less risk by putting your money into indexes. This way, you spread your investment across all companies on the relevant exchange or index. If one company fails, the impact on your investment is limited. Large institutional investors, such as pension funds or banks, always spread their investments quite broadly.

Open an account directly with Etoro, a large European broker, or with Freedom24, which offers a range of one million stocks, ETFs and options. Investing involves risks. You can lose your investment.

stock market

Stock returns

When you invest in companies by trading stocks, you can potentially earn a lot of money. However, it comes with risks, as you can potentially lose your investment (partially or entirely). But if the company does well, there are two forms of returns. The first is dividends, a kind of profit distribution. If a company makes more profit than necessary for its operations, it sometimes pays out money to shareholders.

In stock trading, you get returns in the form of dividends, or because you buy and sell your share at the right time.

But the company’s value can also increase on its own. Sometimes for rational reasons, such as continuously increasing profits leading to an increase in value, or because the dividend increases each year, leading to an increase in share value. However, supply and demand also influence the value of a stock. If there are few people selling their shares and many people want to buy them, the value increases. You can create this second type of return by buying and selling stocks. If you do this at the right time, you can earn a lot.

Investing large sums of money

An investor using a trading platform to make investment decisionsIf you have sufficient wealth to invest a larger sum, you can lend or provide tens of thousands of euros to multiple companies in exchange for shares. This makes you an investor as well. Angel investors and informal investors are investors that are operating on their own, who sometimes invest large amounts of money in many companies.

Would you prefer to invest in companies together with other business investors? Of course, you can also establish an investment company with a few friends or acquaintances. If you prefer to join an existing organization, you can join credit unions.

A credit union is a kind of cooperative where entrepreneurs collectively decide which companies to finance. Sometimes they only invest in companies from a specific industry or region, so it is essential to carefully consider which organization best suits you.

angel investors provide startup capital for companies

Becoming a silent partner

Do you actually want to invest in just one company? For example, the company of a friend, family member, or a business associate. Depending on the way the company is legally operating, you could buy shares when you invest, just like informal investors. If the company is a sole proprietorship or general partnership, you can join as an additional partner. This makes you a co-owner of the business.

You can also become a director and work in the company. If you prefer not to do that and prefer to limit your influence to only an investment, you can become a silent partner. This is an investor in a sole proprietorship who does not interfere with the management. They provide capital and share in the business’s profits but are not otherwise responsible or liable.

Frequently asked questions

Some frequently asked questions about investing in companies are:

How can I invest money in a company?

There are different ways to invest in interesting companies. As an investor, you can of course acquire a portion of the shares of some startups. This can be done both as a business angel or as a silent partner. However, both options are time-consuming and risky. There is a significant chance of losing your investment. Alternatively, you can invest in SMEs that have been established for a longer period. Crowdfunding platforms often offer convertible loans, shares, and regular business financings that you can invest in.

What kind of returns should I expect?

When you invest in companies, you likely expect a return, but whether it materializes is uncertain. Especially with young companies, it is very uncertain whether they will remain viable in the long run. A large portion of startups do not last much longer than a few years. As an investor, you could potentially lose your entire investment. However, if the business succeeds, the returns can sometimes be very high.

A large portion of startups do not last longer than a few years.

Many people also invest in companies that have a social mission. Financially, this may not necessarily be better or worse, but if there is a social return as well, some people consider that to be more valuable.

How much money do I need to start investing?

Many people believe that you need to be extremely wealthy to buy stocks. There is a risk of losing your investment, so it is unwise to invest if you need the money in the short term. However, you do not actually need to be very rich.

Through crowdfunding platforms, you can often invest in a company with as little as 100 euros. If you can spare a few thousand euros from your savings, you can already diversify your investments reasonably well and build a relatively healthy portfolio of corporate investments.