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5 Reasons You Should Have Startups in Your Portfolio

Updated: Jul 21

Anyone can invest in startups, and here are 5 reasons you should consider adding them to your portfolio.

Photo by Jonatan Pie on Unsplash

The world has been absolutely packed with uncertainty in recent times. A pandemic, a war in eastern Europe, inflation, supply chain issues, chip shortage, oil prices skyrocketing, and now we might be heading for a prolonged economic downturn. This has left tons of people wondering whether to hold through the storm or sell and put it in something safe to hope it passes and they come through on top at the other side. While I, unfortunately, can’t give you all the answers, I think most people are heavily sleeping on startups. For those that aren’t aware, anyone can invest in startups now. Venture capital and angel investing are no longer for the rich and connected, and if you want to know how to get started, check out this video:

While startups still have their risks, it’s definitely worth allocating a part of your portfolio to this area to stay diversified and curb some of these issues. With that, here are 5 reasons to have startups in your portfolio.

1. Better sleep at night

Ok, this isn’t the real perk, but it does make a point. Startups aren’t subject to the daily highs and lows you have to deal with on the public market. This means you won’t really watch your startup investment more than a couple of times a year to see how they’re doing. You can be more involved if you want by spreading the word or buying their product, but other than that, not really. Realistically, the only thing that matters as an investor is their revenue growth, ability to attract funding/future valuations, and that they are still in business. If those are going well, then you basically just chill and wait out the storm. Often there will only be 1 update on valuation and share price a year, which means there’s little volatility in the space, and not much to keep up with. You don’t have to watch or manage it because if the revenue is increasing then so is the valuation typically. If they are raising funds or profitable, you’re good. Other than that, you just rest easy at night and wait for the payday.

2. Recession-Proof(ish)

Recessions are rather loosely defined periods in which GDP, jobs, and growth fall, while unemployment rises. During this time, larger companies slow down on spending which means wages go stagnant, and there are often layoffs. These massive operations can often operate in a loss during favorable markets because they can just finance everything with debt, stock sales, and so on because their stock will go up and debt is easy to get. So, in order to survive a recession, they have to transition to a more sustainable model, but that usually means spending less money and fewer employees.

How is ANY of this good for startups? Well, it’s really good for a few reasons:

  • Startups can poach top talent much easier

  • Startups don’t have a public stock price, so the stock price doesn’t really matter

  • Startups can take market share with aggressive techniques while larger companies are downsizing.

These are all pretty common and standard things that happen during a recession. If a number of top tech companies decide to stop hiring temporarily, that isn’t going to stop top engineers from needing jobs. While startups may or may not be able to pay these engineers those salaries worth $400,000 or whatever, they may entice them with stock in a top st