3 Reasons to Become an Early-Stage Investor
Early-stage investors are the backbone of the startup scene.
For innovative ideas to get off the ground, aspiring entrepreneurs often seek financial support to back their startups. Where does that support come from?
Cue: early-stage investors and their crucial role to help bring the dream to life.
So, what makes startups a good investment? What are the benefits of investing in a startup? Why become an early-stage investor?
1. Potential for High Returns and Wealth Building
One of the biggest advantages of investing in early-stage startups is the potential for high returns.
50 million new startups are established every year. That means, on average, 137,000 startups are launched every day. However, only 10% can sustain themselves in the long run.
Source: Microsoft
But before getting too far, the high risk is important to note because new companies don’t yet have a foothold in the marketplace. The global startup failure rate is 90%.
Weighing both risk and reward, successful startups can experience rapid growth, leading to a significant increase in the value of the investor's initial stake.
In our ‘How To Understand Angel Investing and Venture Capital’ conversation with Shelley Kuipers, Co-Founder and Co-CEO of The51, and Sarah Young, Founder & General Partner of Sandpiper Ventures, Shelley shared how one of her motivations to start early-stage investing was around wealth building:
“What I found out as a young professional was that having access to this early-stage equity was a super important opportunity.
As a founder, you had equity in a company—you could hire a team, you could raise capital—but you had that equity. As a valued team member, you could have access to that equity. And as an investor, you could have access to that equity. And what I noted of those that were in my community was that they were driving more wealth creation through their equity than they were through their income.
And I was like, ‘Okay, this is really interesting.’ So I thought you'd get a job, you’d work really hard, you'd make an income, you would invest that income in safe investments. And what I quickly realized was that there was an opportunity to participate in early-stage equity—that's where the wealth opportunity laid.”
Backing companies in their early stages, when valuations are typically lowest, gives investors a robust chance of seeing higher returns if their value increases exponentially.
As ventures mature and attract more substantial funding, early-stage investors stand to gain more substantial profits as momentum continues building.
“And what I quickly realized was that there was an opportunity to participate in early-stage equity—that's where the wealth opportunity laid.”
2. Support Entrepreneurs and the Entrepreneurial Ecosystem
Being an early investor can also provide a greater degree of control over the company's direction and future.
Early-stage investors can play a mentorship role in addition to providing financial support. Entrepreneurs benefit not only from the capital infusion, but also from the guidance and expertise investors bring to the table. Think: strategic counsel and making key connections.
Referencing back to that conversation between Shelley and Sarah, Sarah shared how her motivation to get into early-stage investing started with a focus on mentorship:
“I was always really involved professionally helping founders—helping CEOs from a strategic counsel perspective and from a mentorship perspective—always helping and helping build, and very focused on the value creation side of things… whether it was growing the ecosystem, whether it was growing companies, whether it was growing sectors. I saw the importance in even helping investors. I saw a really important role and continue to see a really important role.
One of the areas where I love to play is around complex problem-solving—so really complex challenges in the world. I love to dive in; I love my brain to hurt. My business—early on I had two women partners—and my view was always ‘it doesn't matter about gender, that it is all about merit.’ And so early on, we ran our business, it was all about getting to the table, and it was less about gender.
[…] Fast forward, I saw that as much as you can provide value, that power follows money. And so you can be at the table and talking about and influencing decisions, but ultimately, the wealth that's generated and where decisions are made is linked. It will always be linked to the money.
For me, I started to see the importance of making sure that who is attached to the money and the decision- making is really important. So for me, wanting to and starting to be involved in investing and angel investing was wanting to be attached to the decision-making.”
“So you can be at the table and talking about and influencing decisions, but ultimately, the wealth that's generated and where decisions are made is linked. It will always be linked to the money.”
For investors with a vested interest in seeing a company succeed: when founders win, you win. Offering your financial and human capital allows you to serve as champions of the founders you believe in.
Through this collaborative relationship, investors can also benefit practically through networking, meeting new people in the industry, and keeping up with the latest trends and technologies—something that's especially important in the ever-changing business world.
3. Foster Innovation and Shape the Future of Industries
Early-stage investors have the unique opportunity to be at the forefront of innovation. Supporting startups in their infancy means investors actively contribute to the development of groundbreaking technologies, products, and services.
According to CPA Canada: “When you count the number of startups, plus the technology investments being made by industry, the innovation economy represents 12 per cent of the Canadian GDP.”
From a global perspective, the World Economic Forum stated: “The value that startups create is nearly on par with the GDP of a G7 economy and the amount of startup funding in 2021 surpassed $600 billion, shattering funding records. The number of unicorns is well past the 1,000 mark and growing exponentially.”
Startups account for a significant portion of new job creation, add vitality and creativity into established industries, and create new markets. Additionally, they support the growth of other businesses by providing goods and services—ultimately creating a strong ecosystem of businesses that can support each other.
Back to the original question: Why become an early-stage investor? This hands-on involvement in the birth of new ideas can be immensely fulfilling for those who are passionate about driving change and progress.
Let your values guide you—whether that's in sectors such as femtech, integrated business platforms, digital clean technology, disruption of banking and financial services, commerce and digital marketplaces, or another.
Where you choose to invest your capital helps you shape the world you want to live in.
The potential for high returns and building wealth, active participation in supporting entrepreneurs and the entrepreneurial ecosystem, and the opportunity to foster innovation and shape the future of industries are just a trifecta of compelling reasons to become an early-stage investor.
And you'll likely have your own personal motivations and drivers attracting you to this opportunity, too.
But the bottom line is that investors play a pivotal role as champions, strategic advisors, and connectors, contributing not only to the success of startups but also to their own portfolio, fulfillment, and industry awareness.
Becoming an early-stage investor is committing to being at the forefront of change, driving progress, and actively shaping the world in alignment with your values... And we know just where you can learn to start.
Take a peek at a couple of our recommended reads to learn more about early-stage investing:
And for more in-depth, immersive learning, registration for the Spring Cohort of our Financial Feminism Investing Lab (FFIL) is open!
Run in collaboration with the Haskayne School of Business, University of Calgary, FFIL introduces participants to the ins and outs of early-stage investing and teaches aspiring investors how their dollars can power the next generation of future-fit, feminist businesses.
*Please note that the information provided in this blog is for informational purposes only and should not be construed as investment or financial advice.
