When you think about investments, what comes to mind? Most would say they invest in their retirement accounts, their mutual funds, individual stocks or even their own business. But what if—thanks to technology—your greatest investment wasn’t actually in the stock market, but in people?
We’re not talking about investing your time in managing your relationships (though that is important), but rather actually investing in people. Also known as private investing, investing in people is where—thanks to the internet—people can easily invest in start-up companies and other new, entrepreneurial businesses with just the click a button. Long gone are the days of having to meet with people in person. You can now get to know entrepreneurs and small business owners all over the world from the comfort of your home.
How does private investing work?
The internet gets investors in front of businesses—both privately held and publicly held. Publicly traded businesses are made through the stock market. Privately held firms are a little harder to track down, but because of advancements in technology, it’s possible to invest in small, start-up companies. While start-ups are riskier, they can oftentimes produce greater rewards.
When many new businesses get started, the owners have to rely on family, friends or their own savings account to get up and running. After a while, they might need to turn to other sources in order to generate income. This is where a private investor comes in. Investors can find start-up companies on their own via the internet, blogs and articles or turn to a site dedicated to peer-to-peer lending, such as Prosper.com.
Why should investors invest in people?
Investing in smaller companies allows investors to have a more hands-on approach with the company. With large, public firms, trading is done via the stock market. It’s very impersonal. If you see a start-up that you like, you can actually get to know the owner on a personal level before deciding to invest in the company.
The investor can get a feel for how the owner does business, what his goals are, what motivates him and what he’s hoping to do long-term. Investing in people can put your dollars where the economy needs them—into small businesses. Your investment could possibly lead to full-time jobs for many and help take the business up to the next level.
What to look for in a start-up company
Before investing in a start-up, there are certain considerations you’ll want to keep in mind. Start-ups with the highest chances for success are the ones that have a detailed business plan in place. If the entrepreneur has no business plan or no solid idea on where he hopes the business will go, he has a much higher chance of failing. When looking for a small company to invest in, you’ll want to find one that has a good team in place, a detailed business plan, an honest owner and projected goals and profits.
How much should you invest?
This is something that is ultimately up to you. Since it is a start-up, though, there is a high chance that the company won’t live to see its second year. However much you do decide to put in, you have to be willing to lose that money. If you have $50,000 to your name, investing even $20,000 into a start-up company might not be wise. Assess your own financial situation and goals first then move forward with private investing.
Hopefully, by investing in a person instead of just a large corporation, your dollars will be used to generate more jobs and fund the growth of a company, and perhaps leave you with a large return on your money. With greater risk comes greater reward, and that’s true whether you’re investing in your own business, the stock market or other entrepreneurs.
Donny Gamble Jr. is an online entrepreneur that runs a financial blog called Personalincome.org. He also is a frequent contributor to SmallBizTrends, Huffington Post, and many other personal finance blogs. Follow him on Twitter @donnygamblejr
Image credits to : Steven Depolo