How to Invest in a New Company

by Steve Gregory

Investing in a new company is risky, but it can be financially rewarding if the company turns out to be successful. Before you decide to invest in a new company, it’s important to perform due diligence to ensure that you are making a smart investment decision. For example, the new company should have a proven management team and a solid business plan. You can invest in a new company in several ways, even if you are not directly involved in the company's day-to-day operations.

1. Contribute capital to the new company as an angel investor. In this role, you can make a financial investment and either assume a passive role or elect to be more involved in the company's affairs. Join an angel investors' group to connect with the types of companies in which you wish to invest. Alternately, you can approach the founders of a new company directly.

2. Join a venture capital firm or similar organization that invests in early-stage and start-up companies. These organizations pool money from their investor members to underwrite new companies. Often, the money from a venture capital firm is sufficient to actually launch a new business, and the financial rewards can be substantial if the company is successful.

3. Participate in an employee stock ownership plan if you are an employee of a new company and such a plan is offered. New companies don't usually offer stock to the general public, but some new businesses do offer employee stock ownership plans that give employees a chance to buy company stock at the ground level. Employees must be qualified to participate in the plan as stipulated in the plan's rules; for example, many plans require that an individual must be employed by the company full-time for at least six months.

4. Buy stock from an employee or investor of a new company who wants to sell their shares. Call the investor relations department of the new company you want to invest in and ask if any employees or investors want to sell their stock. The company may be able to put you in touch with potential sellers. Note that you must qualify as an "accredited investor" as defined by the Securities and Exchange Commission to purchase the stock. You may qualify as an accredited investor in a number of ways, as outlined in a FAQ by the SEC (link in Resources) – one requirement is that you must have net worth with your spouse in excess of $1 million, excluding the value of your home, at the time you purchase the stock.

About the Author

An avid technology enthusiast, Steve Gregory has been writing professionally since 2002. With more than 10 years of experience as a network administrator, Gregory holds an Information Management certificate from the University of Maryland and is pursuing MCSE certification. His work has appeared in numerous online publications, including Chron and GlobalPost.

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