Part II: Time to invest
While last week we discussed the pre-investment procedure, today we will talk about the moment we decide to invest. What should good investors do if they want to enter the world of alternative investment? What are the steps to follow? What are the crucial tax benefits offered by alternative investment?
In case you want to venture into the world of startup alternative investment, you should do it through a crowdfunding platform or PFP, a platform where you will invest together with other investors, professionals, or amateurs, who have similar goals to yours.
Once you have decided to invest through a PFP, you should know that, according to current regulations, there are two types of investors: accredited and non-accredited.
- Accredited investors are individuals who either have a financial advisory service provided by an authorized investment services company, have assets of more than €100,000, or have received over €50,000 in the last 12 months.
- If the accredited investor is a legal entity, it must meet 2 of the following three conditions:
- The total of its assets must be equal to or greater than one million euros.
- Its annual turnover must be equal to or greater than 2 million euros.
- Its equity must be equal to or greater than €300,000.
- Investors who do not meet the above conditions will be considered non-accredited investors.
Accredited investors may invest unlimitedly. On the other hand, non-accredited investors are limited to an investment of €3,000 per project and a total amount of €10,000 for the last 12 months.
Now that we understand the nature of our role as investors, it is time to start investing in startups. We have prepared a “ten commandments of alternative investment” list for our investors to use as a guide for investing in a professional and “wise” way to increase the chances of success in the investment:
- Verify that there is a Partners’ Agreement and that it is clear and transparent. Read the first article in this series for more information on this aspect.
- Do not buy at any price. Consider the pre-money valuation we always provide on our platform.
- Understand the need that satisfies the product and service that the startup sells for the end users.
- Make sure that the company’s business model is easy to understand.
- Value the human team behind the project and their aptitude according to the business model.
- Check the influence of the competition.
- Check that the company’s accounts are clear, consistent, and transparent.
- Make sure you know the risks of the investment. What are the comfort or risk zone scenarios?
- Find out the possibilities of exit, i. e. how you can recover your investment.
- Finally, one of our “mantras” is: Diversify your portfolio to mitigate risks!
If you follow these tips, your chances of obtaining positive returns will increase significantly. However, we must always consider the high uncertainty surrounding this investment in start-ups or micro-SMEs.
Last but not least, the possibility for investors to obtain indirect benefits from the initial disbursement. How is it possible to be profitable before the exit? Tax deductions are the answer.
In our Academy, we have published a guide explaining the tax incentives for investment in equity crowdfunding. Currently, the Personal Income Tax Law establishes a deduction in a quota of 30% of the amounts invested in newly created entities, with a deduction limit of €60,000 per year. However, deductions are subject to a series of conditions:
- The investment must take place during the first three years of the company’s lifespan.
- The company’s equity must not exceed €400,000 at the time of the investment.
- The startup must carry out economic activities.
- A certificate attesting that the entity meets these requirements is required.
- Our investment must be maintained for at least three years.
- Control investments are excluded, i. e., investments through which we can decide on the financial and operating policy of the company.
Now that you have read last week’s article and the one we are presenting today… Congratulations! You are a little closer to investing than any professional investor. Next week, the last of the trilogy will focus on a series of tips to consider after investing: the follow-up of our investee and the possible exit.
Even though all information provided is accurate when published, some of the current conditions will be modified in the short term due to the approval of the new “Crea y Crece” Law. We will soon inform you about the specific implications of this Law for entrepreneurs and investors.
Want to become an alternative investor?
Fellow Funders is the perfect place to start your investment process. Our company offers all the facilities to become an alternative investor and the help of experts that will clarify your doubts during the whole process.
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