It always takes time until the investment in early-phase companies increases in value – it takes at least 3 years, usually 5 years but in rare cases it might be quicker. Investors shall make their investment decison considering this time frame. At the end of this time frame, investors can usually realize their return in case of an acquisition. It also happens quite often that the company raises capital in a follow-up round applying a higher valuation, i.e. the founders shall offer less equity in exchange for the same amount of capital. If investors purchase of the new shares and thus participate in the follow-up round, then their stake in the company will not decrease (won’t dilute) and they might even be able to sell their shares to new investors. Investors may also realize their return from dividend payments but companies in the growth phase rarely pay out dividend. Moreover, if the shares are transferable, i.e. if the other investors give up on their pre-emptive rights, then the shares can be sold but there is rarely an organised secondary market for trading the shares of early-phase companies. The portal might help as an intermediary in this process, too. Generally it is advised to diversify investments: the investible amount should not be invested in one company but rather be allocated to several companies.
Ways to realize a return on the investment:
- wait until the realization of the exit strategy and sell your shares together with the founders
- sell the shares to new investors in the course of a follow-up investment round
- keep the shares and receive dividend payments
- sell the shares to third parties.