The Most Common Investment Strategies and How EquityBee Can Help You Implement Them
Calling all you exemplary financial planners (or aspiring ones) out there with a few extra dollars sitting in the bank. Have you ever wondered what you should you do with your hard-earned cash? How can you strategically invest this saved money? These are tough questions and we want to help. So, we created a guide that outlines some of the most common investment strategies out there for you. These strategies will help you make educated decisions about where to invest your money. And best of all, EquityBee’s Employee Stock-option Funding (“ESF”) platform can help you implement all these strategies!
For those who aren’t familiar, EquityBee connects employees with investors who provide them with the funding they need to exercise their employee stock options. Employees benefit from retaining their options they’ve worked hard to earn while maintaining a share of the upside. Investors benefit by getting unprecedented access to startup investing and at valuations from when the options were granted, typically implying a discount to market value.
The core investment strategies we will be covering in this post are, value investing, growth investing, small-cap investing, and socially responsible investing. Luckily, all four of these investment strategies can be implemented through EquityBee’s innovative ESF platform. Before we dive in, if you’re looking for a great refresher, give one of our previous posts, Startup Investing Basics a read.
Value Investing – “Bargain Hunting”
The concept of value investing has been around for almost 100 years and was first taught by Benjamin Graham (Warren Buffett’s mentor!). The basic premise is buying an asset at a value less than the “intrinsic value” of that asset. Let’s go through an example. Say you’re scanning the classifieds looking to buy a car. Suddenly you see an ad for a $200 clunker. You’ve got a cousin who works in scrap metal and told you he buys the average clunker for $400. Being the savvy investor you are, you buy this clunker for $200 and flip it to a scrap metal yard for $400. This is value investing.
Although an attractive strategy, it is best suited for an investors portfolio when combined with other styles of investments, which we cover below as a means to diversify and manage risk.
How EquityBee can Help
EquityBee’s platform offers our investors great opportunities for making value investments. Employee stock option exercise prices on our ESF platform are based on past valuations, typically at a significant discount to market value. This means investments through EquityBee present opportunities where investors may gain access to invest below a company’s intrinsic value. Benjamin Graham would be proud.
Growth Investing – “Go Big or Go Home”
Growth investing aims to invest in companies that are poised for high rates of growth. These are the companies with those ground-breaking ideas that make a lightbulb go off in your head. Growth companies innovate and create in order to grow their businesses at above-average growth rates. The poster children of such businesses are the ones aiming to achieve exponential growth, doubling the businesses’ valuations periodically. Unlike value investing, growth investing typically places less emphasis on the current valuation of a company. This is because growth investors believe the growth potential of the company will normalize the valuation in the future. Google, Amazon and Tesla are common examples of publicly-traded growth companies. The first investors in Amazon experienced an estimated 12,000,000% return over 23 years [1].
With higher returns, naturally comes higher risk. Compared to Value investing, Growth investing carries higher risk with higher potential returns.
How EquityBee can Help
Most of the investment opportunities on EquityBee’s platform are growth companies. We tend to focus on established startups with exciting growth models, complemented by multiple funding rounds, increasing the likelihood of a successful exit. These types of growth startup companies typically grow revenues north of 50% in the year they ultimately go public [2]. If this investment strategy meets your appetite for higher risk and higher returns, have a look at what’s on offer in EquityBee’s ESF platform.
Small-Cap Investing – “Finding a Diamond in the Rough”
Have you ever stopped by that small-town flea market and found that perfect tiny knickknack you’ve always been looking for? That’s a little like small-cap investing. The goal of small-cap investing is to find a smaller company with a great idea that isn’t yet widely known by the rest of the market. Lesser-known companies have a higher chance of being misunderstood by the market. This often leads to their stock being priced at a discount. Small-cap companies also have fewer institutional investors around to inflate their stock prices up. Small-cap investors typically look for companies with a valuation between $200 million and $2 billion.
Of all the investing styles discussed, Small-Cap investing presents the highest level of risk and highest level of return, potentially. This style may be of particular interest to those investors who have deeper knowledge of a specific industry, presenting them with an edge over “professional” Wall Street investors.
How EquityBee can Help
EquityBee’s platform can provide access to these “diamonds in the rough”, small-cap style investments. To date, we have provided option funding for dozens of unique startups. These startups can be the most exciting in their field with a great idea behind them. Investment opportunities available through EquityBee can be like finding that perfect knickknack at the flea market. So, scan through EquityBee and see for yourself how you can implement your own small cap investing strategy.
Socially Responsible Investing – “Investing for More Than Just Your Bottom Line”
Investors these days are placing a larger emphasis on factors other than simply a company’s financials. A key question socially responsible investors are asking is what social good is a company doing. Whether promoting environmental stewardship, consumer protection, or human rights, it is important for companies to demonstrate they care about the world they exist in. Companies have proven it is possible to do good for society and communities while doing well for investors. Investors looking to adopt this investment strategy should look for the Corporate Social Responsibility (CSR) policies adopted by the company.
How EquityBee can Help
Startups are inherently fresh and innovative companies. They focus on new ideas, many times with great concepts. Startups aim to change the landscape they operate in, and frequently that includes an element of social good. Many of the startups on our platform are proud of their social positions and stances and advertise them right on their homepages. In summary, investing through EquityBee is a great way to access companies with great CSR policies, allowing you to be a socially responsible investor.
Bonus Tip
“Don’t put all your eggs in one basket” is one of the most common pieces of advice given to investors. However simple this suggestion may sound, the benefits of diversification are very real. Diversifying a portfolio may help investors reduce risk by allocating investments across different industries to protect against swings in any one sector or company. EquityBee’s ESF platform offers investment opportunities across a wide range of industries, helping you build a diversified investment portfolio: from ride-sharing to coworking spaces, to medical devices, to cybersecurity, EquityBee’s ESF platform is the perfect place to build that diversified portfolio.
Concluding Thoughts
Understanding and implementing investment strategies can be a daunting task. With countless options out there, narrowing down your investment decisions to a few common investment strategies helps make the choice easier. Hopefully, we have taken some of the confusion out of these strategies and presented you with an easy to follow guide. As you explore what type of investor you are, remember, EquityBee can serve as a great channel to help you implement the strategies to fit your investment objectives.
[1] https://www.businessinsider.com/jeff-bezos-parents-jackie-mike-amazon-investment-worth-2018-7
[2] https://about.crunchbase.com/blog/growth-rate-startup-exit/
