Luis Barrios of Arkangeles on How to invest in crowdfunding to achieve financial freedom

We interviewed Luis Barrios from the Crowdfunding platform Arkangeles, to learn how young investors can leverage investing in startups as a better path to gain financial freedom, when compared to classical investment tools.

---

What’s the recommended minimum investment for young investors entering the startup crowdfunding space?

Startup crowdfunding platforms have democratized investing, allowing young investors to participate with as little as $280 USD. This accessibility enables diversification and engagement with emerging companies without significant capital outlay.

For instance, a tech-savvy investor interested in fintech could allocate this amount to a startup developing innovative financial solutions. By investing small amounts across various startups, they can build a diverse portfolio, learn about different sectors and business models, and potentially become a formidable investor over time.

*Note: On Arkangeles, the minimum investment is 5,000 MXN (approximately $280 USD)

What percentage of savings or monthly income should young investors allocate to startup investments?

A prudent approach for young investors is to limit startup investments to 5-10% of their savings or monthly income. This strategy maintains a healthy balance in personal finances while managing exposure to high-risk investments.

For example, if a young professional earns $1,000 monthly, they might consider allocating $50-$100 to startup investments. This approach allows participation in high-growth potential ventures without compromising financial stability. Regular, small investments can leverage compound interest and build a diversified portfolio over time.

What are the primary risks young investors should consider when investing in startups?

Startup investments carry significant risks that young investors must carefully consider:

1. High failure rate: Statistically, about 90% of startups fail, potentially resulting in a total loss of invested capital.
2. Illiquidity: Startup investments are typically illiquid, often requiring years before any returns materialize, if at all.
3. Market and operational risks: Startups operate in highly competitive and rapidly changing environments, facing numerous challenges in scaling their operations and capturing market share.

For instance, a young investor backing a digital health startup should consider potential regulatory hurdles, technological challenges, and market adoption barriers that could impact the company’s long-term viability and success.

How can young investors conduct effective due diligence on a startup, especially if they have limited business experience?

Effective due diligence is crucial for minimizing risks and making informed investment decisions. Young investors can follow these steps:

Thoroughly research the founding team: Evaluate their experience, background, and ability to execute the business plan. Do the founders have a proven track record of success in their respective fields?

• Analyze the target market: Understand the market size, entry barriers, and competition. Does the startup offer a unique solution to a real market problem?
• Review the business model and financial projections: Assess the sustainability of the model and the realism of the projections. Does the startup have a clear plan for revenue generation and scaling?
• Utilize educational resources and tools provided by platforms like Arkangeles, which offer guides and support throughout the investment process.
• Participate in webinars, online courses, and seek mentorship to gain valuable insights and knowledge.

What skills or knowledge are essential for young investors to develop before investing in startups?

Key skills for young startup investors include:

1. Financial analysis: Understanding financial statements, evaluating startup viability, and projecting future growth.
2. Business model comprehension: Assessing how a startup plans to generate revenue and scale. Is it B2B, B2C, or a hybrid? What’s its value proposition and competitive advantage?
3. Risk assessment: Identifying and mitigating potential market, operational, and financial challenges a startup may face.

To develop these skills, young investors can take finance and entrepreneurship courses, read books on startup investing, and participate in investor communities.

What’s the typical time horizon young investors should expect before seeing significant returns on startup investments?

Startup investments are generally long-term, with investors typically waiting 7-10 years before seeing significant returns. This timeline reflects the stages startups go through:

1. Product development and testing
2. Market launch
3. Gaining traction and establishing a solid customer base
4. Generating substantial revenue

For example, a tech startup might spend several years developing and testing its product before commercial launch. Post-launch, it may need more time to gain market traction and establish a solid customer base. Only after these stages might the startup generate significant revenues and potentially offer returns to investors.

Young investors must cultivate patience and a long-term perspective, understanding that successful startups can offer attractive returns but require time and resilience.

How can young investors balance a portfolio that includes startup investments with more traditional forms of investment?

Balancing a portfolio is crucial for risk management and optimizing returns. Young investors should consider:

1. Allocating only a small percentage (5-10%) of their portfolio to startup investments.
2. Distributing the remainder across safer, more liquid investments like bonds, stocks, and mutual funds.
3. Investing in index funds or ETFs for automatic diversification and risk reduction.
4. Maintaining a balance that allows participation in high-growth potential startups while protecting capital with more stable investments.

This strategy enables investors to tap into the high-growth potential of startups while safeguarding their overall financial health.

What trends or sectors in the Latin American startup ecosystem appear most promising for the next 5-10 years?

Several sectors in Latin America’s startup ecosystem show significant promise:

1. Fintech: Rapid growth driven by the need for innovative financial solutions in a region with limited access to traditional banking services.
2. Healthtech: Increasing demand for digital health solutions and telemedicine, particularly post-pandemic.
3. Edtech: Transforming education through online learning platforms and digital educational tools, addressing educational gaps in the region.
4. Agtech: Leveraging technology to improve efficiency and sustainability in agriculture, a crucial sector for many Latin American economies.
5. Clean technologies: Gaining momentum as the region faces environmental challenges, with startups offering solutions in renewable energy, waste management, and energy efficiency.

These sectors are attracting significant investment and are well-positioned to address pressing regional needs while offering substantial growth potential.

How does Arkangeles evaluate startups before including them on its platform, and how does this benefit young investors?

Arkangeles employs a rigorous evaluation process before listing startups, providing an additional layer of security and confidence for young investors. This process includes:

1. Founding team assessment: Evaluating experience, skills, and ability to execute the business plan.
2. Target market analysis: Determining market size, entry barriers, and growth potential.
3. Business model review: Ensuring sustainability and scalability.
4. Financial metric evaluation: Assessing key metrics to determine the startup’s health and viability.

This thorough due diligence process benefits young investors by filtering out high-risk, low-potential startups, allowing them to focus on more promising investment opportunities.

What information or resources does Arkangeles provide to educate young investors about the startup investment process?

Arkangeles offers a range of educational tools to empower young investors:

1. Detailed guides on startup investment basics, due diligence processes, and diversification strategies.
2. Webinars and online courses covering financial analysis, risk assessment, investment strategies, and market trends.
3. Access to an active investor community for networking, experience sharing, and advice.

These resources allow young investors to learn at their own pace, apply knowledge practically, and develop confidence in their investment decisions.

11. How can young investors emotionally manage the volatility and high risk associated with startup investments?

Managing the emotional aspects of high-risk startup investments is crucial for long-term success. Young investors can adopt several strategies:

1. Diversification: Spread investments across multiple startups and asset classes to mitigate risk and reduce dependence on any single investment.
2. Long-term perspective: Focus on the long-term investment horizon to avoid impulsive decisions based on short-term market fluctuations.
3. Continuous education: Understand the investment process and startup dynamics to better prepare for uncertainties.
4. Community engagement: Participate in investor communities and seek mentorship for emotional support and practical advice.

These strategies can help maintain calm and focus in the face of market volatility.

What role does networking play in successful startup investments, and how can young investors develop these connections?

Networking is crucial for startup investment success, providing access to investment opportunities, expert advice, and support. Young investors can develop connections by:

1. Attending networking events, both online and in-person, to meet other investors, entrepreneurs, and industry professionals.
2. Joining online investment communities and interest groups on platforms like LinkedIn.
3. Seeking experienced mentors in the startup investment field.
4. Actively participating in discussions, sharing knowledge, and offering support to build a positive reputation within the community.

For example, a young investor might attend a local angel investor meetup, connect with a fintech-experienced mentor, and gain valuable insights into evaluating startups in this sector.

How does startup investment through crowdfunding compare to other alternative investments popular among young people, like cryptocurrencies?

Startup crowdfunding and cryptocurrency investments differ significantly:

Startup Investments:

• Support emerging companies with potential for high long-term returns
• Illiquid, requiring a long-term commitment
• Opportunity for social and economic impact
• More stable than cryptocurrencies, but still high-risk

Cryptocurrencies:

• Highly volatile and speculative digital assets
• Potential for rapid gains or losses
• More liquid than startup investments
• Limited tangible impact beyond financial returns

Young investors might consider allocating a portion of their portfolio to sustainable tech startups for long-term returns and positive impact, while dedicating a smaller portion to cryptocurrencies for potential rapid growth and liquidity.

What advice would you give to a young person wanting to invest in startups but living in a country with restrictive crowdfunding regulations?

For young investors in countries with restrictive crowdfunding regulations:

1. Research local laws and regulations thoroughly to understand permissible investment avenues.
2. Explore international crowdfunding platforms registered to operate in multiple countries.
3. Consider investing through venture capital funds or investment funds that offer startup exposure while complying with local regulations.
4. Investigate platforms like Arkangeles that allow international investor participation.

By diversifying across international funds and startups, investors can tap into global startup growth while adhering to local regulations.

15. How do you see the future of startup crowdfunding in Latin America, and what changes or evolutions do you anticipate in the coming years that may affect young investors?

The future of startup crowdfunding in Latin America is promising, with several anticipated changes:

1. Increased regulation and professionalization, enhancing investor protection and market transparency.
2. Continued technological innovation in investment platforms, improving accessibility and security.
3. Greater diversity in sectors and startups seeking crowdfunding, with emerging opportunities in AI, robotics, and other cutting-edge fields.
4. Growing focus on startups addressing local challenges in Latin America.

Young investors should stay attuned to these trends and leverage new technological platforms to capitalize on the region’s crowdfunding growth.

What strategies do you recommend for young investors to stay informed about the progress and performance of the startups they’ve invested in?

To stay informed about startup investments:

1. Subscribe to startup newsletters for regular updates on milestones, challenges, and future plans.
2. Utilize investment platforms offering periodic reports and analyses on startup performance.
3. Participate in webinars and events organized by startups or investment platforms.
4. Join investor communities and online forums to share experiences and insights.

These strategies allow young investors to monitor their investments effectively and make data-driven decisions.

How can young investors leverage their unique generational perspective when evaluating startups and emerging trends?

Young investors can capitalize on their generational insights by:

1. Identifying startups developing solutions relevant to their generation, particularly in tech and consumer sectors.
2. Evaluating market potential for products and services targeting their demographic.
3. Leveraging their understanding of social media and digital platforms to assess startup traction and reach.
4. Utilizing their networks and online communities to gather feedback and validate investment ideas.

This perspective can provide valuable insights into emerging trends and potential market disruptors.

What role does impact investing play in startup crowdfunding, and how can young investors align their investments with social or environmental causes they care about?

Impact investing is increasingly significant in startup crowdfunding, allowing alignment of investments with personal values. Young investors can:

1. Identify startups with clear missions to address social or environmental issues.
2. Use crowdfunding platforms that highlight impact-focused startups.
3. Participate in impact investing networks and communities.
4. Establish clear criteria for impact investments, ensuring startups prioritize social and environmental well-being alongside financial returns.

This approach allows young investors to contribute to meaningful causes while seeking financial returns.

How does the liquidity of startup investments through crowdfunding compare to other forms of investment, and what should young investors consider?

Startup investments through crowdfunding are generally less liquid than stocks, bonds, or cryptocurrencies. Young investors should consider:

1. The long-term nature of startup investments, often requiring years before potential returns.
2. Limited secondary markets for selling startup shares.
3. The importance of maintaining a balanced portfolio with more liquid assets.
4. Emerging secondary markets on some crowdfunding platforms, though these are still developing.

A balanced approach might involve keeping the majority of a portfolio in more liquid assets while allocating a smaller portion to startup investments.

What advice would you give to young investors for building a valuable network within the startup ecosystem, even if they don’t live in major urban centers?

To build a valuable startup ecosystem network:

1. Leverage online networking opportunities through virtual events, webinars, and discussion groups.
2. Join investor associations and networks, often with local chapters or online groups.
3. Seek mentorship from experienced investors.
4. Attend industry conferences and events, even virtually.
5. Be proactive in offering value to the community by sharing knowledge and helping others.

These strategies can help young investors build relevant connections and opportunities, regardless of their location.