Return On Investment: How it works on GetEquity

This article is the fourth and last part of the ‘Using GetEquity’ series where we break down the process of setting up your profile, making your first investment, and understanding what your investment means.

In this article, we will be breaking down the definition of return on investment as it pertains to startups and how it relates to GetEquity.

If you are yet to read our previous articles on sign up and KYC process, funding your wallet and buying tokens, catch up here

Let’s get started.

What is a return on investment(ROI)?

Return on Investment is when you gain a certain amount of interest/profits on an investment made in either a company, stocks, or even in the case of loans.

This is derived by calculating the difference between the initial investment and the current value of the investment.

How does it relate to startups?

As mentioned in some of our previous articles, startup investing involves putting down capital, in exchange for equity — a portion of ownership in the startup and rights to its potential future profits.

Investing in startup companies is a very risky business, but it can be very rewarding if and when the investments do pay off. The majority of new companies or products simply do not make it, so the risk of losing one’s entire investment is a real possibility. The ones that do make it, however, can produce very high returns on investment.

Let’s say, for example, Chris invests $30,000 in company Z whose value is $3,000,000 in return for 10% equity in the company.

If the value of company Z rises to $9,000,000, it means that the 10% shares Chris owns are now valued at $90,000. This further translates to a x3 increase of the initial capital invested and an interest of $60,000 gained.

At this point, Chris can choose to sell his shares(which can be done via the secondary market on GetEquity if there’s a matching buyer) and receive his capital and possible interest or he can hold his shares and hope for a higher value in the future when the company exits by being acquired or go public or raise a significant investment.

However, what if company Z’s value doesn’t rise and eventually shuts down, this means that the initial $30,000 Chris invested will be lost.

How does this work with GetEquity?

Similar to the example given above. ROIs on GetEquity work in a similar way.

As explained in this article, GetEquity operates as a digital syndicate and invests in the startups we list. We then digitize the equity received into tokens so they are easily accessible by angel investors like you on our system.

For example, Micheal invests $1000 in company Z who is raising $10,000 in return for 10% equity. Company Z’s valuation as at its raise on GetEquity is $1,000,000.

If Company Z’s value rises in a few months to $5,000,000. It means the value of the investment has risen to a x5 increase — $50,0000.

Therefore, the $1000 worth of tokens Michael bought has now received a x5 increase and is now valued at $5000.

If GetEquity exits company Z at this new valuation, all investors in company Z would have made a return on their investment which will be liquidated and funds converted to their cash wallet which can be withdrawn.

Permit me to reiterate at this point: there is a possibility that you can lose your investment as companies fail and investments are not recovered. Only invest money you are willing to lose.

You can reach us for any questions at support@getequity.io and if you also encounter any issues along the way, we are here to help.