Quora Answer: Are Small Startups Risky Investments?

The following is my answer to a Quora question: “Are small startups very risky investments?” 

All startups are small, and all of them are risky.  That is the very nature of startups.  A startup that has millions in funding is technically no longer a startup.  A startup is a new venture in its very first stages of business.  Once they have significant funding, they are past that stage.  They may call themselves startups, and may be referred to as such, but they are actually companies now, looking for expansion. 

Depending on the metric used, the numbers may vary, but the vast majority of startups fail.  Those that do succeed go on and tend to do very well.  Investors invest in the people behind these startups at various stages, according to their investment capacity and mandate.  This helps mitigate their risk.  Investors exit or partially exit to the next stage of investors, or until it fails.  A failed startup does not necessarily mean a loss for the investor.  They have spread their risk.  If they invested in a hundred startups, and one went unicorn, they can offset the tax exposure of that gain with the loss they claim on the other ninety-nine.