Picture: ISTOCK
Picture: ISTOCK

Alternative investments are becoming popular with retail investors, but accessing funds in this market can be very costly, with little liquidity and a very small chance of seeing profitable returns. The flip side is that investing in the right business can be incredibly rewarding.

One form of popular alternative investment is through venture capital. Venture capitalists tend to be companies - individual investors can invest funds through them.

If this is a route you're considering, you might want to look at joining an existing organisation. As an individual, you could approach a VC firm to contribute your capital. The firm will then take your contributions and decide how to invest them. However, this is usually only open for high-net-worth individuals.

If you'd like to join a network of VC or angel investors, you can get in touch with the Southern Africa Venture Capitalist and Private Equity Association. There are different types of membership.

Investors are not limited to what would be considered traditional VC investment through a fund. There are many organisations that are specifically targeted at startups that offer a different VC model. These are known as angel investors.

Angel investing is more accessible than VCand, as an investor, you probably have more sway over the businesses you choose to invest in and how the investment deal is structured. As an angel investor you'll likely invest in a business during its early growth phase, whereas venture capitalists tend to step in once a business has gained traction.

If you want to be a part of an angel investing network, you can get in touch with angel investors such as the South African Investment network (investmentnetwork.co.za), or South Africa Angel Investors (angel.co/south-africa).

Crowdfunding has gained traction in South Africa thanks to sites such as Thundafund, Jumpstarter and StartMe. Most crowdfunding initiatives are a one-way street - people raise money but don't pay back investors.

However, there are a handful that do give investors an opportunity to take an equity stake in the company and reap rewards should the business grow.

Some campaigns are structured so that the people whose projects you crowdfund must give you an update on business progress.

Unlike with listed investments - where financials are publicly available - you'll have to do your own number crunching.

If you plan on investing large amounts in a business, and your understanding of business finance is poor, get a professional to take a look.

As an angel investor or crowdfund capital investor, you must know and understand the business you're investing in. Have a thorough conversation with the founders beyond their five-minute pitch.

Understand where the opportunity lies, what gap in the market they are planning to fill and how they will do it better than their competitors.

Also take a good look at the business plan and valuation. Identify where you could see possible growth spurts and anticipate how much more money the business may have to raise. In many ways, being an investor on this level requires you to employ investment banking skills. You must know how to value a company or, at the very least, understand the valuation process.

The options above can be enticing if you're a potential investor, but don't make the mistake of thinking that they are easy money-making schemes. Very often the businesses you invest in will require a long-term commitment and they won't offer the kind of liquidity that investing in the stock market will. There's a very big chance that you will lose money.

Tsamela is the founder of piggiebanker.com

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