Is Becoming a Growth Investor in Startups Worth the Risk?

[FourierFaux]

As I understand things, a "growth investor" is someone who invests in a brand new, untested company and hopes to get a high return on their investment.

Pros: High Payoff "Principle Investment can double?/triple?/exponentiate? if the company succeeds."
Cons: High Risk "All money invested in company can be lost and never reclaimed!"

My Problems:
1) I don't even know how to invest in a brand new company. (I don't know how to physically do it!)
2) I don't know a reasonable method to quantify and estimate risk.
a) There may be rules of thumb known to folks like Buffet. But they are all
theoretical models on some level... how accurately these models represent
reality is suspect.
3) I don't know a reasonable method to quantify and estimate potential payout.
a) Ditto for footnote on 2)
4) I'm sure that there are other problems that I'm missing because they are unknown to me.

If I could resolve the first three problems, at least in scope, I'd be confident in a decision to drop some money in some startups. The principle investment doesn't have
to be more than a miniscule drop in the bucket. I understand some principles about how the system of the US works now that leads me to believe that I can make informed
investment decisions. The more accurately that those 'informed' decisions reflect reality, the less I'm gambling. :)

That said; assuming that I believe a start-up called <insert company name> has potential and I wish to invest in them, how do I do that?
Company Profile: They're developing <insert technology>. They've succeeded already in selling one of their computers to <insert company name>.
The Gamble: I believe that they'll sell many more to large scale <technology> companies like <company name> in the future if their first product meets and/or exceeds Lockheed's expectations.
The Question: How do I invest in this company in the first place? They aren't part of the stock market in a way that I can recognize, yet. Help!

If you have advice or resources to recommend for me; would you mind?

(As to why I think this is appropriate for the career thread: investment is something most people will deal with on some level in any career. It's what seeds business to grow companies that leads to careers. I'm sure it will be moved if I'm wrong. :) )

FourierFaux

 

[russ_watters]

Google: IPO

 

[Sybren]

Google: IPO

Indeed. What I know is that you can only buy shares of ownership of a company after the company has sold them to the public. The first time at which they are sold is called the initial public offering (IPO). You can buy the shares through a broker (i guess your bank can help you to get shares).

From watching interviews of Warren Buffett, I've learned that the way he calculates the price of a company is to estimate the price of the company itself based on any financial reports he can find of the company. This price is what the company would be worth on the market if you would sell it (from what I have seen, he follows very straight-forward, reliable logical thinking to arrive at his estimate). He compares that to the price of the company on the stock market (price per share times the total number of shares). The book he recommends, and lives by, is

The Intelligent Investor' by Benjamin Graham

I also recommend it to you.