Will a small investment in a company net a worthwhile gain?
If the shares rise in value 50% over the next few years, you will have the same return that I would see if I bought 100 or 1000 shares.  The only issue with a small purchase is that even a $5 commission is a high percent. But the rest of the math is the same. If you bought 5 shares @ $20 each that would cost you $100 plus brokerage. Even if your brokerage was only $10 in and out, your shares would have to go up 20% just for you to break even. You don't make a profit until you sell, so just for you to break even your shares need to go up to $24 per share. Because your share holding would be so small the brokerage, even the cheapest around, would end up being a large percentage cost of any overall profits. If instead you had bought 500 shares at $20, being $1000, the $20 brokerage (in and out) only represents 2% instead of 20%. This is called economies of scale.
From Dimson, Elroy, Paul Marsh, and Mike Staunton. Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton, N.J: Princeton University Press, 2002: Disappointingly, the small firm effect has not proved the road to   great riches since soon after its discovery, the US size premium went   into reverse. This was repeated in the United Kingdom and virtually   all other markets around the world. Despite their disappointing performance in recent years, the very   long-run record of small-caps remains one of outperformance in both   the United States and the United Kingdom. Furthermore, mid- and   small-size companies are still an important asset class. Their   differential performance over long periods of history shows that there   is useful scope for investors to reduce risk by diversifying across   the “large” and the “small” capitalization sectors of the market.   Furthermore, given the pervasiveness of the size effect across the   entire size spectrum, it is important to all investors since the   size tilt of any portfolio will strongly influence its short- and   long-run performance. This holds true whether there is a size premium   or a size discount. The size effect has certainly proved persistent   and robust. What is at issue is whether we should continue to expect a   size premium over the longer haul. And accompanying charts:    And one chart from BlackRock: "You are correct that, barring an equity capital raise, your money doesn't actually end up in the company. However, interest in their stock can help a company in other ways; Management/board members hopefully own shares or options themselves, thus knowing that ""green"" policies are favorable for the stock price (as your fund might buy shares) can be quite an incentive for them to go green(er).  Companies with above average company share performance are also often viewed as financially healthy and so creditors tend to charge lower interest for companies with good share performance.  Lastly, a high share price makes a company difficult to take over (as all those shares have to be acquired) and at the same time makes it easier for the company to perform takeovers themselves as they can finance such acquisitions by issuing more of their own shares. There is also the implication that money flowing towards such green companies is money flowing out of/away from polluting companies, for these ""dirty"" companies the inverse of the previous points can hold true. Of course on the other hand there is quite an argument to be made that large enough ""green"" funds should actually buy substantial positions in companies with poor environmental records and steer the company towards greener policies but that might be a hard sell to investors." Shares in a company represent a portion of a company. If that company takes in money and doesn't pay it out as a dividend (e.g. Apple), the company is still more valuable because it has cold hard cash as an asset. Theoretically, it's all the same whether your share of the money is inside the company or outside the company; the only immediate difference is tax treatment.  Of course, for large bank accounts that means that an investment in the company is a mix of investment in the bank account and investment in the business-value of the company, which may stymie investors who aren't particularly interested in buying larve amounts of bank accounts (known for low returns) and would prefer to receive their share of the cash to invest elsewhere (or in the business portion of the company.) Companies like Apple have in fact taken criticism for this. Your company could also use that cash to invest in itself (growing the value of its profits) or buy other companies that are worth money, essentially doing the job for you. Of course, they can do the job well or they can do it poorly... A company could also be acquired by a larger company, or taken private, in exchange for cash or the stock of another company. This is another way that the company's value could be returned to its shareholders. "No, an entrepreneur actually adds value, whereas stock ownership does not. Buying stocks is akin to gambling, except with different rules and an average positive return over time, whereas normal casino gambling always has a net negative result on average.  To put it shortly:  If it doesn't make a difference whether its you or John from across the corner doing the action, then its basically a speculation with ""investment"" as an alias. You're merely the purse.  If you are involved in the running of the project, taking decisions, organizing, putting your time and creativity in, then you're an entrepreneur.  In this case, its clear to see that different persons will have different results, so they matter as persons and not just as purses.  Note that if you buy enough stock to actually have a say in the running of the company, then you're crossing the threshold there." its the best investment you can have specially with the company you work for and IPO, if i was you i would invest in more then just the minimum since its IPO. ask you your manager or supervisor how much are they buying the stocks for if they are doing it the go for it you'll be okay just keep track of it regular sometime you can invest more as time go by. You can get the idea by how much production your company is doing, if your company's profit going up chances are you need to buy more. This situation sounds better than most, the company it seems likely to be profitable in the future.  As such it is a good candidate to have a successful IPO.   With that your stock options are likely to be worth something.  How much of that is your share is likely to be very small.  The workers that have been their since the beginning, the venture capitalist, and the founders will make the majority of profits from an IPO or sale.  Since you and others hired at a similar time as you are assuming almost no risk it is fair that your share of the take is small.   Despite being 1/130 employees expect your share of the profits to be much smaller than .77%.  How about we go with .01%?   Lets also assume that they go public in 2.5 years and that revenues during that time continue to increase by about 25M/year.  Profit margins remains the same.  So revenues to 112M, profits to 22.5M. Typically the goal for business is to pay no more than 5 times profits, that could be supplanted by other factors, but let's assume that figure.  So about 112M from the IPO.  So .01% of that is about 11K.  That feels about right. Keep in mind there would be underwriting fees, and also I would discount that figure for things that could go wrong.  I'd be at about 5K. That would be my expected value figure, 5K.  I'd also understand that there is a very small likelihood that I receive that amount.  The value received is more likely to be zero, or enough to buy a Ferarri. There might also be some value in getting to know these people.  If this fails will their next venture be a success. In my own life, I went to work for a company that looked great on paper that just turned out to be a bust.  Great concept, horrible management, and within a couple of years of being hired, the company went bust.  I worked like a dog for nothing. Would you consider the owner of a company to be supporting the company? If you buy stock in the company you own a small part of that company. Your purchase also increases the share price, and thus the value of the company. Increased value allows the company to borrow more money to say expand operations. The affect that most individuals might have on share price is very very small. That doesn't mean it isn't the right thing for you to do if it is something you believe in. After all if enough people followed those same convictions it could have an impact on the company. There is nothing fair / unfair in such deals. It is an art than a science.  what kind of things should be considered, to work out what would be a fair percentage stake A true fair value is; take the current valuation of the company [This can be difficult if it is small and does not maintain proper records]. Divide by number of shares, that is the value of share and you should 20K worth of such shares. But then there is risk premium. You are taking a risk that an small start-up may do exceedingly well ... or it may close off. This risk premium is what is negotiated. It depends on how desperate the owner of the small company is; who all are interested in this specific deal ... if you want 30% share; someone else is ready to offer 20K for 15% of share. Or there is no one willing to lend 20K as they don't believe it will make money ... and the owner is desperate, you may even get 50%. isn't it still a dilution of existing share holder stock value ? Whether this is dilution or benefit, only time will tell. The Existing value of Facebook is P, the anticipated value after Watsapp is P+Q ... it may go up or go down depending on whether it turns out to be the right decision. Plus if Facebook hadn't bought Watsapp and someone else may have bought and Facebook itself would have got diluted, just like Google Shadowed Microsoft and Facebook shadowed Google ... There are regulations in place to ensure that there is no diversion of funds and shady deals where only the management profits and others are at loss. Edit to littleadv's comments: If a company A is owned by 10 people for $ 10 with total value $100, each has 10% of the share in the said company. Now if a Company B is acquired again 10 ea with total value 100. In percentage terms everyone now owns 5% of the new combined company C. He still owns $10 worth. Just after this acquisition or some time later ... Whether it's wise or not depends on what you think and what you should consider are the risks both ways. What are the risks? For Let's say that the company produces great value and its current price and initial price are well below what it's worth.  By investing some of your money in the company, you can take advantage of this value and capitalize off of it if the market recognizes this value too, or when the market does (if it's a successful company it will be a matter of when). Other reasons to be for it are that the tech industry is considered a solid industry and a lot of money is flowing into it.  Therefore, if this assumption is correct, you may assume that your job is safe even if your investment doesn't pay off (meaning, you don't lose income, but your investment may not be a great move). Against Let's say that you dump a lot of money into your company and invest in the stock.  You're being paid by the company, you're taking some of that money and investing it in the company, meaning that, depending on how much you make outside the company, you are increasing your risk of loss if something negative happens to the company (ie: it fails). Other reasons to be against it are just the opposite as above: due to the NSA, some analysts (like Mish, ZeroHedge, and others) think that the world will cut back on doing IT business with the United States, thus the tech industry will take a major hit over the next decade.  In addition to that, Jesse Colombo (@TheBubbleBubble) on Twitter is predicting that there's another tech bubble and it will make a mess when it pops (to be fair to Colombo, he was one of analysts who predicted the housing bubble and his predictions on trading are often right). Finally, there is a risk of lost money and there is also a risk of lost opportunity.  Looking at your past investments, which generally hurt more?  That might give you a clue what to do. "No, the stock market is not there for speculation on corporate memorabilia.  At its base, it is there for investing in a business, the point of the investment being, of course, to make money.  A (successful) business earns money, and that makes it valuable to its owners since that money can be distributed to them.  Shares of stock are pieces of business ownership, and so are valuable.   If you knew that the business would have profit of $10,000,000 every year, and would distribute that to the owners of each of its 10,000,000 shares each year, you would know to that each share would receive $1 each year.  How much would such a share be worth to you?  If you could instead put money in a bank and get 5% a year back, to get $1 a year back you would have to put $20 into the bank.  So maybe that share of stock is worth about $20 to you.  If somebody offers to sell you such a share for $18, you might buy it; for $23, maybe you pass up the offer. But business is uncertain, and how much profit the business will make is uncertain and will vary through time.  So how much is a share of a real business worth?  This is a much harder call, and people use many different ways to come up with how much they should pay for a share.  Some people probably just think something like ""Apple is a good company making money, I'll buy a share at whatever price it is being offered at right now.""  Others look at every number available, build models of the company and the economy and the risks, all to estimate what a share might be worth, more or less.  There is no indisputable value for a share of a successful business. So, what effect does a company's earnings have on the price of its stock?  You can only say that for some of the people who might buy or sell shares, higher earnings will, all other thing being equal, have them be willing to spend more to buy it or demand more when selling it.  But how much more is not quantifiable but depends on each person's approach to the problem.  Higher earnings would tend to raise the price of the stock.  Yet there are other factors, such as people who had expected even higher earnings, whose actions would tend to lower the price, and people who are OK with the earnings now, but suspect trouble for the business is appearing on the horizon, whose actions would also tend to lower the price. This is why people say that a stock's price is determined by supply and demand." If that condition is permanent -- the stock will NEVER pay dividends and you will NEVER be able to sell it -- then yes, it sounds to me like this is a worthless piece of paper. If there is some possibility that the stock will pay dividends in the future, or that a market will exist to sell it, then you are making a long-term investment. It all depends on how likely it is that the situation will change. If the investment is small, maybe it's worth it. "Chris - you realize that when you buy a stock, the seller gets the money, not the company itself, unless of course, you bought IPO shares. And the amount you'd own would be such a small portion of the company, they don't know you exist.  As far as morals go, if you wish to avoid certain stocks for this reason, look at the Socially Responsible funds that are out there. There are also funds that are targeted to certain religions and avoid alcohol and tobacco. The other choice is to invest in individual stocks which for the small investor is very tough and expensive. You'll spend more money to avoid the shares than these very shares are worth.  Your proposal is interesting but impractical. In a portfolio of say $100K in the S&P, the bottom 400 stocks are disproportionately smaller amounts of money in those shares than the top 100. So we're talking $100 or less. You'd need to short 2 or 3 shares. Even at $1M in that fund, 20-30 shares shorted is pretty silly, no offense.  Why not 'do the math' and during the year you purchase the fund, donate the amount you own in the ""bad"" companies to charity.  And what littleadv said - that too." "This is several questions wrapped together: How can I diplomatically see the company's financial information? How strong a claim does a stockholder or warrantholder have to see the company's financials? What information do I need to know about the company financials before deciding to buy in? I'll start with the easier second question (which is quasi implicit).  Stockholders typically have inspection rights.  For example, Delaware General Corporate Law § 220 gives stockholders the right to inspect and copy company financial information, subject to certain restrictions. Check the laws and corporate code of your company's state of incorporation to find the specific inspection right.  If it is an LLC or partnership, then the operating agreement usually controls and there may be no inspection rights.  If you have no corporate stock, then of course you have no statutory inspection rights.  My (admittedly incomplete) understanding is that warrantholders generally have no inspection rights unless somehow contracted for.  So if you vest as a corporate stockholder, it'll be your right to see the financials—which may make even a small purchase valuable to you as a continuing employee with the right to see the financials.  Until then, this is probably a courtesy and not their obligation. The first question is not easy to answer, except to say that it's variable and highly personal for small companies.  Some people interpret it as prying or accusatory, the implication being that the founders are either hiding something or that you need to examine really closely the mouth of their beautiful gift horse.  Other people may be much cooler about the question, understanding that small companies are risky and you're being methodical.  And in some smaller companies, they may believe giving you the expenses could make office life awkward. If you approach it professionally, directly, and briefly (do not over-explain yourself) with the responsible accountant or HR person (if any), then I imagine it should not be a problem for them to give some information.  Conversely, you may feel comfortable enough to review a high-level summary sheet with a founder, or to find some other way of tactfully reviewing the right information. In any case, I would keep the request vague, simple, and direct, and see what information they show you.  If your request is too specific, then you risk pushing them to show information A, which they refuse to do, but a vague request would've prompted them to show you information B.  A too-specific request might get you information X when a vague request could have garnered XYZ.  Vague requests are also less aggressive and may raise fewer objections. The third question is difficult to say.  My personal understanding is some perspective of how venture capitalists look at the investment opportunity (you didn't say how new this startup is or what series/stage they are on, so I'll try to stay vague). The actual financials are less relevant for startups than they are for other investments because the situation will definitely change.  Most venture capital firms like to look at the burn rate or amount of cash spent, usually at a monthly rate.  A high burn rate relative to infusions of cash suggests the company is growing rapidly but may have a risk of toppling (i.e. failing before exit).  Burn rate can change drastically during the early life of the startup.  Of course burn rate needs the context of revenues and reserves (and latest valuation is helpful as a benchmark, but you may be able to calculate that from the restricted share offer made to you).  High burn rate might not be bad, if the company is booming along towards a successful exit. You might also want to look at some sort of business plan or info sheet, rather than financials alone.  You want to gauge the size of the market (most startups like to claim 9- or 10-figure markets, so even a few percentage points of market share will hit revenue into the 8-figures).  You'll also have to have a sense for the business plan and model and whether it's a good investment or a ridiculous rehash (""it's Twitter for dogs meets Match.com for Russian Orthodox singles!"").  In other words, appraise it like an investor or VC and figure out whether it's a prospect for decent return.  Typical things like competition, customer acquisition costs, manufacturing costs are relevant depending on the type of business activity. Of course, I wouldn't ignore psychology (note that economists and finance people don't generally condone the following sort of emotional thinking).  If you don't invest in the company and it goes big, you'll kick yourself.  If it goes really big, other people will either assume you are rich or feel sad for you if you say you didn't get rich.  If you invest but lose money, it may not be so painful as not investing and losing out the opportunity.  So if you consider the emotional aspect of personal finance, it may be wise to invest at least a little, and hedge against ""woulda-shoulda"" syndrome.  That's more like emotional advice than hard-nosed financial advice. So much of the answer really depends on your particular circumstances.  Obviously you have other considerations like whether you can afford the investment, which will be on you to decide.  And of course, the § 83(b) election is almost always recommended in these situations (which seems to be what you are saying) to convert ordinary income into capital gain.  You may also need cash to pay any up-front taxes on the § 83(b) equity, depending on your circumstances." "BigCo is selling new shares and receives the money from Venturo. If Venturo is offering $250k for 25% of the company, then the valuation that they are agreeing on is a value of $1m for the company after the new investment is made.  If Jack is the sole owner of one million shares before the new investment, then BigCo sells 333,333 shares to Venturo for $250k.  The new total number of shares of BigCo is 1,333,333; Venturo holds 25%, and Jack holds 75%. The amount that Jack originally invested in the company is irrelevant.  At the moment of the sale, the Venturo and Jack agree that Jack's stake is worth $750k.  The value of Jack's stake may have gone up, but he owes no capital gains tax, because he hasn't realized any of his gains yet.  Jack hasn't sold any of his stake.  You might think that he has, because he used to hold 100% and now he holds 75%.  However, the difference is that the company is worth more than was before the sale.  So the value of his stake was unchanged immediately before and after the sale. Jack agrees to this because the company needs this additional capital in order to meet its potential. (See ""Why is stock dilution legal?"") For further explanation and another example of this, see the question ""If a startup receives investment money, does the startup founder/owner actually gain anything?"" Your other scenario, where Venturo purchases existing shares directly from Jack, is not practical in this situation.  If Jack sells his existing shares, you are correct that the company does not gain any additional capital.  An investor would not want to invest in the company this way, because the company is struggling and needs new capital."