Investing in startups could lead to returns which could have a yield between 5 to 100 percent on the initial investment. However, it is recommended to conduct necessary and detailed research for the business, market, competitive network, and founding members to reduce the risks associated.
1) Invest in a field you have knowledge of
One of the most recommended way to minimize potential risks is to analyze the market that startup will be presented in. This will offer an amplified sense while projecting the realistic potentiality of the venture. Make sure that the business is an achievable model and you get your money back as returns.
2) Drill into the track record of the founders
The people behind the scenes are the most important people of all, especially for early stage startups. This has more priority when it comes to products which need to be iterated several times to find their market. You would want to focus on their background and contribution brought to the table.
3) Diversify your investments
Make multiple investments instead of focusing all your money on just one. Doing so will better your probability of success and consequently decrease the related plot holes. Ultimately, these investments are for the long run, which require your patience.
4) Join an equity crowd funding platform to get access to deal flow
If you aren’t finding particular deals which interest you, the best remedy is to go online and search for proper deals on websites, click here for potential sites. If you are a beginner in the field of startup investing, you may want to look through and analyze all available deals prior to commitment.
5) Examine the monetization strategy
Money is what really matters, the first dollar that is invested from your pocket is crucial. As an investor, the company’s future prospects are going to serve as basis for downscaling later. There is no real purpose in investing in a company that cannot stand on its feet financially.
6) Explore the market
As per professional business advisors at w3businessadvisors, it is absolutely crucial to see what competition the particular startup has and what kind of competitive advantage they could use so as to set things right in place in a sequential order to overtake everyone else in the race. Feedback is key in the event the startup needs to pivot or iterate around public feedback just to get it right. Individual ideas are of suppressed priority when compared to the team’s approach and the markets condition.
7) Investigate the finances
Calculating the projections up to a period of 5 years is not really practical, but the managing team should be able to showcase the blueprint how they would lay the foundation and build up towards being a profitable business.
8) Research their use of funds
As an investor, you need to understand all the aspects related to investment and utilization in a startup. Keeping a clear mind about investments would give you an amplified feel of the entrepreneur’s vision in testing. Understanding will help you realize the importance of funding particular startup events in raising and accomplishing various important milestones, on the whole, that could assist the company in getting immense profits or to raise additional rounds of financing.
9) Review the legal documents
Look for the documents, at the articles of times of incorporation, by-laws if available, investor’s agreement, subscription agreement, term sheet, all such commitments made on paper. Moreover, this is the part where you will need to dedicate most time for analysis and this is the basis on which the startup has structured the deal.
In conclusion, while investing in a startup company, you as a business person should follow your gut. Ask yourself questions where you debate and contemplate real concern or issue in the marketplace, and ultimately, if it makes any form of sense. If there is no particular application in the real world, you should definitely move on without looking back. Never invest money that you wouldn’t want to lose. You can read more about investment and startup applications here.