I Want to Invest in a Startup, Where Do I Start?

  • Are you a crafty genius who’s always on the lookout to invest in new business ideas and the next big investment opportunity? Since you are going to devote a lot of time and energy in finding the best startup which will go places and make you millions, there are a few things that you will need to know about investing your money in a startup first. Below are some of the most important guidelines to follow when one is considering in making an investment in a startup business.

    Beware of the Opportunity

    Normally it’s not that easy for people to find private businesses which they can plant their hard earned money in that is, unless one is known as a local business player or is in tune with the business community. In that case, chances are that you would be approached with a new business idea or a start up firm in need of seed money.

    If you are looking to invest in a business, it is important to note that most, if not all small-business investment opportunities come either from word-of-mouth, family or friends. So, if you’re looking to invest in a new business, try looking for someone within the community who is looking to open up a new restaurant, or a friend who‘s trying to get the funds together to work on his or her bright idea.

    A good question to start out with is why is that business opportunity available? Normally, startups are looking to raise money because they couldn’t get the funds from a bank it’s your job to find out why and the story behind it. That being said, the inability for a startup business to get the necessary funds from the bank does not mean that the startup business is doomed or that it does not have a viable idea or business plan. The fact of the matter is that in today’s economic environment, it’s hard for startups to find investors and financing for their business. Since its hard to get the funds for a startup, many entrepreneurs turn to friends or family for the required capital. That’s where you come in.

    Always Invest in an Area You Know

    The best way for investors to reduce the risk which is involved in their investment is by understanding the market in which that startup operates in. Doing this will provide you with a better sense of the amount of success or failure you can expect from a potential business venture. It’s always best to make sure that the startup business model is scalable and is able to grow so that you can get the money back on your investment.

    Drill into the Track Record of the Founders

    Since the people behind the startup are the most critical part of a company, it is necessary that they are able to find a place in the market by iterating their products or services several times until they find one that fits the bill. In the end, it’s all about having the right set of people, in the right place, at the right time. If you found yourself a startup business that has a team of professionals with the drive to succeed, eventually they will end up finding the right solution for a problem in the market. Before you invest in new business ideas, you as an entrepreneur will need to focus on the individuals that are behind the company, their educational background and the value they bring to the table in their new business startup.

    Diversify Your Investments

    Instead of putting all your eggs in one basket, it’s always best to make small investments in multiple startup companies. This will not only increase your possibilities to succeed, but will help you reduce the possibilities of risk which is always present when you invest in a business. In other words, diversifying your investment portfolio increases your chances of getting back your money along with some returns in the event of liquidity, such as, an acquisition.

    Join a Crowd-funding Platform

    If you are an investor who’s struggling to find the best deals then the best way is to go online. By registering oneself on one of the online investment platforms, one is able to navigate through various investment opportunities and can get up to date on the hottest investment ideas. This is especially important if one is new to making investments in startups, before you pull the trigger always make sure that the startup you are willing to make an investment in will fly, and visiting various crowd funding platforms is, by far, the best way in which one could do that.

    Examine the Monetization Strategy

    When you invest in a business, the first dollar always matters. As an investor it becomes crucial for you to know if the startup is going to be scalable down the line. To find that out, startups need to be charging their customers for their services, because there is no point in making an investment in a startup business that is unable to sustain itself financially.

    Calculating a projection for the next five to ten years is going to be almost impossible, but the team should atleast, be able to have a clear road map on how they are going to build a strategy that will move their new startup business forward. Before you invest in new business ideas, it will be interesting to review the burn rate of the startup business and if their financial plan makes sense or not.

    Explore the Market

    As mentioned earlier, the importance of knowing how the market in which the startup is going to float operates cannot be denied. Before you invest in new business ideas, it is absolutely critical to make sure that you know all about the competition your new startup venture is going to face. If you don’t do your homework right, the competition could end up acquiring the startup instead of just being the competition. To make sure that doesn’t happen, you will need to make sure that the founding team is focused on ways of improving their product and customer development. Focusing solely on the idea behind the business startup is not the only thing, you will also need to feel confident on the startup teams approach, as well as the size of the market which they are going to be a part of.

    Assess all the Legal Documents

    For your own convenience, before you invest in a business, it’s better to have a look at the by-laws, articles of incorporation and the invest agreements and so on. This step will be all about making yourself familiar with the way the startup is structured and the people who are going to be involved. This is also where you will need to concentrate on your percentage of ownership in the startup.

    Ending Note

    To conclude, as an investor in a startup business entrepreneurs should always follow their gut and ask themselves if the business is actually addressing some real life concerns of the people, in other words, if the start up business makes sense investing in. Another important detail is to never invest money in a startup that you can’t afford to lose. For more ways to invest in new business ideas and information on entrepreneurs and startups, you can always log on to Associare.com.