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Investing in a startup company is not a joke. The process isn’t for the weak-hearted. You need to have some level of intelligence, market knowledge, patience, and an appetite for risk.
Invest in a segment you understand
It’s simple. If you don’t understand the property space, don’t invest in a startup that has anything to do with property, even if the firm is touted to be the next big thing in that domain. But if you are extremely keen and cannot resist the particular investment opportunity, learn about the industry first and then put your money on the line.
Ask questions of people who are experts in a particular sector. The best way to reduce investment risk is to comprehend the market the startup serves.
Get to know the founders’ track record
For an early stage company, the people running the show are critical to its success. Generally, a newly launched product doesn’t hit its target right away. Invariably, it would have to go through multiple stages of refinement before being received by consumers with open arms. Working on feedback may sound easy but it’s easier said than done. Some entrepreneurs have extremely rigid mindsets and they tend to struggle if things deviate a bit.
People who have the experience and skills to respond to constructive criticism are likely to find the right direction and get back on track. Individuals with a solid business understanding are adept at handling such scenarios. When drilling into the founding team’s track record, understand the previous companies the team members launched or worked for, their education, and the kind of value they add to the team.
Don’t invest in a single startup
Don’t put all your money into a single startup. Invest in several startups, at least. This will help reduce your risks and also maximise your possibilities for success.Invest smaller amounts in a number of companies to give yourself the best chance of success.
Learn the market
Continuing from the point of “learning” mentioned earlier, understand equity crowd funding. This is especially important if you have never invested in startups before. By joining investment platforms, you will get to know the various deals and opportunities around and more importantly, get a feel for what makes a good deal. Remember, any and every investment made should be backed by sound knowledge.
What does the revenue plan look like?
Without a clear revenue path, sustaining a business financially is not possible. It doesn’t make sense to invest in a startup if you are not sure how the firm will scale and make money moving forward.
How will the investment funds be used
As an investor, it is imperative you understand why, how, and what the startup proposes to do with all the money raised. The ability to handle money right, speaks volumes about the entrepreneur’s skills and vision. Also, know how much employees will be paid as salaries and how much money the founder will take home. Moreover, know beforehand if the money raised will be sufficient to accomplish milestones to bring the company into profit or help it raise more money.