Investing In Startups: How To Do It Right

Startups are tricky investment opportunities. On one hand, they offer great potential and could grow into real money-earners in the future. On the other, their limited cash-flow and high failure rate might put off many investors. However, if you’re prepared to take the dive and invest in a startup, make sure that you do it the right way. One of the most important things to consider is, of course, which startup to invest in. While your personal preferences and interests may guide this for the first few steps, when narrowing down a shortlist, from there you’ll need to be careful and assess the startups, to make sure that you’re not joining a sinking ship.

The Team

Meet the people behind the idea. This might be one of the most fundamental ways to test how strong a startup is, but many investors will skip right past it and only pay attention to the smiling face of the leader when they participate in meetings and so forth. However, the team will be supporting the startup and ultimately taking it as far as they can, so if they look drained and fed-up now, chances are they won’t be sticking around for the startup’s future, and might only be planning on staying for as long as their paychecks keep coming. If the team looks like they’ll jump ship at the first sign of trouble, then drop that startup and look for another, because every business has problems and your investment needs a team which will work through the storm and get out of the other side.

Interact With The Startup

“Gone are the days of investors being distant figures looming over companies and never showing their faces.” States Stanley Ballard, a startup blogger at Last Minute Writing and Writinity. “Nowadays, you’re almost expected to become a part of the company, and a startup will be no different. Make sure you show up to every meeting that you’re invited to, and share what you hope to get out of the investment with the startup team. Clearing up any preconceptions or problems that you have will clear the air and stop any future trouble arising, and spending time with the people involved with the startup will tell you if you’ll be able to work with them or not. If you have a major clash with someone within the company, it’s better if it happens before you put a lot of your money into it, and not after.” Come to know the startups that you’re considering like the back of your hand, and the right one should feel comfortable and have the same aspirations that you do.

Instant Red Flags

Of course, there are a few business types that you should avoid like the plague. Online gambling, for example, is a big no, which draws up all kinds of questionable practices and could even put you in trouble with the law, depending on how legitimate the startup decides to be. Future problems could include fraud and your reputation being ruined for being associated with the startup, so steer clear and try to find a legitimate startup to invest in. Also, be careful when searching for startups, because many will pitch an idea that seems amazing… almost too good to be true. If you’re thinking these words, it’s most likely too good to be true indeed, and a big red flag. The likelihood of the startup delivering on its promises is near zero, so go for a more realistic and honest startup instead.

Stick To What You Know

“Some ventures which use fancy words and complex ideas may seem appealing, but if you barely know what they’re talking about and have to decipher their pitch, it’s probably not the right startup for you,” Amber Houston, a tech journalist at DraftBeyond and Research Papers UK, states, “and don’t be afraid to admit that to yourself! You don’t need to be a master of everything – if your talents lie elsewhere, that’s absolutely fine. Some startups are very specialized and would benefit more from investors with experience in their markets, so you trying to fit into a startup which is out of your comfort zone might harm both you and the startup.” In short? Stick to what you know. Don’t try and look clever when all you’re doing is confusing yourself and taking up a space where a better, more experienced investor could be actually helping out the startup.

About the Author

Ashley Halsey works as a professional writer at Lucky Assignments and Gum Essays, but she also has a passion for business and attends many business training courses in her downtime. Her job has led her to become involved in many projects up and down the country.