If we reflect on the last ten years or so, one aspect of the business world that has drawn the most attention is “startups.” There is no one segment of society that has received all of the attention that the startups have. Everyone wanted a piece of the startup pie, whether they were retired professionals, established corporations, or college students. Even the current administration has established resources and regulations to support entrepreneurs both financially and otherwise. When it comes to financial support and investments in startups, many people have an unavoidable desire to park their money in a few of these businesses in exchange for equity or just by extending financing.
Many people have turned to startup investing as a reliable secondary source of income, while many more have turned into full-time angel investors, owning shares in numerous firms and earning good returns.
While investing in a company, there are obviously some factors to keep in mind, regardless of how profitable the idea may seem.
KNOW THE MARKET
An annual return of 15–20% is typical for investments in startups. The strength or wisdom of your investment decision will, however, determine this. Learn everything there is to know about the startup’s line of business in order to make the best decision possible. When startup entrepreneurs are presenting their business idea, they frequently focus primarily on the advantages rather than the drawbacks. If you are familiar with the industry, you may quickly identify the flaws and prevent hasty decisions.
LEARN ABOUT THE PARTIES INVOLVED
It is crucial to research the people you are working with. It is crucial to understand their background, years of experience, and educational background. Always keep in mind that these are the people you would typically interact with. Also consider whether you would get along well intellectually or on a non-financial level. People that are not entrepreneurially compatible often experience conflict while travelling.
DEBT AND EQUITY
It is crucial to know whether the company you are investing in needs money or your knowledge. It is usually preferable to offer debt rather than investing in exchange for shares if you are not an expert in the company sector but the endeavour appears lucrative. Your money would be safe in this way, and you would make interest on your investment.
SEARCH FOR UNSPOKEN
Startup founders frequently withhold important information when presenting their business concept. They only share the information with those who have a “need to know” as their goal is to obtain funding. It is wise to elicit a lot of information and find out if any other business is investing in or has previously invested in the project. The more questions you ask, the clearer your comprehension will become, and the knowledge you gain will help you avoid any awkward situations.
PRACTICE SAYING “NO”
If you are a real businessperson, you most likely already know how! If you are not entirely at ease or familiar with the idea, learn to deny.
Before making a commitment, ask for additional time if you need more time to answer a call. When the time is right, learn more about the company and speak with professionals in your network. The more research you conduct, the better decision you will make.
Recognize the scalability factor and evaluate how much the business proposition scales. Compare the sources of income and project whether the company can add more verticals.
CAPITAL FOR STARTUP
Investments can be made in startup companies directly, through startup funds, or through a variety of platforms that facilitate startup investing. Experts manage startup capital and bring expert management. They have the drawback of being highly pricey. The only funds to choose from are those with reasonable costs, a strong fund management team, and a track record of success. Platforms charge a fee in order to provide investors with shortlisted companies for selection. It is advisable to take into account a platform with a strong history of success and reasonable costs.
Investors should spread their startup portfolio among 5–6 companies if they are making direct investments in businesses, and they shouldn’t invest more than 10% of their financial assets in startups.