Startup investing has been soaring in popularity recently, with investors keen to be part of the next big thing. Investing can be rewarding, especially from a financial viewpoint. It also allows entrepreneurs to bring their ideas to life, and in some cases, create jobs where there was once none. However, as with any investment, there are a number of risks associated with providing startup funding. Potential investors shouldn’t be dissuaded from investing in a startup company, but there are a few things that need to be taken into consideration before agreeing to make an investment.
Startup Funding 101: Ensure You Only Invest In a Market You Have Experience In
It can be very tempting to make an investment in any market based on some advice you may have been given. However, if you don’t have experience within that market, you could find yourself letting go of the rails as you won’t know how the business works. This can mean a lot of things could go over your head, with you only realizing the ramifications when it’s too late. When you invest in a business you have knowledge about, it’s easier to see what’s happening. You will more than likely know what should be happening and what shouldn’t be, meaning you will be able to address any concerns sooner rather than later.
Startup Funding 101: Question the Opportunity Put In Front of You
Not everyone is introduced to investment opportunities. Those who are alerted are normally in the business of investing, or have strong business connections. Sometimes people are introduced to opportunities via word-of-mouth. While this gives someone an opportunity they may not have had before, you should always question why the opportunity has risen. This is not to say that the business would be a bad investment, if anything you could find it financially rewarding, but you should check to see why you have been asked to invest. There are a number of alternative methods startups can take in order to secure funding. Such avenues include a bank loan and funds generated from a crowd-funding project. It could be that these avenues have already been explored and didn’t have the desired outcome. In this regard, you also need to consider why investment wasn’t offered, or you could find yourself out of pocket.
Startup Funding 101: Research the Competition
Many people like to create a business that centers on an interest or hobby. The problem with this is that many people have similar interests, so it’s not unusual to see businesses emerge offering similar products and services. There can be exceptions, as some businesses operate in niche sectors. There is no problem, with you investing in a business that’s similar to another, but you do have to consider what factors the business has taken into account when it comes to marketing. If a similar business is pouring money into promotion, but the startup is not making any marketing efforts, it is likely that potential customers will visit the competitor’s business. You should also consider whether there is anything that makes the startup stand out from the competition.
Startup Funding 101: Consider Making Multiple Investments
Making multiple investments is not something everyone can do, but if the capital is available, it’s certainly something worth considering. By not investing in the one company, you will be increasing your chance of a return on your initial investment. However, such investments are made with a view to them being long-term, so patience is key in order to achieve success.
Review The Startup’s Plans to Ascertain How the Funding Will Be Used
When investing in a business, it pays to know how the funding will be used. A new startup should be able to show how it plans to use the money, complete with a breakdown. This breakdown should include items sections dedicated to marketing and development.
Potential investors should also look at the expenses the startup, and understand the costs. It is vital that you confirm whether there is a marketing plan in place that shows how they plan to move forward with the business, along with an estimation of what costs will be incurred.
Startup Funding 101: Don’t Expect To See Too Much Too Soon
As previously mentioned, investing in a startup requires a lot of patience. While it can be frustrating to see the business you invested in making a healthy profit, but you’re omitted from any financial reward, it’s worth remembering that in the early days, businesses very rarely have a profit that can be used for dividends, as most of the income generated will be poured back into the business. This can be a good thing for the investor, as it shows the business is doing what it should, and as such is expanding accordingly. So while you may have to wait for a certain amount of time before you see the financial rewards the investment has to offer, the rewards could be greater due to the expansion of the business.
Startup Funding 101: Always Consider an Exit Strategy
Although investing in a new startup can be an exciting time, there is no guarantee as to when you will receive your initial investment return, in fact many wait around five years before seeing a return. This is where it can be wise to consider an exit strategy. Regardless of whether it’s a return or set by time, there should be some kind of plan in place that allows you to sell your stake in the business. Private companies work differently to public companies, so shares cannot be sold online.
Startup Funding 101: Always Review Legal Documentation
There have been a number of instances where investors have signed the dotted line without first perusing the documentation. Of course, this is not to say that there is anything wrong with the documentation, but it’s certainly in your best interests to ensure that this is indeed the case. Reviewing the legal documentation will also ensure that you know how the company was formed, what has been discussed at meetings and who the board of directors are.
Of course, not everyone will have the same checklist, but it is worth taking the points on board so you’re fully aware of what investment entails. Any investment can be a risk, but with the right research and knowing the structure of the company, investors can reduce the risk by ensuring they stay informed about the business they are investing in. For excellent startup funding, why not check out bitbond.com to get a long-term loan at affordable interest rates.
Latest posts by Thomas Welsh (see all)
- Things to Keep in Mind When Investing in Forex - January 26, 2018
- How to Create a Marketing Strategy for Your Online Store - January 26, 2018
- Online Tools for Task Management | Our top 8 😎 - November 8, 2016