There’s a lot of information on how to become an excellent startup founder. But there’s not a whole lot about the role of an individual investor in startup companies. So, before you go any further, let me say that this is a particularly difficult time to invest in new startups; it is easier to simply be an angel investor than a true funding provider.
As an individual investor, the key is to know your market, what questions are most important, and when to make the most potential investment. It is easy to lose sight of these things as the pressure to get it done quickly rises. But the first step is to understand your own limitations. Then use that understanding to work smarter, not harder. You need to work smart not because the competition is smarter, but because you are.
If you can only invest in startups you have an inside track on their success. This will give you a sense of confidence that you can raise a substantial amount of money from investors. But that’s not enough to turn a start up into a sustainable business.
Understand The Market
You need to understand the market. For example, if the market is ripe for the purchase of a service-based company that offers products or services to your target clients may already be using, then you may not need to actively look at the startup. But if the market is saturated and no more opportunities exist, then you need to carefully consider whether or not the business has a future. It’s easy to get caught up in the present and get distracted.
You need to think outside the box. It may be that the product or service being offered is something you are already familiar with. In other words, if it seems to fit with your business, and perhaps better yet, if it’s something you know how to sell, then it could make you a good investment. If the product or service doesn’t work, then you’re in trouble.
Take the time to learn about your potential investors and find out if they are serious. Some are, some aren’t.
Invest In Startup Companies
When you invest in startup companies, don’t spend too much time evaluating them as though they are sales prospects. Rather, do what I call a “thought process” on them. As an individual investor, you should always consider if you have the right skills and experience to make a long-term commitment to the business and be comfortable making the decisions needed to ensure its survival.
I recommend that you start investing in startup companies in the same way that you would invest in a small business. Invest only a small percentage of your overall portfolio, which will grow gradually over time. Then, you can sell your portfolio and start reinvesting in start up companies again.
Another way to avoid getting caught up is to stick with businesses you know you can make a profit with. If you’re able to identify those opportunities early on, you will have fewer challenges. and therefore, less risk. In addition, if the start up has an established product or service you’ll already be familiar with, you won’t have to worry about developing one yourself. that way you will only have to focus on customer support.
Good Business Plan
You need to have a good business plan. Write down all the key factors you need to evaluate the start up company, and make sure it’s realistic, complete and includes a good sales and marketing plan.
You need to understand how to evaluate how the business will perform with a realistic expectation, and what your return on investment is likely to be. Don’t invest in startups you’re unsure of if you don’t know how well they will perform.
Investing in start ups is a lot like buying a house. It will require time, effort and careful thought, but it can be accomplished.