There is no shortage of startup companies in the different industries globally, but how easy are startups to uncover, and which of these are worthy of your investment money?
- Networking and word-of-mouth are still the most efficient ways to find startups since they allow in-person connections and long-lasting business relationships. Start by attending conferences and other industry-specific events to make more personal contacts and learn about exciting startups worthy of your capital.
- Another way to find startups is to find an online startup aggregator. These firms have all the required information and run background checks on the companies under their umbrella, making it easier to invest in a startup.
- Hackathons are another clever way to find promising startups. You can watch entrepreneurs working on their creations and then explain the concept behind their idea. After the judges and audience evaluate them, they choose a winner. Make sure to participate in hackathons with representation in the industries that interest you.
- Innovation labs worldwide make it affordable for startup owners to find a reasonably priced space to work. At the same time, their work gets more exposure and offers investors diverse options for investing.
- Online crowdfunding and networking platforms can connect you to several opportunities. For example, platforms like Crunchbase and AngelList provide lists and blogs, while startup owners will most certainly have a presence on LinkedIn or Twitter.
Pros and Cons of Startup Investing
Like all investments, investing in startups presents benefits and risks. However, since some of the world’s most successful companies (Apple, Amazon, and Microsoft are just a few) started as small ideas, those initial investors certainly hit gold.
Startup Investment Pros
Potential Growth – If you don’t want the risk, you can invest in stocks of existing companies, but you cannot expect exponential growth. Picking a successful startup that provides a solution and value can prove more profitable long-term.
Diversifying Investments – Startup investing allows you to build a diversified portfolio, ensuring you minimize your investment risk.
Supporting a New Idea – Often, investors care about a specific cause or new idea that excites them. So, whether you care about going to space, being more environmentally conscious, or a new technology that makes communication more straightforward, if you like what you see, then you have the opportunity to support the creator.
Supportive of Friends or Family – By investing in an idea of someone close to you, you could help them launch an innovative product that can also give you a good return.
Personal Fulfillment – An investment in a startup can help someone else succeed, leading to job creation for others and s sense of fulfillment for you. Often larger businesses decide to invest in startups because of the buy-out potential they present later on.
Startup Investment Cons
High Risk – Statistics show that 90% of startups fail for various reasons. These include lack of product-market fit, poor marketing, lack of team efficiency, etc. Therefore, you need to be prepared to lose everything you invest if the startup does not find success.
Illiquid Investments – Unlike stocks, you cannot easily find someone else to buy your investment in a startup if you change your mind. Also, your money takes far longer before it matures and starts giving a return, which always depends on the startup’s success.
Careful of Metrics – Initially, metrics are misleading because of the lack of data and the fact that startups base their valuations on successful companies. Instead, concentrate on the team at this stage.
Deciding on Startups Worth Investing In
Your financial position and interests determine how you approach your investment in a startup. Follow these strategies:
Choosing the Industry
Timing is vital with all investments, and investing in a startup is the same. Choose an industry that matches the current market conditions and ensure that you are interested in it or familiar with its products. Right now, some popular industries include electric vehicles, cannabis, gaming, robotics, and space startups.
Dig Deep When Researching
Putting your money somewhere requires due diligence from you. So first, find out how passionate the team is about releasing the idea and growing the business. You want to choose a company devoted to reaching success.
The company’s financial records and the founder’s expertise in the startup’s domain are also vital to your research. Furthermore, find out the size of the market and its growth potential.
All About Returns
Depending on the startup you invest in, it can take a few months to three years before you see a return. Therefore, startup investing requires that you don’t need that money to meet your monthly expenses.
Even though many startups fail, investing in the proper startup can yield excellent returns of nearly 4,000%.
Once the startup starts making returns, expect to get repaid as a creditor, much like a loan, or you may receive a percentage in the company.
Crowdfunding platforms provide smaller investors with the opportunity to join this investing landscape. Indeed, now that you know more about startup investing, you know how to avoid the tricky terrain by choosing wisely before deciding which startup to back!