It’s not an easy game to play. Startup winners can elude even the brightest of minds, but if one does manage to uncover the next Uber or Pebble Watch, that discovery can lead to significant high-yield returns on their investments. Here are five things you need to know before you find your next growth capital home run.
1. Stay With What You Know, Take Calculated Risks
The best way to reduce risk is to understand what you are investing in. That understanding will be able to provide invaluable insight to the mechanics of the business and the investment itself. Make sure that the business has a scalable model so that it can grow to a level in which you will be able to get your money back as an investor. Long-time startup investor Kevin O’leary of Shark Tank says “I like to take risks. That’s how I make money. But they are calculated risks.” Take risks — without them, there’s no reward. But refrain from dumping dollars into something described as a sheer gamble.
2. Look For Founders Who Compliment You
By in large, a startup business is only as reliable of the people running the ship. Drill into the founders’ backgrounds and get a sense of the kind of people you are working with. What’s their educational background? Previous companies? What can they bring to the table as a person and a professional? At the end of the day, you need to be able to trust the people you are investing in. The road to wealth if often not forged alone and as such, a smart investor will not only look for partners who can compliment their knowledge and skill set, but also compensate for any weaknesses they may carry.
3. Join an Equity Crowdfunding Platform
If you are having a hard time finding a good investment prospect, a good fix is to join an equity crowdfunding platform. By doing this you will be able to navigate through different deals and different industries. Referring to the first point – It is important to learn about the market before making any type of investments.
4. Be Involved, Pay Attention
As an investor, you need to understand what, why, and how the startup intends to spend your money. This will give you a better sense when testing the founder’s vision. Also, review the salaries and see how much the founder intends to pay himself/herself. Understand if the money that the startup is raising would be enough to accomplish logical business checkpoints and milestones – this is a must. Furthermore, this due diligence will keep you, the investor, involved in every leg of the race. The more you pay attention, the more likely the startup grows, the faster you see returns on your investments. Yes, the capital is important, but don’t downplay the value of your action and advice.
5. Explore the Market For Acquisition Prospects
It’s impossible to see the future, but as an investor, you should do everything you can to try to do so. It’s crucially important to see what competition the startup has. As the investor, you need to know what the competitive advantage is (if any) over the marketplace. A competitive company could acquire the startup instead of mimicking their work, so investigating the hunger in the market could be beneficial. If there is competition, look at merger and acquisition history to understand what you and your money are up against. Knowing this will allow you to better plan for future funding and how you can be involved if you choose to be.