Successful investors assert that it usually takes about three years for a business to reap appreciable profits. Regardless of that, every start-up bears varying initial costs and differs in what it takes to be profitable. With that said, investing in any start-up is a risky venture, but the benefits can be enormous when it goes well. In a report compiled by Fundables, the group discovered that angel investors fund only 0.91% of start-ups. How does one invest successfully in a start-up? Here are some ways.
- Meet the founders
Starting a business is undeniably a daunting task, and unless the person behind it remains resolute and committed to the cause, it’ll be impossible for that start-up to see the light of day. Without a passionate leader or founder, the chances of the business succeeding are reduced. Meeting these founders or the brains behind the business helps gain insight and first-hand information about what drives them.
During that personal and professional meet-up, you can determine the degree and authenticity of their expertise. Furthermore, this in-person interaction creates the foundation on which you can judge the start-up’s growth potential. The general belief is that investors should commit to every kind of start-up. However, it’s best to assist start-up founders with interests similar to yours for business targeting purposes.
For example, if your interest is geared towards solar technology innovations as found on the Choose Solar website https://www.choosesolar.com, you’ll find it worthwhile to target tech start-ups only. Choose Solar is highly innovative in creating solar farms that instantly connect to homes and businesses without the need for solar panel installation. Therefore, always look out for companies with a creative vision who are open to exploring new ways of doing things.
- Diversify your investment
When investing in start-ups, the objective of diversification is to push the idea of spreading your net wider than you ordinarily would. In essence, it improves your chances of landing a winner. Diversification is the foundation of investment, and getting it right increases the odds of succeeding with the right business start-up. For example, Sequoia Capital, an American venture capital firm, made it big when the sole decision to invest in WhatsApp paid off huge dividends. Even though Sequoia has been around since 1972 and supported countless start-ups, its biggest payoff came from a $60 million investment in a social media app which made them an extra $3 billion in returns.
As a tip, maintain a portfolio of different start-ups. Additionally, be on the lookout for varied business strategies and company age. These are some factors that help in making the best decision on diversification.
- Invest in small amounts
This is a precautionary measure in case the start-up fails to make a hit. About 90% of start-ups in the US fail to make it through the first two years, making this space a financially volatile one. Being prepared to lose it all should it fail to make the mark will save you from the headache of unpreparedness.
Dana Menard, a start-up investment specialist, believes investors should commit no more than 10% of the total start-up capital as the initial sum. After signs of growth, investors can then increase per their wishes.
Investing in start-ups is risky but can be extremely rewarding when done right and profits begin to come through. As with everything business, it’s your responsibility to weigh the options and hope for positive returns.