Important Tips to Know Before Investing in Startups

Parnas Ghosh Parnas Ghosh
Feb 9, 2022 4 min read
Important Tips to Know Before Investing in Startups

Startups are now ruling the business world, wherever you look, you'll find one. It is becoming a crucial part of every country. There are people out there ready to invest in startups that look promising to them. Investing in a startup company can reward investors both physically and financially. It is also very risky as well, you are not exactly sure if that Startup is going to survive or not.

Although there is a huge number of startups that are creating a name for themselves in different industries but not every one of them makes it till the end. Of course, the reward is fascinating but the risk of losing the entire money is also there. The feedback on investing money in Startup Companies is immeasurable. So, there are many things for investors to keep in mind while investing their money in Startups.

According to a report, 90 % of Indian startups fail within the first five years. Hence as an investor, you must perform quality research before investing in startups. In this article, we will talk about some tips that an investor must follow before investing in a startup. So let's get started.

Analyse the Domain
Be Mindful of the Founder's Background
Invest Your Money in Different Industry
Learn how to invest by joining another group
Analyse the type of competition held on markets
Find Out if the Startup Is Ready to Face Challenges
Keep an Eye on Investing Money
Examine the Legal Documents
Main Parameters for Investing

Analyse the Domain

To reduce the risks after investing in any Startup Company, the investor must know the domain in which the startup operates. This will help to attain potential success in investing. Always make sure that the startup company will grow and money will return back to the investor.

Be Mindful of the Founder's Background

It is important to place the founders of the company in the right place as they are the ones to determine the company's profits and success in the future. Especially for early-stage companies, founders are necessary for developing the path to success. If one product is made, it is tested by many members in the founder group and finally released. So, founders must have the right place to show their talents to lead the company. Thus, the investor needs to focus on the founder’s background story. The story includes which companies, the education they are previously coming from and what type of value they bring to the table.

Invest Your Money in Different Industry

The best way of reducing the risk of investing is multiple investments of money on different field tracks. This will increase the possibilities of success and will help to reduce risk. It will also increase the chances of getting money back with some profit or an offer by another company. This type of investment gives a result from the long gap. So, investors patiently wait for their turn and attain great heights in business.

Learn how to invest by joining another group

When investors are struggling with how to invest money in Startups, they can simply join other members online and invest a part of the amount. Investors must learn by analyzing different deals made by another member to determine what makes them a proper investors. It is important to understand the market before making any type of investment.

Analyse the type of competition held on markets

Analyze what type of competition is there among market investors. Investors are suggested to invest their money in the beneficial domain. First, the investors should analyze the customers, what they wish and what they want. Feedback is the key for the startup to develop the project at the right time. The investor must be very careful and analyse the market properly.

Find Out if the Startup Is Ready to Face Challenges

Not every time, things will go as planned, unforeseen circumstances can be a part of the journey of a startup, so the investors must analyse if the startup will be able to change its way, according to the circumstances so that they can survive the upcoming challenges.

Keep an Eye on Investing Money

Investors must keep an eye on investing money. They must watch for what purpose and how their money is spent. The investors must know that their invested money satisfied or reached the milestone of their startup company.

Examine the Legal Documents

It is an important thing for each investor to review the legal documents because sometimes cheating occurs when investing in a startup company. This may involve how the company is structured and who is involved. The investors must know the structure and ancient history of a particular startup company and what percentage of ownership in the company they are receiving depending upon the amount of money that they are investing.

Main Parameters for Investing

  • The first parameter for investing in startup companies is product or technology. The investors should be aware of what type of product is being developed by the Startup. They should also know, what type of problem occurs and when it occurs during investing money.
  • The second parameter is the team. The investor should know the team which works for them and whether they work efficiently or not. They carefully choose the associates and workers in a team.
  • The third parameter is scalability and competitive advantage. It means that can the business scale efficiently and cost-effectively. Investors should be aware of the business can be cost-effective or not. It decides if the investor is suited for the business or not.
  • The fourth parameter is the market. The investor should know the size of the market and how it reaches customers. They must know the number of people who really use their product efficiently.

Conclusion

If you are investing in a startup for the first time, then you must follow the above tips. Apart from that if you are not good at finance and laws, then it's better to take advice from experts regarding stocks, bonds, shares, and other startup-related things. Last but not least, do invest in a startup first then measure the progress and learn from the mistakes.

FAQ

How do Investors Invest in Startups?

Investors create a partnership between the company and themselves.

Is it Good to Invest in Startups?

Investing in startups can be risky, if the startup turns out to be successful, the reward is great but if the startup fails, the investors lose their money.

Why do Most Startups Fail?

There are a number of reasons why most Startups fail, it includes money running out, choosing the wrong business market, problems between founders, wrong way of marketing and others.

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