If you have recently started considering investing in startups, there might still be a fair few questions buzzing around your head. You might be in the dark about exactly where and how to begin. How much money should you pour into what startups? How can you keep your portfolio balanced?
These are all understandable questions to have as someone new to startup investing. Here are a few tips to which you should pay particularly strong attention as you embark on your journey.
1. Look For Businesses That Have A Sound And Sustainable Strategy
During his tenure at the helm of early-stage venture capital fund Five Mill Ventures, Dan Soha wrote for VentureBeat that “the most important item to examine is the business idea itself.”
When assessing whether a startup should get your funding, consider whether the business idea allows for revenue to be made quickly. However, as the business should also be primed for long-term success, there should be potential for steady – rather than volatile – revenue.
2. Look For A Hungry And Quick-Thinking Founder
Any company in which you choose to invest should have a founder capable of quickly devising solutions which, nonetheless, are still well thought-through.
Soha admits that he avoids who he dubs “silver-spoon entrepreneurs” – people who have plentiful money with which to start a company and do so just because they can. Startup founders who instead have much to lose are hungry for success and, thus, can be more driven to achieve it.
3. Don’t Be Precious About Getting A Quick Return
You might have seen various statistics suggesting that the startup failure rate is pretty high. Whatever the exact rate, investment consultant Rutger Kemper admits in a piece for LinkedIn: “I dare to conclude that the chance is higher that a startup will fail than it will succeed.”
For this reason, it would be wise to initially invest as though you will never see the money again. Your monetary returns might only come from a few hit companies further down the line.
4. Treat Each Investment Like A Long-Term Relationship
Startup investment is no get-rich-quick scheme. You should invest in startups strictly because you anticipate having fun doing so. Investing is risky by nature, and it could take a while before you start getting more out than you have put in – if, indeed, you start making such returns at all.
Your financial success will also depend on how else you help the company. You could even help the company find other investors; the cloud accountancy firm Accounts Lab can add to such assistance.
5. Effectively Mix Up Your Portfolio
Simply putting all of your money into a single startup can be very risky given, as we have already pointed out, the likelihood that the company could fold.
You could instead spread the risk by separating smaller amounts of money across 5 to 10 companies. This can increase your chances of getting a few thriving companies into your portfolio and so helping yourself to offset investments that don’t work out.