Insight into Investing in Startups - Ascent Conference

Insight into Investing in Startups

investing in startups

Becoming an investor can open doors to limitless opportunities, and there are many options to choose from in this case. Today, wise investors seek new opportunities, and they may not necessarily be on the stock market. That is what makes investing in startups a viable option for such individuals. Note that every startup begins as a homegrown idea, and transforming it into a success story will take risk, effort, and capital.

The best thing is that startup investing is no longer a preserve of wealthy venture capitalists since average working-class citizens can leverage this venture with minimal capital. Additionally, you should avoid getting lost in the hype if you are planning to invest in startups. The reason is that some startups can pay off handsomely when you get in on the ground floor while others never take off or experience a long, lingering death before fading into obscurity.

So, if you want to realize success as a startup investor, you need to;

  • Get the companies you wish to invest in to choose you as an investor.
  • Prioritize viable investment opportunities.
  • Make an informed decision before investing in startups.

The bottom line here is that as an investor, you need to separate startups that take off from those that fail. Indeed, you can never be sure about this, but there are some common traits of startup successes you should focus on. Here are a few best practices for investing in startups.

1. Invest in What You Can Afford

Since there are risks for those who choose to invest in startups, the general rule of thumb is investing what you can afford to lose. You can consider 1% to 5% of your net worth and determine what you can lose within this range in line with your current financial status. Some of the investment avenues you can explore include;

  • MicroVentures — If you are considering early-stage and late-stage startup investing for as little as $100, you can opt for MicroVentures. There are multiple companies to invest in here, and the platform remains selective regarding the firms that get approval for investment. MicroVentures is an early funder for several top companies, including Twitter.
  • SeedInvest — You can invest in early-stage organizations after their pre-screening for potential viability through Seedinvest. You will access a list of entities seeking funding, a “pre-money valuation,” the total value of funds necessary, and the amount of money put in at that moment once you sign up for an account.
  • Republic — individual investors can purchase a stake in early-stage startups through Republic, and this popular investment platform is for accredited startup investors. Republic performs lengthy due diligence before approving specific companies, hosts six different investment groups, encourages group members to invest together, and allows for discussions.
  • Wefunder — If taking the minimum risk is a priority, you can opt for Wefunder, which is a platform that allows average investors to inject capital into a wide range of firms. As an investor, you can purchase notes, debt, or stock on this platform. Your money remains in an escrow account after investing and goes to a startup when it raises enough funds. Otherwise, you can get a refund.

2. Focus on A Well-Researched Market

You need insight into the demand for a particular product before investing, and that is one of the startup success factors that most individuals overlook. As such, you need to conduct extensive research on the target market base to get an accurate picture of demand before investing in a specific organization.

Understanding how to price competitively within the market you plan to venture into or perhaps disrupt, the income-bracket you appeal to, and the revenue-model appropriate for your service to a particular audience is also critical.

3. Approach Diversification with Caution

When investing in startups, diversifying your portfolio helps you mitigate risk. However, startups have an aspect of volatility, which suggests that diversification may not serve you well as an investor. You can realize handsome returns after investing in several startups, which will offset the losses you take, but that will require you to put in a substantial amount of money.

So, instead of spreading yourself too thin, consider diversifying within a carefully curated group spanning multiple industries. As a result, availing reasonable capital to the firms you opt for while avoiding the adverse effects of sector-specific volatility will not be a problem.

4. Consider Disruptive Potential

The disruptive potential of a startup is one of the indicators of its success. Some of the startups that continue disrupting or are abolishing former markets include Uber, AirBnb, and Netflix. That is only possible for companies willing to take risks to offer something that breaks off from what is already in the market in a bid to establish the new normal.

The result is the aggravation of competitors in the current market, especially when a startup poses a real threat. That suggests that such a firm holds better chances of becoming a real success, making it an opportunity worth exploring.

5. Ensure You Understand The Company

Going for a pre-vetted firm is advisable when investing in a startup. Most funding platforms that allow individuals to venture into startup investment do the vetting of particular organizations on your behalf. You also need to note that the scrutiny changes with every platform. For that reason, you need to look into the nature of the process to ensure that you are comfortable with the funding platform you use and the firm you choose to invest in.

Over and above the vetting procedure that various startups go through, you also need to do due diligence by prioritizing the four factors above. That is the case because there are multiple aspects worth considering for the savvy investors before channeling resources towards a startup.

Investing in Startups? You’ve Come to the Right Place

What matters most when going into startup investment is what you know about the company you wish to put your money in, and that is why you need to research beforehand. Without the necessary details, you may end up investing in the wrong opportunities, which leads to losses. Startup investment is refreshing, exciting, and provides substantial income for the savvy investor.

For more information on investing in startups, contact us today!

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