There are many ways to own a business nowadays. You can build your own, or you can invest in stocks. But if you’re the type of person who looks into the future and is obsessed with bridging a gap in the market that others have not looked at, you may consider investing in a startup.
A startup is supposed to be scaled quickly, meaning it is designed for rapid growth. This is an enticing prospect for many investors, especially if a certain business idea is promising. However, you should not rush yourself into investing. You always need to do your due diligence no matter how safe the business idea is, such as starting a physical therapy business with online booking capabilities.
If you’re a first-time start-up investor, here are some of the things you need to keep in mind:
Invest what you’re willing to lose
One of the first rules you need to remember is to invest only what you are willing to lose. Maybe it’s a part of your windfall that you don’t need, or maybe it’s a small portion of your other business’ earnings. When you already hand the money to the startup, accept that you are not going to get them back until the startup actually makes money (or never at all). Don’t go into startup investing if it means you will have to drain your savings or sell your assets.
Meet the team and do your due diligence
At some point, you will be meeting with the startup founders and members. While your gut feeling says that their idea is promising, you will still need to do your due diligence. This is to make sure that you will not cover any baggage and liability once you have decided to fund them. Find out if the startup has large debts. Double-check the details of their business model. Are the assets, starting from the URLs to other pieces of hardware, in good working condition? Remember, your funds will go into business development and operations.
Be prepared for losses
While startups are designed to grow fast, there might be a chance that it will take a while before it starts making money. You need to remember that investing in a startup requires you to maintain a long-term relationship with the founders. Expect that the first few years will see no money. But if you stick long enough, you will be rewarded with great things — you may even be part of something that can change the world.
Ask for mentorship
While many young startup founders look at investors as mentors, you should not depend too much on yourself. Remember, you’re also new to this field, and it will help if you get help from experienced angel investors or venture capitalists.
Be a reliable partner
Being a startup investor can be an exciting phase in your business life. However, you should practice caution, and you need to make sure that proper protection is in place. Nevertheless, it would be best if you become a reliable partner and funder.
