So you have been struggling with your search for the one startup to invest your dollars in? Have you exhausted all google web page results and still don’t seem to find any? Are you wondering where to find what would be the next Uber? Have you asked yourself, “maybe I have been doing something wrong?”.
This guide is designed to help you unleash all the tools in your arsenal to finally get on the right track in finding that one startup for you to invest in.
Knowing Your Place On Investing
A successful investment comes from getting to know yourself deep down. Thus determining how you function when dealing with an investment decision. Generally, there are two types of investors. The first is called the angel investors, these are the people who have a very high net worth. And they give startup companies financial support to assist their growth. The second set is called venture capitalists. These people are treating investing in other companies as full-time moneymaker for them. They deliberately study very carefully the potentials of startup companies to see whether or not it would be a viable investment for them.
How do you know then which one you are? As a general rule of thumb, if you work well when dealing with a large number of people (i.e. working with companies) you are leaning toward being a venture capitalist. If on the other hand, you like working alone, being an angel investor might be right for you. As with the subject of how much money each type of investor put in a startup. Angel investors invest on average a 6-figure sum. Venture capitalists, on the other hand, have larger contracts on their hands going up to 7 and even 8-figure sums.
You Should Know Your Target Audience
Trying to be all things for all men while just starting as a company is the most common reason why startups fail even before they launch. The same principles apply when investors. If you would want to put your money in every basket you encounter, you risk the significant growth of your investment. Try to narrow down the list of the industries you’re trying to invest in. The smaller the list, the more specific the problem you are solving. Thus, giving your investment a higher chance of succeeding.
Always Be One Step Ahead
Before you even let the first word of the entrepreneurs’ pitch in your head. You should first know for yourself your intentions and objectives, and you must have it studied and analyzed. A couple of ways you might go about in doing this is to first, plunge into carefully scanning the company’s publicly available forms and information. Secondly, investigate the company’s supply and demand, and identify their competitors and their viability in the market.
This might seem like a hugely daunting task because there are a lot of moving parts involved. And you’d be right. Because no matter how much or how little you know in researching investments, there are a lot of things that aren’t yet being discovered. A great way of tackling this hurdle would be automating a lot of the easier phases of the research. And finally, use all the readily available tools lying around to make the approach a little easier.
Identify The Reason For Investing
After you have narrowed down your targeted audience. The next thing you have to do is take an even closer look at the companies in the industry. There are, again, two ways to go about this. The first is looking for the aspects of the company that you can’t see or touch. This would give you the answer to the why of your investment. This goes on to get a peek of the values and experience of the company over just looking at the performance figures. This would reveal telltale signs of the overall well being of the company before even running the numbers.
A very good place to start when looking at the intangible aspects of a company is the team. The team is the most important part of a company. A good investor should invest in people first. You have to be able to see if their management skills are on par. This part of your investigation would help you decide using your instinct on whether or not you should invest in this company even before looking at their more tangible aspects.
Making Sense Of The Numbers
This is the part of your analysis where you look at the company’s performance through its performance figures. The first question you have to ask, is the company growing? If so, at what rate? It is your job as an investor to look at the financial side of the company you want to invest in. Dive deeper into the industry of the companies that are your target audience. The facts that you will gather from the industry would make you more informed and at a glance, you can tell which companies are revolutionary and which ones just aren’t. Analyze and compare company financial reports. Learn to associate the reports that could have a potential impact on the industry you’re trying to invest in. Because if something happens it would of course directly impact your very investment.
It’s Time To Hear The Pitch
Companies look for investors to help them conquer their business hurdles. Most of the time it’s a financial hurdle. But, this is the part when they try to sell you a pitch in exchange for a chunk of ownership of their company. This is where the companies become the salesman and you the investor, a customer. How well a company does here would tell the likelihood of them getting an investor. And this is the part where the investor should really take a very close look at the details in order to secure a successful investment. There is a checklist that first needed to be filled up before shaking their hands and making a deal.
Here are 10 items to include in. your checklist.
1. They Must Be Reasonable With Their Expectations
The company must have a clear line of communication about having realistic expectations. Yes, it’s proven that a company can create a market or a highly innovative one. The best course of action is to still narrow down the focus on solving a particular problem in the industry. Once that is dealt with, everything should become a walk in the park.
2. They Should Be Fair To The Investors
You, the investor should get the right amount of money that corresponds to your amount of investment in the company. The company must be able to explain where the money is going down to a single cent. Almost all of the money must be going in the direction of expanding the company. They should also be able to give out a figure of what the ROI of the investor would be. They should be clear on their expected expenditures, clear about the details of their target audience. And they must be able to project a timeline for possible investments in the future.
3. The Company Should Be Solving A Problem
They must be able to fully understand the problem that their company’s product or service is solving. If it seems like they don’t fully understand the problem they should solve or how they should solve it could possibly prove that they can be a potential fad.
4. Their Time Frames Must Be On Point
Having a schedule for their project only goes to show that a company is serious and doubling down on their workloads in order to beat deadlines and follow their roll-out plans. This also gives the investor a sense of how organized the company’s time management is. And most importantly how committed they are to achieving a long term partnership with their investor.
5. They Must Know The Direction They’re Going
Entrepreneurs must keep in mind that the primary reason why an investor might potentially listen to their pitch is because of the financial aspect. A good trait of a company is being able to craft a projection of income versus expenses.
6. They Should Have A Proof Of Concept
When you try to look for a company to invest in, the very first thing you look at is their product or the service they offer. The point when they are starting to make a pitch is the point where they must already have a working proof of concept for whatever it is they are trying to solve. An idea is all nice and optimistic, but a working solution is what gets the job done. And having a proof of concept almost always means that they will secure an investment.
7. The Company Must Know What They’re Up Against
If you are a company aiming to solve a problem. It is very important for you to know who is out there trying to do the same thing. Having the information about who you are up against gives you an advantage, and it’s also a vital motivation for innovation. To push you to out-think and out invent the competition.
8. They Must Be Passionate
The company’s background story is very significant too. The story on where and why it started tells the investor a lot about what this company is all about. It is equally important that the team behind the company share a common set of objectives for the growth of the company.
9. They Should Have Good Rapport With The Investor
A clear line of communication between the investor and the entrepreneur is very important in boosting the growth of the company. It is very important that you see a very good rapport between you, the investor, and the entrepreneur. This chemistry is vital in making this business relationship last a very long time, and possibly even a lifetime.
10. The Company Should Have A Solid Sales Strategy
Having a great product or a great service offering is one thing. But it won’t turn into sales unless you know how to sell it. A good company to invest in must have a solid sales strategy. They should know who the right people are to partner with when it comes to selling their product or service. They must have a plan on how and where to distribute it, and what medium they use to let the world know about their company.
8 Places To Find The Perfect Startup To Invest In
Now that we have finished identifying what you may the prerequisites of startup investing. I now call you ready to find a company to invest your hard-earned money on. We are now done with the how and the why questions. Now it’s time to answer the where question.
This is a particularly good place if you have identified that your target company is in the tech industry. Hackathons are events that entrepreneurs and coders meet in order to come up with the craziest creative ideas and build them from the ground up. They usually are given a minuscule amount of time on average about 2 days. This is typically how long Hackathons last. Coders and entrepreneurs alike are able to build in that time apps that would normally take months to finish.
These coders and entrepreneurs get their brains firing on all cylinders to run the marathon of trying to build the craziest idea in the shortest amount of time possible. They prepare a lot and exert ridiculous amounts of effort to out-think and out-perform other participants. Now all you have to do as the investor is watch on the finishing line and select and pick the best from the rest.
2. Innovation Hubs
Innovation hubs are old mostly industrial places and buildings that are being refurbished and repurposed as fresh urban spaces. It gives them a new meaning but allows the people who work in them a sense of creative passion and entrepreneurial enthusiasm for those nostalgic places.
These kinds of places are awash with coworking innovative startup companies, people from the academe, researchers, investors like you, and business experts. This can only mean that this is a perfect place for you to come across the perfect innovative startup you are wanting to invest in.
If you have ever seen the HBO series Silicon Valley, the coder guys stayed in a house owned by someone. They get to sleep, stay, and work there. In exchange, the owner of the house gets a percentage of the app from each one of the people working there as a sort of payment for rent.
This is roughly how an incubator works. Investors and companies allow early-stage startups to work and refine their business. This is a win-win for both parties because startups get the perfect environment for mentorship and guidance to grow their business and as a return. The proprietor of the incubator gets a percentage of that business.
4. Startup Competitions
A startup competition can either be a private company funded event, initiated to determine which startup company can come up with the best solution for their problems. Or it can also be an academic competition organized by colleges and universities for students with ambitions.
The second option poses a much higher potential of revealing highly-intelligent multi-talented individuals who just finished school with a word changing business idea. So if you don’t want to go and bother launching a startup competition of your own, the university funded option might be the one that suits your needs.
5. Startup Aggregators
Startup Aggregators are exactly what their name suggests. They collect a mass of unorganized startup companies and group them in such a way that you could apply filters to sift through them and find the one you need. Think of this as the data filter feature in the desktop application Microsoft Excel. The advantage of opting for the startup aggregators solution is obvious. Because they were invented to solve exactly this kind of issue. The only thing you have to do is do your homework and do some extra quality checking because not all startup aggregators take their quality control very seriously.
6. In-person Networking
We all know that startups must establish a strong online and social media presence. This is exactly what helps investors like you to screen and analyze them without even leaving the comforts of your office chair. But in some scenarios, nothing beats the old way of networking. Which is actually getting out there and starting getting to know your future business partners. Studies show that in-person networking results in stronger and longer partnerships compared to those constituted online. This is a sure-fire way of finding the right startup companies out there.
7. Corporate Accelerators
Corporate Accelerators are like internship programs for startup companies. It is some kind of contract that usually lasts about a few months. It is aimed to boost the development cycle of an early-stage startup company most of the time, supervised by a mentor. Investors are highly keen on this kind of event. They especially participate during the last days of the acceleration programs where the startup companies present their finished prototype on a day called “demo day”. This is where the partnerships are being born. This new startup accelerator industry has gotten refined to a point where every investor now appreciates the value of this tool. A testament to its success is that now, over half of the accelerator programs in the European Union are now funded by corporations.
Closely like incubators, corporate accelerators pose a win-win solution for both early-stage startup companies and corporations. It will work where the early-stage startup companies would increase innovation in areas where the corporate lacks. And as a return, this would be a boost in the refinement of the startup’s business. This saves corporations that would like to invest in startups the bother and effort in looking for the perfect startup. They just have to craft an application procedure and come up with an attractive program. And at the end of that day, they’ll just have to sort the candidates, pick one and watch them give it their best shot.
How Corporate Accelerators Are Different From Incubators?
In a nutshell, the partnership between the proprietor of the incubator and the early-stage startup is more extreme, comprehensive, and possessive. This essentially means that the partnership goes way beyond just a single idea, but to the creation of a whole new company. In an incubator set up, the ROI would take much longer but in return, it would be much more stable and would last longer.
On the other hand, Corporate Accelerators employ more competitive, short term plans that usually last a few weeks to a few months. The corporation obtains early access to innovative ideas based on a fixed set of rules, in exchange for mentorship, access to the corporate’s network, and a small amount of equity.
8. Online Networking Platforms
The business of investing in early-stage startup companies has become highly competitive because of the interest they built up for investors on how lucrative they are proving to be. In-person networking and random connections simply can’t keep up with the might of the outreach power of online networking platforms. Online networking platforms can easily connect you to an otherwise impossible to reach a pool of talent, new knowledge, and business partnership opportunities.
The reason why Online Networking Platforms are so useful in locating potential startup investments is that modernization and the information age has reached a point where we became dependent on it. That doing your networking offline is deemed to be no business growth.
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