5 Things to Consider Before You Invest in a Startup

Startups have exploded these days. You can see a lot of small businesses with really great ideas starting to flourish. The problem for a lot of aspiring business owners is that they don’t have enough funds to kickstart their business. They usually turn to friends and relatives for help.

In many cases, the amount they collect is not enough for them to succeed. Hence, the help extended by investors can go a long way.

Invest in a startup

If you are planning to invest in these startups, you are making the right decision. We have seen a lot of companies that became successful when, in fact, they started from nothing. This is also what Sharone Perlstein would suggest. He is an expert in anything related to investment and finance. He has also invested in startups and has a long record of success.

He believes in the power of startups and how small businesses have changed the game over the years. Therefore, investors like you should set your eyes on these startups as your investment could lead to something big.

Here are some tips that you should take into consideration before you start investing. They are highly recommended by Perlstein himself as he has also used these strategies.

Don’t grab all opportunities available

There are reasons why some startups pitch their ideas to you for investment. It might seem like they have a really great idea that is worth your money. Before you say yes, take the time to analyse the idea and determine if it has a strong potential to become a valuable company.

You need to start asking first why they are not getting enough investment if their ideas are so great. Research them well before you decide. Once you have found out that they are really great in every aspect and their ideas could soon take off, you should invest.

Look at the structure

As always, the devil is in the details. You want to know what your role will be if you decide to invest. You should also see if they have a clear structure in place to ensure success. Otherwise, you could bear most of the responsibilities should things fail, as you are one of the major investors.

Be prepared to not see returns immediately

Startups don’t just succeed overnight. Even if the ideas are great and even if you have already decided to fund a startup, it does not mean they will tap into all the necessary markets and gain profits. You have to wait for a long time before seeing the fruits of your investment. It is better if you consider lending to the company instead and allow them to repay you over a long period so there is a guarantee that you are getting a certain amount throughout the span of the loan.

Founders in a startup incubator
photo credit: Aaron Hockley / Flickr

Speak with the people behind the startup

It is not enough to meet the people behind the startup once. You have to keep speaking with them and assessing their plans.

More than their ability to explain their ideas, you also have to check their personalities. You want to know that you are partnering with hard-working individuals who will do everything for their business to succeed. This is the kind of person you want to invest your money in.

Analyse the business plan

To begin with, not all startups have a business plan. If they can’t present you one, it would be a risk to invest in that startup. On the other hand, if you get a plan, do your homework. Analyse every detail. Check if they have realistic projections.

Once you have done all these things and you think the startup deserves support, it is time to invest.