How to Invest in Startups? A Simple Guide

With fresh ideas and a new approach to solving problems, startups have the potential to create new markets, revolutionize industries, and change the world.

In fact, investing in startups is one of the best ways to make a huge impact on the world around you. It provides you with an opportunity to make an incredible difference in people’s lives while also providing you with a high degree of personal satisfaction from helping others. There is also a chance that you will be able to generate some pretty decent earnings from this kind of investment.

What is investing in Startups?

Startups are essentially small businesses with impactful ideas or companies that found a new, often better way, to solve a business, consumer or societal problem. Startup investing can be done directly by purchasing equity shares, indirectly through one of several startup crowdfunding platforms and of course a relatively new way: Through cryptocurrency.

Today there are many ways to invest in startups, and investors need to consider both risk and reward before committing money to any startup investment. With startups being such high-risk investments, it’s important for investors to understand how startups work, how they make money, and what sort of returns they can expect from making a startup investment.

How to invest in startups for equity and determine the returns?

Startup investing is not just about knowing what kind of company you want to buy into; it’s also about determining how much money you want to spend on each one as well as how much risk you are willing to take when making that purchase decision. 

The money you spend on a startup should be calculated based on the potential of the investment, how much risk you are willing to take, and how long it will take to recoup your investment.

There are two main factors that determine the amount of money an investor can expect to make.

Investment return

This is the amount that an investor expects to make from his or her investment. It’s a function of the projected value of a company’s future profits and capital gains on those profits.

Projected risk

This is how much financial risk an investor is willing to take in order to invest in a particular company. An investor will choose between low-risk investments, medium-risk investments, and high-risk investments based on their willingness to take risks with their money and time.

startup-investment

Types of Startups – Understand before investing

There are three main types of startups in which you can invest:

High-growth startups –

This is a term used to describe startups with a very high projected return on investment, but also a high degree of risk. These startups are usually considered to be at the early stages of development but have the potential for rapid growth over the next few years.

Slow-growth startups 

This is a term used to describe startups with low projected returns and medium-risk investments because they are already established enough that their future growth prospects are not as promising as those of high-growth companies.

Stable/steady returns

This is an investment strategy that involves buying into stable companies that generate predictable profits year after year without experiencing much change in their business models or management teams. They may even have been in operation for a few years, but their business model and management team have remained unchanged.

In order to determine the best startup investing strategy for you, you’ll need to assess your risk tolerance and the return potential of each startup. Revenue Coin has got your back with such time-proven blockchain investment strategies. Their system will help you choose between a high-growth vs. a steady/stable return strategy.

How to find startup companies – It doesn’t have to be difficult

Before you get to know how to invest in a business, you have to find the best startups to invest in. You can find startups by searching online, but there are also more professional ways to find startups that you may want to consider.

1) A great way to get a list of potential startups is by looking on the internet for startup companies that have already received funding from venture capitalists. This will give you an idea of what kinds of companies venture capitalists invest in and which ones they tend not to fund.

2) Another way to find startups is by asking friends and family for suggestions. If they have been successful in their ventures, they will be able to give you great advice on how the startup environment works and what kinds of companies they have worked within the past. 

They may even have good references for you in case you need them. Just remember that people are not always objective when discussing a particular company, so be careful about taking their advice too seriously.

3) Another way to find startups is by searching on social media sites like Facebook or Linkedin for people who are connected with start-up companies. This will allow you to reach out to people who may be interested in sharing their knowledge with you and get a feel for what kind of start-ups these people are involved with. 

They may also know of other useful information about the industry that could help you make an informed decision on which startup company is likely to succeed and which ones are more likely to fail over time.

When to invest in companies? Questions you should be asking 

This is a pretty broad question and will depend on your background, interests, and investment goals. I think it’s fair to say that most early-stage investors take an interest in either consumer products or technology companies.

If you’re looking at consumer products, you should be investing in Startup investment opportunities with a product that’s solving a real problem. You also need to make sure there’s enough of a market for it and that they have a team capable of taking their idea from concept to full implementation.

Following are the questions you should ask before investing in someone’s business:

What Level of Involvement Is Required?

One of the first questions to ask when evaluating Someone else’s business is whether you should get involved at all. As with any startup, there are fees associated with being a shareholder (often called an early-stage investor). These fees can range from 1% up to 10% and have less importance if someone else has put in some money – such as angel investors or VC funders – into someone else’s company after hiring them away itself.

If someone else is fully committed to their vision from the get-go, you can respect that. However, You’re also giving them your time and experience as an early investor or advisor for free—so a business must be delivering results or people in the industry will realize it’s not worth giving someone else so much attention – especially when there are other fundraising opportunities for companies with less commitment than yours.

What’s the Expected Rate of Return?

Before you commit funds to a startup, You should also review and understand the expected rate of return for this given company and industry. 

This can impact decisions about when to invest in Someone else’s business – historically speaking, investments that don’t have an attractive enough return (10-20%) on investment have been surprisingly difficult to get to profit.

How Does the Investment Affect Diversification?

As with any investment, diversification plays a role in an investor’s decision whether to invest or not. The reason for this is that if you are funding a startup, it will be harder to diversify your portfolio when a lot of the funds go towards that business which therefore limits your capital for other investment opportunities.

Therefore, when considering whether you should get involved in a startup, you need to consider your investment portfolio. Investing in startups can bring challenges beyond just funding them as every business is different in their market, competition, value proposition and business model. The upside of investing in startups is you can have influence on decision making. When you take a more “backseat” type of investing approach without being really involved, you can still profit from company success. Of course it is also great to contribute to companies changing the status quo and solving problems or issues you believe in.

What’s the Timeframe?

You should have some idea of the timeframe so you can compare it to your personal expectations. That’s why You should ask this question. What’s the Growth Expectation? 

If there is a responsible Plan (a forecast of future sales, investments, and other expected measures), you can evaluate their chances for success. Then, you must see whether it looks good enough to invest. You can also judge the company’s potential by its burn rate.

How to get the best return on investment?

Getting a return on your investment is a skill just like selecting an investment is a skill in itself. Not every startup is worth putting money into, but if you learn how to invest, you can increase your chances of getting a return on your money.

There are no limits to what startups you can invest in; however, certain industries have greater potential for success than others. Therefore, bear in mind the industry context a startup is operating in. Usually it is best to stick to what you know. Are you knowledgeable or passionate about a certain market? That might be a good place to start.

The Bottom Line

Being a successful investor means being well informed about the three-part concept of funding, trading, and examination. And once you’re building this understanding; 

You can navigate the market more successfully. In order to understand what kinds ​of startups will make good returns in the future requires knowing these aspects and doing your due diligence.

With a right rational data driven approach, investors can gain an edge over others in the market.