There are many ways to get rich. Cryptocurrencies are at the forefront of the craze at the moment due to their high share price. One Bitcoin is worth more than $6,000, which is astronomical. Anyone who got in on the bottom floor is bound to make a killing, especially as the value was closer to $20,000 a few months ago. Then, there is real estate. The right property can pull in a steady amount over an extended period. If those don’t take your fancy, gold and precious metals have their advantages.
One thing people don’t think to invest in is a business. After all, it’s easier to start one from scratch nowadays thanks to an internet connection. What’s the point in pumping money into one that exists when you can own one outright? That is the conventional wisdom which exists, and it has some merit.
However, there is more to startup investment than meets the eye. For one thing, it’s new and exciting and potentially profitable. Plus, the resources and hard work are already there; you only need to let the bosses do the heavy lifting. Then, there is the job creation element and the contribution to the economy. Picking a winner isn’t straightforward, however. To make sure your money is on the correct horse, you’re going to need to consider the following tips.
Invest In The Industry
The brand name and the logo aren’t the only things in which you’re investing. They play a major role in the overall outcome, yet they are cogs in a machine. Remember that there is a lot of unpredictability and you need to eliminate it if you want to be successful. Blindly pumping money into a sector in the hope that it turns out well is a terrible financial decision. The trick is to negate risk where possible.
To do that, choose an industry you are familiar with so that you understand the processes. Previous experience will mean there are knowledge and skill involved in backing a certain project. At least, it is quite easy to look at their business plan and see the flaws. For example, your previous clashes in the sector may find that a bigger budget is needed. A lack of cash flow often leads to problems, so this know-how should cause you to pull out and look elsewhere.
Search for startups which have a scalable model that can grow to the point where you can receive a high ROI.
Go Sherlock On The Leaders
Every new organization has founders that want to go to the Promised Land. Like Zuckerberg, they are desperate to make a billion dollars and grow their company into a global superpower. Let’s face it – how many entrepreneurs haven’t had this dream? The answer is very few. Still, the issue with founding fathers is their added value mixed with their entitlement. As harsh as it sounds, they feel they are owed something even though they lack expertise.
Firms with these types of people in charge are going to tank hard after a short while. The market takes no prisoners. So, it’s vital to research the leaders and evaluate who's a grower, who’s a shower, and who is hanging on by their fingernails. Check out their background such as education and work experience, to begin with. Do they come from a reputable school with a first-class degree? Are they experienced in the area?
Move onto their role within the company next. Steve Wozniak wrote the code for Apple while Steve Jobs produced the marketing strategy. The former created the product yet the latter built it up and became the face of the company. Don’t let smoke and mirrors taint your view of a person’s skill level or value.
Check Out Crowdfunding
The last time you bought an asset; did you choose the first one that grabbed your attention? Hopefully, the answer is no because a legit investment is one which takes time and care. To eliminate the risk involved, it’s vital to interview different sources and ask them difficult questions. How many miles does it have on the clock? Who was the previous owner? Do you have the logbook? What warranty can you offer? It’s a process.
Apply the same logic to startup investments to ensure the deal on the table is the best one. Shop around for a bargain and don’t be afraid to compare one company against another to get a better understanding. In today’s era of technology, this is simple with a crowdfunding website. Kickstarter and GoFundMe offer info on the latest ideas. Not only that, but they allow you to analyze new and different deals. Think of them as a form of a comparison website.
Apply the first two tips to potential investment. Finding a range of deals is the first step yet you have to be able to sort the men from the boys.
Appraise The Monetization Plan
It’s amazing how many investors are thorough enough to check out references and the like, yet neglect this essential plan. How they plan to make money reflects on your investment. If it’s a bad strategy with plenty of holes, there’s a very high chance that your cash won’t be safe. In fact, it will disappear that quickly you’ll only be able to see the dust it leaves behind.
Understanding whether the business is on point is tricky work. Take a quick glance at new currencies to get the gist. Bitcoin is the world’s leader in terms of share price, popularity and infamy. However, it wasn’t the first nor is it the best if you compare the cryptocurrency differences and what they have to offer. Still, it has a value of $6,000 per coin because its monetization plan is stronger, among other things. Unlike Monero or TRON, it can be used in everyday transactions and is anonymous. Both of these things add to the share price.
To help, you should consider the basics. The price of a product or service is always an indicator. Companies that over or undercharge hemorrhage money as they scare customers away or don’t maximize their potential. Then, there is the marketing effort. Startups have to target an audience, but they also have to stand out from the crowd to drive traffic. Offering a niche service is something to watch closely as it increases sales.
Keep Tabs On The Funds
In the beginning, there is an inevitable slow period as the business gets off the ground. This can take as long as six months to a year, which is why patience is a virtue. During this time, you aren’t going to accept that the ROI is going to be low. Sure, you won’t set unrealistic expectations but you’re not going to throw money down the drain either. So, how do you tow the line?
The answer is to regulate their spending. Well, in the beginning, you’re going to ask them to explain their intentions. How a firm spends its budget is crucial to success because startups can blow their cash flow. Cutting expenses is a sound way to avoid the red and stay in the black. When that happens, there should be money in the pot to break even.
Places to cast a glance are the labor bill and material costs, as well as in-house operations. Salaries shouldn’t exceed $100,000 for a startup because they are only small. After the business grows, that is when the cap can be lifted. Tasks that are completed in-house can usually be outsourced for a smaller amount. Plus, it often raises standards too.
Anyone who tells you that an investment is a sure-thing is an idiot. Even Buffett, with all of his experience and skill, wouldn’t assume to know everything. Why? It’s because there is no way to predict the future. Some projects come off and others fall flat and that is the way of the world. You’re not a psychic so nothing is guaranteed in this industry.
However, there are ways to reduce the gambles. One of the best is to diversify. This means managing multiple investments rather than sticking with one. Then, there shouldn’t be as many problems if one project hits the buffers.
The key is to invest and then leave. Okay, it’s important to watch for potential pitfalls, but, barring a catastrophe, diversifying is a long-term game.
Review The Legal Stuff
Investing means signing a contract which you will honor. The same goes for the opposite party. Therefore, you want to ensure that you can fulfill your end of the deal and that they can too. Signing on the dotted line is the last hurdle yet you shouldn’t be casual.
Check everything from the term sheet to the by-laws and investor agreement. Also, ask to see documents for materials and financial records to ensure they aren’t bluffing. Of course, keep an eye out for the way the terms are structured. Do you get the right amount of equity? Are there stipulations?
Do you want to let a technicality ruin an investment?