What to keep in mind when investing in startups?

What to keep in mind when investing in startups?

In 2017, there are a lot of uncertain investment vehicles out there, despite the fact that equity markets have never been so valuable.

Artificially low interest rates, quantitative easing, and other forms of government intervention in the economy have muddied the waters, making it hard to see whether certain investment classes will remain stable in the years ahead.

This has had the effect of driving many investors to the startup marketplace, as the ongoing tech revolution has made the funding of promising businesses the best way to build wealth these days.

This isn’t a recent phenomenon; during its heyday, the John Kleinheinz Hedge Fund made money not just by investing in stocks, but by identifying businesses that were likely to do well in the future and providing them with the capital they needed to take their growth to the next level.

By supplying badly-needed cash in return for a slice of equity in the company, they eventually earned a regular flow of income as the startups they invested in became profitable.

If you want to do the exact same thing that this hedge fund and others achieve everyday, check out the tips below and you’ll have an excellent chance of picking ventures that have a higher than average chance of success.


1) Stick to what you know


Don’t just throw your money into random startups just because they gave you a slick presentation. If a fundraiser is in any way competent, they will be presenting their case in a way that will make out their enterprise to be a slam-dunk investment.

Of course, business is never that clear-cut, as there might be red flags about a specific company that make them a bad bet in the long-term.

If you have an intimate understanding of a specific sector of the economy, you’ll be able to see them almost immediately. As such, only invest in industries you implicitly understand.


2) Research everything about the company


Once you have found a business within a market segment you know front-to-back, deep dive into every bit of relevant data you can find on it.

Start with financial reports, and when you are done with that, research the backgrounds of the executive team.

Researching the startups/businesses they have been involved with, the skills they have, their educational background, and their temperament will allow you to piece together whether they have a chance to make a big impact on the field they are breaking into.


3) Don’t put all your eggs in one basket


As you get your feet wet in this area of investing, you’ll likely want to put money into other businesses as well.

Not only is this a great way to expand your money-making potential, but will also protect you from the volatility that is inherent in business.

Don’t put all your investment capital in one business, or in one sector – by spreading out your cash, you’ll reduce your overall risk should the economy take a sudden sharp dive.




Back to Top