What is a Start-up Investment?
Before learning about startup investment in detail, let us understand what is a Start-up?
A startup is a project initiated by an individual/group of people aspiring to effectively develop and validate a scalable business model. Most of the time Start-ups refer to new businesses with new unique ideas that intend to grow large and make an impact on society.
The startup journey is full of disappointments, uncertainties, and huge failures at every step, but despite of all these hurdles there are examples of great impactful successful startup stories
Due to limited revenue or high costs, most of these small-scale start-up opportunities cannot sustain in the long run without additional investments.
Few Successful Examples of Startup Opportunities are:
- Internet bookseller Amazon.com
- Internet auction portal eBay
- Ant Financial
- We work
Startups are changing the world of innovations and opportunities by bringing in a new fast-learning dynamic business environment of opportunities. Startups are bridging the gap between age-old business policies and the latest new innovative ideas, where failure and uncertainty are easily acceptable and new innovations are built out of disruption.
Raising capital for your new startup opportunity is easier said than done, but one can always make the right moves well in advance and be prepared for the kill when opportunity knocks.
Startup investment is primarily buying a piece of the company with its investment where investors are putting down capital in exchange for equity: a portion of ownership in the startup and rights to its potential future profits.
In addition to financial benefits, Startup investment is extremely rewarding personally as you feel a sense of achievement by contributing to the development and welfare of society by job creation and capital formation. The USA is a great example of an unmeasurable flourishing prosperous economy, primarily because of the contribution and influence of many innovating startups who were encouraged by the supporting government policies and system.
How to Determine a Startup is Investment Ready?
Finding/ selecting the right investor for your dream project can be quite challenging at times, especially when you are not ready with your research work and the right knowledge. So for founders and investors both, this is quite a daunting task to identify whom to choose and when to choose for investing in.
Make an informed, smart assessment of your business needs, expansion plans as well as the type of investor you’re looking to get on board as there are different angel investors and venture capitalists (VCs ) out there.
The following are a few useful tips for both the founders and investors in assessing whether the startup is ready and suitable for investment or not:
Examine the monetization strategy–
As an investor and that too for a startup opportunity, it is essential to see how the project is going to scale down the line. In business earning profits is all that measures the level of your skills and competencies and nobody would like to invest their time and energy in a company that cannot stand on its own financially.
Explore the market–
It is absolutely critical to see what competition the startup has and what kind of competitive advantage they have been able to establish themselves in the market.
Also, focus on all aspects of the company like customer development, size of the market and their approach for their product.
Assessment of Finances–
Carefully assess the finances of the startup opportunity to be clear of the roadmap they have planned for themselves. The founder members must be clear in their vision for at least 5 years and be able to share the plan for how to become a profitable company.
Research the Use of Funds–
As an investor, you need to completely understand what, why, and how of the startup you intend to invest in. Having a good idea of the founder’s vision will give you a clear perspective to strategize.
In addition, try to understand if the funds that the startup is raising would be enough to accomplish important milestones it has planned for.
Review the Legal Aspects–
Pay special attention to how the startup has structured the deal and what percentage of ownership in the company you are receiving for the amount of money that you are investing in. Look at the articles of incorporation, by-laws if available, investor agreement, subscription agreement, term sheet, etc.
It is primarily to get yourself familiar with how the company is structured and who all are involved (directors, investors, advisors).
Join an Equity Crowdfunding Platform to get Access to Deal Flow–
If you are new to startup investing for yourself and for others and are struggling to find deals, the best remedy for that is to go online. By registering on investment platforms you will be able to navigate onto a variety of deals.
It is important to learn about the market before making any type of investment.
Drill into the Track Record of the Founders-
The people behind running the show are the most critical factor in startups, it is crucial to understand them before investing in, it is all about having the right people sitting in the right seat.
By tracking their past achievements and records, you are focusing on their background story (previous companies, education, etc.) and what type of value they bring to the table. Also, it will prepare you to make an informed decision on your partners.
How Startup Investment Actually Works
When you have finally taken the plunge and entered into this competitive arena, then make sure there is no looking back after this. Go all about it with a bang and make sure you have a team of innovative, enthusiastic, inspiring people with you, who support your dream project as their own.
In startup opportunities people with similar passions, goals come together to innovate solutions to a problem or dream they want to realize for the betterment of self and society. This bunch of innovative thinkers have a vision for themselves and society alike, but to fulfill that dream, they’ll need guidance and capital money from seasoned entrepreneurs.
In Silicon Valley and beyond, early-stage startups raise venture capital from VC firms and angel investors in various ways. There are two main ways to invest in early-stage startups:
- Investing in a priced equity round: Investors purchase shares in a startup at a fixed price investing in convertible securities
- The investment amount eventually “converts” into equity.
Investors in later-stage startups (Series A or later) will more commonly invest in priced equity rounds.
After analyzing the whole scenario for investment, the most crucial point to prepare for is your meeting with the investors. Let’s learn about the details to look into when pitching into investors for your startup’s investments:
The most important thing to carefully plan is to create a crisp, concise and short pitch deck for the first meeting with the investors.
A pitch deck is a brief presentation, often created using PowerPoint, Keynote or Prezi, used to provide the audience with a quick overview of your business plan. Mostly pitch decks are used during face-to-face or online meetings with potential investors, customers, partners, and co-founders.
The pitch deck must contain:
- A very good value proposition.
- A complete thorough description of the team, its strengths and your relationship with them.
- A competitive, detailed analysis/ overview of the business plan and its market demands.
- A detailed report about your finances.
Apart from preparing a solid, competitive pitch deck, one must focus on their “soft skills” as well. Don’t arrive late at any of your investments/ business meetings and never arrive unprepared or half-prepared. Be assertive to answer their questions positively and with enthusiasm.
70% of employers have firmly reinstated that soft skills and emotional intelligence are equally important as hard skills to succeed in the workplace.
“Investing in business is kinda entering a marriage, one must get along with business partners to flourish and learn.”
What you can perceive, you can achieve too with the power of manifestation. So, be positive while meeting with your investors and your positivity and determination in your dream project will rub off a positive impact on your investors too.
Guidelines to Find Investors for your Startup
Talking to investors about investing in your project is one of the most challenging parts of any business startup. Most venture capitalists and angel investors have to go through a dozen or more pitches every day and frankly speaking, they don’t have the time and energy to go through each one of them. So, make sure your first meeting with them creates a solid impact
So as an entrepreneur, you need to identify dozens of people who could potentially be interested in your company and still choose amongst the list, the one appropriate for you. The good news is that there are lots of ways to reach out to potential investors, through various possible ways. Let’s check a few here:
1. Build an Impactful AngelList Profile
Angellist is a great way to both learn about investors and let them learn about you. Creating a profile—including specific info about your company, product, and team members—makes it easy for people who are interested in your space to find you.
Once it’s there, share your profile with your friends and professional contacts and by doing so you end up following and get followed by a lot of new people from your own circle. Through them, you can get new pitches of interest to invest in your startup.
During the fundraising stage, when new investors follow each other or send requests with personal notes, it may lead to new business collaborations.
2. Prepare a Strategy to Meet Potential Investors
It is always convenient to have a wide network to meet potential investors, rather than individual meeting. But in the initial stages of the startup opportunities, it is always advisable to focus your wholehearted efforts on 30-40 main investors, who are a good fit for your business plans.
Prepare a strategy and take the list to other entrepreneurs for guidance, and then you can add or remove the selected few on the basis of their experience and guidance. Other people in the market/ fellow entrepreneurs are the best invaluable source of learning and expansion, these people can help you identify potential investors and people to avoid.
By carefully executing this phase of selection/ scrutinizing potential investors, you may end up creating the most beneficial list of investors to work with.
Networking is always the key to grow anywhere in any business because it provides you with the opportunity to interact with like-minded people with similar interests and motives to expand.
Most of the times it so happens that investors receive so many pitches that they hardly get the time to scan through them all. In such a scenario chances are that if you are going in with a reference through some common contact, you might be favored upon many others.
It is always beneficial for both the investors and the founders to have a commonly known angel investor, this way you always start on the right note by trusting each other completely.
4. Design a Unique Introduction
This one aspect could make or break your game, so never ignore this part at all and design a thoughtful and carefully selected introduction.
Sometimes, you may find investors with whom you need to be extra cautious while reaching out to them. In that scenario, a well-crafted introduction is which sail you through smoothly from the initial barriers.
5. Make Yourself Approachable by Providing Good Reasons to Invest
Investors are also looking for great startup ideas to invest in their hard-earned money so make sure you give them good reasons to jump in your project and contribute. Be there in the limelight to get noticed by the market, even if your product is in the pre-launch stage.
Start interacting with fellow entrepreneurs by writing guest posts or initiate a conversation on Quora to generate some attention for your group and motto. Just put yourself out there on display and start understanding the game well.
Blogging is a big business that helps you get noticed amongst the people and competitors and it may introduce you to many new potential investors. So, be very strategic in launching your campaigns via blogging. Spreading the word through blogging is the easiest and most convenient way to reach you.
- There are many different ways to fund startups, one must smartly choose what type of investment suits your startup opportunity.
- Startup founders are sometimes hesitant to contact investors, so this should be totally avoided if you wanna grow. Be bold and honest to approach investors.
- Be very strategic while pitching in for the first time, keep your initial pitch short and crisp.
- Take a close look at your present situation and don’t be scared to take help from advisors and other fellow entrepreneurs to find out if your idea is actually feasible and has the potential to scale.
- Make sure to get talented, honest, passionate people on board, who help you turn your dream into reality.
- Be transparent with your team, if you wanna earn their respect and trust.
- Look for investors that have experience in your industry and an affinity for your model.
- Be data-driven and tactical.
- Match your business with investors that are genuinely interested, or have a core mission that is servicing whatever your business offers. Trust is one of the most important aspects of raising capital, so making sure that your investors trust you and you trust them is key.
Finally, as a potential investor in your own startup or someone else’s startup company one must follow their gut. Ask yourself if this startup opportunity addresses a real concern in the marketplace and does it add some value to society. If it does then one must move ahead without any doubts.
And last but not the least- Always invest that much, what you can afford to lose!
How do startup investors make money?
Basically, there are 4 ways a startup investor can make money:
Startup sells to another company: Large companies typically turn to startups to provide a shot of ingenuity with a side of technology for their existing businesses. Startup gets big, pays dividends: Some companies decide not to get bought or IPO.
Where can I find startup investments?
Create a detailed business plan
Visit your local bank or an online company for loans
Seek help from friends and family
Venture capitalists (VCs)
Dip into your personal savings
Look for a strategic partner
How is an investor paid back?
For investors who provided a loan, you can simply repay the loan and interest owed to the investor, either through scheduled monthly repayments or as a lump sum. You can buy back the investor’s shares in the company at an agreed-on buyback price.
Is it good to invest in startups?
It is a good idea to invest in startups when one has the appetite and the capacity for the high risk involved. An investor with a mission to give first, help founders, and build business will win this game.
What should I look for when investing in a startup company?
1. Invest in a domain you know
2. Drill into the track record of the founders
3. Diversify your investments
4. Join an equity crowdfunding platform to get access to deal flow
5. Examine the monetization strategy
6. Explore the market
7. Investigating the financials
8. Research their use of funds
How does angel investment work?
Angel investors are individuals who invest in start-up businesses, normally in the early stages. This tends to be on Seed rounds of financing and also Series A rounds. Angel investors fill the gap between friends and family, and more formal venture capital funds. Some invest purely for profit.
Where do I invest in equity startups?
Top 5 Sites to Invest in Startups For Equity
Invest in startups online