Angels are fluttering around, and they are looking for a brilliant idea/company! To be or not to be is not the big query for today. Today we are going to dive into a deeper question! Should you invest or not invest in a startup? It is not free of risks. Investing in any company means inviting risks inside your home. However, if you are making a wise venture, it could be fruitful for you as an investor. What to do? Today, we are going to answer the big question. Should you invest in a startup? This article covers all the points you need to consider before doing a venture. Before we move on to the important topic of invest or not invest, do find time to check out the brilliant initiative on EduBirdie. This site is built for students, who require help with their endless assignments! It is a custom writing service provider. Now, this is a good investment for students because they will be using their pocket money for something constructive.
Angel Investors vs. Venture Capitalists
Can you get rich by investing in a startup? The answer is tricky because not every startup will have a great product or idea. You can provide funds for a food truck or a sports shoe company. Before we get into intricate details about factors to consider before providing funds, you must figure out the difference between angel investors and venture capitalists. Angel investors provide finances to startup companies. For example, if you have watched the famous series, Shark Tank, you will find angel investors on the show. They like an idea and invest in it. However, the venture capitalists enter the scene at a later stage. If the Angel investor finds an idea alluring and profitable, they will provide funds by putting their own money in it. The venture capitalists do not use their own wealth. The Angel Investors usually invest in something that they believe in. Well, you do get the gist why they are angel investors. It is not because they have a halo around their head, but they are the ones, who believe in a startup plan and are ready to invest. Angel investors are wealthy, and they have the money to spend on a startup, BUT the idea has to reap benefits for them as well.
The Dilemma of an Angel Investor
Should you do it? Your heart goes out for a particular startup idea. However, you cannot be emotional and make an expensive mistake. An angel investor (AI) has to think of their profit as well. What will they get in return? Small businesses need funds/money to grow. The AI will provide the seed currency, but they need to make a wise decision.
If you have made up your mind that you wish to invest in a particular startup, then keep some points in your mind.
1. Provide Funds/Wealth in a domain which you are aware of – Does the startup have a promising business model? Do you see any growth rate in the coming years? The startup should have a brilliant plan. ‘’YES this will be a good investment.’’ Your gut should tell you that! As an investor, you should get your money back.
2. Who are the people behind the company? – Who are the people behind the early stage company? Is it someone whom you can trust? You need to do a background check before. You need to be certain that the proper people are sitting right next to you. If the management is excellent, you would know that the money is in the ideal hands. By background check, we mean that you should see if they have a good educational background or their previous company track record.
3. Do Not Put All The Eggs In One Basket – How about investing in multiple companies? There are high chances that you will get your money back by putting your money in multiple companies. However, make wise investments and give your hard-earned money to the right people. Investments are made for long-run success, and so, you should be patient. Invest in a good startup and wait for your money to come back to you.
4. Equity Crowdfunding – Equity crowdfunding is basically the process wherein people invest in a startup or an unlisted company. You get shares in the company through the process of equity crowdfunding. You can join an equity crowdfunding platform, and if the company does well in the long-run, you will get the share for it. It is a wise option!
5. Is the startup competitive? – You need to explore whether this startup has the power to withstand the competition in the market! Does the management listen to the target audience? Will they work hard to keep up with the competition? If you are putting your money in a food truck, do remember that there are thousand other food trucks. The startup must have a game plan for surviving the tough competition.
6. What are they doing with your money? – As you will be putting your money in a startup, you need to know what the company is doing with the money! How much is the director paying himself? How much salary is he giving to others? Is he using the funds the right way?
7. Always Check The Legal Documents – This is something you cannot miss! You have to review the investor agreement, term sheet, subscription agreement and anything that you would want to see. You have to be definite that you are putting your wealth at the best place. What is the ownership percentage that you are getting in return?
Words From The Wise
What are YOUR thoughts? Angel investors usually put money in something that they personally believe in. You need to follow your gut and if you really think that the company will grow and you will get profit out of it then do not hesitate. However, do keep in mind the points that we mentioned in the post. If it makes sense to you and you trust the people behind the startup, then do not overthink. It will never be free from risks. If you are ready to lose money and not feel sorry about it, then follow your gut and heart. What if it does NOT work out? What if IT DOES?