How to Invest Your Money in a new Startup?
If you are a venture capitalists and want to invest some money in a new start up then you have to be very careful. Investing money in any new venture is not an easy task as it is full of risk. Many venture capitalists fail to realize this and they lose money. Since, only 1 out 10 startup succeeds and rests of the nine are doomed to fail for various reasons.
If you are a venture capitalist then you must take care of following things –
- Know About Financials
- Know How they Use Given Funds
- Plans for Future Funding
- Check Exit Plan
- Check Thoroughly all Legal Documents
- Invest in an Industry You Know Better
- Ascertain About Founders
- Look of Monetization Strategy
- Divide Your Investments
- Increase the Competition for Explore Market
1. Know About Financials
Although it is quite difficult for a startup to project revenue generation for next 5 years but they could showcase a roadmap of how they are going to expand their new venture. You need to find out how the new startup is going to generate their revenue in coming days. You need to aask their financials before investing.
2. Know How they Use Given Funds
You must ask what founder is taking and the salary he is paying to employees. You have to know how they are going to spend the money you are giving. You must be assured that your money will not be wasted.
3. Plans for Future Funding
Examine about their growth and marketing strategies. Always look into the details. It means how the startup is planning to use the money for next round
4. Check Exit Plan
You have to find out ways to get your money back. You need to have an exit strategy if you see that the startup has not taken off the way you wanted.
5. Check Thoroughly all Legal Documents
The most important part is the structuring of the deal that what percentage in the company you will get in return of the money you invested. You have to thoroughly check all legal documents.
6. Invest in an Industry You Know Better
Invest your money in a domain that you know better. You have to gain knowledge of the industry you will be investing. You must be sure that the startup will grow up to a level where you could get back money you invested.
7. Ascertain About Founders
Who are the founders and the entire team that is going to run this new start up. You have to have total knowledge about the people behind the company. You must be confident enough that team and the founders of new startup are not going to fail.
8. Look of Monetization Strategy
You need to look at what a startup is charging for its services. The produce that a startup is offering must be competitive so that they could charge good money for their services. Since, hence, you should look into their services and the amount they are charging in return of those services.
9. Divide Your Investments
Diversifying your investment helps you to get back your money by reducing risk factor. If there is an acquisition of the startup by some other company then you can get best out of it in return. Do not put all your eggs in one basket.
10. Increase the Competition for Explore Market
You might find the products or services offered by the competing startup may be superior or inferior to the startup you are inventing in. You have to find out other players who are competing with your start up for the same demographics.
Investing in a startup is very risky business hence never ignore above mentioned points.
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