Most investing moguls would have bet their money on big brands when those companies had just started. This is why investing in early-stage companies continues to be an attractive proposition. There will always be a section of investors who would look for that piece of coal which would turn into a diamond. The unfortunate part is that not all startups shine bright. In fact, many fold within a year. In this article, we’ll talk about what to look for when investing in early-stage companies so that you don’t end up investing money into duds.
A startup with just one person running the show is likely to fail, and we’ll tell you why in a bit. For a startup to progress, a good founding team is imperative. The most successful firms are the ones who have specialists onboard. For a company to create and sustain competitive advantage, the founding team should be a perfect blend of business, technical and domain expertise and experience. A single individual is unlikely to have all these necessary skills and attributes.
Generally, a perfect founding team comprises two to three supremely talented people. And they also have a strong vision for their company. They may start small but would have their eyes set on global market opportunities, especially if the domestic market is not big enough.
For a startup to make it big, it should offer something special. Something that feels like magic, or something that amazes at first sight. To achieve this level of excitement, the offering need not be extremely unique and sleek. It should however address a problem that no other product is solving. Remember, the product or the idea behind it need not be complex and extremely technical. In fact, the simpler the offering, the higher the chances of the product hitting the right chords with the general public.
Product Usage Levels
It’s hard to invest in a company that has not yet seen the light of the day. Therefore, your investment targets should if possible, be firms that already have their offering on the market. When perusing your investment options, find out how much traction the product has gained or the number of people already using the item. For instance, if a startup company sells software and the tool has already been downloaded by quite a few thousand people, it means the company has sufficient traction.
But don’t just stop there. Look for a company that’s demonstrating market momentum. For startups to attract investors, good customer acquisition rates along with solid deals in the pipeline are key determinants. See how many new customers the company has been taking onboard every month.
How Good is the Marketing?
Generally, most founders (especially tech founders) aren’t good at promotion or they don’t like to market their offerings. In fact, marketing is usually looked down upon, by individuals who work in the labs creating things. But there’s no business without marketing. Remember, a good product cannot sell on its own – it would need that initial push through marketing. Therefore, if you are looking to invest in a startup, make sure the small company has a proper marketing team onboard, or at least a co-founder who is an avid sales guy.
Investing in a startup is quite risky but extremely rewarding. In other words, it can be a bit of a gamble. If it clicks, you could become a millionaire. But if things go bad, you lose your money. To ensure no major setbacks, invest in an early-stage company only if you’re sure that losing the invested funds would not have any impact on your financial or emotional state.
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