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Things To Consider Before You Say Yes As An Investor To A Start-Up

How to invest in start up companies

The start-up industry is mushrooming each day and is doing much good for people who are passionate and want to stand out of the herd mentality of working from 9-5 and create their own business enterprise, a dedicated team and a customized set of products and services.

As an investor in such companies, you can get to feel the experience both at a personal and a professional level as you get to be an effective contributor towards creating more jobs, promoting a better employment scenario, and offering hope to have a base for capital investments.

Though there are percentages and limits up to which you should invest, the first funding preference for any start-up companies is friends and family and acquaintances as well. So, lesser people look forward to professional investors.

However, there are many start-up companies that have done good with the help of an investor and incubation centres, be it Toppr (a start-up to help with entrance exams) or Instamojo (an e-commerce initiative). Also, with PM Modi’s plans to start 500 incubation centres to help micro, small and medium enterprises, the investing market is bound to grow exponentially.

Here are certain facts you must check – How to invest in start up companies

Research about the business owners

Since the company has not made its mark in the market yet, it is the people behind the company who are and who should be the most important factors behind deciding of or not to invest in the company. Consider researching the educational and work background of the company founders to know more about their skills, knowledge and how well they will be able to sustain themselves in the growing start-up market.

how to invest in start up companies

 

Invest in multiple and different start-up avenues

Even if one company you invest in does not make good, and you invest in diverse businesses, you will sooner or later gain success through one of these mediums. First-time investors need to understand which kind of companies do better and so cracking more than one deals is always helpful.

Multiple start up invest ments

 

Find out which field interests you more and also its growing prospects before investing

Just as reading all documents carefully before investing is necessary, similarly knowing which particular domain will fetch more growth in the near future by studying other company’s growth rates and understanding the market scenario better is also something as essential. A field that you are already interested in and know that it can rise to greater heights as seen with past examples, can give you better money back guarantee.

Invest in your interest

 

Finding out more about the start-up market scenario

Know about the competitors of the company you are planning to invest in and also how the company is equipped to compete with its competitors or is it an edge above them. Also, researching whether the company you are investing it has a large enough market to sell its products and/or services as well as what the company primarily deals in and is concerned about should be your lookout. The client’s feedback is as necessary to know for you as it is for the company founders and employees themselves.

start up market scene

 

Scrutinizing how the company has made use or is making use of the funds it gets

You as an investor have all the authority to know the strategies of the company and its motives behind using the fund that it is raising through you. Also, take a note of the salary amount each employee gets and the owner himself/herself earns through this business. Before thinking of increasing or decreasing the amount of funding, you should make a count of how much the company would need to grow their business keeping apart the cost of the products/services and the salary amounts.

How company is using money

 

Check how legal the company is

Last but not the least, it is mandatory to check the company’s legal documents and all the agreements that the company has signed so far and with whom. Check if all the documents are authentic or make your lawyer check that, rather and know about the infrastructure and how many shares of the company you own according to the legal agreements.

Business law

Finding out whether or not the company is likely to pay all its debts and loans and the money you invest in them is your absolute right and duty as well. The company you invest in should have the potential to grow and be useful to the customers it claims to provide products/services for. It is better to take precautions beforehand rather than curing yourself for the loss later.

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