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Investing in a new company or start up business can be an exciting and rewarding way of making some money, and potentially helping something major get a head start. However, there are some things it is worth considering before pumping your money into something.
You need to know what you are looking for in a start up, as well as how much you trust the people you are giving your money too.
What is the Ambition?
The first thing to consider is the scale of the investment, and the ambition of the people you are investing into, or the investees. Scalability is a buzz word in modern business for a reason – you need to know how far the business you want to invest in is planning to go, and whether this ambition matches your own.
If you’d like to invest in a local business that is planning to stay local, that is fine. However, if you want to see your investment go bigger, then you need to invest in a business with larger ambitions.
Who is there already?
Investing requires trust. Trust in the people you are giving your money to, and trust that your fellow investors are as committed as you are. You should consider the team of people who work at the company – do they have enough experience to complete their objectives?
Equally, you need to consider whether there are enough people with unused skill sets that might come in handy in the future. Consider whether other people have invested in the same company, and why. If their interests don’t match yours, perhaps you need to reconsider your investment.
How have they Done So Far?
Even if you think that the people you want to invest in are good and trustworthy, you need to be confident that they can achieve your goals.
The best way to tell whether this is the case is to examine what they have already done. If they have got their business to a place where you are willing to invest, that is a good sign. A better one, however, is to see how they did it. Previous successes are more likely to indicate potential future successes. Think twice about investing in a start up, without a track record to be proud of.
Having a Back-Up Plan
A final thing to consider is perhaps the least fun, but most important. Not all start ups succeed. They can have the best plan and product in the world, and sometimes it still doesn’t work out. Having an exit strategy allows you to escape some of the worry in case everything goes wrong, and it is something worth discussing before investing into anything. How you will get your money back in any circumstance is a major consideration. Investigate how easy it would be to get your money back in both successful and unsuccessful circumstances.
Start Up Businesses as the Future
Investing in a start up can be stressful – by their nature they are less secure and stable than more established businesses. However, they offer some of the most interesting, fresh, and innovative ideas in the business market, as well as potentially generous rewards.
Not all start ups do well, but the ones that do are usually those that have something genuinely new to offer the world. If you are absolutely certain that the company you are investing in is the right one for you, in terms of plan, staff, organisation and history, investing in a start up can be a uniquely rewarding experience.
Related: Top five reasons why investors won’t invest in your company