Ask Yourself These Tough Questions Before Investing in a Startup

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Ask Yourself These Tough Questions Before Investing in a Startup

A successful startup is akin to the “cool” kid on the block of the corporate world. Most Millennials want to work there. Other entrepreneurs try to recreate the concept (sometimes to no avail). And there’s an undeniable potential for investors to reap significant returns—or lose sizable amounts of capital.

That said, if you’re looking to get immersed in the industry, it’s vital to understand the unpredictability of a fledgling company today. Whether you’re a venture capitalist or potential angel investor, you’ll want to ask a few key questions before getting intertwined with a budding startup.

How Involved Do I Have To Be?

The first thing you should do before investing in any startup is clarify the level of involvement the project will entail. Angel investors often get a say in the startup’s decision-making, due to the fact they maintain an equity stake in the company. Conversely, venture capitalists typically have limited interaction with the startup team, and are able to be more hands off as a result. At the end of the day, it’s up to you to decide how much or how little involvement you want in the project, and that desire should be crystal clear with the startup from the get-go. 

What Should I Be Expecting In Return? 

While most investors are looking to help entrepreneurs succeed, they also understand the value of money. From the very beginning, you should be asking your startup contact about your potential return on investment (ROI), so that you know what kind of earnings to expect when business starts to come into fruition. Granted, your returns will depend on how deeply immersed you are in the company, which is another reason you should defer to step one.

Will I Be Able To Speak To A Real Customer?

There’s true value in hearing from customers that believe in a product or service. That’s why, if possible, you should always ask to hear a client testimonial before solidifying your involvement in a certain project. And no, friends of the founder do not count. Instead, you’ll want to hear from an authentic target audience, so that you can better determine the attractiveness and feasibility of the startup, and your subsequent investment.

When Can I Expect A Payback?

Here’s the hard truth: nine out of ten startups fail. And if you’re a serious investor, you’ll want to look for a 10x ROI within five years. Why? For more information on this topic, reach out to Portfolio Financial Servicing Company today.