Is Investing In Startups A Good Idea?
December 7, 2020 (Investorideas.com Newswire) Everybody wants to pick a winner and get in on the ground floor of an explosive company. Imagine if you were one of the first investors in Microsoft, for example. An investment of less than $10,000 would have you worth tens of millions right now.
Who will be the next Microsoft? Or Apple or Google? If you can guess that then you may want to put up some money in the company you so believe in. If it takes off then you look like a genius and are about to get very wealthy. If it doesn't, however, then you lose your money.
Any investing is a risk, but investing in startups brings more than most types of investing. In this article, we will go over what you need to know when investing in startups so you can decide if it is worth it for you.
Private equity funds
To minimize your risk and also to give you an opportunity that you might not otherwise afford, you should look into a private equity fund that specializes in startups. These funds can prove to be very good cash flowing assets without you needing to have vast amounts of money to get started.
Though it's a fun fantasy to think about, you probably wouldn't be able to be on the ground floor of a startup anyway. Usually, people involved in the actual process of building the company are the first ones to invest. The next round of investors is typically reserved for big time angel investors that already have a fortune.
Regular investors are usually very late to the game. And vetting startups if you aren't an expert in the field is very difficult. Instead, look into these funds and this will give you an easy way to get started in investing in startups.
Most venture capital investments fail
If you do have the opportunity to invest in a fledgling company, you have to understand the risk that you are taking on. 90% of the venture capital investments will fail. Due diligence is difficult to do when you are dealing with an unknown company. There is not much history there to go off of. The founders may have a good pedigree of similar businesses that they've created before but that doesn't mean that this venture is destined for success.
You'll need to be an expert in the field in which this business will operate. If you know nothing about tech and software, then you are flying blind by investing in a software startup company.
Look for opportunities in areas that you do know a lot about so when you do your due diligence you can easily see any weak spots in the founders' plan. If you've already had experience in this sector then you will know what to look for.
Also, make sure that you can afford to lose the money that you are putting up as there is a good chance of losing it even if you are confident that you have picked a winner.
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