An Investor’s Guide to Funding Entrepreneurs!
Broadly speaking, capitalism has never been known to deal with the social consequences it leaves behind, which is one of the main reasons for the broadening divide between the haves and the have-nots. Entrepreneurship is considered by many as making a significant headway in ameliorating the consequences of social inequality.
Before investors invest in a business, they usually start off by looking for a problem, then trying to find a startup that’s solving that problem. Occasionally startups will present new ideas that help solve those obvious problems.
While the entrepreneurial mindset embraces vision, leadership and the ability to attract talented individuals, investors provide them with the much needed proposal for funding which is required by these talented individuals to drive their self-confidence, focus and well, increase their optimism and competitiveness. The number of successful entrepreneurs that have made it to the light of day seems impressive, but there are still some major issues which needs to be dealt with, such as, providing the funds for the countless newly established start-ups that are popping up each day.
This leaves many investors with another important question to answer. And that is, in the search to invest in a business, how does one find a startup idea which is worthy of their money? In order to be successful, the answer to this question will need to be given with a grounded sense of realism. The following are some of the ways in which investors can increase their chances of succeeding while they invest in a business startup.
Focus on an Industry
Before you send a proposal for funding, you need to select an industry that you are familiar with. The ideal choice being an industry you have experience in. The more understanding that you have of a particular market niche, the better you will be at evaluating the merits of a startup company before your determine whether or not you will want to invest in a business.
Needless to say, this is also one of the best ways in which investors can reduce the amount of risk which is involved when one invests in a business. Again, by knowing how the market operates, investors can get a better sense of their success rate in a particular market niche, or atleast be able to get back your money.
Decide How Involved You Would Like To Be
Some investors prefer just to provide the funds to a startup while others like to be more involved in the day to day activities of a business. Before you decide to invest in a business, make sure you assess how much time you are willing to put aside and devote to your investment.
Learn to Evaluate Investments
This is easy, all you need to do is join an angel network and learn the ropes from there. One can easily learn about the screening process which the group uses to select potential investments and investors can also learn how to identify the best prospects and the best deals in a particular industry. By being part of a angel network, new investors can also actively participate in the process of reviewing the business plans of various different startup companies, formulate questions and meet with the business’s management team.
Research the Founders
Being an investor, and a young one at that, you will need to understand the what, why and how of the business startup you wish to invest in. Doing some research on the founders of the startup will provide you with some valuable insights in to their business philosophy, and will also give you a glimpse into the entrepreneur’s vision for their company. In addition to that, you could also review the salary packages of all the members of the sales and management team, even that of the founder and owner. Since we’re talking about a seed amount, before you invest in a business make sure that the maximum cap is of $150,000, but which will ultimately depend on their experience of course. Also, try to understand whether the funds you provide will be enough for the startup to accomplish their goals after they have paid up everyone and taken care of other expenses.
Get Access to Deal Flow
If you find yourself struggling to find the best deals, try going online by registering on various investment platforms that will navigate you towards diverse deals. Especially if you are new to startup investing, you may want to see as many deals as possible before you invest in a business.
Generate Deal Flow
New investors can also create a local network of professionals who are already working with startups, attorneys, and consultants, who they can then refer to you for capital. Attend venture capital conferences where investors and companies usually meet and most importantly, keep your focus on your community.
Analyze the Investment
Whether you are investing on your own or as part of an angel group, always do a thorough examination of the company before you decide to invest in a business. Don’t just rely on statements given in the business plan but evaluate the startup independently and take your time before sending them a proposal for funding.
The First Dollar always Matters
The first dollar is what really matters. As an investor it is critical to see how the company is going to be able to scale down the line. This is where their price comes in, the startup needs to be charging a reasonable price for their products or service. There is no point to investing in a company that does not have a clear idea of what their charges should be and where they are going.
Hire an Attorney
If you’ve got a degree in law, you might skip this one, otherwise, hiring an experienced attorney should be right at the top of your list. Hire an attorney who has experience in securities transactions involving startup companies and consult with your attorney during the entire negotiating process. Your attorney will be a vital part of your team since they will be helping you to structure the transaction, ensure the transaction is in compliance with federal and state regulations, and make sure that your best interests are being protected.
They can also help you with articles on incorporation, by-laws, term-sheets, investor agreement, and subscription agreement and so on. This step will be all about you getting to know the company you are about to send a proposal for funding, get to know how the company is structured and the players that are involved, for instance, directors, advisors etc.
Diversify Your Investments
Instead of putting all your eggs in the same basket, instead, try to make multiple investments. This will increase your possibilities of success and will help in reducing the risks involved. And being the investor, it will also increase your chances of getting your money back with some returns at a liquidity event or acquisition by another larger company. In the end, investing in start-ups means, putting up your money for long term gains, so you will need to be patient.
Once you’ve figured out why you want to invest in a startup, you will have to take the necessary steps I learning how. While there are plenty of online resources, such as, associare.com, which will help you in making the right choices, the best way of being the best is by learning as you go.