When it comes to investing in start-ups, picking the right company to invest in is crucial. While it is indeed possible to make reasonable predictions about the potential success of a budding business, there are no real rules to play by. Angel investors commonly tackle this question by exploring business trends and market data from FTSE charts.
While bootstrapping is a distinct possibility for entrepreneurs, it often takes more to kick-start a profitable business. Although necessary to get a business off the ground, raising funds is a time-consuming and often tedious affair. In recent years, investors have grown increasingly cautious about investing in early-stage businesses, making it hard for many up-and-coming ventures to reach their full potential. This skeptical approach is due in large part to the fickle nature of the current markets: trends change, businesses flounder, and investors are unable to recoup their initial investment.
Being an investor rather than an entrepreneur allows you to reap the benefits of your investment without the drudgery. The key to great returns is to pick the right start-up to invest in.
How to pick a promising start-up
Start-ups run the gamut from clothing brands to innovative technology companies. These days it seems as though for every failed start-up, there’s a new one ready to pop up in its place. The complexities of the start-up scene can be hard to navigate and often lead to bad investments and high losses.
Many investors rush into a start-up headfirst without giving their actions too much thought. Specific types of start-ups have been gaining traction in the past few years, leading to precipitous and reckless investments. This especially applies to tech start-ups, seeing that this particular niche is being touted as a sure-fire way to achieving financial success.
Instead of chasing a mythical start-up that will see them through retirement and provide high dividends from the get-go, investors should turn to niches they are familiar with. Knowing what you’re up against it so much easier than speculating on a start-up whose business idea eludes you. It also makes gauging potential success rates far easier and allows you to get involved in the practical side of things.
Investing in start-ups: pitfalls and best practices
The current economic climate is all about diversification. While investing in a single start-up with excellent prospects is a good idea, it is undoubtedly better to build a diverse investment portfolio. Start-ups are rather volatile and typically have a higher failure rate than traditional business models. Diversifying across several industries is a very important factor in this game: healthcare, media, property, and technology are all growing fields with an excellent outlook.
For first-time investors and those who lack the time to vet a business from all angles, investing platforms can be a great way to invest directly in promising start-ups. Personal relations and connections to entrepreneurs, pitch events and syndicates provide additional opportunities when looking for a suitable start-up to invest in.