Investing in startups is a challenge with high risk and high returns. However, investors can increase their chances by following a few simple guidelines.
Nothing gives you a perspective on how to invest in startups and vice versa.
Since the founding of Clever Real Estate in 2017, I've had many moments of thinking about internal business decisions through the lens of an outside investor. ("If I thought about investing money in Clever, would that move inspire confidence or caution?") As part of a decision-making section, you can look at things from a more objective perspective, separate from your own rationalizations and blind spots.
On the other hand, although my company is still in its infancy, I have already learned so much about what makes a startup successful and what can worsen its prospects. With these insights showing where I spend my money, I feel much safer in my startup investments. Will everyone meet? Of course not. But I like my chances.
Another necessity is real expertise. We all know that there is a superficial level of expertise that can guide you through a cocktail party conversation or even a business meeting. However, to really do it in your field, you need a deeper level. Deep, real expertise is a product of obsession. I would never invest in a company if the founder was not really obsessed with his vision.
One more note to the founders: openness is crucial. Everyone is a salesman when collecting donations, including me, but there must be some openness about that. When I invest in a business, I want to know that I get real updates, good or bad.
Investing in companies whose assets you share also has a peripheral advantage. If you invest in 10 startups, you will be fine if one or two of them make it. If you lose more and more bets than you win, your journey will be much smoother if you can look at your losses with a clear conscience and know that you made that investment with full, uncompromising judgment. There is no worse feeling than looking at a failed investment and knowing that you have been cynically offended by your gut and heart. I should have the same integrity that I expect from the companies in which I invest.
I am suspicious of companies that make unusual claims and promises. We are all trying to become the next billion dollar startup, but we all know that there is a reason why these companies are called unicorns - they are incredibly rare. If you try to give me billions in guarantees, I will question your sense of reality. There is a fine line between self-confidence and delusion.
Reforbes, in touch with tomorrow
Personally, I stay away from this kind of investment. If the existence of your business depends on the constant evasion of the law, I do not know how you can build long-term stability. We have seen that in the difficulties many legal marijuana companies have with simple banking, the federal law still prohibits marijuana, and in the government's ongoing attempts to regulate and control cryptocurrencies. That's one of the reasons why my startup deals with real estate - there is no fundamentally more stable industry.
If you are considering investing in a young business, first look at the big picture and people involved, and then look at the tables. Often, the financial data they provide to investors is more useful to tell you how they see themselves than anything else.
I'm not talking about sitdowns with the founder. I'm talking about their papers and making sure they've crossed all i-points and all t-points. Look at the company records and make sure everything is fine-the integration, the leases and contracts, the way in which the shares are issued, and everything in between.
Ask the founders how much money they have already collected. When asked if you want to be first in the pool, you should know that this is the case. However, if you have already collected a lot of money from your customers, this should alleviate your fears.
Each SeedInvest company has a different minimum investment and funding deadline. An innovative SeedInvest feature is the auto-invest option: investing at least $ 200 will give you a diversified portfolio.
The Republic platform not only offers investments, but also six different investment groups that allow discussion, ideas and advice. Group members are also encouraged to invest together.
Since the founding of Clever Real Estate in 2017, I've had many moments of thinking about internal business decisions through the lens of an outside investor. ("If I thought about investing money in Clever, would that move inspire confidence or caution?") As part of a decision-making section, you can look at things from a more objective perspective, separate from your own rationalizations and blind spots.
On the other hand, although my company is still in its infancy, I have already learned so much about what makes a startup successful and what can worsen its prospects. With these insights showing where I spend my money, I feel much safer in my startup investments. Will everyone meet? Of course not. But I like my chances.
Here are some guidelines I have compiled based on my time inside and outside the startup investment world.
Select the right company
1. Meet the founders.
There is a lot of truth in the stereotype about how to invest in people, not in companies. Starting a business is brutally difficult and obstacles and problems crop up almost daily. Without a passionate founder who has committed himself to 100% of his vision, the chances of success are approaching zero. Meet them, talk to them and find out what they are about.Another necessity is real expertise. We all know that there is a superficial level of expertise that can guide you through a cocktail party conversation or even a business meeting. However, to really do it in your field, you need a deeper level. Deep, real expertise is a product of obsession. I would never invest in a company if the founder was not really obsessed with his vision.
One more note to the founders: openness is crucial. Everyone is a salesman when collecting donations, including me, but there must be some openness about that. When I invest in a business, I want to know that I get real updates, good or bad.
2. Look for customer acceptance.
This one is obvious but often overlooked. A great playing field that paints a breathtaking future can dazzle you, but we all know that there are no guarantees, and that predicting the market is like predicting the water - basically, we're all just guessing. You may have an amazing vision, but if I spend money now, tell me how the product is developing now. If the company has already gained traction and customers use the product, that's huge.3. Make sure the chemistry is present.
Another cliche with a lot of truth is that you should invest in companies that make products that you love, with values that you share. To do this, I try to really live with a company's product before investing my money in this product. Often, you can learn more about a company's prospects through its product rather than a series of financial analyzes.Investing in companies whose assets you share also has a peripheral advantage. If you invest in 10 startups, you will be fine if one or two of them make it. If you lose more and more bets than you win, your journey will be much smoother if you can look at your losses with a clear conscience and know that you made that investment with full, uncompromising judgment. There is no worse feeling than looking at a failed investment and knowing that you have been cynically offended by your gut and heart. I should have the same integrity that I expect from the companies in which I invest.
What to avoid
1. Overvalued and promising companies
Again, we all know that salesmanship is about being an entrepreneur, especially when collecting donations. But there has to be a solid business core under the hype. If a company seems to be a hype, that's just as red as the flag.I am suspicious of companies that make unusual claims and promises. We are all trying to become the next billion dollar startup, but we all know that there is a reason why these companies are called unicorns - they are incredibly rare. If you try to give me billions in guarantees, I will question your sense of reality. There is a fine line between self-confidence and delusion.
2. Risky industries
In 2019, many investors earn money with what I call Commodified Vice. This includes industries such as marijuana and cryptocurrency. Many investors earn money in these areas, but in a high-risk world, startups in these industries are the highest risk of all.Personally, I stay away from this kind of investment. If the existence of your business depends on the constant evasion of the law, I do not know how you can build long-term stability. We have seen that in the difficulties many legal marijuana companies have with simple banking, the federal law still prohibits marijuana, and in the government's ongoing attempts to regulate and control cryptocurrencies. That's one of the reasons why my startup deals with real estate - there is no fundamentally more stable industry.
3. Put in numbers
We all love a good record, but if you look at the data of a startup, you will not get a tunnel view. If it is still in its infancy, you will not find many solid conclusions there, let alone any certainty.If you are considering investing in a young business, first look at the big picture and people involved, and then look at the tables. Often, the financial data they provide to investors is more useful to tell you how they see themselves than anything else.
Steps to invest in a startup
1. Perform your due diligence.
Let's start with the basics. Before you spend your money, be completely open and start your research from the beginning.I'm not talking about sitdowns with the founder. I'm talking about their papers and making sure they've crossed all i-points and all t-points. Look at the company records and make sure everything is fine-the integration, the leases and contracts, the way in which the shares are issued, and everything in between.
2. Execute the numbers.
Evaluating a startup is the best estimate of how much the business is worth - but do not make a mistake, it's an estimate. Why should one take the word of another for it? Always do the numbers yourself to determine the value of your investment. You might be surprised (in a good or bad way).Ask the founders how much money they have already collected. When asked if you want to be first in the pool, you should know that this is the case. However, if you have already collected a lot of money from your customers, this should alleviate your fears.
3. Look closely in the mirror.
When you have reviewed the companies you want to invest in, do the same for yourself. These are risky, long-term investments. You will not be able to spend money for years, maybe a decade, and if you do not get the luckiest series in investor history you'll lose some money. Do you have the patience for it? Do you have the stomach Do you have the liquid capital, above all?Crowdfunding platforms
For the small and medium sized investor crowdfunding is the best way to enter an emerging business. The following platforms, which offer the opportunity to invest only $ 100 in certified startups, are among my personal favorites.SeedInvest
This crowdfunder accepts less than 1% of the companies applying for funding, so you know you are seeing the best of the best on the platform. SeedInvest claims to have fully funded nearly 260,000 users and more than 220 companies.Each SeedInvest company has a different minimum investment and funding deadline. An innovative SeedInvest feature is the auto-invest option: investing at least $ 200 will give you a diversified portfolio.
WeFunder
For only $ 100, WeFunder users can invest in companies that make everything from vegan beauty products to CBD products. Investors can buy stocks, convertibles or bonds. If the company does not meet its funding target, investors will get their money back. WeFunder has been investing $ 83.5 million since 2013. So you know it's solid.Republic
This platform is the Everyman version of AngelList, the leading investment platform for accredited startup investors. In fact, AngelList played a key role in the adoption of the JOBS law, which made crowdfunding possible, and Republic was founded by AngelList alumni. Republic users can invest only $ 10, and all companies are under intense scrutiny.The Republic platform not only offers investments, but also six different investment groups that allow discussion, ideas and advice. Group members are also encouraged to invest together.
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