5 Tips for Investing in the Right Startup

Jeremy BiberdorfBy: Jeremy Biberdorf

November 29, 2018November 29, 2018

5 Tips for Investing in the Right Startup

Are you thinking of productive ways to invest in the right startup? If you are going to spend precious money on a creative idea, you should consider smart ways to put your money to good use. While Warren Buffet suggested considering multiple investment routes, you must build up a great team and study your investment options thoroughly before taking the plunge. It will help you make an informed decision as an investor.

Have Your Finances Ready

Make sure you have access to your finances so you can write a check for a vendor or a stakeholder or issue online pay stubs to your employees in time. When you have the capital to invest immediately, you do not have to draw money out of your IRA, lose an opportunity or liquidate a stock to make funds available. Recommended by experts, these practices you will come across in the best books on investing.

Build up a Great Team

A dedicated and professional team is key to a promising startup. It is important you recognize this and invest in a team that is committed to making your idea, and vision a reality. Look for the best talent and create a management team best suited to meet the needs of a burgeoning startup. Take inspiration from firms with a 10-year average return on equity or ROE of at least 15% as suggested by Buffet. Such companies have excellent teams with an in-built prowess to handle the inherent financial challenges. Moreover, consider collaborating with serial entrepreneurs and experienced leaders to pave your route to success.

Look For Familiar Domains

I suggest you invest in a business niche you are familiar with and a business model well known to you. This gives you the leverage and flexibility to manage risks and associated challenges for your startup effectively. Companies that started with a simple business model like Coca-Cola Co and Wal-Mart Stores, Inc. have made it to the top today because of this productive strategy. It is an ideal investing practice for angel investing as it guarantees quick success for startups by radically improving the ROI.

Consider Recurring Revenue

If your startup idea is based on a model that will get you recurring revenue around the year and give you sustainable earnings, then you are well positioned in your investment endeavor. A good way to snag repeated sales is to sell a product or service that meets the needs of a diverse market and entails perpetual demand. A good example in the tech niche is SaaS (Software as a Service) technologies that charge their clients a monthly subscription fee. Look for such domains that reflect a consistent stream of revenue for investors.

Understand the Risk

I recommend you research your idea and investment options comprehensively letting your startup follow the risk management approach and understand different business aspects. Study the inherent positive and negative risks, conduct a response assessment and plan for mitigation or contingencies to keep your investments safe. A good idea to spread your risk of investment is by taking in multiple deals also called the ‘Spray and Pray’ approach. Pay for a variety of deals and concentrate on the successful ones gradually narrowing down your ambit.

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Jeremy Biberdorf
Jeremy Biberdorf

About the Author:

Jeremy Biberdorf is the founder of Modest Money. He's a father of 2 beautiful girls, a dog owner, a long-time online entrepreneur and an investing enthusiast.

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