Venture capitalists like to invest in new startups. If you are a venture capitalist and want to invest some money in the new startup phase, then you must be very careful.
As you know, only 10 start-ups were successful. Yes, the rest of the nine are destined to fail for various reasons. Investing in any new business is not easy, because it is risky. You don’t know if you will recover your money.
Many venture capitalists are unaware of this and they lose money. Therefore, I wrote an article to solve this problem. If you are a venture capitalist, there are a few things you must keep in mind before you plan to invest in a new startup.
Here are some tips.
1. Invest in a better industry you know
The first tip or tip for a venture capitalist investing in a startup is to understand the domain name you invest in.
Always invest your money in areas you are more familiar with. I mean you have a comprehensive understanding of the industry you are going to invest in. You have to make sure that the startup will grow and start investing to a level where it can recover your investment.
A comprehensive understanding of the industry is important, such as how it will behave in the months and years ahead.
2. Identify the founder and the entire team
You must have a comprehensive understanding of the people behind the company. Who are the founder and the entire team that will start this new venture?
I remember when I invested in a startup, I went to their office and even met some of their employees. You must be confident enough that the team and the founder of the new startup will not fail.
So seeing its founders and new startup teams is enough to meet the challenges.
3. Understanding Finance
You need to understand how new startups will generate revenue in the coming days. Although it’s difficult for startups to invest in revenue over the next 5 years, they can show how they can expand the roadmap for new startups.
Always ask their financial status before investing.
4. Study how they use the funds
you have. You have the full right to know how they will spend the money you pay. You have to make sure your money is not wasted. You must ask what the founder is doing and what he is paying his employees.
If you know that the maximum annual salary of a startup must not exceed $ 120,000 per year. They must come up with complete answers explaining how they will spend the money you pay.
5. Learn more about monetization strategies
Monetization strategies are important for any startup. You need to know what a startup is charging for its services. Products offered by startups must be competitive in order to charge high fees for their services.
Therefore, you should check their services and the amount they charge in exchange for those services.
6. Diversify your investment
Don’t put all your eggs in one basket. Diversifying investments can help you get rewards by reducing risk factors. If other companies have acquired this startup, you can get the most out of it.
7. Explore the market and increase competitiveness
Explore the market and find other demographics where other players compete with the novice. You may find that the products or services offered by competing startups may be better or worse than the startups you are inventing.
In both cases, you have to make the final decision whether you want to invest or not.
8. Re-examine all future funding plans
This means how the startup plans to use the money for the next round. Examine their development and marketing strategies. Always look at the details.
9. Plan an exit strategy
If you see startups not growing the way you want, you need to have an exit strategy. For start-ups, dividends are only available after 5 years of investment. So you have to find a way to get your money back.
10. A thorough inspection of all legal documents
If you thoroughly inspect all the legal documents of the company’s articles of association, investor agreement, term sheet, subscription agreement and so on.
However, the most important part is the structuring of transactions, which is what percentage of the company’s return on the money you invest. So these are 10 things any venture capitalist should consider before planning to invest in a startup.
Investing in a startup is a risky business, so never ignore the above points.