An entrepreneur's guide to choosing a startup to invest in

An entrepreneur's guide to choosing a startup to invest in
Today we’ll look at how to choose a startup for investment and increase your own capital.
What is a startup
“Start up” means “to launch”, “to start”. Therefore, many people mistakenly equate startups with any new business projects. To understand the key difference between these terms, let's look at the definition from Wikipedia:
Startup company, startup - a company with a short history of operating activities.
The words “short-lived” do not mean that the company will cease to exist in 3-4 years. The fact is that the main goal of a startup is to “test out” a new effective business model that will quickly bring good financial results.

When such a model is found, a large corporation is created on its basis - that is, the startup is reborn and reaches a higher level. But an ordinary small business enterprise develops according to a ready-made scheme tested by many organizations and does not make powerful leaps throughout its existence.

A few more distinctive features of a startup:

* based on innovative ideas;

* aimed at rapid product sales;

* have high risks of failure;

* develop with the help of modern technologies;

* if successful, bring huge profits.

And one of the main differences is the lack of sufficient capital. Therefore, aspiring startupers are always actively looking for venture capital investments. Who knows, maybe you will join the ranks of the lucky ones who raise decent money from fresh ideas.
Is it profitable to invest money in a startup?
So, you have the necessary amount, but you are not sure that investing in startups will turn out to be profitable... Such fears are well founded. According to statistics, 90% of startups fail.
However, if successful, the return on investment in a startup is much higher than the return on investment in established companies.

The following recommendations will help you avoid fiasco on the financial front:

* Don't invest in products you can live without. According to expert forecasts, the already low incomes of the population will continue to fall in 2023. Accordingly, spending on entertainment, a healthy lifestyle, self-improvement and other optional areas will decrease.

* Study the business plan. Investing money blindly is a bad idea. Ask the startuper for a detailed business plan containing financial indicators, analysis of the target audience, and product features. To be on the safe side, do your own market research.

* Involve experienced specialists in your business. The role of the investor is often not limited to simple financing. If possible, raise the issue of strengthening the team with excellent specialists who, for obvious reasons, will be left without work in 2022. First of all, IT specialists, marketers, and financiers.
Also, to reduce possible risks, do not put all your eggs in one basket. Continue searching for startups until you select at least 3-4 suitable projects, and distribute capital evenly between them.
Stages of development of a successful startup
A startup, like other organizations, goes through a number of successive stages of development. Moreover, an investor may be required at any stage. Keep in mind that investing in a business at the beginning is much riskier, but if successful, it is more profitable.

Key stages of startup development:

1. Pre-sowing. A startuper has an idea, but does not yet have a clear understanding of how to promote it.

2. Sowing. The founders research the market and competitors, prepare a business plan, pitch deck, and think through the directions of the advertising campaign. It is at this stage that it is most often necessary to attract investors.

3. Death Valley. Entrepreneurs create and test a demo version of a product or technology. This stage has this name because about 50% of startups do not survive it. This happens for a number of reasons: due to the lack of a clear development strategy, disagreements in the team, incompetence of attracted specialists, etc.

4. Launch. The company prepares a release and presents the project to the target audience. The main resources go to marketing, improving the product and strengthening the team. At this stage, additional investment is often required.

5. Scaling. Here, startupers work to strengthen the company’s position, redistribute the budget, attract new employees, and develop the foundations of corporate culture.

6. Maturity – stage of maturity. The startup acquires the status of a successful company. Now its owners can breathe a little and enjoy the results.

It is worth noting that investments in startups are also attracted in stages. The required amount is “split” into several rounds. This helps to minimize risks and adjust the business plan in a timely manner.
How to invest in startups: 5 strategies that work
There are several ways to invest money in a promising business idea. Let's look at the 5 most effective strategies:

1. Crowdinvesting. Its meaning is the joint financing of a startup by numerous sponsors in exchange for ac

tions or percentage of profits. Company products often serve as additional rewards. This type of investment is suitable for those who have small amounts.
2. Private investment. A person invests personal money in promising projects in exchange for shares of newly formed companies. This method is suitable for experienced investors who know how to analyze the market, calculate risks, and know how to choose a startup for investment. You will also need to have an excellent understanding of the area you plan to finance.

3. Investing through venture funds. The format of this method is similar to crowdinvesting. Only the sponsor here does not manage his money independently, but transfers the funds to a specialized fund, whose management decides where it is more profitable to invest it.

4. Investing through brokers. It works on the principle of stock exchanges. Brokers act as intermediaries between startups and sponsors. They check the reliability of potential participants in transactions and, for a certain fee, “bring together” interested parties with each other.

5. Joining an investment club. Partnerships reign in such organizations. All risks, profits and responsibilities are distributed in proportion to the amount of money invested.

Of course, there are other ways to invest. For example, creating your own venture fund or business incubator. Such experiments alone will require tens of millions of dollars, because in the initial stages you will have to spend not only on investment, but also on office rent, the purchase of office equipment and employee salaries.
Where to find a startup to invest in
Often, novice investors are faced with this situation: they have money, the method of investing it is determined, but they don’t know what project to use it to promote. To make your choice easier, let's look at how to find a startup to invest in. Today there are a number of specialized online resources for this.
You can also find many cool startups offline. To do this, attend thematic events, for example, economic forums, business seminars and conferences, investment exhibitions. They meet not only experienced entrepreneurs, but also newcomers who are ready to offer fresh ideas for business.
How to choose a startup
You can find hundreds, if not thousands, of projects. But which one to choose is a difficult question. Your eyes widen, and all the ideas seem cool. Let's look at how to choose a startup to invest in.

The following recommendations will help you not only save your invested money, but also increase your capital:

* Give preference to popular destinations. For example, IT solutions, e-commerce, green technologies or EdTech.

* Analyze the benefits of the project. Sometimes a pacifier is hidden behind a beautiful wrapper. Think about how the product meets the needs of the target audience.

*Please note the command. As practice shows, amateur startupers who have nothing but an idea behind them quickly get blown away. See if the owners have relevant experience, if a business plan has been developed, and if they are attracting new specialists to the team.

* Analyze the market. Find out how much similar products are in demand today and at what rate the demand for them will grow. Look at the work of competitors and try to understand how their new company is superior.

* Study the startup's financial plan. This will help you estimate the amount of initial costs, as well as understand whether additional investments will be required, and at what stage the product will begin to make a profit.
If the startup has passed all the checks, you can invest. If you have the slightest doubt, consider another option. There are many promising companies entering the market today, so there is plenty to choose from.
Conclusion
With the right approach, investing in a startup brings huge profits. However, do not forget that even a carefully thought-out and calculated business model a hundred times does not guarantee success. The development of a young company is influenced by many factors - changes in market conditions, the emergence of competitors, financial crises.

To reduce investment risks to a minimum, take note of a few simple rules:

1. Do not invest borrowed and last money.
2. Formulate clear requirements for startups.
3. Invest only in those areas of business that you understand.
4. Make informed decisions, but don't think too long.
5. Legalize business investments.
6. Diversify your investment portfolio - invest in several startups at once.
7. Be patient.
8. Think about your startup exit strategy in advance.