As a successful entrepreneur, you may be ready to use some of the spare profits from your own business to invest in a startup. That is actually a great idea in business terms as it can provide an additional revenue stream to help your business grow. Investing in the right company and idea can bring handsome returns that you can then re-invest in your own company.
From using the returns generated to hire more staff, move to a bigger premise or buy more stock, there are many sound business reasons behind an investment. Of course, if you do not have any immediate need for the capital then you could choose to invest in another startup and make it work for you that way.
The key thing to remember is that identifying the right opportunity is essential. If not, then you may not see your initial investment returned which could adversely affect your own company. But just how do you find the right start-up to put your money into?
Good tips on finding the ideal start-up investment
All investment carries an element of risk and that is why knowing what you are doing before you jump in is vital. You will have worked hard building up your own business and do not want to risk it by making poor investments in other companies. The trouble when looking at new start-up’s is that they will not have any track record to gauge performance or hard income figures to evaluate.
- Get professional advice – although it is perfectly possible as a young entrepreneur to handle your own investment strategy, it is usually wise to get some advice first. Seeking out the help of professional financial advisors or wealth management companies will pay off greatly. Not only will they advise the best sectors to look at and which companies may be a good call, but they can stop you making any silly mistakes. Creative Planning shows just what value and expert guidance a company of this type can give you.
- Invest in people – in the absence of facts or figures many top-line investors look at the management team of a start-up. While a good business idea is naturally essential, it is often the people involved who will make it work. Although this is a little subjective, look for a company who has an experienced management team in place and a clear vision of where they are headed.
- Invest in sectors that you know – of course, this advice does not necessarily mean your own sector which would could be a conflict of interest or just bad for your own company. It is, however, advisable to look for start-ups in sectors that you know at least the basics about. That will make it easier to spot start-ups with a truly amazing idea or a valuable product. Being able to do this will ensure that you put your money into the right companies to see the best return.
- Look for start-ups that promote recurring revenue – by far one of the best ways to make a solid return on your investment is to look for companies that have recurring revenue built into their model. In simple terms, this means that they plan to or already do provide goods or services to a large consumer base which is always needed. In modern tech sectors for example, start-ups that use subscription-based models are a good example as this sees a stable amount of revenue coming in every month from user fees.
- Do not follow the crowd – investing in startups can be tricky as you can never be 100% sure if they will make it. Following the lead of others putting their money into a company can be a bad idea. Just because others think a start-up is worth the risk, does not mean you should automatically think that is the case. There have been many incidences of people losing their money by following the crowd over the years – do not fall into that trap!
- Consider smaller investments in more companies – as an entrepreneur using your own profits do not think that you have to put all of it into just one start-up. While you could do that, it is generally a bad idea. If the one company with all your money heads south, then you have lost it all! Instead, you may wish to look at making smaller investments in a greater number of start-ups to spread your risk.
Find the right startup to invest your money
The crucial point here for all entrepreneurs is to take your time. While there can sometimes be a feeling of urgency around investing money, you should also do your due diligence first. This is a little harder than usual for start-ups due to the limited amount of hard facts available. However, as the above tips show, there are still plenty of ways to find the right start-up by asking the right questions.