For those who are trying to find the perfect company to invest in, I have good as well as bad news.
Primarily the bad news: there is no perfect company to invest in. All have risks. Secondly the good news: you can mitigate that risk by asking the right queries and digging for good suggestions.
However, the venture’s failure that I invested in taught me four lessons that could help others looking to invest in startups themselves:
1. Study the business blueprint:
You should probe precisely who will purchase the product, how much they will invest, whether or not the venture will sell software or sort of services if there are rivals – and if that is so, how speedy they have been growing. In my case, I never relatively understood the enterprise’s business model.
Asking these questions, I realized that the founders did not quite know the solutions or they might have mentioned that what they have been doing was so new, there was no market established.
2. Evaluation whether or not the enterprise meets an unmet need:
After you finish your research about the business model you will realize that one of the vital customary, however major, factors not noted of business plans is particular consumer study. Consumer interviews are most important since customers are by and large reluctant to do trade with a startup. The motive is discreet: most startups fail. There’s little incentive for customers to vary their habits or industrial processes with the intention to work with a startup that might disappear eight months later.
But most entrepreneurs, like the ones whose misguided enterprise you would have invested in, do not mirror this of their industry plans. They reward market-dimension and growth records which can be most commonly based on assumptions from study analysts that they don’t realize.
3.Recognize why the founders care concerning the venture:
Startups customarily lack the capital needed to pay above-market salaries that attract ability. If they’ll construct quality teams, they need to offer expertise staff an unique work environment that flows from the founder’s passion for the industry.
In one of my cases, the CEO of this failed startup did not care deeply in regards to the trouble his corporation was once out to remedy. As a result, the enterprise flailed without course and would now not elevate further capital after the dot-com bubble burst.
4. Make investments along with your intellect, not with your emotion:
As mentioned earlier in my case I was not clear and invested without thinking naturally. I was taken away in my belief in the founders and the then high odds of success for dot-com startups.
The greater lesson from my failed funding is that throughout increase intervals, it is vitally problematic to resist the robust emotional pull of the final economic atmosphere. However, it is exactly in these instances that making use of a disciplined strategy to investing is important.
I should have known better……but no worries I have learned a lesson now and I hope my piece of advice will help you with your decisions.