Investing in a startup is risky business. It can end up being the new Alibaba, but it can also be a complete failure. Before deciding to jump on board, we’ve collected the 5 most important things an investor needs to know about investing in a startup.
Must-do’s for startups
1. Explore the market
Investigate the industry of the startup you’re looking to invest in. See what else is out there and how your startup plans to stand out. “It is absolutely critical to see what competition the startup has and what kind of competitive advantage they have been able to put in place in order to beat everyone else in the race.” – Tanya Prive, Onevest
2. Make multiple smaller investments
Don’t put all of your investment in only one startup and hope for the best. We live in a time when things do a 180° overnight. Spread your investments and increase your chances of success. “The key to being successful in financial markets is a decent level of diversification.” – Wouter Kneepkens
3. Have patience
Don’t panic if your startup isn’t taking the path of Airbnb or Uber. Most of them don’t succeed as fast. The work involved requires months of planning and patience. “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
4. Focus on the people, not the idea
The idea itself is important, but if the people who thought of it aren’t fit enough to execute it, the whole thing can go down the drain. Learn more about the founders, see what drives them and if their predictions are real. “We invest in people. I’m not looking at their idea. I’m looking at: Are they a leader? Are they focused on their product? Can they attract the team?” – Ron Conway
5. Mentor and communicate with your startup
While you’re evaluating the startup for investment, the founders are probably looking at what you can bring to the table besides a check. Help your startup by mentoring them or by putting them in touch with someone who can. Taking care of your startup means taking care of your investment.