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Blog

How to Tell Which Startups are Good Investments

Mihir Gandhi

Whether you’re a conservative investor, or someone who thrives on the thrill of high risk, public markets offer enough diversity to cater for all tastes. Startup businesses, on the other hand, are a very different proposition. They are high risk all the way. The successes succeed big, but they are few and far between. Many more startups lose than win, so how can you tell which ones are going make it?

The simple answer to that question is, you can’t. There are no guarantees when it comes to investing in startup businesses. But there are things you can do to increase your chances of backing a winner.

Follow the Smart Money

Venture capitalists are the professional investors of the startup world. Where are they putting their money? Which industries do they think look good? If you can pick up investment trends by following the professionals, you can steer the results more in your favor than if you just made random, uninformed investments.

Know What You’re Actually Buying

When you invest in a startup, you’re essentially buying a piece of the business. It’s important to know what that means. Are you happy with the people and the product? A company is essentially 70% management and 30% product, so pick a business where you know you’re going to be able to work with the people in the company. This is essential in order for the business to grow, make profits and increase the value of your investment.

More than Just the Numbers

While the value of conducting due diligence before investing cannot be over-emphasized, instinct based on experience can be a helpful indicator. If a business doesn’t feel right, don’t invest in it. But if it makes the small hairs on the back of your neck stand up (so to speak), you may have a potential winner. Startups can give returns of between five and 100 times your initial investment. Evaluate the investment based on its inherent worth beyond the cold numbers.

Know that It’s Not Just About the Money

Granted, investment is usually all about the money, but a huge part of the appeal of startup investing is not actually the potential of getting a return. It’s about the opportunity of being able to get in early and be a part of the rise of something great.

Here is an article on top 5 FAQs about startup investment.