Ask These 6 Questions Before Investing In a Startup

Ask These 6 Questions Before Investing In a Startup

Be sure to do your due diligence before investing.

So you want to invest in a startup? Great! But, before making any decisions, be sure that the company is worth it. There’s no guarantee that the company you are going to invest in will succeed. There are many factors that can make or break an investment opportunity with high risk-reward potential, including team, product vision and roadmap development along with financials. So, before you make an angel investment, become a venture capitalist or invest in a crowdfunding campaign, you must first analyze an investment opportunity. In order to make an informed decision, you need to ask yourself a few essential questions to decide whether to invest (and how much to invest) in a startup or a company.

Here is a list of a few key questions to ask while evaluating an investment opportunity.

Are you hit by FOMO (Fear Of Missing Out)?

Are you afraid that you might miss out if you don’t purchase or invest in this powerful financial product or startup that’s gaining popularity all over the internet? The startup scene is always full of new and innovative ideas, and it can be tempting to want to invest in the latest technology or products. However, according to wealth manager and behavioral finance expert, Shari Greco Reiches, FOMO makes people take on riskier investments. Especially when you see others reap great profits, you feel the urge to partake in the opportunity, even though deep down you know most of the big rewards have been harvested. While there may be instances where you can still make a lot of money by investing in a startup, it’s important to do your research first and understand the risks involved. Otherwise, you may end up losing a lot of money chasing after the next big thing. 

How much involvement is required in the startup?

The level of commitment required to invest in a startup is directly proportional to the type of investment. For instance, if you invest in a startup’s crowdfunding campaign, you usually invest in a much smaller amount and thus earn a smaller equity stake and very little control of the company. If you invest as a venture capitalist, you will likely have involvement with the startup’s management team, as the money is pooled from large corporations, pension funds or through investment companies. On the other hand, an angel investor evaluates a different scenario, as they invest with their own hard-earned money. In other words, angel investors are responsible for their own money, whereas venture capitalists are accountable to their investment partners. 

It is important to be transparent about your expectations when investing in a company. You might have different responsibilities based on what kind of investment you’re making, so it’s best to consider how much commitment and time you want to “invest” alongside your capital.

What are the risks and how much can you tolerate?

When it comes to startups, there are always investment risks involved. Many startups fail within the first few years, and investors can lose their entire investment. Therefore, before investing in any startup, it’s important to understand what those risks are. Are they regulation risks? Or market- or competition-related risks? 

Once you determine the risks involved, it’s important to determine your risk tolerance. If you are investing with disposable income, where a loss wouldn’t affect your lifestyle, the potential upside may be worth the risk. However, others may prefer to stick to more established companies. Ultimately, it’s up to you to decide what’s right for you. While the risk of failure is always present when investing in startups, the more you understand the investment risks, the better equipped you are to make informed decisions.

How does this investment fit into my overall portfolio?

When it comes to investing, there’s no shortage of options to choose from. But with so many options, it can be difficult to know where to begin. That’s why it’s important to ask yourself how each investment fits into your overall portfolio. For example, if you’re looking for long-term stable growth, investing in a startup may not be the best option. On the other hand, if you’re more interested in generating high multiples on your investments, startups may be what you’re looking for. 

What happens if this investment fails?

When it comes to startup investments, there’s always the potential for failure. But what exactly happens if your investment goes wrong? There are chances you end up losing some or all of your initial investment. Depending on how much you’ve put in, that could be a serious financial setback. Make sure you are able to handle the potential fallout from investing in startups.

What is the company’s history?

It’s always a good idea to do your research on the company and see how they’ve performed in the past. Have they had any major setbacks? Or have they been consistently growing? The answer may tell you if they’re stable and have been around long enough so that their success can be attributed solely to this factor, or whether there were any periods of financial struggle which could point out potential problems for future growth? This can give you a better idea of what to expect in the future. 

Money is hard-earned, and it must be invested wisely, cautiously and strategically at all times. Therefore, remember that no question is a stupid question. So, make sure to ask as many questions as you want until you’re convinced.

Happy investing!

Also Read: 

Header image courtesy of Freepik


Share on facebook
Share on twitter
Share on linkedin
Share on email


What Happens When Metaverse Meets Sports Leagues?

What Happens When Metaverse Meets Sports Leagues?

While many see the metaverse as a place for entertainment and escapism, recent years have seen the rise of sports leagues that exist entirely within it. These leagues have taken advantage of the metaverse’s ability to create realistic and immersive environments to provide their players with a new and unique sports experience.

Are Immersive Art Exhibitions the New Trend

Are Immersive Art Exhibitions the New Trend?

For many, museums and exhibitions are an escape from reality. However, these places have been experiencing an all-time low visitation rate due to Covid-19. Owing to social distancing norms and closures, going to a museum was just not always possible. To address that, museums took to virtual reality (VR).

Top 5 Upcoming IPOs to Watch Out For

Top 5 Upcoming IPOs to Watch Out For

2021 was a good year for IPOs. IPOs in the United States raised US$156 billion, recording an 81 percent increase over the prior year. With such an outburst, tech stocks raised US$69 billion alone significantly. Shares of Bumble, a dating app created for women’s interests, closed up 63.5 percent in their IPO in January 2021.

Tokenization Is a Game-Changer in the Financial World - Here’s How!

Tokenization Is a Game-Changer in the Financial World – Here’s How!

By 2027, businesses and people alike are expected to lose US$40.62 billion in payment fraud. The solution to this problem? Tokenization. It refers to the replacement of sensitive data with unique identifiers that retain the length and format of the original data without having any relationship with it.

4 Successful Indian Mompreneurs You Should Know About

4 Successful Indian Mompreneurs You Should Know About

There is no doubt that motherhood is a challenging job. But some moms out there are taking on an even greater challenge—starting their own businesses. From selling natural and toxin-free products for babies to being the best lipstick brand, these mompreneurs are proving that you can have it all. Read on and get inspired by these moms who have not only overcome challenges but also built successful businesses while raising their kids and family.

Beyond 9 to 5 The Rise of Triple Peak Workdays

Beyond 9 to 5: The Rise of Triple Peak Workdays

None of us would have even dreamt of the life we lived over the past couple of years. We experienced several transitions in doing things; we gained new opportunities and lost many of them. When we talk about work, 6-feet cubicles have been reduced to 15-inch displays as the concept of remote work has become mainstream.