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Several Things You Should Know Before Investing in a Startup

Startup investments continue to garner interest, but investors need to follow a checklist before signing any paperwork

(Photo by Startup Stock Photos via Flickr. CC BY 2.0)

Investing into startups has become the norm for many investors such as angels, with highly successful unicorns such as Uber, Airbnb, and Instagram emerging from the ripe sector. The success of these startups continue enticing more ventures, with the prospects of striking gold with the right investment.

The rise of ambitious entrepreneurship has led to a massive increase in startup ventures, which holds major appeal for investors of all backgrounds. Traditionally reserved solely for just venture capitalists, access to startup investment opportunities has made it more popular than ever for the major potential for growth and returns in the long-term.

The passing of the JOBS Act by Congress, was a landmark decision that opened up the floodgates for investment into private companies, in exchange for equities. Prior to the JOBS Act, this was limited to accredited investors only, who had an annual income of $200,000 or more, or for those with a net worth of at least $1 million.  Now, just about anyone can get involved in investing in the startup of their choice.

Promoting growth

Investing capital into startups promotes innovation and cutting edge technology, which can transform the market and address social problems with a more effective approach. Investors have the opportunity to play a role in the growth of a breakthrough product or service, which promotes additional jobs in the sector and continues to encourage entrepreneurs and their emerging ideas.

In addition, startups with an effective business plan that incorporate innovation in the current market, can also bring in significant bottom lines that will delight investors who took the calculated risk.

While targeting multiple prospects and doing due diligence will go a long way towards mitigating risks and seeing handsome rewards, there are a few things that startup investors must keep in mind before going gung-ho in the search for the next unicorn.

An investor's checklist

With the vast array of options in the startup sector, investors have the benefit of targeting specific markets, which might be a personal passion, or a source of interest, to align with potential investments. While some angel investors rush to the first opportunity they see, it is a wise decision to have a fundamental knowledge about the market and its future projections before diving in.

Having insights on current trends and technology can help investors forecast the achievability of a startup’s goals. They can also determine how scalable their solutions can be to maximize profitability and effectiveness. No matter how promising a business appears to be, it does not do any good if it cannot be incorporated on a larger scale.

Some investors make the mistake of being allured by a business’s ambitious goals, rather than focusing on the abilities of the team. By getting to know their experiences, drives, and educational background, this will help paint a better picture on the prospects of a startup and determine whether they coincide with an investor’s requirements.

By ensuring that a team is up to the task, this can inspire confidence in investors through a startup team that is capable of making clear decisions and dealing with the bumps in the road along the way. Startup founders play a critical role as the captain at the helm, and it will be important to target those with the exemplary leadership skills needed to navigate the ship successfully.

Investors continue to get involved with the startup scene (Photo by AlphaLab Startup Accelerator via Flickr. CC BY 2.0)

Minimizing risk

Spreading the wealth is another way to minimize the risk and increase the chances of finding a strong return via one of the many investments, through a liquidity event. No matter how ripe or tantalizing an opportunity may seem, it’s almost always a better idea to spread out the odds and gain a better chance at seeing some returns on initial investments.

A sustainable financial plan is another metric that needs to be addressed, in order to ensure a business’s long term feasibility. The ability to monetize services or products effectively and at an agreeable rate, is essential for any startup that wants to be taken seriously by investors.

This will also be an opportune time to examine how the startup utilizes its finances and whether they are being used appropriately for the business. The entrepreneur should be able to explain how the startup will become profitable in a clear and convincing way.

Crowdfunding is another widely available option for startup investors looking for their share of the pie. With an extensive menu of various startups throughout several industries, this can also serve to educate an investor on the market, by providing some research and getting an overall feel before direct involvement.

For investors that are looking to invest in startups the right way, Digital Asset Monetary Network, Inc.(OTCMKTS:DATI) provides an effective platform through their Public Accelerator Incubator model, aimed at giving investors more startup options than ever before. As opposed to the several year restriction to experience a liquidity event that comes standard with other investment options, DATI provides investors with access to liquidity in as little as 2 years. This allows for investors to see their returns at a quicker pace and have the opportunity to reinvest the capital into other ventures as well.

Those looking to proceed the crowdfunding route, can locate many different business ventures through FINRA member equity crowdfunding portal, truCrowd, Inc. truCrowd provides a bridge between startups and investors, allowing for investments as little as $100, to promote the successful startups of the future, while also inducing economic growth and entrepreneurship.

DATI provides financial and marketing support to startups like WorkDone Inc., covering initial crowdfunding costs in order to onboard them and other businesses onto truCrowd, Inc.

Startup investments continues to be a highly attractive route for investors of all types. However, they also need to do to their part in accurately screening prospective options, to ensure their viability and long term growth, in order to increase the chances of a successful investment.

There are always risks associated with any type of investment, but by following certain steps, investors have a much better chance at getting started on the right foot and with the right startup.

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