How should I choose a startup to invest in?

With the fast-growing insight of startups, more and more investors are thinking about expanding their portfolios in that sector. Even though investing in startups is considered highly risky, in case of success, you will yield a higher return on investment than by investing in mature organizations. Let’s now take a look at how you can make a successful investment in startups. 

The management team

Experienced, qualified, and professional management team is the key to success for any startup. Although you may think first and foremost considerations for investment are the risk and reward factors, do not forget that you are not investing solely in the product or service but in people and a business plan, which is executed by the management team. The people behind the startups, especially at their initial stage, are the core pillar. As the famous American business consultant, Jim Collins mentioned in his book From Good to Great that it is all about having the right people in the right seats. 

Research their performance

As an investor, you should get a precise understanding of how the startup managed its operations right from the start. More specifically, research their fund allocation, which will allow you to foresee how the management will use your money. If the startup is at their very early stage, ask for detailed financial forecasts on salaries, project fees, marketing and distribution costs, etc.


One of the most important things you, as an investor, should consider is the long term aims of the startup. Some founders set short term goals to ensure they are within the scope of the budget, and others take risks. If you want to have higher yields on investment, consider choosing those startups, which have long term objectives and clear insight of where they want to be after ten years. To gain a proper understanding of what long term goals and expectations a business has, take a look through their business plan. A good business plan depicts all of the necessary information portraying the company’s long term objectives, where they see themselves financially and economically in the marketplace.

Study the market

Today’s market is filled with so many similar products; the competition has become very intense. With more regulations, industry, and macroeconomic trends, it becomes difficult for many startups to survive. If a startup does not offer anything new, its likelihood of sizable returns is very low. Instead, invest in an innovative and ambitious startup aiming to surprise their audience with new market offerings. Unique products with the right marketing strategy will gain awareness in the market; as a result, your investment can pay more significant returns. 


All in all, investments in startups can be a great source of income for your future. Startups are known for being innovative and ambitious. If you study the market correctly and see that the company you are investing in is going to have a high demand in the market, then it guarantees you a favorably high return. As a potential investor, ask yourself, does this startup address a real need? If you do not see its place in the market, then investing in such a business will not be financially smart.


February 28, 2020

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