Investing in a startup can be said to be one of the biggest business risks people undertake. Yet lots of individuals and firms keep investing in startups.
Startup Investors are fundamentally individuals, corporations, or organizations that fund startups most times for startup equity despite the associated risk.
So if the startup makes a profit, it’s a big win for all involved the investors and startup founders alike. Hence, every hand is on deck to see the startup succeed.
When this happens the investor can decide to exit the startup or not, there’s usually an exit plan for startup Investors in either acquisition or Initial Public Offering (IPO).
However, before an exit takes place there are lots of other technicalities involved in startup investing. As a startup investor, one has to decide which type of investing you are getting involved in.
Types of Startup Investment
Startup Investors can come in various forms as stated earlier, either as individuals, corporations, or organizations.
As an individual, the founder can even be the investor. This is called Bootstrapping. The startup investor here in most cases is the founder, who is trying to figure out the viability of the startup idea.
This gives the founder full control to exploit the startup idea without interference. Unlike when there would be restrictions from foreign bodies because their money is at risk.
These are startup investors who invest in the startup mainly due to personal relationships with the startup founders.
This could be family, friends, and people from the founders’ network. However, care should be taken when getting funded through this means.
These are top individuals and business experts who have had a series of successful business outings.
As the name implies, they are providing the seed capital for the startup and guiding the startup until it’s stable and can get funding from venture capital firms. When this happens, the angel investor can exit the startup.
Venture Capital (VC) Investment
The venture capital firms only get involved when the startup has proven its business plan and has a higher percentage of increased success.
The VC Investors then provide the startup with the bigger platforms, network, equipment, skills by either training or outsourcing, and any other need of the startup to ensure the startup scales.
Incubators are one of the startups’ favorite investors, they take these startups into their incubation program which lasts for a while.
During this incubation period, the startup gets mentorship, training, support, partnership, networking, a clients base, and many other benefits which will aid the startup.
Due to these associated benefits, startup founders clamor to get into incubation/acceleration programs.
The startup investment here is made open to the general public, everyone gets to invest using the designated channel.
None of the investors gets anything in return. Most times, this type of startup is mostly for societal welfare.
Does your startup need Investors? Here are some vital things startup investors look out for before investing:
Viable Business Plan
Investors need an airtight viable business plan that has a well-detailed business process that is all-encompassing while remaining realistic.
The business plan must show the idea, the execution process, the expected traction, an exit strategy for the investor.
Market Fit and size
This will go a long way to endear investors to your startup. Investors are looking out for the level of product-market fit your startup has.
In other words, the market value of your product against the demand of your products.
Startup work team
With the right team, even the most daunting task can be executed. The investors need to see the startup team can work and ensure their money does not go down the drain.
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