Have you always wanted to invest in a business start up but don’t know where to start? Are you a future business angel just waiting to get their wings? Start up business investment is smart forward thinking that helps to grow the economy as well as supports the next generation of business entrepreneurs.
Start up investment however can be risky so it’s important that you do your homework before committing to the process. The following are some important questions you need to ask yourself before you hand over a penny.
Image taken from PGC Invest
How much should I invest? When deciding how much to invest you need to really ask yourself ‘how much can I afford to lose’ because the sad fact is 7 out of 10 start ups fail, taking your investment with them. This might seem a scary prospect but if you back one of the three successful companies you can see huge returns on your initial investment so it is a gamble worth taking as long as you don’t stake your financial future on it. There are plenty of incentives out there to help start up investment including the government’s Seed Enterprise Investment Scheme.
Which start up is right for me? The easiest answer here is the one that feels right. If the company does well you will be part of a long and hopefully fruitful relationship so you want to make sure that the company’s culture, values and ambitions match your own and that you get a positive and energetic feeling about the products or ideas the company represents. You might want to choose a company that is operating in a favoured industry or an area where you have prior knowledge and expertise or perhaps you want your investment to reflect an interest or passion such as the environment. The right start up is one that you believe will do well – it’s that belief you are placing your bets on.
Image courtesy of Investec
How can I keep a balanced portfolio? The best business angels spread their investment across a portfolio of start ups to minimise the risks and capitalise on success. There are many ways to create a balanced portfolio either through self-selection based on your growing knowledge and understanding of the start up market or by choosing to invest using an investment tool or professional investment management company. You can for instance buy bonds rather than invest directly in a company and those bonds are then used to invest in a portfolio of start up clients with the peace of mind that things like due diligence are completed thoroughly. Bonds are just one of the many many investment tools and solutions available to help better connect investors and start ups.
If after answering these questions you are still excited about business start up investment then you can start building your investment opportunities and hopefully see real returns start trickling in. Don’t underestimate the challenges and subtleties of the process however. It’s your cash so if in doubt ask for help either from a business angel management professional or by attending business angel training.