Tips for first-time startup investors

BYTRADEBYTRADE subscriber Posts: 63 Bronze Level Member
edited February 2012 in Startup Funding
Be prepared to put up the cash
Startup opportunities very often present themselves with very short notice and, particularly in very competitive markets, with a very narrow window of opportunity. Investors need to be able to access cash quickly, without having to liquidate assets and need to be able to invest and soon as they have made the commitment to do so.
Be prepared to take the risk
There will be a significant risk that you will see no return on your investment and that you may, indeed, lose the whole lot. As an investor, you need to understand, accept and (hopefully) thrive on this risk. Investors that continually try to re-negotiate terms and details to minimize their exposure are probably not suited to the role.
Be prepared to support multiple investments
Owing to the aforementioned level of risk, investors need to spread their investments on the basis that the successes will compensate for the failures. By investing in projects early on, investors will quickly understand which ones are the most successful and can then reinvest as the business requires.
Be prepared to wait
Very few investments see a rapid return and investors need to be patient. If you need to see an immediate return on our investment then it probably isn't the right move. A reasonable return is likely to take a period of some years and it is only when the startup has truly proved its mettle that you will understand the scale of the return that can be made.
Be prepared to exit rapidly
All startup businesses need an exit strategy, often realised as as a list of competitors that might be interested in acquiring the business. Alternatively, the business may choose to go public. The investor needs to understand what the startup's exit strategy is.
Be prepared to contribute more than money
Many startups will require commercial expertise to help guide them through the business world. Investors are very often sought for this kind of advice and mentoring and all investors should have the scope to contribute in this way, as well as just signing the cheques.

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