Investing In Startups

Would you mind owning 50% in a billion dollar company?

“Then you need at least a half billion”.

No.

Most private investors don’t buy 50% of a billion dollar companies but many of them own such.

Photo by AussieGold at Flickr

The early bird gets the worm

The key to successful venture investing is to enter it as early as possible. For sure startup investing has made many people millionaires – for example Guy Kawasaki.

The startups are happy to get every dollar and often are ready to sign contracts which give you 50% or more ownership in the startup company. Sometimes you will even be the boss, it all depends on the size of your investment.

How Much Does It Require?

Startup investing is not a low entry business. Unless you do it thru a mutual fund, but then it’s not real startup investing.

There is no exact minimum of course, but since the last years I am looking for such opportunities I know some numbers. Typically a startup company will be looking for 60% – 100% funding. This means your investment will vary depending on the business niche, but typically the lowest possibilities are $10,000 – $20,000. For web businesses you may sometimes go with $5,000 or even less.

Of course, most startups are looking for $100k and more, up to several millions.

Finding and Choosing Startups

In general there are a lot more startups looking for funding than free money to fund them. So it’s not hard to find a startup, the hard part is to find the right one. However here are few ideas where to search:

• Friends and relatives. You probably have enterprising friends or relatives who are looking for some funding. If you trust them and their skills, this is a great option for you.
• Startup networks. Check out for example my pick about GoBigNetwork. At such places you can get in touch with many startups.
• Angel Investor Syndicates. Many Angel investors join such syndicates to fund startups easier. One place to join such syndicates is Angel Capital Association
• Your Funding Company. If you have a lot of cash, create your own funding company just like Guy Kawasaki or Paul Graham and have the startups contact you.

Choosing the right startup is much harder, that’s why many investors consider startup investing one of the riskiest activities (and I agree with them). Many startups will simply fail and thus most or even all of your money will disappear.

When picking a startup, watch out for:

• Their business plan. It must be well done and promising. If needed, ask an expert for help
• The business niche. The best you can do is to invest in a startup in growing business niche. Typically IT, biotechnologies, energetics are always hot. Avoid funding startups in dying businesses
• Location. Unless you invest in web based business, location plays a big role.
• Unique Selling Proposition/Point Of Difference. If you want to make high profits the business you are investing in must have a good USP.
• People’s credentials. What kind of person is behind the startup? Has he or she any successes so far. Does he or she look appropriate for the business?

There are tons of things to consider when investing in startup. It’s not easy at all. But startup investing is one of the few chance for to radically change your financial life with just few thousands bucks.