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5 Questions to Ask Before Investing in a Startup Company

22 June, 2017

Investing money in a startup company can be both risky and beneficial. If the business runs successfully and efficiently then, it can extract a good profit, but if a loss struck it down, then the investor will have to leave empty handed. Therefore if you are ready to take risks then take a step forward to invest in a newly start-up business. However, before that, there are some important questions that must be asked and answered.

  • Before investing in the start-up company, the investor should discuss their level of involvement in the business. If the investor thinks that the team is competent enough and can manage the business successfully, the investor can just wait for the percentage of the profit. However, there should be some involvement of the investors as well so that they can participate in the decision-making of business matters. This is why it is important to make this agreement clear beforehand.
  • The second most important question that should be answered before investing in the start-up company is the time frame of the business. In some cases investor is not in a hurry for profit and can wait for long till the business take its proper form, while other cases are vice versa. In the opposite cases, investors are in a hurry and want to extract profits out of business as soon as possible. Although this should be noted that newly start-ups always need some time to establish.
  • You must ask the management of the Start-up business about other investors. If people with social links and contacts are investing the start-up business, then the success of the business is guaranteed. You must not hesitate in investing in the new company.
  • In many cases, the investors invest with the intention of helping the entrepreneurs to succeed in the business, but the return on investment is also the appeal. The investor should know the potential of the company to return on investment, and the type of return depends on the type of investment. Most of the time there are investor fees and costs, like when they have to make an investment, this is one of the services they provide so that they will be charged a fee for it. If this is the case, then the return will also depend accordingly, and this will reduce profits.
  • Some of the start-up companies have the policy of clear exit strategy; this means that the investor has the option to exit and withdraw their investments. However, with start-up companies, there are some rules regarding exit strategy. For example, if the investor has to sell their shares to some other investor, the investor will have to wait till the first profit of the company. This is because in the policy of clear exit strategy states that to leave the business in between is to become a barrier for the start-up.