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8 Questions to Ask Before Investing in a Start-up Business

Before you invest, whether in a franchise or any other business opportunity, there are many things to consider first.

Before you invest, whether in a franchise or any other business opportunity, there are many things to consider first.

Here is a quick guide to help you make the right decision.

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Is it easy to invest in a start-up business? There’s already an existing business plan; the organization is already operational. Market research is already put together by the organization. All you need to do is put your money into it, and you can reap the revenue it offers. 

It may sound like an easy decision, but investing money in a start-up needs time and proper research. It can yield high or low returns, depending on your plan. There are things you need to consider first to lessen the risks you’re taking. If you need a guide in taking the first step to becoming an investor, here are eight (8) questions you can answer. 

  1. How will it perform in the market? 

Determine the market gap that the start-up addresses in the market. Try to find if the product or service has high market value to its target market. Moreover, try to think about the possible scenarios where the market has highs and lows. After your assessment, if the investment projection is stable, then your seed money may be safe.

  1. What is your primary investment reason? 

What is your motivation to invest? Some investors place their money in a business because they believe in the products and services it provides. Others see a high earning potential within a reasonable period. But if you’re in it mainly because your friend or a family member runs the organization, then maybe you can reconsider. It’s an unfortunate reality to say that personal connections may not be a guarantee for success. You should still review the business potential before putting your well-earned money into it.

  1. Who is the biggest competition? 

Review the start-up’s competitors in the market and look at its marketing plan. Can it perform better or at least compete head-to-head with the big names in the industry? Does it have a unique selling point? What is the company’s competitive advantage? From these questions, you can derive an initial market performance of the products and services, and help make your investment decision.

  1. What are the risks?

There are two sides to a coin, and you need to know both the benefits and risks of your investment. Give yourself time to list comprehensive pros and cons. This way, you have a clear view of what you are risking.

  1. What is the timeframe? 

Each start-up follows a different timeframe when it comes to growth and profit generation. That is why it’s vital to determine your reasons for investing to choose your investment accordingly. For instance, if you want high returns after a short time, you can choose to dabble in the stock market instead of a business. But if you’re looking for a long-term investment, then a business can be a stable way to do it.

Now, assessing the start-up’s record makes it easier to estimate the investment horizon. One particular area to consider is the burn rate, which is the amount of money spent every month. If a start-up is in its early stages, but the burn rate is particularly high, that may be an indication that investor payout may take longer.

  1. What is your budget requirement? 

Look into your finances for the investment. If you need funding, make sure you already have a plan before diving into the business. The money on hand should take you past the breakeven stage, and eventually to revenue generation.

  1. Who are the people you are investing in?

A good business employs the right people in each team. That is why it’s crucial to consider the business strategy and quality of its workforce. Remember that people are among the most critical assets of an organization. So if you want to increase your projected return of investment, then choose a start-up business that hires the right staff with the right skills and experience. 

  1. How committed are you in this investment?

There is no guarantee that all your plans unfold in the way you plot them. So what happens if things take another turn in the way you didn’t expect? Are you still willing to put more work into it? Investing in anything, whether it’s the stock market, equity, or business, is a risky move. If you’re committed to your plans, then challenges can only motivate you to move forward. However, if you are having doubts about your plans and its future possibilities, then revisit your initial steps or find another venture that you can fully commit.

Placing your trust and money in new businesses is an excellent opportunity to diversify your investment portfolio. But always keep it in mind that investing in a start-up is not foolproof, just like any other investment plans. Although an organization may have reliable income projections, what looks profitable on paper may not translate to the present reality. Executing due diligence for a start-up investment should be done thoroughly.

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