Startup investment could be risky, this is because investing in the early stage of a business cannot guarantee profit. Thus, this due diligence article helps investors planning to invest in startup businesses.
First, prepare yourself with an exit strategy. This is because more than 90% of startups fail. It is vital for you to have a recovery strategy to protect your money when the business fails. Second, you could try a partnership scenario. This way you could split the capital as well as risk with partnership. Partnership allows you to lose less when the business fails.
Third, you must have a harvest strategy for investing in a startup. Although a business seems promising, they are still prone to failure. Other factors such as technology improvement, government policy, outbreak, and market disruption could fail a business. Having a harvest strategy allows you to survive during the changes.
Fourth, it is highly advisable to invest in a promising product. Most investment in startups waits for at least five years to see the returns. So, it is important to invest in a product where it has the chance of ROI (Return on Investment). ROI is a common performance measure to assess efficiency or profitability. This measurement would measure the amount of return on an investment. In other words, it is to see whether or not potential returns could occur.
Finally, it is vital to know the startup’s growth plan. You could take a look at its past performance. It is advisable to evaluate the startup’s growth plan on whether or not it is realistic and achievable. Evaluating their target market and potential of the product could help decide whether or not it is a good place to invest based on due diligence.
