For a smart entrepreneur, the problem isn’t going to be a lack of ideas — it’ll be that they have far too many to ever pursue in a single lifetime.
If you’re fortunate enough to be a smart entrepreneur yourself, then you may be plagued with the blessing/curse of countless brilliant business inspirations you don’t have time to start.
The good news is, you don’t have to set-up all of those businesses yourself. Instead, you can invest in a startup!
“Giving Back” to Get Ahead
Here’s a riddle for you: What does the entrepreneur do with his piles of money and years of hard-won business experience after selling a business? Hopefully, he doesn’t let it go to waste when there are business owners out there who need these crucial resources!
Whether you’re sitting on millions of dollars or you’re putting every spare dollar you have back into your current labor of love, you already have a lot to offer other startups. As much as entrepreneurs love money and would welcome extra funding from you, mentorship is often even more valued. Someone out there desperately needs your knowledge to guide their venture to the next level.
And what’s in it for you? If the startup is related to your industry, one thing you get is a front-row seat to the most current problems, possible solutions and trends shaping the markets that are your playing field. This kind of insight and ear to the ground approach is essential to taking your own company to the next level. Or simply be a niche authority.
Oh, and who can forget the monetary incentive? With a good investment, you may get your money back many times over.
Giving to Get Back
If you want to continue growing your assets, starting a new business is one possibility (You already know this one only too well) — but it’s an incredible commitment of time, money, energy, and brain function. As an investor and business mentor, you can continue to make solid returns with a much more limited role in the entrepreneurial process.
Compared to investing in stocks or other paper assets, putting funds in private equity gives you more of a hands-on opportunity to steer your investment in the right direction. Why not use your business acumen to put your money in the most promising startups and earn some fantastic returns?
Tips to Invest in a Startup
Investing affords you a lot of opportunities, but you can’t expect to be a successful investor without doing your homework. You also want to make sure you’re not opening yourself up to liability if things don’t go exactly as planned.
Here are a few things to look at in a potential startup investment as you unleash your inner “Shark Tank” judge:
- Unique value proposition. Does this company have a way to distinguish itself from the competition? Don’t underestimate the importance of standing out from the crowd.
- The people. A scrappy startup with a great team of passionate people can do absolutely incredible things. The opposite is also true.
- The business structure. An LLC means that owners shouldn’t be liable for any company debts if the startup fails. Err on the side of caution.
- Financial plan. No matter how good a business idea is, it needs money to happen. Ignoring your potential investment, how do the company’s financials look?
- The exit strategy. Depending on your goals, it’s important to think ahead and consider when and how you’ll be able to “cash out” of an investment in the future.
To begin investing in startups, one way is to approach people in your network who need funds or may know someone who does. You can also attend pitch events or join an angel investing group. Just be aware that formal startup investing will generally require you to be an accredited investor (ie someone with an income of $200,000 per year for the last two years or a net worth of $1 million, excluding the value of their home).
In order to get your money out of a startup, you’ll have to wait for the company to be acquired by another company, to have an IPO, to pay out dividends, or to have your shares bought out by other investors.
The Value in Learning
Before you rush out and throw your money at everyone with a halfway decent idea, be aware that there can be a learning curve to investing in startups, just like there was a pretty steep learning curve to being a successful entrepreneur.
But with time as you carefully evaluate opportunities and secure small wins, you will find yourself becoming a more confident, sophisticated and secure “master of your game” whose judgment is almost infallible. You can’t beat this competitive advantage.
Whether you’re in it for direct monetary gain or satisfaction, investing in startups is a wonderful way to leverage your financial resources and business expertise. Most importantly, your efforts can have a profound impact on entrepreneurs, their employees, their customers, and the economy itself.