Early Investing

Thinking Your Way Through Startup Investing

Thinking Your Way Through Startup Investing

Finding the best pre-IPO startup to invest in isn’t always the easiest process. There are so many startups out there asking for investments, it’s hard to figure out which companies will succeed and which companies won’t.

The truth is the majority of startups fail.

So in order to be a successful early investor, your most important decision is picking companies that can execute. Because those that can’t will probably fail, and you can’t really get any of your money back. (This isn’t the stock market.)

So how do you identify those startups?

To start with, you can subscribe to our First Stage Investor service, where Andy Gordon and Adam Sharp help you pick them. They’re professionals at this – and they’re really good. But if you’re not ready for that, start thinking about startups the way these companies think (or should think!) about themselves before asking you for money.

Martin Zwilling, who advises startups on how to pursue crowdfunding, shared some of his tips for companies over at Inc. recently. These tips provide an interesting look into how startups operate. And if you reverse engineer the suggestions, they provide a useful way to think about which startups you should invest in.

Three tips in particular caught my eye.

  1. Build a support community before launching a campaign. Essentially, Zwilling is saying startups should use social media and traditional marketing to build a community (and momentum) for a crowdfunding raise. That makes sense from the company’s point of view. Investors should take a cue from this and head to social media to see what the buzz surrounding the company is.Startup investing isn’t a popularity contest. Always keep that in mind. But it is worth seeing if people are interested in the company, concept or product. Are they excited about it? Does the company have a good reputation on social media? And if it’s invisible on social media, why? Does it not care? Is it not good at marketing – or executing marketing campaigns? These are all things you want to know.
  2. Prepare with the same intensity as finding angels and venture capitalists. Asking people for money is serious business. And when startups pursue funding from angels and venture capital firms, they can spend weeks and months developing and honing their pitches.Why should you, the investor, expect any less from a crowdfunding campaign? If its pitch seems unorganized, slapdash or incomplete, that should serve as a big red flag.
  3. Time your campaign around a prototype, not just an idea. From a startup’s standpoint, it’s easier to get investors to commit money to something tangible. It’s proof that the company can actually make the product.Investors should take the same approach. They should look at companies that haven’t been able to create or deliver a product skeptically. Is the company asking you to invest in vaporware? Or is it able to bring this product to market?

There are all sorts of factors to take into account when deciding on whether or not to invest in a startup. But holding startups accountable for the steps they know they need to take to impress investors seems like a good place to start.

Startups worthy of investment will have notable accomplishments. They’ll have done a lot with a little (assuming they haven’t raised much capital yet). The founders will be truly passionate about their business and will have a background that matches.

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