Startup companies have been all the rage lately with this mini tech boom that has overtaken Wall Street. Just last week, a little startup called Instagram sold for $1 billion – and it only had 13 employees and a 26 year old CEO. And starting next year, new rules take effect that potentially allow any investor to invest in a startup company, not just qualified investors. Here is some food for thought on what to look for in a startup.
The Founder’s Motivation
It is really important to understand the founder’s motivation for starting a company and his or her vision for where the company is headed. In early stage companies, founders have a lot of control usually, and so what they want usually goes. This can be a great thing, or it can be a terrible thing – especially for investors.
Second, you want a founder who is realistic about expectations. Someone who both understands the risks and has a calculated plan to address said risks. Not just someone who is going after things willy-nilly.
The Company’s Board
A big factor in the success of startups are the companies’ boards. The reason? These are usually the people who have the most influence, and most of them have usually been successful at launching a startup in the past.
For some companies, it can be hard to research who is on what boards, but there are tools in many places to find this information. For example, you can find UK company directors by going to the Company House or by using a service like Duedil. In the United States, you usually have to look to regulatory filings, but that can be difficult for private companies.
Remember, It’s A Startup
If you do choose to invest in a startup, you need to remember that it is a startup company. These are probably the most risky of all investments you could make, so realize you could lose money. In fact, you should probably never invest any money you don’t plan on losing in a startup investment.