There are so many startups around today, it would seem that investing in one, or two or maybe even, a dozen would be the right step for you.  I couldn’t agree more, but you must receive proper education on whatever startup you are looking to invest in. This goes beyond listening to awesome and detailed business pitches, you must know for yourself, some crucial things about the startup. It is in learning and knowing of the things on this list and more that will inform your decision to invest or not.

So let’s get started.

  • Know the Industry

It might sound like a wonderful idea on paper, but what’s the reality like in the real world. There are a thousand brilliant ideas out there, but will this particular idea thrive in the current market it is trying to grow in.

There are a lot of risks attached to startups already, understanding and knowing the industry before making your choice to invest will help you reduce the risks you have to take greatly. Don’t be swayed by just the pitches and promises and make your own industry findings.

  • Know the Startup Team

Investing in a startup is more than just investing in the idea, it is also investing in the team. So while the idea might be great, are the people just as great? This is a question that you have to find an answer to before you invest. Why? Well, these are the people you will be trusting with your money, you have to know them a little more than normal. 

What is the team’s relationship with each other, how do they react to setbacks, and more importantly how do they handle success? These are the questions you have to find answers to before you put money in a startup.

  • Know the Monetization Strategy

While the product might be an incredible innovation that might shake the world of entrepreneurship, how does the business plan to make money from the product? Some companies choose to grow user base first before monetization, take Twitter for example, and some hit the ground running. Whatever the method decided upon, you should make sure that it is one that the proposed price is one that you would be comfortable paying as a customer. Why? Well, if you are not willing to pay that price, why would others be willing to pay?

  • ·Know the Financials

While we are talking about pricing, we should also discuss the financials. How does the company handle its money, doesn’t matter if it is a new startup or one that’s looking for more funding, the startup team should be well and able to tell you how your money will be used. This will help you identify the possible pain points and scalability of the startup.

  • Know the Legal Documents

A lot of new investors fail to examine the legal documents of a startup before investing. This is risky behavior. Before you invest, you should examine documents, such as articles of incorporation, subscription agreement, term sheets, and so on. This will give you all the necessary information on directors, board members, and shareholders.  It will also help you avoid getting caught in unexpected legal issues.

There are a lot of other things you should know before you invest in a startup, but knowing these five will help guide all your future decisions. If you are just starting out as an investor, it is a good idea to invest alongside other more experienced investors. This will drastically mitigate any risk you might be taking.


Akinpelu Babatola

Guest Writer, the Xpress Train