How to invest in your first startup?
Investing in a start-up can, in case of capital gain, pay off big when it comes time to resale. However, investing in a start-up is not taken lightly. It is essential to respect four golden rules to guarantee your entry into the capital in your first start-up. We invite you to discover the process to follow to secure your investment.
1. Invest in a sector of activity that you know
Despite the many attractive opportunities available to you, it is advisable to invest in a line of business that you know and whose inner workings you know. Getting into a field far removed from your skills is a counterproductive process.
Investing in a start-up requires understanding and mastering this very specific universe on which you are betting. You approach your investment in a calm and reasoned manner. Some business angels are wrongly seduced by the founders of a start-up on the pretext that their pitch seems well constructed. However, this is often a mistake.
On the contrary, you must analyze the start-up in all objectivity and ask yourself about various points: “what are the problems and opportunities offered by this market.” What is the added value of the product distributed by the start-up? How does it plan to conquer this market segment? “.
2. A team associated with a project
The project developed by the start-up is only part of a whole. It is important to know but also to trust the skills of the team involved. The latter must therefore be able to implement the idea.
Indeed, when a start-up starts its activity, with the exception of the team, its environment is hypothetical. Besides technical mastery, the young company must also have the necessary business skills. This technical / commercial balance matters more than the innovative side of the project carried by the start-up.
Your goal is to make sure the start-up is able to bring a project to fruition. Besides having a team you can rely on, it’s important to make sure you are in the right timing. Regardless of the skill and professionalism of the team, launching a product too late or too early on the market will result in failure.
3. Diversify your investment
Investing a portion of your fortune in several promising start-ups does not guarantee you success. The same is true of investing in one and the same start-up. Keep in mind that 50% of them will go bankrupt.
The advice to follow? Invest smaller amounts but in more businesses. By doing so, you smooth out the risks. You can even opt for 10 investment lines. The underlying idea is to offset the losses of one start-up with the profits of another.
The amounts to be injected vary according to your financial capacities, your taste for risk and the projects presented to you. Investing in an early stage start-up is certainly less expensive, however it is safer to increase the capital of a start-up that has been in existence for two or three years.
4. Rules between shareholders to be defined
Regardless of the articles of association to be drawn up, the establishment of a pact between the various shareholders is essential. It is important to project yourself into the future. There are many questions that need to be raised and resolved before investing. These relate in particular to the terms of exit (total, partial, individual), the procedures related to the sale of the start-up, if applicable.
As soon as several investors are stakeholders in the capital of the start-up, it is recommended to choose a leader (the most competent, for example) for consistent communication. Shareholders should not stay too long away from the start-up, things move very quickly, nor be omnipresent at the risk of slowing down the progress of the project.
Like the World Bank and its XL Africa initiative, public and private investors have been aware in recent years of the potential of start-ups as an economic and technological lever.