This article is written by Brian Malika, a Contributor Author at Startup Istanbul.
Tim Draper, a successful venture capitalist, founder of Draper University and Draper Associates, believes the startup revolution has been dominant and encourages entrepreneurs to take on new challenges and build more startups. Tim also believes that the existing technologies have provided some leverage for startups to build on, concepts like cryptocurrency, artificial intelligence, marketplace technology amongst others are currently used by startups to deliver services, for the future, more technologies have sprung up to better the way things are done.
Since money is all about counting figures and even accounting for the same at some point we will revolve around arithmetics in this section. But before we go there, I would advise you as an investor to view investing in start-ups as business experience.
As such you should be reasonable enough to imagine that both sides of the coin can occur in the end. This basically means that no matter how compelling or realistic a start-up pitch appears to be, there is always that possibility of making profits (which all of us wins for ) or making losses (it’s unpleasant to imagine making loses in the first place ).
Once you view investing in start-ups from both sides of the coin in terms of outcomes you begin to accept the reality of doing business as an investor. This graduates you to be a smart investor. And chances are that you will not be emotionally affected in case the money you invested in a start-up gets blown away.
How to allocate money to start-ups
As a matter of fact, it’s always wise to imagine an amount of money that if you threw away in the ocean your life will still remain the same. Once you calculate this amount of money then this is the same type of cash that should be invested in a start-up.
Back to arithmetics as we had started. Now, let’s imagine you have committed to spend this ‘X’ amount of money for a particular period of money for investing in start-ups. To invest wisely, take this figure and divide it into 20 units. That is like ‘X/20units‘. Then the answer you get should be divided into half and that is the money you will invest in start-ups the excite you.
Basically, from the above calculations, you should be able to invest the half of ‘(X/20)’ in any start-ups that you caught your attention. Then this investment you be offered to atlas 3 start-up founders.
Note that you should never consider investing your money to an individual start-up alone. And do you know why? Because the market is always volatile and there are so many factors that play in between to achieve success for any start-up. Hence, its safe to spread the risks by investing I at least three start-ups. Investing in multiple start-ups will save you the emotional intensity of banking all your expectations just on one start-up.
Just a quick reminder, you must investment plan should look something like this : ( X/20) divided by two ) and offered to 3 start-ups.
Now that you have a formula that guides how to invest your money in start-ups does this mean that your odds of success are now high? Mmmh, I would say not so fast.
As I had hinted on earlier, there are so many factors that play around to determine the success of a start-up which you as an investor need to know. Having this in mind it’s my pleasure to guide you into the next phase of other factors that out need to consider when investing your money in a start-up fast.
Let’s dive into this.
4 Factors That Should Influence Your Decision To Invest In A Start-up
Investing in any business is not for the faint-hearted and investing in start-ups ain’t any different. It’s brutal to go out there from scratch and present your product or service to the market and as a business investor, you must understand this.
Running start-ups can sometimes be depressing and emotionally engaging for many founders and as such you as an investor you must understand this so as to make the right investment decisions and also to control your expectations.
The following list of four key factors should additionally act as a yardstick for you as an investor when considering your investment plans.
And they include :
(1.) Emotional Intelligence
(2.) Teamwork and relationships built among Start-up founders
(3.) The type of Start-Up Founders at Hand
(4.) Career background of the Founders
(1.) Emotional Intelligence
Its advised that any investor must be a psychologist! Yes, learn the skill of emotional intelligence by balancing when to be harsh, soft, quiet or nice to the start-up founders.
Never have one face as an investor to the start-up founders your funding. An emotionally intelligent investor knows the situation at hand and reacts based on that with the business goodwill at hand.
I honestly hope you will master this skill of emotional intelligence as an investor by being the cheerleader, criticizer, supporter, friend, mentor and partner to the start-up team your funding.
(2.) Teamwork and relationships built among Start-up Founders
As the saying goes ‘’ Forming a team is the beginning. Keeping a team is progress. Working as a team is a success.’’ And this is true when in deterring the success of a startup.
As an investor, you have the moral responsibility of closely observing how the founders your partnering with relation to each other.
Please note if any of the founders are dating because if they are then you need to make it clear to them to set boundaries between their romantic and business engagements.
Also, if the founders are competing for positions or posh roles within the start-up, then you as an investor have the moral right to calm the competition dow and insist on the goal of the business.
Bad competition within the start-up does kill teamwork and as a result, negatively affect the success of the start-up.
(3.) The type of Start-Up Founders at hand
The next time you doubt the seriousness of the start-up team you’re investing in just tell each one of them to go out and get a formal job offer within 48 hours!
And, once the start-up team comes back 48 hours letter, note the ones that got job offers, failed to or got asked to check again after some time.
By analyzing the above feedback as a wise investor, you should be able to differentiate the committed start-up team members and those that are not. If at all, someone can get a job offer within 48 hours then it means that they have an option to leave the start-up that you have invested in just in case things turn sour over time.
While if someone fails to get any job offer completely within 48 hours, the implications are that even if the start-up that your funding as an investor never makes it, then this type founder that cannot get a job easily will have to go back to the drawing board and analyze what went wrong.
My point here is that, observe the passion in a start-up founder combined with the zeal to make a difference in the business world without which they will have nothing else to do on earth. These are the type of founders you should prioritize to bargain with your money as an investor. And not the ones that are exploring how it feels like to run a start-up.
(4.) Career background of the Founders
Additionally, start-up founders who have a background in engineering guarantee more success because they view the business more on how to improve the product or service.
Equally, start-up founders with strong marketing skills are said to view the business towards ensuring improving customer experience.
Keep in mind that two career background assumptions above are all debatable.