How To Invest In Start-Up Companies


Image by: John Crider
By Michael Sterling

Investing in start up companies can be one of the wises things you can do because they have nowhere to go but up. The trick is finding a business that today’s market is looking for. This is a sure way of seeing a nice return – one that may even send you to early retirement.

There are a lot of innovative entrepreneurs out there waiting to be discovered, and the great thing about being first in line to invest is you are likely to own much more shares than those who come in later. If the company becomes the next Google, you are in for a long and joyous ride.

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So how can you pick the geniuses from the duds? Strategic exploration, just like any other investment. With an appropriate and concise review of how their company does business, early investing will provide a lot of advantages. You’re part owner to the company when you buy big early on, which means you have an upper hand in calculating the trajectory of its course.

Find The Passion

With passion, comes work, comes progress, comes growth. It’s easy to tell if companies are run by passionate individuals over the ones that are half-assing it. It will be in the data. Look at their business model, track record, and product/service performance. If it’s an online business, how consumer friendly is it and how well-applied is the coding?

The most important thing are the people behind the curtain. As an investor, you are merely the money. Sad, but it’s true. You will have no driving force in the overall production side, except to bring more money and marketing. Investigate the business people you’re giving money too. They are the brain, while you are just the heartbeat.

Do a background check. Find out where they went to school and what kind of community they’re a part of. Often times, universities will give big start up investments to their alumni and various communities are willing to fund raise for their own. If they collect a lot of their finances from other sources, it may lead to higher quality production.

Angel Investing

Angel investing is a very popular sport, and yes I do mean sport. They give start up money in exchange for equity within the company, and it’s a very smart way to build a portfolio for yourself. Similar to how a painter has multiple canvases within their studio, you can have multiple companies where you put separate money investments.

Angel.co is a great website for investors seeking potential companies to invest. Each one has a description of what their company is, their goals, and why they need finance. It also allows you to rub elbows with other investors who may want to join forces to start building Angel Networks.

Here’s a tip: use platforms like these to get a good idea about competitors that may be lurking. Some may even be better than your original investment. Market timing is crucial. Investigate the market. What makes yours different? Explore the need for their service so consumers won’t be distracted by copycats.

Timing, Planning, And Paying

One mistake investors make is handing their money to a company that has no market. Don’t give to companies that sell to one group. A good service benefits everyone. Mind you, this doesn’t mean it can’t appeal to a certain group. But the demand should be to a large population. Customer development is key, and you should make sure the company’s founder knows this.

Give money in increments. This guarantees you wiggle room to grow as the company grows, while at the same time insuring yourself. For example, if you can afford $10,000 to invest, what should you do with it?

  • If you’re investing in 1 company = 5 payments of $2,000 every 2 – 3 months.
  • If you’re investing in 2 companies = 3 payments of $1,250 every 2 – 3 months, each.

Figure out your own strategy. It’s the best way to examine how the company spends their money. If you don’t like it, you can always pull out – but at least you’ll still have cash in your pocket. Research their spending in employee salary, product/production cost, rent/location costs, etc. Make sure they stay out of the hole, otherwise you’ll be in there too.

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