Investing in Startups – Common Myths About Investing in Startups
If you’re interested in making money online fast, one of the smartest and easiest ways I have seen is to start a “startup company.” A startup is essentially a new project or business undertaken by an entrepreneurial entrepreneur to seek, test, and implement a scalable enterprise model. The best part is that you do not need any money or investment capital to get started! There are no loans to pay, no boss breathing down your neck, just your own enthusiasm. Here’s how you can get started with your own startup company today.
o Startups are everywhere. You only need to look to the headlines of the most popular business magazines to see that there are dozens of new startups emerging every week. If you look closely at the most successful companies in the business world (think Dunkin Donuts and Chick-fil-A), what is it that made them stand out from the pack? All of the most successful startups were built on a solid, repeatable foundation-a system, core values, a mission, a business plan, and a business plan.
o Most startups are “crockpots” -focusing too much on the technical aspects and not enough on building an organizational culture, driving sales, or generating revenue. The best companies in the world have an organized, unified structure in place from day-one. They rarely depend on “hobbyist” or “non-techies,” and when they do, it is usually on things like marketing, operations, supply chain and legal structure.
o Startups must have a scalable and repeatable infrastructure. Just as a food chain needs a consistent and repeatable supply chain in order to function properly, so too do startups need a standardized, repeatable infrastructure in order to build robust, sustainable businesses. Most successful companies outsource tasks like payroll and employee management to an outside service, and most highly-successful entrepreneurs also employ a human resource team and sales and marketing teams. In the early days of a business, many startups simply hired interns and later hired contract workers or outsource more specialized work to reduce costs.
o Startups have little financial planning. For the first few years of a new business will operate solely on cash flow generated by advertisements, word-of-mouth, guest speakers, press releases, and product demonstrations. This all sounds good, but the best small businesses have an established business plan with projected operating expenses, profit and loss forecasts, and debt repayment strategy. These plans allow entrepreneurs to predict their cash on hand, their liquidity and current debt load, and their long-term liabilities. They also allow them to make informed decisions about investing, hiring, and general spending.
o Most startups have few customers. A startup that generates little revenue will require a large customer base to start making a profit. Unfortunately, very few small businesses have customers who will pay a ton of money for the products or services they provide. As a result, most startups will not be able to obtain credit from banks until their business has proven itself to financial investors.
o Most startups fail before they launch. Most investors will pass on funding to a startup because the prospectus does not meet their expectations. While there are plenty of angel investors willing to invest in a startup, venture capital firms look at past history before determining if a startup is worthy of investing in. A startup that receiving seed money from venture capitalists may take several months to produce profits and may not distribute its proceeds to investors until it turns a profit. Many small businesses cannot wait this long, so they seek other means of raising capital.
The above reasons show why investing in startups is sometimes a bad idea. However, there are opportunities to invest in startups. Private investors and venture capitalists may be willing to provide startup capital, as well as provide information about potential problems a startup might have as it begins operations. Startups can receive seed money from family and friends, but it is best to approach an angel investor or venture capital firm directly. The personal touch can help prepare entrepreneurs for success. Whether it is true or not, investing in startups usually requires risk, so entrepreneurs should do their homework before jumping in.