Investing in Tech Startups is never easy but there are tons of good moments to note about and many people that do just that. If you are considering investing your money in startups, you’ve probably heard plenty of good things already. But do you have enough to go ahead and invest? And what exactly are those reasons to invest in tech startups? Here’s a look at some of the top reasons to invest in startups.
Investors
Investors typically come in one form: institutional investors such as wealthy families, banks, or other large institutions. Angel groups are another common type of investor, typically numbering into the thousands. The goal of angel groups is to provide seed funding for tech start-ups. If an individual or organization has a successful business plan and is highly creative, they may seek capital to make it grow. However, when an angel group provides funding, they normally want the venture to be sold to them as a company, so they can continue growing it as an established company. This doesn’t usually involve an investment by the individual, but rather by a third party who acts as an investment banker on their behalf.
Private Placements
This is the most common type of investment opportunity for investors. Companies will seek to raise money in this way from individuals who already have a stake in the company. Because the investment is from private funds, only the owners are known, which makes it more difficult to evaluate. As with angel groups, private placements are usually intended to provide seed funding for tech startups and are not intended to transform a company into an advanced technology enterprise.
Angel Investors
Usually, wealthy individual investors who have direct access to the investment decisions will invest in a company. These are usually not how to write a business plan but instead, come from a personal connection to the entrepreneur. An angel investor typically wants a large return for his or her investment, and if the startup fails he or she does not lose all of his or her investment. However, investing in startups is difficult to obtain from this category, as they are generally only interested in growth potential.
The largest concentration of potential investment opportunities comes from wealthy individuals. Angel investors can fund startups based upon several different factors. Typically, if an individual has significant technology experience, they can locate potential startups based upon several factors. In addition to the potential of profit, these investors also look for companies that have strong management teams.
Wealthy Individual Private Equity
These are often hard to obtain investment capital for and also usually demand a high return. Unlike angel investors, wealthy individual investors do not have to evaluate the business to make an investment decision. They do, however, usually know of someone in the industry who they believe would be a good fit for the company. Again, this isn’t really how to write a business plan, but rather how to obtain a loan for the investment.
Venture Capitalists
Much like private investors, venture capitalists are usually looking for a high return on investment for their investment. Like angel investors, they also want to see a clear path to profits and do not want to take a large risk on a startup that may flop. Unlike angel investors, venture capitalists are usually already successful in their field and thus can put more capital to work for the startups. However, like private investors, there are some investment opportunities that these types of investors are less likely to find.
Seed Capital
There is a possibility that some of these investment options may be limited, depending upon the type of investment in which you are interested. Seed Capital is most commonly provided by venture capital firms, which invest in companies at an earlier stage. As a result, it is up to the entrepreneur and/or his or her advisors to ensure that these Seed Capital firms are established and reliable. To do this, one can ask questions about the experience and track record of the Seed Capital firm(s). In addition, it is important to research the experience of potential Seed Capital firms to make sure that they are comparable in experience and focus on earlier-stage investments.