Guidelines to Investing in Businesses

Guidelines to Investing in Businesses

With the introduction of the JOBS Act in 2012, it is now easier than ever for startup businesses to seek investment from the public in order to grow and develop. If investors pick the right startups, it’s a winning formula for both sides – the business gets the money to go where it needs to go, and the investors have the advantage of getting in on the ground floor and cashing in when the business hits it big.

The key phrase there, though, is “if investors pick the right startups.” Most startup businesses fail in the first few years and are therefore among the most risky investments to make. But if you do get it right, the rewards are well worth the risk.

Here are a few helpful guidelines if you’re thinking of investing:

1. Never invest more money than you can comfortably afford to lose. Never borrow money to invest, and never take money out of other savings accounts, such as education funds, retirement, etc.
2. Invest smaller amounts in several startups, – between 15 and 20 – rather than one lump sum in a single business. In this way, the successes of some will hopefully offset the failures of others. As you start seeing returns and feel more comfortable, invest more in those businesses that are doing well.
3. Invest in a startup because you believe in their mission, not because you want to make money. Good startups generally have a well-thought out vision with founders that will fight for a vision more strongly than they’d fight to just make money.
4. Don’t be afraid to ask questions – How experienced is the management team? How long has the company been in business? Is it an industry they are familiar with, or have experience in? Does the company have a realistic marketing plan?
5. Meet the company management face to face and don’t be fooled by a smooth-talking salesperson.
6. Look for an amazing product – you’ll know it when you see it. If it’s going to change the world, back it.
7. Pick a company with a great team. The greatest business idea will fail with the wrong team, and a great team can sometimes make a good business out of a bad idea.
8. At the end of the day, it’s your money. If you have a nagging doubt in the back of your mind, don’t proceed. If you’re not sure, don’t invest.

You need to be verified as an accredited investor if you’re investing in a startup company that publicly solicits for capital. It’s a process that requires you to divulge sensitive personal information. Trust to safely and reliability verify your accredited investor status.

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