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Investing in an Idea or Startup – What Investors Should Be Looking For

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Investing in an Idea or Startup – What Investors Should Be Looking For

By Startup Valley (504 words)
Posted in Investors on September 07, 2012

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You’ve set aside funds to take a risk on the next best innovation, and you’re ready to listen to pitches in search of a worthy concept. Unfortunately, even though you like the idea, you’re still reluctant to invest. The truth is, you should be reluctant. If the pitch doesn’t give you a clear understanding of what the product is and how it works, the business model and a clear explanation of what the raised funds will be used for, then you should be on to the next one.

However, there are some strong signals you should look for when investing in a new business. Make sure you look for these signs:

Good ideas aren’t always profitable ideas

Simply liking an idea isn’t enough for you to invest your money. Sure, it’s a good start, but you need to evaluate what it’s going to take to make this idea profitable and how long it’s going to take to do so. Not to mention, you should fully understand the product inside-and-out. There are tons of good ideas out there that have been invested in, and eventually, were not profitable. Take a good idea and think about what will go into its execution, evaluate the competition and consider operating costs. Then, determine whether or not it’s financially logical to apply a financial risk to this idea.

Exit Strategy – How will you get your money back?

Suppose you are interested in the idea. After representatives have pitched their ideas and you’re on board, you need to examine the exit strategy. How will you get your money back? And furthermore, how long will it take to do so? If an emergency arises, will you be able to recall your funds at any time? What about a 30 or 90-day money-back guarantee, in case you are displeased with the way things are going in the short time you’ve invested your fund? Make sure all these questions are answered before you enter into any agreements so that your money is protected.

Scalability and market

Expansion and growth. Does the innovation have room for expansion? Or is it a product that will do well at first, but fade in the long run? You need to be convinced that your investment will have constant, long-term profits. If a company has no intentions of expanding on their product or product line, then the ROI should certainly be a concern. Sure, you’re after the next big thing. But it has to be sustainable in the long-term future. Furthermore, the market has to be ever-growing.

Consider management and the future

Listen to what management is saying. Has management explained who would be running the company? Have they explained the future outlook? If there’s already a fierce competitor, what are management’s plans to win some of the market share? More importantly, do you believe everything they’re telling you? Study and ask questions about the company’s outlook before you invest. Even though they are excited about their product, you may find that they don’t seem too optimistic about their chances of success.

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