Most pundits christen it as the ultimate gamble. It is also the fodder for the future. The returns can be ridiculously sweet if you hit it big. I’m talking about technology. Most of the top 10 biggest tech giants are barely 20 years-old. Within that time, they have turned modest investments into billion-dollar conglomerates.

Each of these tech giants will tell you of a very charming story of how they bet on the idea of the future. What most of them will never tell you is the number of similar startups that have since exited the market since they started. Before you activate that gallant mode, here is what you need to consider.

 

Understand the risks

Even experienced venture capitalists don’t have a perfect record. Most of them will be comfortable with anything above 50 percent. It means, for every $100 they invest in startups, $50 would land in a furnace.

Another statistic worth mentioning is that at least nine out of 10 startups close shop within the first five years. Half of those firms go down due to poor business strategy. Technology catches others napping and whitewashes them.

The risks are grievous. Unlike established companies that can shed some of their value then recover, once a startup closes shop, that is the end of the music. It doesn’t matter how much you have invested.

 

Know the law

When it comes to investing in startups, only wealthy people were able to invest. However, since the passing of the JOBS Act, almost anyone can invest. However, you must qualify to do so. The qualification is simple, an annual income of at least $107,000 or a marching bank balance.

At that level, you will qualify to invest $2,200 or 5 percent of your annual salary. As you work your way up the income ladder, you can invest more. To invest, you can invest in companies that SEC and FINRA clear for debt or crowdfunding.

However, an SEC or FINRA clearance is not a guarantee that the startup will succeed. Their role is to ensure that the companies are in legitimate business. You have to do your due diligence before you invest.

 

Get in your industry with your money

It is not mandatory to invest in tech firms targeting your area of expertise. However, experts recommend that you do. Part of suave investment is to interrogate company finances, products, and methods.

If you are a doctor, can you competently interrogate a financial technology product? Maybe not! If an analytics startup tells you they have the most exciting data catalog in the market, you probably should do some research to assure they are telling the truth. But where would you do that research? My point is this: Invest in an area that you have pertinent information and knowledge. It may be a hobby or your spouse who has some connections there. However, it should be something that interests you.

 

Start at the bottom

Be realistic about your chances. Most startups take at least seven years for them to pay out their angel investors. Popular checkouts are IPOs or buy-offs. Startup investments are therefore long-term investments because it takes quite some time to get a payday.

Getting reach quickly is a possibility, but the chances of it happening in the first three years are minimal. Therefore, you will need to spread your risk by investing in several startups.

The best place to start is through crowdfunding initiatives so that you can get the hang of it. You can choose from existing platforms . Some will allow you to invest more money than others do. Some will even offer you guaranteed returns on investments.

As you grow in stature and experience, you can move on to elite levels. Who knows, one day you might become a venture capitalist.

 

Conclusion

Startups investment is for the bold. You have to hope for the best but expect the worst. Invest what you are ready to lose.

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You have great idea you think you can turn into a viable business. That’s awesome! Now you need to get to work in order to make your dream a reality. Turning a great idea into a profitable business requires time, effort, and a willingness to do things the right way.

 

Below are three things you will need to consider in pursuit of your new business venture. Each one is considered a fundamental of business success. As you connect with others capable of helping you succeed, they may suggest a few other things for your consideration. Heed their valuable advice.

 

1. Realistic Market Demand

You may think your great idea is original, and perhaps it is, but don’t just assume. Take some time to do a bit of market research. See if there are other companies out there offering the same product or service you intend to offer. If you’re facing a lot of competition, you might find that turning your great idea into a viable business is more difficult than you originally anticipated.

 

Entrepreneur Magazine recommends a combination of first-person, secondary, and web research. First-person research involves speaking with people over the phone, face-to-face, and online. Make a point of asking the sorts of questions that will allow you to get a feel for what they think about your idea.

 

Secondary research involves looking at already published data from other entrepreneurs. This sort of research involves news articles, research papers, case studies, and the like. It goes hand-in-hand with web research, which consists of scouring the internet for as much information as you can find about your idea.

 

2. Amount and Sources of Funding

The vast majority of small businesses – roughly 80% – survive their first year of operation, according to the Motley Fool. Only half of them make it past five years. Among those that fail, the number one reason is a lack of adequate capital. Simply put, small business owners fail to secure enough funding to get them through the lean years.

 

A general rule for calculating funding is to start by estimating initial startup costs to cover equipment, office supplies, labor, and so forth. This should be followed by estimating the monthly costs of keeping the business going. You’ll need to think about everything from office rental rates to business insurance quotes.

 

Finally, put together a revenue forecast based on a modest expectation of your sales. Run the numbers on all three estimates to determine how much funding you’ll need for one year. Then secure enough funding to make it through at least two years.

 

3. A Well-Developed Business Plan

A business plan is a document that guides you through the early stages of getting started in your new venture. Bankers and investors often require business plans before they will even think about funding a new start up. However, a good plan goes well beyond the confines of funding. It forces you to think through the details of how you plan to establish, grow, and maintain your business.

 

The Small Business Administration (SBA) offers a comprehensive guide for writing business plans. They explain the differences between traditional business plans and lean startup plans, as well as offering examples of both. You would do well to visit the SBA website to take advantage of all the free information they provide.

 

Your great idea deserves a shot at becoming a viable business. But don’t expect overnight success. Taking an idea from concept stage to full operation requires a deliberate, step-by-step process that maximizes opportunities and mitigates risks. Seriously consider the three things explained in this post, then go out and get to work. The success of your business is in your hands.

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