Below are some of the most important tips when considering making an investment in a startup company.

1) Invest in a domain you know. One of the best ways to reduce risk is to understand the market that startup operates in. This will provide you with a better sense when projecting the potential success of the venture. Make sure that the business has a scalable model so that it can grow to a level in which you will be able to get your money back as an investor.

2) Drill into the track record of the founders. The people behind the company are the most critical factor, especially for early stage companies. This is mainly due to the fact that products need to be iterated several times until they are able to find where they fit in the market. Just like Jim Collins’ book “From Good To Great”, it is all about having the right people sitting in the right seat. Eventually they will end up finding the right direction. Here you want to focus on their background story (previous companies, education, etc.) and what type of value they bring to the table.

3) Diversify your investments. Instead of putting all your eggs in the same basket make multiple investments. This will increase your possibilities of success and will also help to reduce the risk involved. It will also increase your chances of getting your money back with some returns at a liquidity event such as a public offering or an acquisition by another company. In the end, these investments are for the long run so try to be patient.

4) Join an equity crowdfunding platform to get access to deal flow. If you are struggling to find deals, the best way to remedy that is to go online. By registering on investment platforms you will be able to navigate different deals. Especially if you are new to startup investing, you may want to see as many deals as possible before pulling the trigger. It is important to learn about the market before making any type of investments.

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