Here are eleven considerations for investing in a startup:

• Consider the Ability to Adapt

• Get a Second Opinion

• Beware of the Risks Involved

• Do Your Due Diligence Before Investing

• Consider the Need to Invest More Capital

• Diversify Your Portfolio

• Avoid Inadequate Preparation

• Gain More Hands-On Experience

• Do Your Own Research and Ask for Updates

• Understand the Risks and Responsibilities

• Stay in Your Technical Lane

Consider the Ability to Adapt

Accurately evaluating large businesses is costly and takes time, while startups often derive their value from growth prospects. Constantly changing firm structure and roles make the business success dependent on the resilience and skills of the founders and key people. For some investors, it is a nightmare. Still, for others, it is much more convenient as people are often more flexible than systems and can adapt to the changing environment, being a better proxy for success.

Michael Sena, SENACEA

Get a Second Opinion

As those seeking funding usually present their venture much more optimistically than industry analysts, it is essential to get a second opinion. Involving third-party specialists or at least using impartial projections for the startup's sector can help get a more realistic view. That especially concerns growth prospects which are challenging to estimate.

Rebeca Sena, GetSpace.digital

Beware of the Risks Involved

A con of investing in a startup is that it is incredibly risky. Unlike blue-chip established companies, startups or any emerging stock is highly correlated with risk. They have no track record of performance and the likelihood of success is slim. When looking for investments in startups, you're banking on good ideas rather than successfully published track records. The main risk is partial to complete loss of capital. Something else to consider is even if you pick the right startup to invest in, there's often a lack of profitability possibly for years.

Tom Mumford, Undergrads

Do Your Due Diligence Before Investing

I have invested in multiple startups, many of which have been my own. One thing I have learnt is to always check if the startup has: (1) clear processes and documentation with regards to their planning and market penetration, (2) how they will capacitate human resources in order to achieve financial objectives, and lastly (3) have they done the work to provide laser-like market segmentation. Often startups have not clearly defined their unique market proposition. This often leads to startups that fail to launch. In all my investment failures in startups, one or more of the items above was missing from the equation.

Mogale Modisane, ToolsGaloreHQ.com

Consider the Need to Invest More Capital

While investing in my own startup, I learned that one con to this is that you often have to invest more money than you originally plan to. It takes a while for a company to reach profitability and you will likely have to invest more capital than just an initial investment to ensure that the company is a success. When starting a company there are many initial expenses and revenue is slow to start. Keep this in mind when investing in a startup for the first time and know that you will likely have to reinvest more money into the business to make it a success.

Tyler Read, Personal Trainer Pioneer

Diversify Your Portfolio

One of the advantages of investing in a start-up is it allows you to diversify your financial portfolio. However, another perk that I was not expecting is how it increased other opportunities for both networking and further investment. I learned that committing to a start-up is not merely about sinking funds into one endeavor, but rather creating a pathway leading to additional opportunities.Start-ups are as much about building future relationships that can lead to financial rewards. Through my investments in these ventures, I have met many people, who I have partnered with in similar investments, both conservative to moderate risk. These have paid off both from a financial, as well as an emotional standpoint.

Jeff Meeks, EnergyFit

Avoid Inadequate Preparation

Here is what I learned from this fantastic adventure. It’s amazing how many startups falter because they “forgot” to plan. Or maybe they did plan, but they didn't cover all the bases. Key elements like sales, development, staffing, skill shortages and funding are not afterthoughts. They should all be part of your business plan from the start. Not only that, but you must plan for the things you cannot plan for. That is, even if you cannot plan for every eventuality, you must know what you will do when (not if) events take an unexpected turn. If your business plan is overly optimistic and fails to account for unexpected events, you're in huge danger. As the saying goes, "if you don't prepare, you prepare to fail." So don't put off the details till later.

Edward Mellett, Wikijob

Gain More Hands-On Experience

There has never been a better time to invest in startups, with some even able to provide an excellent return on investment. Investing in startups not only provides you with more profit, but it is also more interesting than investing in established companies. I've learned that while investing in a startup is more hands-on than investing in an established firm, it adds a level of emotional investment because you're personally rooting for the company to take it to the next level.

Claire Westbrook, LSAT Prep Hero

Do Your Own Research and Ask for Updates

When my friend decided to create a business, it was very exciting. We all rallied around her and her idea. We desperately wanted it to succeed, because it was a great idea. Her business model would help homeless and abused women in our neighborhood. We all invested in her business with time and money. Unfortunately, she did not do her homework and neglected to get the necessary permissions for the work she was conducting. Her business was closed before it really got off the ground. We lost our money and were naturally frustrated with our friend, who had a great idea but didn't prepare appropriately. We assumed she would dot her i's and cross her t's. The main takeaway from this is to ask for updates throughout the process. If the startup leader is not forthcoming, you should stop contributing.

Jennifer Pieniazek, Resume Now

Understand the Risks and Responsibilities

Investing in a startup gave me more say when it comes to the direction of the business, especially since there's a considerable ownership percentage involved. This is ideal for someone like me who wants more control in steering the wheels of the business. It also gave me more investment options, including additional options apart from shares, such as convertible notes that can be converted to shares later on.However, I had to deal with the high probability that I could lose everything since a significant portion of my capital is in the business. I also had to deal with a market that is extremely saturated or competitive, which makes the risks even greater. Lastly, even the most promising startup business can still go under due to factors that none of us can predict or control.

Kris Lippi, I Sold My House

Stay in Your Technical Lane

My first two startups (one was a food startup and one was a tech startup) were both in spaces that I did not have any technical expertise in. I wasn’t a food scientist nor a developer and therefore I couldn’t execute. My third startup suited my technical skill set (sales) and it has been my most successful venture by far. I’m able to lead strategy, execute tactics and also build/lead a team doing the same. I’m proficient at building the product because I have the technical chops, instead of betting on someone to build it for me while I trust them blindly.

Reece Theriot, Fulcrum Sales & Marketing

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