The idea of a “startup” may bring to mind anything from an incubator full of partying coders to a techie team tied to their laptops. Many investors think that entrepreneurs only do “this” because no one else will hire them, that they’re control freaks who have trouble answering to shareholders, or because the founder is just looking for a get-rich-quick scheme.
But the truth is that startups are as varied as the entrepreneurs behind them, making them great investment opportunities for the right visionary. That’s because startups:
1. Know how to do more with less. Entrepreneurs may begin with the minimum — but what they lack in resources, they make up for in passion and determination. Working with little to no support, an entrepreneur’s creative genius is front and center, demonstrating his resiliency, ability to adapt with the times, and capability to build a relevant, sustainable venture. Once a startup gains some traction, it tends to attract other smart, motivated, and talented individuals looking for a challenge and the opportunity to be part of an industry-changing venture. In startups, no one can get by with doing the minimum and expect someone else to pick up the slack. Everyone must perform at top levels. This is the type of team you want to invest in.
2. Are not as risky as you think. Entrepreneurs take calculated risks to create value. To the entrepreneur, the value of the product far outweighs the risk, and that’s why it’s worth the considerable time and effort required to get the product to market. For many founders, their current ventures are actually their second or third businesses. They are seasoned pros at building something from nothing, and they understand which ideas to invest time in, when to change the focus of a business, and how to cut loose a flailing or unmarketable product or service.
3. Stay ahead of the curve. Entrepreneurs think differently. In chaos, they see opportunities. They have a gift for identifying sweeping societal changes, opportunities for technological and market innovation, and arrogance in existing industries to create promising new business models. If you, too, can identify this opportunity in a young startup, your investment will provide the necessary means to build real growth for the company. And, when late-stage investors realize the company’s potential, your returns will be substantial.
4. Are key players in the new “diversified” portfolio. Traditional investment strategies have largely failed to produce results. But private equity, even in the recession, continued to produce — because it was not tied to the public markets. This is an emerging asset class. With the advent of crowdfunding on the horizon, private equity is expected to become a standard part of the “diversified” portfolio.
5. Combat failure with innovation. Failure is just a part of making mistakes, learning from them, and then making new ones. In many ways, failure is the driver of innovation. Startups know firsthand how important it is to develop a culture of innovation in order to be successful. Entrepreneurs must rapidly test models and tactics and pivot their approaches, depending on the outcomes, in order to find the correct, scalable solution. It is the founder’s ability to execute, fail, test, fail, and then do it all over again that makes an investor confident in his future successes.
6. Reinvent ROI. The entrepreneurs behind startups have most likely put everything they have into their ventures: their lives, money, and motivations. Investing in one is an opportunity to not only create something truly lasting, but to also be part of making someone’s passion profitable. The whole point of investing is to get a return. By targeting startups that have positioned themselves to generate revenue, your ROI will benefit — and the thrill that accompanies your innovative investment is an added bonus.
Startups can get a bad rap for being risky, but in reality, investing in innovative startups can be quite lucrative. The key is to find a startup that has proven it can execute — whether it’s a small team of techies or a one-man show.
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