To invest or not to invest?

The question lingers in many investors’ minds before using their money. And honestly, why shouldn’t it? After all, investing is not a decision that you make every day. But on the other hand, investing is equally rewarding if done right and hence even after multiple risks are involved, investors do not miss a chance to put their money into a fruitful idea.

Any startup goes through various stages, and each of them is a chance for different opportunities and risks for investors.

So, how do you ensure that you are taking risks worth it as an investor?

The answer is simple, awareness.

Being aware of the risks and failures involved allows considering multiple facets before investing in a startup. If you keep your mind open before taking a decision, it could save you a lot of time and money.

Here are some of the common risks you should consider or be aware of when making an investment decision.

1. Business risks — The first risk you should consider before investing is related to business. Business risks can make or break an investor from getting funds to earning revenues.

2. Risk of failure — The surface fear of any investor is the fear of failure. Startups tend to fail if they are built on loose values and lack vision. Ask yourself, before investing, does the vision of the startup match your overall goal? Do you believe in the product that you are investing in? If the answer is no to the above questions, you probably should think twice before investing.

3. Risks associated with revenue and fundings — The other category of risks related to the business is fundings and revenue. Investor needs to think wisely about the sources of income and fundings for their investment projects. The initial stages of any business are crucial, and the investor should have clarity on additional fundings and sources of revenue beforehand.

4. Market demand and competition — There is a high chance of product failure because of the competitive market and the difficult situations in the market. Sometimes the product may be highly efficient but not effective in the market, which could lead to overall startup failure. Investors need to make an informed decision before investing in a startup to avoid this kind of discrepancy.

5. Environmental risks — Believe it or not, risks associated with the environment affect the business’s ability to succeed. The timing of investing in a business plays a crucial role and should determine the investor’s decision making. These are the uncertain risks that can cause any business to fail. Investors must consider natural calamities and pandemics before making a decision.

6. Delay in returns — Any investment requires a certain period to fetch some returns. One of the risks associated with delay in returns is the uncertainty that it comes with. Investing in startups is risky and might take about five to seven years to become profitable. You should keep a buffer period in mind before investing in any company.

7. Fraud risks: Another risk that impacts investment decisions is risk associated with fraud and fallacy. Certain people involved in startups can mislead investors and can. If fraud or misleading conduct occurs, you may lose your total investment. Before disclosing any personal or financial information to any third party, one must carefully analyse it.

8. Personnel risks: Investing in a startup often entails investing in the company’s management. The ability to carry out a business plan is frequently a determining element in whether a company is viable and profitable. It will help if you keep a portion of your investment toward the employees’ salary, including management. Any disclosure about the company’s use of proceeds should be carefully read. It would be best to think about the management team’s experience and skills.

In the end, investing is risky, but if you plan it efficiently and effectively, it will fetch you good returns and rewards. The guide to being a successful investor is to keep your eyes open and learn before taking a step.

To learn more about investing and get in touch with trustworthy entrepreneurs, check out Bolstart, a platform to connect investors with the right bunch of passionate entrepreneurs.