How do you know when to invest in a startup?

2 min read As an investor, it helps to have a specified investment strategy. This helps narrow down investment decisions and ensures that you are making the right decisions for your specific circumstances. In this article, we discuss the difference between investing in funds and investing in startups.

Investing in Funds

Investing in a fund works best when you are not familiar with a sector or geography and don’t have the time to research and learn more about it.  Additionally, if access to deals is time-consuming or difficult, then a fund may be a better approach.

If the funding requirements are greater than your resources, you may want to invest through a fund. For example, some sectors require several millions of dollars to participate in a deal so it’s a good strategy to pool your funds with others to participate. Finally, funds provide diversification that can be more difficult to achieve with direct investments. 

Investing in Startups

Startups are very risky, and managing a startup investment can be a lot harder than it looks. Here are the basic points to consider:

  • How much should you invest in startups? Invest no more than 3% of your discretionary income.  There are many good deals out there but for the most part, the investment is illiquid for a long time. 
  • Where do you find deals? There are many sources including angel groups, networks, syndicates, and MicroVC funds that let you invest directly in the startup as well as the fund.
  • Should you invest alone or in a group? This depends on your investing style.  A group can give you access to more deal flow and due diligence support.  On the other hand, the group may pursue deals you are not interested in and vice versa.  
  • How do you get started? Figure out what you want to invest in and then ask what resources you need to do so successfully.  Seek investors and groups that can help you achieve your goal. 

 

Read more in our TEN Capital Network eGuide: How to Invest in a Startup


Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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