Investing in Startups for Beginners

Besides sourcing deal flows, venture capital speak for investable companies, there is another major reason that startup investments continue to be a “privileged” endeavor.

Here at GetEquity, we are not only looking to make these deal flows accessible to everyday people, but we are also aiming to educate you and help you make the most of these opportunities.

If you’re new to startup investing, you are in luck because we are bringing you some helpful tips on how to invest in startups and begin your journey. Let’s get right into it.

• Seek to understand the product and industry before you invest aka do due Diligence: No matter how much you might know about a product or how interested you might be in a product or an industry, it would not hurt to do some historical research. Dive in on the industry and understand the company and their product and team and what it does before investing. As a Golden rule, only invest in what you trust and know.
• Invest time before committing money: Make out time to use the product, speak to the founder if they are accessible, or otherwise read their blogs and our interviews, ask about their failures and wins (a lot of learning comes from here). Speak to fellow investors and you will be surprised at the insights you will get about the industry.
• Get familiar with the terms: Phrases and words like “SAFE”, “valuation”, “cap table”, “dilution” e.t.c can be very confusing, but a great way to ensure that you don’t get hosed on this journey is to look them up so you know what their implications are before you make any financial commitments. We will also help you simplify these terms and if you have questions, our team are on standby to always help provide deeper context.
• Only invest what you can afford to lose: This tip is by no means intended to make you paranoid. Losses are always part of any investment class and startups are not exempt. Startup investments are very risky and not guaranteed and it’s why it’s been historically only open to High Networth individuals who the thinking at that time is open to people who can afford to lose funds and can take the risks but we believe differently, however, the risks remain, there is a high possibility you may lose all your funds if a company does not meet its intended goals but the returns are always worth it if you stick around, so be prepared.
• Do not feel guilty for refusing to bet on a company: Sometimes, your gut is the best due diligence check you can have and that is perfectly okay. If something feels too good to be true, it probably is. Don’t Jump on trends, however, it’s great to invest together with people.
• Be patient: Investments generally are a long game, sometimes very long think in 10-year landscapes. Some people get lucky and the returns come early, it doesn’t make them the norm. Think of the unicorns in Africa today and how long it took them to get here, on average many took between 5–7 years to achieve that status. If their investors had pulled out early, they would have missed out on the astronomical returns that becoming a unicorn affords its investors, so think Long term not short term and enjoy the rewards.
• ROI are not known until liquidation events occur: Unlike investing in other asset classes, startup investment is very unique and quirky in one way, ROI are generally not known until a liquidation event occurs however an estimate is provided which may or not be accurate, liquidity events are events that occur in a companies lifetime that leads to how investors earn, they could be in terms of a merger or acquisition, initial public offering or IPO, a new investment round, Employee buyout, Share buyback scheme any of this can lead to earnings for investors alternatively investors can make use of the secondary market to trade their allocations in this companies.

Follow GetEquity on social media here and download the app here for more tips like this and start investing in companies you love like a pro.

Got any questions on this, please send us an email at support[at]getequity[dot]io and the team will definitely get to you.

Written by Lamide Aranmolate