It can be quite exciting to invest in your very first company. It is a new opportunity to learn, a new challenge, and a new experience unlike any other. Successful investing is however not easy. If you are not cautious, a poor investment opportunity can cost you a lot of money within a very short time.
All investors want to see their money working for them, generating a return greater than the initial investment. To do this, you need to need aware of several things, especially if you are a first-time investor. To lower the risk of losing your money on a failing business, you should be aware of exactly what you are signing up for before handing over your money.
Keep the 7 tips below in mind:
- The Brokers Backing the Business
It doesn’t have to be a big name behind a business for it to be stable or trustworthy and one of the best investment opportunities available. However, a startup with the backing of a big brand definitely has more credibility and this helps solidify its financial future.
Larger brands can afford to be pickier with whom they bring on to work with the business. Smaller brokerages tend to be more adaptive when it comes to picking up clientele. However, having said that, smaller brokerages can be quite beneficial if the brokerage has a positive history. Research the company and its backers, find out what or who is involved in the company and make a decision that best suits you.
- Wait Until the End of the Company’s Lock-Up Period
A lock-up period refers to when the people that own stock in the company already are not allowed to sell it. This helps lower the risk of the financial backer along with the risk to stockholders, to some extent.
Wait until the end of the period and check how many stockowners are still holding their stock. It can be a good indicator of the standing of the company and shows whether the future of the business is plausible, which will help you mitigate your risk in the situation.
If most of the original stockholders hold onto their shares, it is likely that the business is showing growth and finding success. If the original stockholders are disposing of their shares, it is a good idea to hold off investing in the business.
- Read the Prospectus of the Company
A business prospectus is never a fun read. However, it provides great insight into how the business is run and should provide an outline of the benefits and risks of the investment.
Take your time to read this document and weigh the benefits and drawbacks of investing in the business. Ensure that the business plan is highly detailed and clearly laid out. Ask yourself whether the risks are worth the rewards. It will help you have a clearer view of the investment.
- Exercise Caution
You should always exercise caution when it comes to putting your money in a young business, especially when looking to invest in an online business. The key to being successful is exercising caution.
A business might sound great on paper but still fail in reality because of a lack of focus, a bad market, or poor management. That’s without considering “businesses” that are essentially scams disguised as legitimate business opportunities. If it sounds too good to be true, it probably is.
- The Returns May Come Slowly
Small businesses require all the money they can get, which is why a return on your investment should not be expected in the near future. You will probably have to wait several years before the profits start rolling in, particularly when investing in a startup in its early stages.
Investing should always be about the “big picture”. Patience is a virtue and you shouldn’t be surprised if you fail to see any money for the first few years.
- Have an Exit Plan
With all investments, there’s always the likelihood of things going wrong or failing to work out as planned. You need to have an exit plan for when things start going wrong. You need to address this issue with the owners of the business before you provide the funding.
With any investment, you are taking on some risk, but with an exit plan and explaining it from the very start, you can cushion yourself on a somewhat risky move.
- Seek the Help of a Financial Advisor
If you feel uncertain about a certain investment opportunity, you should always seek the assistance of a financial advisor. The advisor will be the best resource available to you to help you avoid any losses that may come out of the investment.
Investing for the very first time can be stressful, exciting, highly rewarding, and challenging all at the same time. As long as you prepare yourself and know what to look for in a company, how to manage the investment, and what you should expect in the long run, investing in your first business can be a rewarding undertaking with the potential to change your life forever.