Startup Investment; the Outsized Returns Vs Bizarre Risks

Investing in early stage startups is easier than ever before, and everyone has equal chances of becoming a part of tomorrow’s big things. However, this potentially outsized return is not risk free and there can be an incredibly high risk involved, when investing in new ideas and recently hatched companies.

You can imagine the risk; knowing the fact that 90% of startups fail!

Well, the higher the risk is, the higher the return will be. So, if you’re thinking of investing in startups, you must not be shaken by the stats. Rather, follow a strategic approach to minimize the risks.

Every startup idea will have a whole unique risk factors, depending upon the market conditions, revenue model, available resources, the business strategy and the key people involved in building the business. So, it’s a must for early stage startup investors to address all those unique risk factors when considering a new investment in a startup.

 

How Many Startups Actually Fail & Why

This basic knowledge is a must; so you can prepare your investment accordingly!

Well, every month, over half a million new startups are born, which may seem a lot, but you must know the fact that only 30% (150,000) of those businesses will go beyond two years. Moving forward, only half (75,000) will hit five years and out of them, only 25% of this number will stand for a period of 15 years or longer. So, it won’t be wrong to say that only 3 to 4% of all startups actually have the potential to grow big and give outsized return over the period of 15 or more years.

The most common reasons for such a big number of startup failure include:

  • Vague Idea.
  • Wrong market.
  • Lack of research.
  • Bad partnership.
  • Bad marketing.
  • Running out of money.
  • No backup plan.
  • No exit strategy.
  • Lack of expertise.

 

How to Get Outsized Return While Minimizing the Uncanny Risks

Chances of 90% startups to fail itself is a big indicator that investing in startups is not for the faint of heart!

You may lose XXXX money; but if you play wisely and make investments strategically, things can be different. All you need to do is to study the startup investing well, before actually making any investments. Doing so will help you in deciding:

  • Which startup you should invest in.
  • Best practices to invest in startups.
  • How to pick winning startups.
  • How to evaluate a startup before investing.
  • How to minimize the risks associated with startup investment.
  • How to diversify your investments.

The Bottom Line

You do read everywhere that 90% of the startups fail, but no one gives you a timeline; so if you plan to invest in startups, think of long run, i.e. 15 to 20 years.  It’s very likely that after 20 years, 9 out of 10 businesses will have closed shop. Your strategic moves can make you fortunate enough to be one of the 10% that succeed.

Yes, 90% of companies funded do not make it to IPO; but 10% that go public bring a return in thousands of percent, making early investors very wealthy indeed.

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