Investment strategies are a key element for startups to earn the financial returns which are necessary to make their ventures financially viable. To create a sound investment plan, it’s important to analyze the stage of the company and its risk-taking capacity as well as its capital allocation. It is important to be aware that the amount of risk an investor is taking in a startup will be directly proportional to its expected return.
The business model of a startup must clearly show its potential to grow and be profitable in the long term. It should include a clear description of the industry and its relationship to historical markets and buyer personas. Startups that lack a viable growth plan and business strategy often struggle to get financial support.
Investors also want to invest in a business with a management team capable of executing the growth plan and creating shareholder value. This team should be a mix of technical and entrepreneurial experience and have proven their worth in previous roles.
Typically it takes startups at least five years before they attain a level of liquidity (the time when investors can sell their shares). It is therefore crucial that startups only seek out funding from businesses and individuals who will remain invested for the long-term.
It is essential to know the exit strategy of a start-up. This can be an IPO (public offering) or an acquisition for strategic reasons, or liquidation (closing the company). This can help reduce the losses of investors and increase profits by keeping emotions under control and setting quantifiable objectives.