How to Invest in a Startup?


And if investing in a start-up was not so complicated if you assume the risk?

Investing in a startup is accepting to take risks and betting on a business project, an idea or a team.

Now the high risk is also assuming it to expect a big gain or lose everything.

The evolution of start-ups over the past ten years has spawned talented young entrepreneurs with innovative projects that often provide jobs.

How do you really go about it and what is the important information to know before embarking on this kind of financing?

For those who are thinking of investing in a start-up, we will study the startup market, the possible returns, risks (important), the criteria to watch as well as crowdfunding platforms where you can orient yourself.

The start-up market in France and around the world

Taking into account the number of young companies that are developing today, the creation of a start-up has become the dream of many young entrepreneurs with knowledge and know-how.

Often, it is not the ideas or the desire that are lacking for these future entrepreneurs to realize their projects, but it is usually the constraints related to funding that often cause problems. Fortunately, the investment of start-ups has become an area of ​​interest to many people. Business angels often former business leaders are ready to support these young shoots. 

If we look closely at the French start-up market, 10 new start-ups per day are noted

Thus, more than 10,000 startups have already benefited from funding for the realization of their projects. Among the various sectors of activity, the French Tech remains the area of ​​investment that attracts the most people. Moreover, many French start-ups are open internationally and are recognized for their reliability. With regard to investors, the state plays an important role in financing these projects. This could be in the form of grants, loans or repayable advances. However, this does not prevent individuals from occupying a significant share of the market. In fact, many people say that they have made good profits as a result of the funding they have provided for the establishment of these seedlings. Among the different regions of France; Paris and Amsterdam are the ones that could be considered as capital cities of entrepreneurship.

France is not the only country with a large number of start-ups. In many countries around the world, the creation of start-ups and the need for investment is becoming the interest of many speculators. This affects both advanced countries and those still in the process of development. Let’s look at the general picture of the start-up market in the world.

The United States is first and foremost the first true host country and successful start-ups. Thanks to these advanced infrastructures and renowned universities where these new entrepreneurs come out; this country remains the world leader in the development of start-ups. Advertising, video, web, mobile and TV platforms are the most successful areas. Start-ups in the United States have no fear of settling or developing. The demands of young entrepreneurs and the offers of investors are well-balanced. In addition, the success rate of the projects is very positive.

Start-up in the USA? It is estimated that 50% of global funding comes from the United States.

Otherwise, Asia is also a continent where we see a great growth in the creation of start-ups. Young Asian shoots are best known for the reliability of their projects. Such are the case of recognized start-ups like which has become a world-class company, or PicMix, recognized worldwide for its famous custom photo montage. And in recent years, some Asian start-ups have conquered other international markets. 

And lately, Africa is also a place where we note the presence of several ambitious entrepreneurs. The choice to start creating start-ups is often linked to job problems and the need to create work for others. The state and external partners are the main investors in Africa. Be that as it may, to undertake in this continent can be very promising. African ambition and talent can ensure a great success. This is for example the success of  Jumia, the first unicorn of Africa from Nigeria. In addition, other African countries such as Ghana, Côte d’Ivoire, Kenya and South Africa are all setting up neighborhoods in their capitals to be able to host new start-ups, which is a great entrepreneurial future for the whole continent.

According to all that has been mentioned, the start-up market is very developed both in France and in other countries around the world. And most of the time, these young shoots become big companies that will value their country of origin.

For example, we are talking about GAFA: google, Amazon, Facebook and Apple in the USA.

These global successes are true “boosts” for future start-up creators.

In addition, the existence of various organized ceremonies such as the start-ups Awards encourages many young people from all over the world to present large projects that deserve the support of private investors.

The pitfalls to avoid and the rate of return in the past on specialized funds

Before financing a start-up, most investors already master techniques that allow them to know the reliability of a project compared to others. And yet, the possibility of making mistakes is always possible. 

Risk remains very present with start-ups.

Some investors venture with young shoots that have a low probability of success. Others, however, tend to make hasty decisions without even anticipating the risks of possible failures. To avoid such problems, here are some clues that will prevent you from falling into traps likely to question all your projects.

  • The founders of unrealistic projects

During your various meetings, you will surely meet founders of unrealistic or even dreamy start-ups. However,   these kinds of people are easy to identify.   All you have to do is analyze the plans and figures they’re going to make to see if the data is realistic or not. When choosing partnerships, prefer founders who show you a project plan to be executed over the long-term. In addition, the founders should know exactly how they will use the capital benefited.

  • Start-ups that were abandoned by their first investors

Many start-ups are looking for new investors after being abandoned by others. Before taking over existing projects, find out why the first investors did not collaborate with the founders. These reasons could be multiple, but it would be necessary to know the bottom of the problem, because that could be a signal of alarm. In most cases, this kind of situation could be linked to a lack of confidence in the future of the future company. In fact, you will have to be as vigilant as possible.

  • The lack of a marketing plan

Regardless of the quality of the advanced product, the lack of a marketing plan can hinder the entire future of the project. Effective product outsourcing will remain the key to the success of the future business. So be sure to make sure that the strategy put in place is effective and well-studied. If you do not feel able to judge it, do not hesitate to seek the advice of an expert to avoid all sorts of regrets.

  • Founders who have no other sources of income

If you chose to finance a start-up, it would surely be in order to grow a business. So your investment should be used exclusively in this way. Most of the time, founders who have no other income may commit reckless acts. There is no shortage of those who dare to use the investments received for personal interests. Of course, there are founders who choose to focus solely on their projects to be more successful. But beyond these situations, this will not prevent you from being careful.

  • A number of founders too important

Companies with many founding members are often problematic. Who finally decides?

Always focus on your goals and beware of these start-ups with many co-founders. Divergent ideas, the hoarding of actions or even the birth of jealousy between some members may lead you into complicated situations. You add the difficulties to make decisions quickly, it is often too risky.

  • A start-up that is a family affair

When you confuse a professional business with a family business, there can only be problems. In start-ups where family or friends are the main shareholders, the growth of the box may well be limited. And even worse, when they do not really want to collaborate with external partners, credibility leaves more and more to be desired. Avoid training in this kind of trap.

  • Profit forecasts too optimistic
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When launching a new product, the market is often far from predictable. For this reason, the overly optimistic forecast numbers should make you ask questions. Given the uncertainty of the market and possible problems during project implementation, one should be wary of these overly optimistic forecasts.

  • The founders who do not invest their own capital

Even if there are founders who put a lot of effort into their projects; however, there are those who do not want to participate especially financial question. This is not a good sign, however. In all companies, risk sharing is very important. Of course, if the founders have looked for investors, it is because they do not have the means to finance their own projects. But there is no question of the amount. The important thing is that they bring little to guarantee their confidence in their business.

  • A start-up with mediocre credit qualities

Avoid as much as possible entrepreneurs in a position of over-indebtedness. In some cases, the funds you bring will be used to pay off debts. Before you start, you should learn about the financial status of your partner.

Investment in a start-up should not be taken lightly. All technical, personal, organizational and financial issues must be considered closely.

This is valid for all investments between designer and investor. But if these are the different pitfalls to avoid, let’s now look at the rate of return in the past on specialized funds.

Although most companies do not often report actual returns on their investments , the annual rates of return generally range from 10% to 30%. Who says performance says high risk, be careful!

In addition, the most commonly used performance measure is the IRR or the internal rate of return.

Good to know: the rate of sustainability of new start-ups in France in the last 5 years is rather positive.

This implies that the rate of return generally satisfies investors. In this case, out of 150 distinguished start-ups, 92% of these small businesses remain in business . In addition, the field of technology remains the one that attracts more and more investors.

Some investment ideas to focus on in the next few years

To better put your money, it is always better to choose a field of activity that we master well, but when investing in a start-up , the project designers will undertake to study the market according to their field of activity. expertise. Thus, you will only have to choose the sectors that are the most profitable. In this chapter, we will present some investment ideas to focus on over the next few years.

  • E-commerce

With the evolution of technology, e-commerce is an area that interests more and more people. Ideas for the development of this sector are not lacking. Whether its clothing, traveling, or food products; Net surfers love good deals. In fact, people today spend most of their time finding coupon codes on the internet. Thus, it would be more interesting to finance the sites that embark on this kind of business.

  • The field of restoration

Restoration is an area that attracts the attention of many project designers. As a result, the investment markets related to this field are becoming more and more interesting. Among these are food truck, a concept of American origin that consists of transforming a vehicle into a kitchen and street vending. Otherwise, the delivery of meals at home has now become a great pleasure for the French. No need to move, meals will arrive directly at home by order on the internet. This kind of service should surely be profitable.

  • The platforms of crowdfunding

Participating in crowdfunding would also be a good way to put your money. You can contribute to the investment in a particular way or on behalf of a company. In addition, you will be free to choose the area of ​​activity that you think is most impressive. The offers are numerous and this can be in different forms. :

  • For the most generous, participation can be in the form of a donation . This participation will be without waiting and quite symbolic.
  • There is also the reward or gift with consideration . This second option is to participate in the fundraiser against a reward. This reward could be gifts, promotional offers or advertising …
  • The loan or crowd lending which is a loan specially designed for crowdfunding. You will be able to participate in the various loan offers. They repay themselves on time and it can be with or without interest.
  • Otherwise, investing in equity or equity is a very interesting form of crowdfunding. By participating in the collective effort, you can become shareholders of the project, which will give you the opportunity to enjoy all the profits. This last option is the one that most closely matches investors’ expectations.
  • Advanced technology business

All start-ups related to the design or maintenance of advanced technology are   likely to experience great success in the coming years. Augmented reality, for example, is impressing more and more people. Thus, many are interested in different techniques related to augmented reality to start their start-ups. Similarly, drones are nowadays and in the coming years topics that interest both designers and users. Investing in these areas is also very profitable. And finally, connected objects become more and more popular for everyday use. Present in different sectors, they also deserve the attention of investors.

Case Studies: Specialized Live Investment Platforms

For those who want to make direct investments , specialized platforms are currently numerous and interesting from one another.

Here are some examples of specialized platforms   as well as some details about each company:

List of platforms specialized in investment crowdfunding  start-up (not exhaustive and given as examples):

  • Ulule

Although this platform is not ideal for the financing of start-ups, we can not help presenting it as it is one of the leading sites of participative investment. However, this is a very good choice for those who want to participate in fundraisers. The concept here is to support projects through donations. The advantage of this platform is that it allows you to discover original   and creative projects . However, projects are funded only when they reach a certain collection goal.

  • SmartAngels

SmartAngels is a system that allows investors to obtain shares. Anyone over the age of 18 can sign up for this platform. The advantage of SmartAngels is the fact that you could invest your money while getting a share of the company’s capital. Thus, you will enjoy all the rights and duties related to your shareholder status. The small inconvenience would arise in case the company in which you have invested goes bankrupt. If this situation arises, you will lose all your initial investment.

  • Wiseed

This platform focuses on the investment of start-ups, but also projects related to renewable energy, health, the digital world and real estate. Its strong point is simply the safety and diversity of possible investments. In addition, you can become a shareholder as in most principles of Crowdfunding. The negative point would rest on the queue of the platform considered quite long.

  • Bulb in Town

It is a funding site that is geared towards local companies and traditional jobs. This platform makes it possible to invest local projects. From cheese makers to booksellers and all projects of the same type; you can now support small businesses on the internet. The advantage is the wide choice of projects to invest. The small inconvenience would be the duration of the campaign of the site which is quite limited. Thus, it would be necessary to make rather quickly the choice of the project to support before the end of the duration of the campaign.

Conclusion on how to invest in a start-up

Investing in a start-up is a good way to help young entrepreneurs and to seek financial leverage (admittedly risky) for these investments.

Accept the risk of losing everything , support a pool of young local businesses, that’s what awaits you if you invest in a start-up.

Not only is it an action that will showcase a young company that can thrive, but the success of investing.

With the evolution of technology, today’s start-ups are much more likely to succeed than those that have been established in the past.

Whether between project designers and investors or through crowdfunding, first analyze the required funding before you start.

A good selection of the project to support will remain the key to the success of your investment in a start-up!

Also published on Medium.