What should investors look for when investing in a startup

Rana Gujral writes in AiTHORTY, a digital publication dedicated to covering AI and futuristic technologies on what investors should have in mind when meaning to invest in a tech startup. In his article, he underlines four pivotal elements to keep in mind as the dream team for success on the unparalleled roller coaster ride of investing in a tech startup: Ethos & moral compass, longevity and risk, relevancy, and the team.

Ethos and moral compass influence productivity, profitability, and the value of a firm. They set the culture and therefore, the value system of a company – the ‘spirit’ in a broader sense. A culture of openness and authenticity that espouses company’s character and integrity inspires employees that lead and work in consistency with company values, builds trust, and enhances relationships within the organization. A robust value system, on the other hand, is vital for new companies to build a good name that people resonate with. And usually, companies with strong values have a strong story to tell, and according to Gujral, humans are drawn to a great story!

Referring to the risk when investing, Rana writes that investors need to analyze and be realistic about the company’s prospects carefully, understand the risks looming over, and mostly be patient. A bit of good advice to mitigate risks and turn your investment into a safer mode is by negotiating the startup’s valuation, forming a liquidation preference, or even better through syndicated co-investments. And yes, in some cases you may not get your investment back, or take up years to get a return. Remember that investing takes patience.

Relevancy is a key, and that much should be obvious. The most significant cause of small business failure is the lack of a market need for their product. Not only founders must be well-versed in their business, but also familiar with their competitors. No competitors mean no market. Investors from their part should wonder: is the valuation in line with the industry and region?

Last but not least, Rana Gujral highlights that teams are of high importance when talking about startups. Teamwork is an essential component of high-reliability organizations. Investors should look for a team that works well together, complement each other, are fully committed to the project, and have a passion for their endeavor.

Read the full article on AiTHORITY, best of luck and happy investing!