As trendy things go, startups do not come under this category. They are the drivers of an innovative economy. For investors, early-stage venture capital represents a high-risk, high-reward portfolio opportunity. Such investments are double-edged swords with multiple possible outcomes: the startup might become a unicorn or fail, resulting in investment losses.
Making an informed decision can be the difference between major profit and loss. That’s why we put together a list to help investors make early-stage startup funding decisions. We will understand the meaning of early-stage venture capital, give some tips on how to invest in early-stage startups, and explain how you can find early-stage startup funding opportunities.
What is Early-Stage Venture Capital?
Ideally, venture capital funds for startups are used to expand existing startups. However, early-stage venture capital firms focus on startups that have yet to establish themselves. These startups have great potential and, thus, are a profitable investment for VC firms.
Early-stage startups might have a product/service prototype, some market traction, and a vision to help investors decide. It can be tricky to invest in them, especially if you are a new investor or diversifying your investment portfolio with some risky investments. We have listed five tips to help you analyze an early-stage startup investment opportunity.
5 Tips on How to Invest in Early-Stage Startups
Due to the lack of considerable market traction, early-stage startup funding decisions are tricky to make. However, with a few tips, you can prioritize startups and shortlist a few with potential high returns.
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Evaluate the founding team
During the early stage, team is the power of the startup, especially the founders and co-founders. They should have a balance of technology, expertise and business acumen if they are in for the long haul. The founders must have a deeper understanding of the problem they are solving and the industry they are operating in. So, evaluate the skills and knowledge of the founders and check their team’s dedication and skills.
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Check the Total Addressable Market (TAM)
A startup is successful if it can scale its operation and adapt to market changes. Asking for the Total Addressable Market or TAM helps in understanding the scope of scalability and growth potential of the startup. Government regulations, market trends, and competitors might affect the startup’s growth. Therefore, TAM should be considered during evaluation. Healthcare, AI, real estate, and EV are a few rising sectors for early-stage venture capital for startups.
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Diversify investment portfolio to mitigate losses
Start small and diversify your investment portfolio. Investing small amounts in multiple startups helps you mitigate the losses if one startup fails or doesn’t get sufficient returns. You can also opt for startups at different stages to diversify investments and make some medium-risk investments.
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Conduct a thorough due diligence
Investors can’t exactly rely on market presence for early-stage startups. Other parameters and doing the due diligence ensures that the startup is registered and has at least a prototype product. Ensure they have a reliable, scalable business model, market research, and financial reports to make informed decisions.
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Connect with an industry expert for guidance
If you are new to early-stage venture capital, you can also seek out help from experts. Connect with investors and investment mentors to learn about early-stage startups and pointers to make a final investment decision. You can also connect with venture capital firms to help you invest in early-stage startups.
How to Find Early-Stage Startup Funding Opportunities?
If you are new to investing, finding promising startups can be tricky. However, we have mentioned a few ways for you to explore early-stage startups for early-stage venture capital.
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Attend a networking event
Networking events are essential for investors and startups alike. You can connect with fellow investors to find early-stage startup funding opportunities. Many startup events, like the 21BY72’s Global Startup Summit, have pitching events for early-stage startups. Therefore, you can find startups with potential at such networking events.
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Join an angel network
Angel networks are connected with many early-stage startups for angel investment. Therefore, by joining an angel network, you can find trustworthy early-stage startups and investment guidance from experienced investors. A few well-known angel networks in India are IVY Growth Associates, Indian Angel Network, and Lead Angels.
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Connect with incubators & accelerators
Incubators and accelerators are home to many promising startups in the early and growth stages. These startups have initial validation and undergo training and mentoring, which are essential to success. Therefore, connecting with them lets you look for funding opportunities and track the startup’s performance.
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Explore online platforms for investors
Many startups use social media to connect with their audience and stay connected with investors. Therefore, you should be active on the internet and social media channels that are popular in your interest sector. It can also help you stay in touch with startup trends.
Conclusion
Early-stage venture capital is one of the most popular high-risk, high-return investments. Early-stage startup investment opportunities help you diversify your portfolio and invest in promising startups. You must consider the founding team’s talent and the startup’s TAM and find fellow investors to evaluate startups before investing. You can find promising early-stage startups by networking with investors, incubators, and accelerators and being active on social media. Attending startup events like the Global Startup Summit can help you find reliable startups.
FAQs
1. What are the benefits of early-stage venture capital?
The early-stage venture capital funding often offers high returns. Early-stage startups frequently have lower valuations, offering investors an opportunity to gain more returns in terms of funds and equity shares. Therefore, investors who can take risks usually invest in early-stage startups. These startups also present an opportunity to be part of a new trend in any industry.
2. What do early-stage venture capital firms do?
Early-stage venture capital firms invest in startups between the seed and series A stages. They provide the funds, guidance, and access to industry networks for the startups to grow. It helps the startup succeed and generate more returns for the investors. They also help startups secure further funding to grow and thrive.
3. How to start with early-stage startup investment?
Any investor can start their early-stage startup investment journey by joining an angel network or attending startup events. It allows you to learn about early-stage investments and how to find promising early-stage startups for funding. You can also connect with incubators and accelerators to be part of their funding rounds and find startups with potential. Diversify your investment portfolio to mitigate the losses.
4. Which are the top sectors for early-stage startup investment in India?
Healthtech, agritech, EV, clean energy solutions, and SaaS companies are growing significantly in India. The government’s support and initiatives are powering up specific sectors. Startup events like the Global Startup Summit allow you to find rising industries, participate in discussions about the growing markets in India, and find promising early-stage startups.
