Starting one business from the ground up isn’t for all of us. Investing in other businesses as a venture capitalist can give you the opportunities to grow your equity while investing and aiding in a wide variety of industries.
In 2018, the software industry received the largest number of venture capital investments, with 1,501 total deals in the United States collectively valued at $23.5 billion. Other leading industries included business support services and biopharmaceuticals.
No matter the industry you’re most interested in, there are a few key factors to consider before investing in businesses.
- Business Funding and Lines of Credit
One of the most important things to consider when investing in businesses is their current profit margins. It’s also important to look at cash flow and lines of credit availability.
What if a business has extremely large contracts signed and ready to fill? These will prove fruitless if they go bankrupt before invoice day arrives.
Running any business requires large lines of credit. Unless a founder or CEO has their personal bank account linked to their business, corporate credit cards and lines of finance keep payrolls and business expenses afloat.
Companies including Etihad Credit Insurance and other insurance companies create revolving lines of credit for customers. This helps keep businesses afloat when delivery deadlines, supply costs, and invoice due dates don’t line up.
You can learn more about Etihad Credit Insurance and how businesses that partner with similar insurances may be a safer bet to invest in.
- Invest in Businesses You Understand
While investing in your favorite neighborhood cafe is enticing, it may not be the smartest option in terms of financial returns. If you have zero knowledge about the type of business you invest in, you won’t be prepared for the ups and downs of the business and potential temporary losses in your journey as a venture capitalist.
Investing in a marketing agency when you have a background in advertising management could be a smart move. In addition to providing funding, you can offer expert advice and be an extra ear for the company.
So what if you do decide to invest in a business industry in which you have little to no knowledge? Make sure that you connect with experts in all branches of the company.
Getting a grasp on how the business’s money is made is essential. Know their competitors and day-to-day pain points to prepare you for your mental and financial investment.
- Stability & History
Finally, the most important thing to consider before investing in a business is a business’s stability. This can refer to financial history and stability. It can also refer to leadership and the company business model.
This is a hard factor to consider. Start-up companies have short histories to review. Yet they offer lower entry to investing.
Investing in a start-up team with great promise or investing in a stable team that shows a rock-solid history are both wonderful options.
Investing in Businesses as a Source of Income
When investing in businesses as a future source of income, know that your return on investment won’t come extremely quickly. It’s important to view your business investment as an extremely long pay-off into an industry and business you believe in.
Investing in individual stocks can be a more easily accessible way to learn about industries you’re interested in investing in. Read more on our website to learn more about choosing and maintaining successful businesses today.