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What investors should keep in mind when investing in startups

Switzerland’s thriving startup scene is open to investors of any kind. However, people who want to invest in startups do well to keep a few things in mind.

Startups are the innovation drivers of the future. No wonder more and more people want to put their money in the young companies rather than in traditional investments. However, anyone planning to invest in startups should be aware of a few things. 

Being aware of the risks

While it may be obvious, it still needs to be said: investing in startups involves major risks. Potential investors should therefore know exactly how much risk they are willing to take and only invest as much as they are willing to lose. Otherwise, unpleasant surprises may await them. The earlier you invest in startups, the higher the return when selling, but the higher the investment risk. Research has found that about 21 percent of newly founded startups don’t make it past their first year in business. Only about one in ten startups actually ends up having the success they had hoped for.

Keeping your investment goal in mind

Before investing in startups, you should think about what you expect from your investment. Do you want to sell it for a profit later on or earn dividends as quickly as possible? If you’re thinking about the latter, you should probably consider other investment options, because startups often don’t turn a profit for several years. Investments in startups are usually of a long-term nature and therefore entail a high capital commitment.

Exploitation of diversification potential

Precisely because investments are of a long-term nature and involve high risks, funders should think about the route they intend to take with their investment. While a large investment in a single startup promises a large capital gain if successful, a diversified investment portfolio can mitigate default risks and prevent total loss.

Not underestimating the time required

If you know how much you want to invest and what your investment strategy should look like, you can start looking for suitable investment objects. Finding the right startups for an individual investment portfolio requires a lot of information on business model, industry and growth potential. This research process is time-consuming and should not be underestimated. Although funders may be able to get information from professional networks to save time, this usually involves additional costs.

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