Larry Page and Sergey Brin made the best search engine algorithm and called it BackRub. Later they changed their name to Google. They were students and did not have the money to build a company, but they knew their product was better than Yahoo or Excite who were the big players on the search engine market.
They did not even want to carry the project forward. They had other ideas they wanted to develop. They went to Yahoo and offered the algorithm for $ 1 million. "We are not interested." The same answer was received from George Bell, CEO at Excite.
"OK. We have to do it ourselves, "said the two. They found investors, bought servers and in a few years everyone used Google to search. Still, they did not have any income. And investors had to invest more and more money for infrastructure.
"Do not worry. We will find a way to make money if we have so many users. "
Investors lost their trust, patience and .... money.
Then Google launched AdWords and ... the rest is history. Now the company is worth over $ 400 billion and has revenue of about $ 66 billion a year. Yahoo is on a downward slope, and Excite has not heard anyone.
Angel Investing
Many businesses at the beginning of the road need capital and usually are not in a position to get a loan from the bank.
Why do money startups work?
Equipment, employees, marketing, raw materials or inventory.
This need for small business capital is an opportunity for investors. If the business seems to have potential, they can do all sorts of contracts with those who need investment.
1 To give them money with interest
2 To buy a percentage of the company
3 To receive royalties
Investors are not suckers. Their purpose is not charitable. They want to make money. But do not even fall into paranoia and think everyone wants to cheat on you.
Intelligent investors want to make a mutually beneficial business, not to mislead you. I'll explain why.
The happiest scenario for an investor is the one he invests in and then he does not worry about the deal anymore. He does not want to invest his time to put his shoulder to success because he knows you are a good and capable entrepreneur.
But there's another ingredient. Your motivation. Investors know that if they initially make a grasp for you, you will not be dealing with the same business.
Silicon Valley is renowned for this practice.
For an investor, startups can be a gold mine. And there are many examples of angel investors who put the shoulder (ie wallet) in their initial phases at Google, Facebook and then earn tens of thousands of percent.
Startup investments are risky
As in the golden chase, most of these investments are risky and can go quickly to zero.
There are many factors that lead to this outcome, and the most common is the lack of experience, the incompetence and even the arrogance of entrepreneurs.
Maybe they had a good idea, but they did not know how to put it into practice and build a profitable company. Maybe they started a business in order to sell it quickly. Most investors have a fine nose and quickly identify those in this situation, but there are some more naive people who are fooling betting on some people who do not understand the business world and lose all their money invested.
In this situation, he has to think about buying the whole business and setting up a new manager who can take the business to the next level.
Knowing this failure rate, most investors avoid putting all their eggs in the same basket and diversifying their investment portfolio.
I told you that the ideal situation for an investor is to work only the money for him. Make the investment and then begin receiving dividends without investing time. But in the real world it rarely happens like that.
In order to increase the success rate, experienced business investors help entrepreneurs by providing advice and access to the world of business knowledge, which means enormous for someone who is in the entrepreneurial adventure.
Investors can not be fooled
Some entrepreneurs expect to pocket some of the money the investors are pumping into their business.
In order to get a chance to get an investment, you have to present a good business plan, justify what you spend on the money, and if you put an expensive car for you, it does not look good for the investor. You'll probably get a diplomatic response: "Thanks for the presentation! We announce you! ".
It's hard to distinguish winning ideas from bankrupt ones. What would have happened if Google had not released Adwords on time?
How to invest in startups?
If you have not made any startup investments, I suggest you start investing in the stock market. If you're more attracted to angel investing, you have more options. You can do this online through specialized sites.
Angellist Unions - You can get into investment with the best investors.
Equity crowdfunding - there are websites where business projects are published for which funding is sought from regular investors. In exchange for money, shares are offered in those businesses. There is a small success rate in these businesses and I would not recommend them.
I invest in the stock market and I do not have angel investing experience, but the advice of Tucker Max (a well-known author, contractor and investor in the US) for the start-up investors is to use Angellist syndicates.
Thank you for writing this informative article. This is a very good reminder to us to take a risk in investing but being wise.
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Thank you, will be more about investments in upcoming days :)
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