Managing your startup investments can be tricky and sometimes chaotic.
What to consider when creating a collection of companies to invest in.
Return On Investment This is a long-term relationship. Startup investments have a long time horizon. Most startups usually take a minimum of at least 5 years to achieve any liquidity event.Dilution Companies will oftentimes raise multiple rounds to fund their growth. If you are an early investor, then your percentage ownership of the company may be diminished (e.g., diluted) when new investors are granted newly issued shares in the company.Follow-on Rounds Most startups raise multiple rounds of investment. You may be given the opportunity to invest in these follow-on rounds of investment, most often dependent on the terms of the offering.Monitoring Your Portfolio Startups that you have invested in should provide regular business updates (some of these updates may be a legal requirement of the offering). A good investment update will include information about the progress of the company, information about developments in the industry, any business challenges, and ways you (the investor) can help.Losses The majority of startup investments result in a total or near total loss of the principal invested in the startup. You should monitor the companies that you are invested into and ensure that you take a portfolio approach to investing in the asset class.Exits A liquidity event is the name given to an event or transaction that results in the liquidation of some or all of your shares into cash. Those startups that are successful usually provide a return to their investors through a liquidity event such as an acquisition or an initial public offering rather than through dividend payments.