Questions Investors Should be Asking Before Investing in a Startup
Taking a risk on investing in a startup can pay off with significant returns, but every venture has its risks. With startups, there is no guarantee the business will take off, and, if it fails, investors could wind up with nothing. If you’re looking for investors for your new startup, it’s important that you are prepared and can answer some of the more common and important questions you may get from potential investors.
In addition, you also need to ensure you are complying with all securities laws and regulations at both the federal and Florida state levels. Speaking with a Florida securities lawyer is highly recommended. At the Law Office of Clifford J. Hunt, P.A., we can provide a wide range of securities law services to help your startup. We also can assist with a variety of business law needs when forming a new Florida business entity. In the meantime, here’s a look at some of the most common questions investors might want to know before investing in your startup.
What Level of Involvement are You Requiring?
The level of involvement you will have in the business is directly tied to the investment type. For example, an angel investor is granted an equity stake that allows them to partake in making decisions, whereas an investor who helps fund a startup’s crowdfunding campaign would have equity shares, but there wouldn’t be the same type of control as with an angel investor.
What is Your Expected Rate of Return?
Investors generally want to help new startups, but the desire to make money in the deal is also a fundamental reason they choose one startup over another. Investors want to analyze the projected ROI, or return on investment, associated with your startup. When looking at estimated returns, investors will want to know the fees and/or costs associated with this particular investment, like fees for the crowdfunding platform or annual management fees, etc. The higher the expenses, obviously, the less potential returns there are.
Do you Have an Exit Strategy in Place?
Investors will be wanting to know how and when they can withdraw their initial investment, along with any potential gains that have accrued. If you don’t have a plan in place, investors will not be comfortable investing when they are unsure when and how they will have access to receive their initial investment back.
Do You Have Real Customer Testimonials?
If you are selling a product or service, investors want to know whether or not it really does work. If it’s too early for real customer testimonials, you may have a harder time convincing some investors to place their trust in a product that has no proven success.
Are there any Challenges to Intellectual Property or Pending Lawsuits?
No investor wants to get in on what seems like a great investment only to find out that someone or some other company is challenging the intellectual property rights. Be prepared to answer questions about intellectual property rights and any pending or concerns regarding litigation related to your startup.
Contact a Florida Securities Law Attorney
If you need assistance with your start up, contact the Law Office of Clifford J. Hunt, P.A. in Florida at 727-471-0444 to schedule an initial consultation.
