Since the rise of Silicon Valley, startup companies have been disrupting tried and true industries, forcing them to quickly evolve or become extinct. These innovative and rapidly growing companies have made our lives easier than we ever thought possible – all at the click of a button. In doing so, their success has generated vast quantities of wealth. The investors who were willing to take chances on these companies in the early stages are now becoming millionaires practically overnight. However, becoming an investor is not as simple as it may seem.
Ara Chackerian’s experience in startup investing is primarily in the healthcare field. As the Managing Director of ASC Capital Holdings LLC, he works closely with healthcare companies that seek to revolutionize healthcare in the United States. He has been an angel investor for over two decades, and through the years, he has learned a lot of the ins and outs of investing in startups.
It is imperative to understand the risks and challenges of the industry. For starters, there are a vast number of barriers when selecting the right company for you. Here are some of the most common ones that investors report:
The startup they are considering may be too early in its development for the amount of risk they are willing to take.
They may like the ideas of the startup, but they believe that the company has no proven track record for success.
The price point or time frame does not make plausible sense for the company to prosper.
To be successful, it is necessary to understand your limitations and know when to step away. If the investment seems viable and the risk is worth the potential reward, moving forward may be the best option. The next step is to assess the type of return you are seeking. Depending on the stage when you get into the company, the investment type you make can vary. For example, seed and early-stage investors often invest in startups via convertible securities, which means that the investment amount will eventually convert into equity. Investors in later-stage startups typically invest in priced equity rounds. This means that investors purchase shares in a startup at a fixed price.
It’s important to remember that investing in a startup is not like investing in the stock market. With a startup, you have very little information available regarding performance and future outlook. You will have to do the research yourself and come to your own conclusions as to whether or not you believe the company and the team are poised for success. However, when deciding whether or not to invest in a particular startup, a lot of data is available. Don’t be afraid to reach out to other shareholders and the company itself to gather pertinent information. This information can help you determine if the company is a smart investment that matches your strategy.
To every investor: Be persistent and don’t give up until you are satisfied that you have all the data you need to make a confident decision. This will also act as a great way to determine if you want to work with this company once they have your funds. Many venture capitalists compare it to dating; if you are not getting along before an investment, then how are things going to be after you are in a serious relationship?
At the end of the day and by their very nature, startups are risky investments. For this reason, it is extremely important to keep your finances safe and only invest as much as you can afford to lose. Just like playing cards, you can study and practice to increase your odds for success, but you may lose everything or you might achieve exceptional returns . By taking calculated risks and keeping a conservative percentage of your net worth in venture capital, you can minimize your risk and maximize your return.
One last key piece of advice is to focus your investments in industries with which you are comfortable. Chackerian, for example, primarily invests in the technology enabled healthcare services, as it is an industry that he follows closely. He is knowledgeable about how telemedicine and digital assisted healthcare apps have the potential to bring tremendous value to the healthcare system. Chackerian understands the trends related to the field and finds himself consistently excited about new technology created in this sector. Therefore, he focuses on investing in this field.
When all is said and done, there is a lot of money to be made in early-stage investing. Just remember to always assess your personal level of risk, do your due diligence, and stick to industries with which you are familiar. Follow Ara on Twitter to keep up with his investment strategies.