No investor hits a home-run every single time they buy into an opportunity. In fact, investments not panning out are to be expected to a certain degree. What’s not as acceptable is not using every means at your disposal to try and minimise the risk of this happening. All investors should have a set plan for measuring and evaluating investment opportunities as they arise. Here are some key factors and thoughts that should go into this plan.
Measuring The Market
This is especially important for venture capitalists and wholesale investors, who are generally operating on a larger scale than your average angel investor. To give a bit of perspective, if a venture capitalist is talking about a major investment, they are looking to generate $1 billion or more in revenues. Returns of this size or in this general area are the only way that the investor is going to actually get the improvement to their investment portfolio they are looking for.
So, even if an idea sounds good on paper, you need to give some hard thought to the viability of the potential venture. Is it worth investing something that may be successful in a bubble, but won’t move the needle for your portfolio? To arrive at this conclusion, you can ask potential partners about the size of their potential customer base, while doing some market analysis of your own. You should also be thinking about long-term plans. Is this a company you could see yourself being invested in for a while, with the chance of getting the highest dividends?
Equally important when looking at these types of investments is risk management. As a start, even if the idea sounds good, is there a chance that legal issues could halt it from coming to fruition? Is the investment money you give going to be enough to carry it to this point? In addition, you should also know about what exit strategies are on the table if the venture doesn’t work out, so you can recoup as much of your investment as possible.
The Team Behind The Opportunities
It’s easy to get bogged down in the data and minutiae when it comes to trying to make a decision about an investment opportunity, but there is a personal element as well. Even the best idea may not end up being a good investment opportunity if there isn’t the right team behind it. Emphasis on the word team here, as even the strongest, most experienced person in the world can’t take a business from an idea to a successful reality solo.
So, when you are listening to a pitch from someone about a business, pay attention to both their passion and their past history in business. Do they have past experience in this particular niche? If so, what have some of their previous ventures seen in terms of success? Sometimes, having someone at the head of a venture who is relatively inexperienced isn’t always a bad opportunity. For example, they may have someone more experienced in a key mentorship or advisory position.
We mentioned before how important it is when measuring investment opportunities never to look at said opportunities in a vacuum. It’s essential to make sure that you actually see other options to compare your opportunity to others in key metrics like risk and possible return. This is where companies like PrimaryMarkets come in, serving as a global independent marketplace that lets wholesale sophisticated investors take part in secondary trading of securities and investments. In addition, we also help unlisted companies and trusts to raise new capital.