When investing in businesses, most investors follow their own investment strategy that is based on their knowledge, experience and expertise as well as personal values. Here are some tips on creating own investment strategy:
- Company stage
- Market sector
- Business models
- Investment size
- Number of investments per year
When investing, it is important to account for risk. Getting return in investment may take up to 10 years, plus the majority of startups fail – so investors usually take the following precautions:
- Asset allocation – do not allocate more than 5-10% of your overall portfolio into alternative assets.
- Diversification – build a diversified portfolio of a minimum of 10-15 startup investments. There are some discussions about 19 being the perfect number of investments.
- Investment horizon – do not invest any capital which you are not comfortable having locked up for at least 5-7 years or losing.
Becoming a strategic investor is a great opportunity to contribute more than just money if the investors are willing to share their experience and expertise or opening up their network of contacts.
Follow On investment strategy is worth considering in advance. If you plan to take advantage of any rights to invest in future investment rounds, this investment strategy is colloquially referred to as keeping “dry powder” to make follow-on investments.
It is important to monitor your portfolio. Companies that you have invested in should provide regular business updates (some of these updates may be a legal requirement of the investment documents): information about the progress of the company, information about developments in the industry and any business challenges. The updates may also include requests for advice, assistance or strategic introductions.