Assessing Your Startups Riskiness for Investors

How do I assess the investment riskiness of my startup?

To help you best assess the investment riskiness of your startup, we asked successful startup founders and business owners this question for their best insights. From assessing your revenue drivers to examining the quality of your backup plans, there are several things to look at when assessing the risks involved with investing in your startup.

Here are seven best tips for assessing your startup’s riskiness for investors:

• Assess Your Revenue Drivers
• Clarify Your Goals To Help Understand Your Risks
• Analyze Your Strengths and Weaknesses Against Competitors’
• Research and Analyze Your Market Thoroughly
• Assess The Authentic Value of Your Product or Service
• Compare Your Risks To That of Similar Companies
• Examine The Quality of Your Backup Plans

Assess Your Revenue Drivers

Startup risk is a function of how certain your cash flows are and whether you have backup streams of revenue in the event those cash flows fail. To assess this risk, look at your business model and identify the key drivers of revenue. For each driver, assess how likely it is that it will perform as expected by looking at companies that are further along that have achieved similar milestones. From there, estimate your revenue conservatively, and hedge against that risk by preparing for worst-case scenarios.

Matthew Ramirez, Rephrasely

Clarify Your Goals To Help Understand Your Risks

When assessing the investment riskiness of your startup, it is important to first understand what you are trying to accomplish. This can be anything from making a profit to achieving market success. Once you have an idea of what your goals are, you can begin to assess the risk associated with investing in your venture. 

Some factors that may influence this include: the stage of development your business is at; whether or not there has been any prior success; how much money you're risking on each iteration of development; and overall ambition and focus within the team behind your project. By understanding these risks upfront, it will be easier for you to make informed decisions about whether or not to take on additional financial risks.

Paw Vej, Financer.com Ltd

Analyze Your Strengths and Weaknesses Against Competitors’

Whether your investment is at risk or not depends on the product you're getting the investment for. Analyze your competitors in the market to see how unique your product is or how common it is in the eyes of the customers. Just because your competitors are small businesses, doesn't mean it doesn't count. Whether it is a small business or a big one, it does count in the investment riskiness.

Being a start-up on your own, you have to be very sharp with your products and their quality so that you can avoid any mistakes in the future. Since you're competing with big brands, even a small mistake can put your investments at risk. If you've no idea how to analyze, have a SWOT analysis. Defining the strength, weaknesses, opportunities and threats actually works and will give you the potential of your products and services.

Meera Watts, Siddhi Yoga International Pte. Ltd.

Research and Analyze Your Market Thoroughly

Investing in a start-up may prove to be rewarding in the future, but where you’re dreaming of fat profits, don’t forget to take notes of the risks involved. Before pouring all your money down the line, research your market thoroughly, and ask yourself this question: Will people buy my products/services? No matter what – that’s the biggest risk you need to assess. 

My suggestion is to analyze the market thoroughly. Dissect the go-to CAM (customer acquisition model) in your market, and calculate how the efforts are churning out. For instance, If you're a SaaS subscription-based business, you’re at less risk because of the recurring per month revenue. But, still, will you be able to acquire new subscriptions, and retain the existing ones with the current CAM? These are the questions you need to explore to assess risk management.

Scott O'Brien, PPC Ad Lab

Assess The Authentic Value of Your Product or Service

Risk assessment is crucial before you even think about investing in your start-up. Most new start-ups fail within 5 years because they are unable to assess whether the possible returns outweigh the risks involved.  

If you’re ready to dive in, the first step to risk assessment, in my opinion, is evaluating your product/service. That’s the number one risk assessment. Will your product be a healthy addition to the market? Is it reliable? Is it better than already existing products/services in some way? Because guess what, you can pour in all the money you can ever have, but if customers don’t want your product, it’s simply a loss. Assess by testing your product/services, doing demo launches, and getting reviews from the customers. If your product is worthy, you’re usually at lower risks.

Robert Warner, Virtual Valley

Compare Your Risks To That of Similar Companies

The investment riskiness of a startup is determined by a number of factors, including the industry sector, the stage of development, the management team, and the financial situation. One of the best ways to assess the investment riskiness of your startup is to compare it to similar companies in terms of these factors. For example, if your startup is in a rapidly growing industry and has a strong management team with a track record of success, it may be less risky than a comparable company in a more mature sector with less experienced management. 

Another important factor to consider is your startup's financial situation. If your company has a large amount of debt or is highly leveraged, it will be seen as riskier than a company with no debt and a strong cash position. By taking all of these factors into account, you will be able to get a clear picture of the investment riskiness of your startup.

Jim Campbell, Wizve - Digital & Affiliate Marketing Agency

Examine The Quality of Your Backup Plans

Investment in your own start-up can prove to be rewarding, but you’ll need to look at the broader picture. In the early stage, you might be able to afford operational costs with your own investment. But what if you fail to achieve your sales goals to raise enough capital, to keep running your business? Do you have any backup plans or evidence that you can show to your team to keep their morale high, too? Even if you’re thinking of going to investors, they’ll want a strong growth plan, since they want to secure their returns. Keep the financial risk at the top of your mind, and don’t insert the fork in unless you have a backup plan.

Joe Troyer, ReviewGrower

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