Startup Investing Risks
SeedInvest
It is important to be able to identify and address startup investment risks before making an investment. Here is a breakdown of the main types of risks you should be aware of.
Personal Risks Many angel investors have found a startup’s founding team to be one of the main ingredients determining the performance of the company and hence their investments.
Market Risks Regardless of how promising the product is, there is no guarantee of broad customer demand for a company’s offerings, especially if competitors offer existing close substitutes, or consumers may not be ready for the product’s level of sophistication.
Security Risks Different types of instruments (preferred equity, common equity, convertible notes) all have different inherent risks unique to their structures and natures that you should be aware of before investing.
Investment Risks Given the highly volatile nature of startup investments, the entire amount of your investment will be at risk. The potential for a total loss of capital is high for many startup investments and you should refrain from investing unless you can bear the entire loss.
Business Risks Since many startups have a high potential for disruption and venture into emerging industries, there may be some regulatory challenges involved in their sectors or possible issues on intellectual properties.
External Risks The company and/or its suppliers’ locations may be sensitive to natural disasters, season volatility and/or pollution problems that could disrupt operations.