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How to analyze the market before investing in a startup

Investeren in een start-up
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Investing in a startup is not risk-free. Often, it is these new businesses that manage to reach multi-million profits, which exactly what many investors are looking for. However, in many occasions these businesses never manage to become established or make any profit. How can we invest with minimal risk? In this post, we are going to reveal some criteria that are worth taking into consideration. Thanks to these criteria, you can ensure that your transaction is as risk-free as possible.

Factors that will indicate when to invest in new businesses

These criteria will give you the signal that the time has come.

Assess the market

Measure two aspects:

  • Tangible. These include aspects such as the turnover or profits that the company is accumulating.
  • Intangible. These refer to its forecast for the future.

Make an analysis, as accurately as possible, to determine how much this company might come to be worth.

Comparison with other startups

It is particularly useful to know whether the company that you are going to invest in really stands out from its competition, and why that is so. The more different it is, the more it will be worth. Provided that it is offering good ideas or an innovative, useful aspect for consumers, of course.

Market concentration

Sometimes a company can come up with an appealing idea that may be beneficial and have a future. Despite that, it may never manage to get off the ground at all. This may be down to several reasons. One of them is market concentration. When most consumers are opting for very few brands in a particular product or service, it is very difficult to compete there, mainly because that market is already established and is concentrated in just a few hands. However, if the consumer type is spread over a wide variety of brands or options, there may be hope.

That’s why you need to measure market concentration and focus on those segments where there is greater dispersion. There is more reason to invest in a startup there.

Market penetration

How many companies are ahead of the one that you want to invest in? In other words, how does it rank compared to the competition? Market penetration refers to the company’s level of knowledge and, at the same time, the list of competitors that have already made a dent in that market. It is easier for a company to become successful and to climb if it is the first to reach the market, and much more difficult if it is among the last. So, take this factor into consideration as well, as it will make a very significant impact on the potential development of the startup.

You now know some of the main criteria for investing in a startup. As you can see, information is essential and to understand the context you often need to master the language in which it is produced. If you need to translate documents to get an idea of what potential a company may have, please contact us.

This post is also available in: Español (Spanish) Français (French) Nederlands (Dutch) Deutsch (German)