Your Ultimate Guide to Finding the Best Startups to Invest in
Sarah Cheeseman, 01 JUNE 2023
Finding new and exciting opportunities to invest in can be a complex and overwhelming task. With over 750k new company registrations between March 2021 and March 2022 alone, there are endless opportunities out there for investors—but how do you know which are the right ones for you?
In this guide, we’re taking a look at what steps to take to find startups that fall into your preferred investment portfolio, as well as how you can effectively review and value companies for the best possible results.
Why invest in startups?
The most common reason that investors choose to put money into startups is that they tend to bring back better returns than more traditional forms of investment. And while this may seem like a no-brainer, finding the right startups at the right stage in their development isn’t always easy, and it’s pivotal. There are a number of steps to take in the search for the ideal startup to invest in.Â
1. Establish what kind of investor you are
The first task is to properly identify the type of investor you are; an angel investor, an incubator or accelerator, a venture capitalist (VCs) or something else. Angel investors tend to have a very high net worth, providing financial backing for small startups and entrepreneurs. The aim of most venture capitalists is to provide financial backing to companies that are predicted to have a huge amount of growth, regardless of what stage they’re at in the business.
It’s also key to understand what niche you fall into as an investor. Narrowing down the search to a specific market or segment that suits your portfolio requirements, your area of expertise or even passion, makes it easier to find the companies in which you can add the most value.Â
2. Analyse interesting investment opportunities
Once your target niche has been identified, the next step is actually to find startups that are looking for investment. Our recommendation is to use a tool like BeauhurstInvest to carry out the initial stage research, gathering all the information you need about things such as:
- Company information
- People information
- Equity raised
- Announced and unannounced funding
- Ordinal number of investments received
- Time since last fundingÂ
Once you have selected a short-list of companies, it’s time to dig a little deeper. Most companies that are looking for funding will host investment pitches, giving you the opportunity to ask questions on a more qualitative basis, such as:Â
- How relevant are the team’s backgrounds to what they’re doing now?
- How much do you trust the founders?
- What are their motivations within the industry? What are their goals? Are these realistic?
- Who are their competitors? What sets them apart?
- Does their business model make sense?Â
- Where can you create additional value?
- Have they received funding already? If so, how have they used these funds?
- Are there any indicators of how their product will be received by their audience?
The answers to these questions will be vital to whittling down your list of potential investment opportunities, helping you to decide which will bring back the best possible returns.
3. Complete your due diligence
When you’re close to making a decision on your investment opportunity, the next stage is to conduct final-level due diligence. Here are some of the key areas you may want to look into:
- Cash flows
- Valuations
- The founding team and their backgrounds
- Past company’s performance
- Path to exit
- Product traction in the market
- Funding requirements and business plans
- Risks (both industry-wide and company-specific)
4. Finalise the details
The final investment deal that’s built should be beneficial to both parties,Â
with a clear outline of what’s being provided by the investor and what’s expected in return. Seeking legal advice when constructing and finalising an investment deal is advised.Â
Understanding your return on investment (ROI) is probably the most important metric for this entire process, but it can be difficult to estimate. The calculation itself is quite simple (net profit / cost of investment x 100), however there are various factors that go into this which can make an investment seem more valuable than others. This can include the length of time over which you’re expecting to see returns and at what percentages. VCs tend to expect around 20-25% return per year, but this is something that should be outlined within your investment deal.Â
Finally, you’ll need to determine your exit strategy. During your due diligence process, you should have garnered a good idea of the business’ overall exit strategy and how they’re thinking ahead for future planning, and this can give you a good basis for how and when you expect to exit. Whether you choose to sell your stocks ahead of the founders, or work with them on a more permanent or long-term basis is completely up to you, but this is definitely something you should have a broad idea of from the start.Â
How Beauhurst can help
Locating and analysing accurate, up-to-date information can be an incredibly lengthy process. This is heightened if you’re bringing your own finances into it.Â
We developed the BeauhurstInvest platform to take the speculation out of investing—and to provide our clients with accurate, trustworthy data to enable sound investment decisions.Â
From funding rounds to accelerator programmes, finances to directorships, we collate millions of different data points from every private company in the UK, allowing you to segment it in any way you wish and find the right companies for your needs.
Take a look at our blog to find out more about how you can use the BeauhurstInvest platform to find updated and accurate lists of companies that need funding in the UK.Â
If you’d like to find out more, book a demo or get in touch with a member of our team today.
Find your next investment.
Get access to unrivalled data on all the companies you need to know about, so you can approach the right leads, at the right time.
Book a demo today to see all of the key features of our platforms, as well as the depth and breadth of data available.
An associate will work with you to build a sophisticated search, returning a dynamic list of organisations that match your ideal customer profile.