MoneyMagpie

Jul 19

The role of investors in growing startups

Reading Time: 2 mins

Before dissecting the pivotal role of investors in growing startups, it is important that we establish some facts here. Evidently, startups are critical to the economy of every country because they curb the worrisome challenge of unemployment. For instance, a 2016 EU report noted that startups are the engine room of region’s economy, creating 4.52 million jobs in the Euro area.  

In other words, if startups continuously close shops, it gives every government a cause for concern. The government aside, even citizens also bear the brunt. This is so because the crime rate would significantly ramp up in that society. With that said, let’s reel out some interesting startup failure statistics.  

    

Startup Failure Stats 

According to Small Business Administration, 20% of small-scale businesses fail the same year that they launched. The study also revealed that 30% of this same category of businesses collapses two years after their launch dates. In addition to that, some five years after certain businesses kicked off their operations, 50% of them would run aground. And finally, the U.S. government agency pointed out that a whopping 65% of startups would crash a decade after they started. Now, the question is, “Why do startups collapse?”

 

Why Do Startups Collapse?

Without mincing words, startups go under due to daunting obstacles. Although these startups face a myriad of challenges, we have identified the most destructive ones:

o   Poor Management

o   Lack of Unique Product/Services

o   Poor Risk Management

o   Paucity of Funds

o   Faulty Business Model

 

Changing the Narratives

More often than not, investors step into the picture to help early-stage startups have a sounding footing in their industry. By the way, some investors who have only started may use brokers’ services to make it easier to invest confidently with almost any amount of money. They just search which brokers accepts paypal and simply invest. 

Although early-stage startups come with different ideas and strategies, they always have the same mission. Well, the mission is to identify the peculiar challenges of the startups from the list of obstacles above.

By and large, in the context, there are 5 types of investors:

  1. Personal Investors: At this level of investment, startupreneurs depend on their loved ones and acquaintances to source funds with which they finance their businesses. Most times, the funds raised from this channel is negligible. So, it does not make much impact
  2. Investment Banks: Aside from personal investors, startups rely on investment banks to grow their businesses. However, their funds usually come with a caveat: collateral and interests. If a startupreneur is unable to meet this condition, the loan will be denied. Example, J.P. Morgan Chase, Barclays Bank, etc
  3. Angel Investors: Angel investors are individuals who are willing to invest a particular amount of money in a company based on certain terms and conditions
  4. Lenders: Additionally, lenders are groups willing to support entrepreneurs financially. Startups can access their funds through application, which is usually subjected to scrutiny
  5. Venture Capitalists: Venture capitalists (VCs) are high net-worth companies that are ready to spot opportunities and invest substantial amount of money in them. Upon investing the money, the VCs participate in key decision-making in such companies. 

 

Conclusion  

Wrapping up, for donkey’s years, early-stage startups have always banked on investors to grow. So in this piece, we discussed the fundamental ways that investors support them. Through financing and mentoring, investors have grown these businesses for decades. In the end, the burden on government is reduced, and we have a better society. 

 

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