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Investing in newly born businesses is risky but can be lucrative. Some of the biggest companies of this century started as small startups that struggled initially for investments like Uber, Dropbox, etc. Investing in startups until recently was an option reserved for the elite who had loads of spare capital to invest in options with a degree of risk. However, with the changing era more and more people are looking forward to investing in startups for high returns.
To understand the risks and rewards of investing in startups let’s first understand what startups are and how do they work.
Startup companies can be defined as businesses or companies that are just limited to the initial idea stage. They have not yet developed a product, customer base or revenue structure. These companies usually fund themselves by the savings of the founder and the directors, bank loans, or by issuing shares in the market.
The most simple and basic method that crosses our mind while we think of investing in startups is handing over the seeding amount in return for equity shares.
It is estimated that almost a million companies are formed every year worldwide. The first investment for these companies is called seed investments which are usually provided by the founders, friends or the family of the founders and directors. The seed capital is low and allows the entrepreneur to prove the scope of his idea and its utility.
Once the company is seeded and the organization moves into operations and begins gathering initial revenue, it can be officially called a startup. This point of time is ideal for the founders to pitch their idea to potential investors in Dubai.
After the second stage when the company starts to grow and increase the revenue generated, the founders should look forward to gaining venturing capital (VC). Founders need to develop a proper business plan that dictates business strategy and projections. Venturing capital may be invested by an individual, firm, or private partnership.
The huge returns received by investing in startups are mainly because investment in Dubai in such companies involves high levels of risks. The first step of investing in any startup is to critically assess and analyze the business plan and model for generating revenue and growth in the future. The idea of the startup should be economically viable. Legal issues, taxation, compliance-related issues are some of the major problems faced by startups.
It is always advisable to invest in startups only if have the appetite for risks. While dealing with startups one must be capable of developing a portfolio in such a way that some investments in Dubai reap huge returns. One can create a beginner's portfolio by investing in Dubai about 5-10% of the total investments in illiquid assets.
If you are investing in Dubai in startups, it can be considered a gamble. Many startups fail to reach the stage of VC and practically only one out of thousand Startup Company manages to become billion-dollar unicorns of the industry.
Looking for rewards it is always best to follow the lead of more experienced investors. One should look for teams or founders that have experience in investing in Dubai and bringing products to market that generate meaningful sales and revenue. Investing in startups diversifies your financial portfolio which provides cushioning in the phases of financial instability.
Wrapping it up
Investing your hard-earned money in startups is very risky, but if you lower down your expectations you will get a clear idea of what real achievement appears to be in this realm. Investment journey via startups can be quite challenging but the scope for huge profits is considerably higher when compared to other forms of financial investments in Dubai.
Before investing in Dubai your earning you should always do some market research. Always choose startups with a robust portfolio and economically viable business plan which is practical as per the current market scenario.