Investment is a long-term goal and reaping immense profits out of it certainly makes things more interesting. But where to invest our money is something we are always trying to decide. The companies that have grown considerably large do not generally make large leaps from an investor’s point of view. And what about startups? Many investors look for investment opportunities in startups, especially the ones that are sure to make an impact in the coming future. But investing in any startup will not work. You will have to take into consideration several factors before giving your money to the rising firm. But before moving to these factors, it is important to look into details about the equity share meaning and the role it can play in the startups.
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Equity Shares Meaning
In simple terms, equity shares meaning can be defined in the following manner: when a company is looking for funds to expand its operations or simply to run, it looks for capital. Equity shares are one of the ways in which it can get the funds. The value of the company is divided into shares with an equal value where each share represents a unit of the company. For instance, if a company is looking to raise Rs 10 crores, it can issue 1 crore shares worth Rs 10. The investors interested in the company can buy these shares and become a part of the company’s ownership. The benefit of investing via equity shares is that whenever the company makes a profit, it will distribute it to its shareholders in the form of dividends.
This is the ideal way in which startups with little capital can get funds by issuing equity shares. Now that we are clear about equity shares meaning we can proceed with some of the tips that can help investors get reasonable equity shares in a startup.
The Idea Behind the Startup
As an investor, you would like to invest your money at a place where you think you can get lucrative returns in the long run. The general case with most of the startups is that they fail to deliver on their promise. So there is always a risk there. But the positive side to this is that the value of the shares of a startup is not that high either. Hence, you can always write your investment off when going for a startup. What you have to look for here is the idea that has inspired the startup. If you think it is going to work in the long run, then you can definitely put some money into it. But do not forget that the risk is quite high. So the amount you invest is an important point to consider.
Understanding the idea behind the startup is important before you invest in it
Type of Investment
When equity share meaning is put into the definition, it is pretty straightforward but when it comes to types of equity shares there are plenty of them. Authorized share capital, paid-up capital, issued share capital, sweat equity shares, rights shares, bonus shares and so on. It is important to figure out what type of equity shares are available for a startup and if it will be worth purchasing it.
Liabilities Diligence
A company with its assets have liabilities as well. It can be in the form of loans or any other dues. That’s why it is important to know about its book value. The book value refers to the worth of the company after all its liabilities are cleared off.
Cash Flow Model
It is a common thing with startups that their initial years are not without profit. In fact, most of the startups undergo heavy expenses in lieu of making profits in the first few years. As an investor, you have to keep this point in mind. Profit can only be expected in the long run and even then you will have to see its cash flow model and how much revenue the startup company is making and where the expenses are going.
Diversification
One of the things you can do as an investor is diversification of your portfolio even in the case of startups. There is no point investing all your money in a single place and that too a startup. If you are sure of growth prospects in the long run you can invest a good chunk of your money in that startup and split up the rest in other startups. Again the equity share meaning is to be kept in mind.
Expert Advice
If you are unsure about which startup to invest in then you can always take the help of experts. There are investment experts who will give you suggestions regarding which startup to invest money in.
From equity shares meaning to investment, you have to take into consideration several factors. Startups are risky affairs but with the right information on their operations, you will be able to know which startups are the ones to go for and which ones to avoid.