💸Risks associated with startup investing

Investing in startups is risky, highly speculative, and should not be made by anyone who cannot afford to risk the entire investment. Let's look at some of the common risks associated:

Principal risk: Investing in start-ups will put the entire amount of your investment at risk. There are many situations in which the company may fail completely or you may not be able to sell the stock that you own in the company. In these situations, you may lose the entire amount of your investment.

Returns risk: The amount of return on investment, if any, is highly variable and not guaranteed. Some startups may be successful and generate significant returns, but many will not be successful and will only generate small returns, if any at all.

Liquidity risk: It may be difficult to sell your securities. Startup investments are privately held companies and are not traded on a public stock exchange. Also, there is currently no readily available secondary market for private buyers to purchase your securities.

Why is due diligence important?

The economics of the idea must translate into real-world returns. Hence, one needs to critically evaluate the business plan and the model for generating profits and growth in the future.