Investing in private companies is not easy. These is risky, illiquid, long term investments, so you need to do a lot of work upfront to increase your odds of success. There are many people who have spent their entire years investing into private companies.
That’s the reasons it’s important to pay attention to such people who can give you an advice on a few approaches to follow as you invest in business. In this article, we have complied some of the vital things you should do before investing business. Read on!
TalkTo Customers
The more customer data you can get, the better. At a minimum, you should talk to three to five customers who use your product. You want to understand from users what is it to like about the product and what’s bad. Is there an alternative where customers say they would consider using in place of the product? Why or why not?
Customers come in three types. Promoters who are loyal, will recommend a company’s products and services and can help fuel growth; passives who are indifferent and easy pickings for competitors; and detractors who are unhappy and actively criticize. Pay attention to the types of customers a company has. It would be a good sign if you hear them actually promoting the products they’re using.
Understand The Growth
It is very important to know how the company is growing and how it will continue to grow. Dig deeper to know if the business has grown by acquiring distribution increasing sales at the store. Organic growth is far more valuable than buying growth.
Obviously, to understand growth, an investor has to dig into the key financial statements that is the balance sheet, income statement and cash-flow statement. In the consumer sector, you can ask for retail level sales.
Final Thoughts
Before investing in business, it’s important that you do your diligence. Ultimately, any investor needs to obtain as much information as possible about the business, the industry and the deal. There are no sure bets, but the more you know, the better.