Startup Investing Red Flags

In a few short days, the floodgates will be opened and members of The Boardroom will be given private access to invest in one of the most exciting startups we’ve seen all year.

So exciting, in fact, we committed to a massive $100,000 investment after hearing their pitch last week. 

Now we don’t open the checkbook that wide for every startup that comes our way…

The truth is… we say no to most startups that approach us. 

But we saw something special in this one…  


  • Has created the first global home rental platform; an end-to-end solution for renters and landlords.
  • Grew its user base by 200% in 2019.
  • They’ve already been approached by a $5B company for acquisition.
  • They project 2020 revenue of $5M.

Is investing in startups a gamble?

They could be…

But that’s only if you don’t conduct due diligence…

You see, once we weed out startups for any glaring red flags (founders with no skin in the game, company cash flow issues, ballooned valuations…), we take the most promising startups through the next stage of the vetting process…

The cream rises to the top and Boardroom members get first dibs on investing alongside us. 

That’s how it goes down inside The Boardroom

To give you a more detailed perspective of our vetting process, we’ve put together a little cheat sheet for you. 

You’ll learn the current state of the startup investment space…

But more importantly, the essential ingredients of what makes a startup investable vs. one that’s toxic.


Startup Investing Basics: Things to look out for


Today, most startup investors operate on equity crowdfunding platforms. These are highly regulated sites that bring investors and entrepreneurs together.

These platforms facilitate a simple exchange of capital for equity. Investors give money to startups and in return, gain ownership of a fraction of the business.

This type of investing is relatively new. It falls somewhere between Kickstarter funding and traditional angel or venture capital funding.

What makes this special is that anyone can get involved — the barrier to entry is incredibly low. 

With these angel investing platforms, you can invest as little as $100 in high-growth potential startups in just a few clicks. 


A Brief History of Equity Crowdfunding


Before 2016, angel investing was a high-roller’s game. 

To be an angel, you had to be accredited. This meant that your net worth had to exceed $1 million. Alternatively, if your income was higher than $200,000 for two years straight, you could qualify.

But, with Title III of the JOBS Act, non-accredited investors could take part in startup investing through online crowdfunding platforms.

Needless to say, once anyone with a few hundred lying around had a shot at the insane returns on angel investments, the landscape changed forever.


Regulation Crowdfunding: A Game-Changer


As you may already know, seed investing (startup investing) is the asset class with the highest average returns. Nothing competes with startup investing in terms of wealth creation

Low-risk, low-reward investments are essential for maintaining wealth and beating inflation. But, nothing has the potential to create generational wealth like high-risk investments such as angel investments.

This is probably why you’re here — you want to grow your wealth and have fun doing it. 

Let’s be real, you probably don’t have a million in the bank to start investing. Most don’t. 

This is why you need to learn the ins and outs of equity crowdfunding. With a small amount of capital, you can break into the best-kept secret of the financial world.

I’m going to show you how to invest in equity funding and how to avoid the pitfalls that new investors usually fall into. Buckle-up, and let’s go.


How to Invest on an Equity Crowdfunding Platform


Here’s the gist of it. Once you find the right platform and a startup of your liking (which I’ll cover in the next section), you will have to navigate through these steps to place your investment.

  1. Sign up with the platform — go through the process of setting up your account so you start investing.
  2. Study the startup’s page. A strong startup should have videos, a background story, frequent updates, a FAQ section, and downloadable information. 
  3. Pay special attention to the crowdfunding minimum and maximum values. This can show you how far along the company is and give you a sense of how many investors are backing it.
  4. Check out the minimum investment amount and make sure the price works for you. This can range from $100 up to thousands of dollars.
  5. See the startup’s valuation. This, combined with the amount you plan on investing, can show you approximately how large of a share you can obtain (more on this below).
  6. Make sure you understand what type of investment you are making. Startups may offer stock, future equity agreement, or convertible notes.
  7. Once you are satisfied, you can simply type in your funding price and click to make an investment.


The Catch: Startup Red Flags


In your angel investing quest you may face many hardships. The landscape is rife with traps and mirages.

If it were easy, the returns wouldn’t be so high! 

Luckily, wise angel investors can dodge these obstacles, conquer, and secure their loot.

Don’t worry, with a little bit of advice, you can increase your chances of success greatly.

Here are some common red flags to look out for:


Unreputable Platforms


Angel investments aren’t short-term investments. Even if you find a successful startup, you likely won’t see a return for a few years.

This is why it’s essential that you find a platform with a long-standing reputation for integrity and stability. 

There have been circumstances in the past where websites fail either for financial reasons, legal issues, or mismanagement. Trust me, you do NOT want your money tied up in that kind of a mess.

One of the most important things is finding a company that conducts proper due diligence on companies before offering them to users. Sites that have a well-documented process for their startups are the best.

It doesn’t take much — just a few minutes of research into the platform’s history and practices will save you loads of trouble down the road.


Startups Without Networks


Especially in equity crowdfunding, the community is king. Not only should founders have a network of colleagues and entrepreneurs to collaborate their value, but the startup itself needs a following.

Before and during crowdfunding, a smart founder does whatever they can to build up a community around their product. Early-adopters, healthy social media accounts, and successful marketing campaigns are all a good sign.

Not only with a startup’s network help to fund the venture, but it will turn into a customer base when the product goes live.

If a startup has a serious lack of followers or online presence, its chances for success are quite low.


Inaccurate Valuations


The valuation of the startup is essential to your investment. 

Low-valuation means you get more bang-for-your-buck, gaining more stock for less money. High valuation means you will get less of a percentage per dollar, but the company is valuable and likely further along in its journey. 

Both of these can be advantageous to an investor — you just need to have the correct info before you invest.

And here lies the problem — startups on crowdfunding platforms can often give you an inaccurate valuation of the company!

Fear not, it’s actually quite simple to check if a valuation is realistic or not.

Step one is to compare the startup to a similar company. Seeing the valuation of a competitor in the same industry is a great starting point.

Next, check out the market potential. The larger the potential market, the more growth-potential (upside) the startup has. Big upside means big valuation.

Finally, the leadership of the company is another indicator. More experienced and capable teams are an asset to the company. The more battle-tested the team, the more the company is worth.

Long story short, with a bit of practice and mindfulness, you will be able to tell if a startup’s valuation seems too high or too low. If the valuation is off, there is either a lack of transparency or mismanagement of financing. 

Of course, you want to avoid investing in startups like this.


Use of Buzzwords


If you feel yourself being roped in by common startup jargon, it’s time to get serious and see what substance is behind it. 

You don’t want to be wowed by the story alone or by the scope of an idea. Market analysis, financial goals, and transparency are much more important than what’s trendy and exciting. 

Don’t trust in the use of buzzwords — read the rest of the page and see if there’s anything to back them up.


Boosting Your Chances for Success


Now that you understand how regulation crowdfunding works and can see the common pitfalls that surround it, you’re ready to take things to the next level. 

As you play around with these platforms and start making investments, you will rapidly learn how to spot a good deal and avoid a bad one.

There is no pressure because you can invest at your own rate and price. 

If you are looking for the best way to get into this type of investing, you should look into angel investing communities. These networks can bump up your deal-flow with hand-picking startup opportunities.

Also, for new investors, communities offer educational resources in the form of online classes, instructional videos, and collaboration with other angel investors.

Angel Investing Insider is our solution to addressing all of the difficulties of entering into the world of angel investing. With this package of educational content, deal-flow, and online community, you can accelerate your growth and begin building wealth today.

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