Investing in the right early-stage startups can provide investors like you with long-term returns.
But choosing which startups to invest in can be extremely risky, which is why many investors are wary of investing in them.
With that in mind, this article explains the benefits of investing in early-stage startups and the ten best startups to invest in 2023.
Benefits investors get in investing in early-stage startups
Investing in startup companies is risky. Most early-stage startups do not make it. 20% of small businesses in the UK fail in their first year, according to research by Fundsquire, a global startup funding network. And in their first three years, small businesses fail at a rate of about 60%. As a result, losing your entire investment is a real possibility.
But if the startup succeeds, it will yield high returns on your initial investment.
And because early-stage startups provide investors like you a portion of their equity in exchange for their investment, you’re in a position to make decisions and offer advice to scale. Each time they do, so do your returns.
One example of a successful startup story is Google.
In 1995, Google’s story began at Stanford University when Sergey Brin was assigned to show Larry Page around the campus. According to some people, they disagree about almost everything during that first year. However, by the following year, they formed a partnership. They created a search engine that assessed the importance of individual pages on the World Wide Web. Backrub was the name they gave to their invention, but eventually, it was changed to Google.
The term Google was a name play on the mathematical expression for the number “1 followed by 100 zeros” that later on reflected Page and Brin’s purpose “to organise the world’s information and make it universally accessible and useful.”
After a few years, Google caught the attention of the academic community and Silicon Valley investors. In August 1998, Sun co-founder Andy Bechtolsheim wrote Page and Brin a check for $100,000, and Google Inc. was officially born.
Google has become the top search engine used in the world today because they are using advanced algorithms to show the most accurate results to users.
Due to their use of sophisticated algorithms to provide consumers with the most accurate results, Google has grown to become the most popular search engine in the world today.
But then, always remember that other special risk considerations must be considered when considering a new investment in a startup.
Things to Look for When Choosing an Early-Stage Startups to Invest In
1. Product & Market Demand
More customers and/or purchasing frequency is an essential commercial distinction to emphasise. An investor won’t be interested in funding a product with a small market of potential buyers.
The more extensive and reliable a startup’s customer base is, the stronger its competitive advantage.
When choosing startups to invest in, investors should look for startups that can scale up quickly and manage their high growth scale. With accurate financial predictions and a plan to incorporate several revenue streams, investors must understand that the company can create considerable profits beyond the original product idea.
2. Business Plan Strength
Investors are always looking for a distinctive and well-thought business idea.
Investors want founders that are at least realistic about the future of their business and not overly hopeful but with a goal for their business and a plan of action to get there.
A business plan should include:
- Their chosen market, along with data to back up why they chose it.
- Sales channels, with data to back up why they’ll be effective.
- Marketing strategies and objectives with well-researched data.
- Competition analysis for their product or service.
- Projected timeline for the potential start of their earnings.
- Potential roadblocks and strategies to overcome them.
3. Core Team’s Background and Leadership
According to Piero Grieco, a finance professional who started qualifying as an ACA with Deloitte and then built a 20-year career at an investment bank, one of the lessons a successful investor needs to go through is patience.
“The first lesson it taught me was to have patience,” Grieco says. “Take time to find the companies with great potential, not just good and take the time to get to know the founders and get the answers to your “hurdle” questions.”
A potential investor will always want to know if a startup’s staff is well-positioned and driven to create and carry out a strategy and establish itself as a market leader.
Startups are challenging, and investors want founders who can perform and see the company through its highs and lows.
Startups must have a proof of concept to show investors, which validates the commercial viability of the idea. They must show will hit the ground running or have already done so.
When startups show investors that they’re not just talking, taking action to expand their startup business is crucial to de-risk an investment opportunity.
Startup founders must throw actual data (such as key performance indicators) that supports their arguments to demonstrate their team’s dedication and initiative in bringing things to fruition.
KPIs allow investors to understand the health and performance of the startup so that they can make necessary adjustments to achieve their strategic goals.
5. Existing Investors
Investors also note whether the startup has yet to or has already secured investments. There is a psychological draw for the latter case: people do not want to be late or miss the party altogether.
Financial counsellors and money experts claim that many consumers have purchased “hot” investments like cryptocurrency, meme stocks, and SPACs because they fear missing out, or FOMO.
Top 10 Startups to Invest In
Here are ten up-and-coming early-stage startups to invest in and include in your portfolio in 2023.
1. Young Planet
YoungPlanet is an app that lets parents prevent their children’s unwanted items from ending in landfills by sharing them with new families.
At the forefront of the circular consumer economy in the UK, YoungPlanet specifically enlists parents as the household champions of the developing linear to circular transition – digitising and scaling the age-old practice of ‘hand-me-downs’.
YoungPlanet’s mission is to become the first truly global circular platform with the breadth and depth of eBay. It launched nationally in October 2021 in communities across the UK and has had over 150,000 users, demonstrating that #ParentsGetIt.
Skyfarer is the key to opening up massive drone operations on a local, regional, and global scale. They licence a patented software solution for commercial logistics, inspection, and emergency surveillance operations from a centralised location that enables many drones to be utilised efficiently.
Skyfarer won a £250,000 Innovate UK grant to develop cutting-edge software for the uncrewed aerial vehicles industry. To commercialise the technology, Skyfarer sought £360,000 worth of seed funding and required support to expand its offering and become investment ready. Its revolutionary initiative could reduce waiting times for medicine and reduce traffic congestion and, consequently, CO2 emissions, making it a great startup to add to your portfolio.
Blocksure is a full-service policy administration system that will integrate with proprietary systems. Its the only DLT and innovative contract solution implemented in multiple geographies.
Blocksure’s uniqueness stems from its deep knowledge of the operational insurance ecosystem and its application to build a platform for low-cost microinsurance delivery via an intermediated supply chain.
It’s an excellent startup to invest in as it enhances the consumer experience while delivering significant cost savings. Back-office expenses are reduced by up to 90% thanks to trusted blockchain records, real-time payments to all stakeholders, and no human processing.
Blocksure OS is backed by an experienced team of insurance specialists and technologists focused on solving real-world problems and guided by the following principles: mobile, once, real-time, and secure. Today, Blocksure has clients in the United Kingdom, the United States, the Middle East, and Southeast Asia.
Collabed is an online recruitment platform with an attached industry-specific social network.
An industry-specific pool of possible employers who match their skill set, region, and professional requirements is accessible to applicants who sign up for their job board.
Meanwhile, recruiters can also find an employee or an entire team with the optimum tools on the best construction-based network to find suitable candidates.
Collabed aims to be the go-to recruitment platform for the construction industry within the next four years, offering quality candidates quickly and at a reasonable cost.
One of the reasons that makes Collabed one of the top startups to invest in is its proven success. A crowdfunding campaign was run last April 2021, and a total of £6,200 was raised from Collabed’s community to launch the website. Since launching the website in May 2021, over 12,500 sign-ups to social networks or job boards.
In 2020, construction recruitment is projected to be the fastest-growing, and it aims to exit via a trade sale in 4 to 5 years.
Cahootz aims to make investing in real estate easy, transparent, and accessible to everyone.
It uses fractional ownership to enable users to buy, hold and sell the property as quickly as stocks and shares.
Investors buy shares in managed buy-to-let property that entitles the owner to relative rental income and capital appreciation.
The Cahootz app lets you keep tabs on your real estate portfolio, get property updates, and see new investment options. You can also earn a passive monthly income whilst they take care of legal, tenant and property management on your behalf.
Metatalent aims to support workers worldwide in keeping up with new technological developments and changing employability skills. They equip, transform, and upskill learners with information and skills that promise to change their lives and enable them to succeed in the changing corporate landscape worldwide.
Metatalent also provides various progressive internship and apprenticeship programs that include instruction, mentorship, coaching, and practical experience. Their programs can also be chosen and finished remotely, on-prem, or on a hybrid model by using virtual offices in the metaverse because they have been adjusted to the “new normal” of work.
Metatalent.ai is EIS/SEIS-approved. That means it provides investors access to tax advantages on their investment. This also lowers the investment’s risk profile. To ensure equitable opportunities for all, diversity is a central concept among their clients and employees. Within the next ten years, it is possible to exit through an IPO, following the trend lines of similar competitors in their field.
7. Bandi App
A clothing-swapping software, Bandi, was created to address the world fashion issue – to stop the waste that fast fashion causes. A community was developed where people with similar body types and fashion preferences can connect and trade pre-owned clothing to build a better wardrobe.
Suppose you’re passionate about sustainability, slow fashion, and live the thrifter lifestyle. In that case, Bandi is an excellent startup to invest in, having a more significant opportunity for fighting back against fast fashion.
Univy is an aggregator platform for content providers who want to monetise their content online. The virtual live event or pre-recorded content is created, managed, hosted, and monetised by Univy while being sold on the Univy marketplace. Investment to date has come via the founder and a pre-seed round of 94.5K. It has been spent on the MVP and pushing out initial platform awareness.
Exoshock, the first risk management platform that helps businesses comprehend how global economic changes will affect them, is making risk management and long-term planning more efficient.
It demonstrates the extensive effects of external shocks, helping organisations to recognise risk, prepare for potential outcomes, and understand how global resource constraints will affect their industry. Their unique risk modelling platform is efficient and recognised as valuable by insurance businesses and a broader range of sectors. They’re also raising an initial £500K and now promise £50,000 en route to £ 2 million.
Kanopi is a browser extension that helps users to save the planet and their money while shopping online.
Its software helps large organisations to engage and support suppliers and stakeholders under one collective sustainability initiative. It provides a solution to simplify your operations. Whether you’re searching for a more cooperative approach to supplier monitoring or want to better support the environment among your consumer base.
Kanopi is a great startup to invest in, currently raising a pre-seed round of £100,000. They have senior advisors from the United Nations and exited voucher companies. They also have high-profile brand partners, including Amazon, Nike, eBay, and more.
Researching before investing is a must.
Even though a company may have strong cash flow projections, what looks good on paper may not apply to the real world.
Investors always have several factors to consider choosing which startups to invest in. We hope this guide helps you choose and diversify your portfolios. You can check out the pitch pages of the startups mentioned here.
If you have any questions regarding investing in any of these startups, you can ask us by scheduling a call today.
Rest assured that someone will get in touch with you to answer all your questions.