How to invest in a startup – without money?

In a traditional world, investing is seen as using the money to get part of the company’s success in the future. But how to invest in a startup company if you don’t have massive funds?

Every one of us has two key resources in life: time and money. Some have more of the first one, some less. But everyone has 24 hours. Unless you are sitting in a prison cell, there is no-one forcing you to divide your daily hours in a certain way. “But hey, I have family, work and other responsibilities”, I hear you say. We’ll get to that later.

Startups are a world of their own and they offer a very interesting possibility for investments but not only with money but with your own work. This is called “sweat equity”.

Sweat equity works especially in the early life of a startup.

In the angel investing phase (usually during the first year(s) of the startup) the company does not have huge revenue (or revenue at all) neither a lot of money to pay big salaries. But they still need help.

So your time is money. Time is actually very valuable currency since every one of us has only the 24 hours in a day.

I’m interested! But how to get started?

First, you need the time. Sweat equity investing is possible by a part-time work, and besides you usually need some other form of monthly income – startup life is a very meagre life in the beginning. So don’t give up your job yet. I don’t recommend adding startup investing while navigating a normal work week, family life and hobbies. Yes, some people are able to do this, but more likely you are going to burn yourself out. But how to achieve the time to do something like this?

Many corporations offer a possibility to work the 4-day week. They do not mention this but will allow it with reduced pay if you ask (and in Finland parents of small children are even entitled to it). You might even be able to ask for a raise in a development discussion, but not so that your salary grows, but in a way that you’ll work 4 days instead of 5 with the same pay.

I should write a post of its own about this topic because it’s very close to my heart, but here is a brief summary.

When I used to work for others before my full-time entrepreneurship, I had negotiated the 4-day week for myself.

I was very flexible and available on my spare day for calls, meetings and urgent projects if organized beforehand, but always counted the hours so I would not do 5 days of work with 4 days’ pay.

Of course, this is not for all of the people and all of the organizations. But you possess more power than you think and if you don’t ask, you don’t know if this could be possible. And with Finnish progressive taxes, the pay drop is not that big – of course there is some, but usually, you’ll anyway spend what you earn, so you just spend less when you earn less.

So, now you have weekly, for example, one day to dedicate to a startup company. What next?

Top tips for investing in startups with sweat equity

Invest in a product/service you would use yourself. Your interest will keep up much longer if the product/service is something that is close to you. It’s easier to develop and market things which benefits you see in your daily life.

Try to find a company that needs especially your expertise. There is not so much use to participate in a project where is a lot of people who know the same things you do. Your networks are also a very valuable tool for the startup – maybe they are the biggest asset you have.

Choose the company carefully. Don’t fall in love with first entrepreneurs you meet. Talk with different people to understand what the whole startup world all about. Also, you’ll have to commit to several years of working with the people – how will you feel about them in 2, 5 or 8 years? Also as I wrote previously your time is a very limited asset: choose wisely, how you spend it.

Learn the lingo. Startup entrepreneurs speak their own language. MRR, CAC, LTV, ARPU, COGS…learn the key terms. If you feel first that they are difficult to understand, don’t worry, you’ll get used to it and in a once we meet in the next Slush you’ll tick all my bullsh…startup bingo slots;)

Do Due Diligence. Once you have found a suitable target, it’s time for a due diligence. It’s not just a numerical practice but a product/service and culture audit too. How interesting is the product/service? How capable is the founding/managing team? Is the company financially solid (in the startup frame)? Finnish Business Angel network FiBAN has good guidelines for due diligence when investing in a startup.

Participate in Slush 2018. Slush is the #1 place in the world to meet startup companies. Apply for an investor badge and your schedule will flood because of the meetings.

Be beware of the pitfalls. 90% of startups fail. If your goal is only to earn a shitload of money, you will probably be disappointed. But if your goal is to learn, learn and learn and maybe earn something while doing it, then this is for you.

Do not hurry. According to FiBan statistics, startup success is surprisingly slow. Even though the pace in startup world is FAST, the path is usually circuitous and very long. For the most cases, it takes 7 to 10 years for a startup to make it or break it.

Did I manage encourage or scare you? Please let me know your thoughts about investing in a startup by commenting below or in Twitter.



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