Take another look at investing in a start-up

There are bargains to be had at the bottom end of the market for investors as start-ups struggle to compete with superannuation funds for capital.

By Andrew Kent

There are signs that while private equity capital is flooding into established business, the money is much harder to find for smaller companies and those at a very early stage.

The good news for anyone looking to diversify their portfolio into a start-up is that this really is a buyer’s market. Good companies and operators that are short on equity funding are offering very attractive returns, often with an option for active involvement from the investor.

Investing in a start-up can offer more than a financial return. It can offer the opportunity for someone recently retired to remain active in business. For recently retired executives or accountants, there are plenty of opportunities to be board members or part-time financial controllers. This also gives you the opportunity to exercise a greater level of control over your investment.

While it is always a good idea to invest in a business or industry you understand, it is the passionate expert that may be your ticket to a breakthrough investment. Such opportunities exist in bio-tech and internet-based businesses where the technical genius may be at the “just add money” stage. That is the point where the concept is tested and proven, the market demand is clear, and all that is required is some capital investment and business acumen to convert it into a rapidly growing and highly profitable business.

With all start-up businesses there are two key components that need to be assessed. First, the quality of the opportunity. Second, and just as important, the quality of the people involved. This is because almost without exception a start-up will not have either a track record or any significant convertible assets. So you will be investing in its future, and subsequently there will be no guarantees of success. If you want to reduce your risk, you might look at start-up opportunities in more traditional industries.

Robert Hurst describes one such opportunity in Victoria. “The Australian fashion industry has experienced enormous change over the last decade or so,” he says. “Only those businesses that have understood the change and positioned themselves to operate in a global market have survived.”

This business is one of those. It is a niche market clothing wholesaler with trademarked and house brand merchandise. Following a well thought out business plan that commenced in 1999, it has been growing steadily and has reached the point where significant investment is required to carry out the major growth phase set out in that plan.

The highly experienced management team has developed corporate relationships with strategic partners around the world in both the supply (manufacturing) and distribution of branded fashion wear. Its customer base throughout Australia incorporates high profile retailers and multi-store chains. Double-digit returns on investments can be expected.

For those looking for something more environmental or lifestyle orientated, there are a range of opportunities on offer, anything from pearl farming to bio-medical research, manufacturing, IT, or transport and logistics.

Click here to see more businesses for sale and other investment opportunities that are available on BizExchange.