If there’s one place on the planet where you are going to find exciting new startups, it’s Silicon Valley. This is where all the action happens, and many investors are pouring their money into small tech companies, hoping to back the next big thing.

Startups are a popular type of investment, but they do come with their risks. When you invest in a Silicon Valley tech startup, there is an excitement from knowing that you could well be backing a company that will change the world.

And if you back the right startup, the financial rewards can be enormous. All of which makes them a popular proposition for investors looking for something a bit different.

But what do you need to know before investing in a startup? Here are some guidelines that are well worth following to increase your chances of success in your quest to invest in the next big thing.

Start By Researching the Market

Research everything you can long before you actually invest, make sure you know about the market. What is happening in the startup scene? Who are the latest CEOs making headlines? Who are the big investors backing?

Find out general tips about investing in startups, but also get more specific. Keep up to date with the trends and make sure you follow leading news sources on a regular basis. For example, see MoneyMorning.com for new details today of the latest happenings in not just startups but also larger companies. When you start looking at this information regularly, you will start to follow patterns, and this can help you to avoid getting caught up in the hype.

Stay Focused

Try to keep your focus on one particular sector. You will quickly realize that there are many different types of startups in Silicon Valley, but don’t try and be an expert in them all. Make it your aim to become an expert in one sector, and you will be able to make much more informed decisions. You will become an expert in that sector much quicker than if you try to focus on multiple sectors.

Who Founded the Startup?

It’s always worth looking at the founder when you are considering investing in a startup. Do they already have a reputation for founding successful companies? If so, this is a good sign.

But it’s not everything. Don’t assume that they will be successful just because they have been successful with another company. The business itself is the most important factor.

But the startup is certainly worth knowing, so do your research. Can you meet them in person? If so, great. If not, try to find out more about them, and decide for yourself whether they have enough drive and ambition to succeed.

Who Is Already Investing In It?

Another good clue as to the potential success of a startup is who is already investing in it. If an experienced investor with a great track record has already invested, this shows you that they have confidence in the company.

Again, it’s not enough on its own, but it is certainly a good sign that can provide you with a good indicator.

Don’t Put All Your Eggs in One Basket

The golden rule of investing applies more than ever to startups: Always diversify your portfolio. Even startups that are receiving a lot of interest can crash quickly, so spread your bets and reduce your risk.

Does the Startup Have a Strong Focus?

Look at the startup’s goal and its focus. What does it want to do? Do you understand it? Can you see it being successful? Do you share its vision? Research each startup in detail to get a deeper understanding of their business idea before you decide to invest.

Is It Going to Be Financially Viable?

Finally, make up your mind whether you think it is financially viable or not. This is what matters at the end of the day. There are no easy answers, but look at its finances and decide whether you feel it will be able to make money.

You have to take a bet here, but use what you have learned during your research to decide for yourself whether you really think it has a chance. Put aside all the hype and speculation and make up your own mind.

Enjoy the Exciting World of Startup Investments

Investing in startups can be genuinely exciting, especially when one of the companies you are investing in suddenly starts to see huge growth. If you like a bit of risk, and you want to enjoy some excitement in your investments, consider adding some Silicon Valley startups to your portfolio. Just make sure you do your research, and spread your bets on a few companies rather than investing in one alone.

Laura Hammond has worked in the finance world for many years. Now on an extended career break to raise her family, Laura still likes to keep in touch with the world of banking and investments.