Most people experienced with business and the world of finance know that investing is one of the best things you can do to build wealth, particularly with interest rates so pervasively low.

The question isn’t really whether or not to invest, but is instead, how to invest most appropriately?

Options range from investing in the stock market, or even in a particular area of the stock market, such as penny stocks, to investing in individual businesses.

One type of business that holds a lot of appeal for investors are startups, but what should you know before you give your money to a fledgling business?

Invest in an Industry Where You Have Familiarity
Investing in a startup can already feel like entering a new frontier if it’s not something you’ve ever done before, so rather than trying to make it even more novel, try to find startups within an industry you have previous knowledge in.

Then, at least you have some understanding of the concepts, trends, and fluctuations that could potentially impact the business you’re investing in.

Look at Who’s Leading
One of the scary things about investing in a startup is the fact that you’re not able to dig into the past financials before you jump in.

While you may not be able to do due diligence in many ways, you can put your time into researching the founders and leaders of the company.

You want to feel like these are people you can trust, with a good history in the industry and a strong overall record.

Learn About the Business Structure
Don’t become so excited by the idea of investing in a startup that you don’t think about the technicalities, including business structure.

The structure can have a significant bearing on tax-related issues, as well as where liability falls if the company ends up failing. As an investor, you want to limit your own liability as much as possible.

Read the Prospectus
Before you invest in any business, you should take the time to read the prospectus.

Startup founders may have a way of talking to you that gets you excited in their business right away, and you may be so enthusiastic that you forget about the importance of seeing how they plan to direct their business, and what the potential downsides could be.

Diversify
If you decide startup investing is right for you, that doesn’t mean you have to put all of your money in one business.

Just like the stock market, one of the best ways you can mitigate risk is to diversify where you’re putting your money, and this strategy works in startup investing as well.

Proceed With Caution
Again the allure and excitement of startup investing might overtake you, but never let these emotions guide your investing. Even if something sounds really great, there’s a potential for failure, and you should approach every investment opportunity with that in mind.

From technology startups to restaurants, there are millions of ways business investors can contribute and hopefully grow their wealth.

While investing in a startup is quite a bit different than investing in the stock market, many of the ideas regarding research and preparation remain the same.