Understanding Startup Investments in 2020

For what do you need to invest in venture capital? 

Investing in early-stage startups is truly an art and provides an opportunity to be a part of innovation as well as feel real ownership in the companies.

Additionally, it gives a chance to investors to:

• Get Profit

Investing in venture capital brings opportunity of outperforming traditional markets in the medium term as well as it can bring a yield of 20% per annum and above. As an investor you can also hit the jackpot (e.g. Facebook, Youtube etc.)

• Diversify portfolio

For sowing and early investments profitability can increase from 5% to 10%.

• Fulfil the need of ownership

As an investor you will be able to take part in creating the “future” and help in realising the ideas that society believes in.

Venture capital. Why it exists? Where to get money for investing?

There are two types of resources: internal and external.

Bank loans, funds from early stage investors, grants and venture capital funds as well as crowdfunding can be considered to be external resources. For instance, it is not always possible to take bank loans as banks understand the risks and might not always give what person or the company is asking for.

Savings, personal loans, funds of friends and relatives, retained earnings can be considered as domestic financing. It is common that savings and personal loans are restricted in terms of the money, thereby retained earnings is considered to be the source of financing but is always not enough on early stages.

How to choose the right project? What challenges you might face?

First of all, to understand what the potential of the project is, you would need to see a pipeline, but sometimes it might not be available. Also, you need to well calculate what is the potential growth and what are the risks related to it. In some cases, investors might face dishonesty and distortion of information coming from the company or angel investors. Furthermore, investors need to be ready for a long cycle of exit (willingness to wait 5+ years) from the moment of transaction.

What is the key of investor and startup relationship?

It is important as an investor not only make profit from the deal, but also to provide specific recommendations and share own skills, knowledge, experience, in other words to support startups and the whole process.

Early stage: what can be the key to success?

Through an early entry the startups can achieve a high profitability. Also, investor can have a greater impact on entrepreneur and expand the network of contacts, when building relationships from scratch.

However, for the investor it is also important to be ready to face the complete loss of the investment. A lot of “conceptual” relationships instead of legal ones might appear. Furthermore, the relations with the entrepreneur might not work in the expected way and it can the overall environment.

How to wake up as venture capitalist?

In order to become a great venture capitalist, you need to stay informed, have positive interest and be morally ready for all the outcomes. You also will need to search constantly for investment opportunities and try to meet experienced investors. Sometimes it might be challenging to meet with the investors that would be willing to share their knowledge and experience, this is why it can be a good opportunity for you to participate in the organisation of business angels and investor clubs.

What are the most important points to look at in startups?

• Idea (e.g. potential to solve an actual problem better than others)
• Market potential (e.g. should be huge or grow rapidly)
• Strong team (e.g. experts in the area)
• Business plan (e.g. all the outcomes need to be taken into account)
• Intellectual property protection solutions
• Potential return on investment (ratio of risk and return; share in the project)

I hope you have enjoyed reading this blog and I am looking forward to further discussing this topic with you below in the comments.