Passion Investing - 25.11.2019 - 4 min read time

Three key success factors to become a successful venture capital investor



Have you ever imagined how it would feel to have been an early investor in a unicorn company? Even if your aspirations are less ambitious than being part of an IPO valued at one USD billion-plus, you might want to partake in the upside potential of being an investor in one of the leading companies of tomorrow.

Swiss and European startups used to be an exotic niche. Not anymore

The money allocated to European ventures has more than quadrupled since 2013. The days are gone when participating in Swiss and European start-ups used to be a niche activity. In fact, what used to be occasionally belittled in comparison with the thriving and sophisticated venture ecosystem in the U.S., has now turned mainstream.  

The European startup and venture space is booming

Family offices and institutional investors have integrated venture investments into their portfolios. Some have even started to build internal teams specialized in the segment. And big, established companies have increasingly moved from funding internal research & development departments to partnering with startups to drive innovation in their field.

 

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An exclusive club that was difficult to access

With a few variations, seasoned investors in the venture and startup space will name network, experience, and execution as the traditional success factors to successfully investing in the startup and venture space. These factors also explain why this type of investing has been so elusive, except for a few insiders.

Since only a few deals will survive the early due diligence, it is important to see as many deals as possible while avoiding time wasted dealing with so-called ‘lemons,’ i.e., deals that got passed on by those before you. And that is what a good as trusted network will accomplish for you.

Experience and skill are critical to performance in the sector. While many other investment segments tend to lose their edge over time, successful startup and venture investors tend not to. Their track record allows some top venture capital funds to be selective with their clients, as well. They start handpicking their investors and generally tend to prefer higher investment minima, therefore discouraging smaller clients whom they might deem cumbersome to service.

Lastly, being able to execute on your commitment, i.e., successfully participate in every funding round, is a trait that separates successful startup and venture investors from the rest. Easily compared to a virtuous circle, this raises their standing in a close-knit community and secures them access to future deals opportunities.

Three tips to becoming a successful startup and venture investor today

We actively work on the democratization of the startup and venture space and believe that many more people should have a stake in the leading companies of tomorrow. Here are a few success factors that, we believe, will make the journey much more straightforward.

Tip 1 - Start investing alongside others

Unless you are already part of that close-knit elite group of investors described above, and regardless of your private and professional network, you may not enjoy access to serious deal-flow. It is entirely excusable that your day-job may also have prevented you from building up that type of expertise that allows segment professionals to evaluate and triage deals effectively.

Even Stableton’s founders, some of whom have personally invested in startups for years, have chosen the co-investment approach to their startup and venture investing. This means allocating alongside experts with a solid reputation in the field (interesting fact: our program partner sees an impressive 95% of deals that happen in Switzerland and has participated in over 100 transactions and financing rounds!). Stableton goes even further: our investment team only evaluates investment-ready transactions.

Tip 2 - Don’t put all eggs in one basket

In addition to efficiency and bandwidth concerns, making single startup and venture investments remains risky. While the upside potential of a single investment is usually a multiple of what you would expect of a publicly-traded stock, many things can go wrong on the way from the garage to being a unicorn. There is no free lunch in investing, except for diversification.

We strongly believe in the portfolio approach to this type of investing. This is why, for our startup and venture investment program, our guidelines require us to diversify our exposure across multiple companies, sectors, funding stages, and geographies, thereby mitigating the traditionally high default risk of investing in a single startup or growth company.

It may make sense for you to consider this approach as well.

 

Tip 3: Choose a structure compatible with your other investments

If you’ve made it this far, you might realize that it is not necessarily your financial advisor’s mistake that they have not introduced you to startups and venture investments.

In addition to them not being specialized in the segment, they usually also prefer not to deal with the implementation. Until recently, it was practically impossible, but certainly not too feasible, to consolidate the segment into a traditional portfolio/risk-management system because of its fiduciary character, lack of securitization, and administrative overhead. It also would not have been possible to include it in an otherwise sophisticated aggregated reporting across your other asset classes and investment types.

In other words, you would have been left alone to source, execute, and administrate startup and venture investments outside of this traditional framework.

There is an alternative, however. Our approach to this problem has been to focus on creating bankable products with experts such as GENTWO, who specialize in securitizing non-bankable asset classes. This results in an increasing number of solutions that feature a Swiss ISIN, low investment minima, and that can be bought through any bank.

 

Stableton’s approach to Alternative Investments

Stableton believes that the proper implementation of an absolute return strategy does not only entail a significantly lower risk of a significant capital loss - as there is no rigid link to a benchmark - but usually also considerably more calculable investment results.

This article barely scratches the surface. If you are interested to learn more about Alternative Investments, and startup and venture investments in particular, and how to efficiently access them, please visit www.stableton.com.

 

About Stableton Financial AG

Stableton Financial AG is a Switzerland-based, rapidly growing financial technology company.

The company’s alternative investment Fintech platform is designed to be Europe’s leading gateway for qualified investors and financial advisors seeking simplified access to absolute return and alternative investment strategies such as hedge funds, startups, alternative lending, and real estate. Stableton was founded by entrepreneurs with decades of experience across the alternative investments value chain.




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