Venture capital is a fascinating topic, a world full of exciting personalities, new technologies, high return opportunities. But it is also a world that is traditionally difficult to enter: High minimum investments, only limited access to attractive financing rounds, high risks and partly in transparent structures. Nevertheless, in our view there are good reasons to look into the asset class:
- Venture capital is an excellent trend radar
We all operate in certain industries – and are all exposed to the same trends: How can we make our business model more sustainable? How do we identify threats from potential disruptors early on? What technologies would help us run our business more successfully? Access to young companies with innovative business ideas gives you the opportunity to identify trends early on.
- It’s Fun
Supporting young founders with your own network, expertise and capital, learning from each other and succeeding together can be fulfilling. At the same time, certain business models allow us to make a difference for others: whether it’s funding a digital anxiety clinic, developing therapies for skin diseases, or technologies to sequester CO2 from the atmosphere, venture capital can make a difference.
- It can be worthwhile – if you invest correctly
Investing in young companies with a promising business model can be extremely lucrative, should there one day be an exit, i.e. the sale of the shares. However, the following problems should be considered:
- Most startups fail.
- An exit takes several years.
- Startup investments are illiquid, shares cannot be sold.
- Returns are unevenly distributed: 6% of deals between 1985-2014 account for 60% of total returns, so a small number of startups generate the bulk of returns.
Distribution of US Venture Return 2004-2013, Source: Verve Ventures
Very few investments will end up showing spectacular performance, it may end up being the one investment that will be worth more than all the rest of the investments combined. Therefore, diversification is key: the more different investments are made, the higher the probability that the portfolio will contain a great success. The following basic rules should be observed:
- Define an allocation for venture capital investments as a percentage of one’s own assets.
- Many small investments instead of a few large ones
- Staggered approach: start with small sums, increase later if performance is right
- Diversify by industry, country, and funding stage of the startup
- Thus, it is important to be clear about one’s motivations for startup investing at the beginning of the journey. Some examples:
- Supporting entrepreneurs
- Impact on the society
- Interest in technology
- Financial return
We generally advise pursuing at least one other goal in addition to the financial return when investing in venture capital.
An informed investment decision is central to successful investments in startups. However, compared to publicly traded companies, venture capital is a non-transparent asset class, many attractive deals are highly contested and difficult to access. In addition, thousands of startups are conducting funding rounds at any given time, so one is inundated with potential investment targets – and often those that “cross our path” are not the most promising. Therefore, it is important to do your research before making any investment decision. Key sources include:
– The pitch deck as a starting point.
– An extensive market analysis (competition, technology).
– Industry experts
A clean “due diligence” may therefore lead to extremely high costs before an investment, which would not be profitable for private investors with smaller investment sums.
Our proposal
Together with our partner Verve Ventures, we offer you the following access to venture capital investments:
– Building your own customized portfolio over time with the ability to diversify by funding stage and sector
– Thorough due diligence and provision of all necessary information for an informed investment decision on a dedicated digital platform
– Handling the entire investment process digitally
– Access to competitive funding rounds from one of the top 10% startup investors in Europe (annual investments of EUR 60-70 million).
In doing so, Verve focuses on investing in three different verticals:
- Digital
- Cybersecurity
- Fintech
- Proptech
- Future of work
- Industry 4.0
- Health & Bio
- Digital Health
- Medical technology
- Diagnostics
- Biotechnology
- Nutrition
- Tangible
- Robotics
- 3D printing
- Quantum technology
- Photonics
- Drones
Have we awakened Your Interest and you would like to learn more? Write to us! nextdesk@bergos.ch
- Returns are unevenly distributed: 6% of deals between 1985-2014 account for 60% of total returns, so a small number of startups generate the bulk of returns.