Blog

Venture investments: stages, profit and risks 💼🔡

Venture investments are activities with high-relevant risk. Investors put their money in absolutely new companies that are willing to take over the world. Such businesses are very likely to fail. However, if not, you may become the co-founder of new Google.

Why invest in venture
The main reason is return. Venture investments are the most highly profitable asset in the world. Successful investors end up in Forbes lists.

For example, the first investments in Google accounted for $100,000, in Facebook — $500,000, Apple — $150,000. Today the valuation of these companies accounts for billions of dollars. However, these are exceptional cases. But venture business is totally based on exceptions.

How venture investments work
The objective of a venture investor is to find a company that will grow exponentially, recover failed investments and bring profit on top of that. The classic venture scheme: an investor puts their money in 10 companies, 6 of them fail in the first 2 years, 3 of them demonstrate mediocre growth, and only one of them succeeds considerably.

Hence, if a venture investors guess the unicorn, everything is cool. So, it’s better to invest in 30-50 companies in order to increase your chances.

However, if an investor funds companies at a very early stage, the number of fails increases. The investor gets a good share for a little money. Such an investor is called business angel. The earlier an investor cuts a deal, the more risks they bear and more profit they may get. The average period of venture investment is 7-10 years.

Venture investment return
According to Wealthfront research, 2% of the best venture funds generate 95% of income. It means that money and glory go to the strongest.
Anyway, the large venture capital overtakes stock market index. In 20 years the return of early investments is 5 times larger than the return of later investments. You can see the example of Uber below in the picture.

Stages
A company goes through 3 stages: seed stage, early growth, and late stage growth. The later the stage is, the less risk an investor bears. You need to earn at least 20-25% per year. Otherwise, the reward for the risk is not reasonable.

The secrets
Try to actively participate in startup life: help them, consult, and communicate. The more you give, the more opportunities you obtain. You should become the part of your startup family.
The second tip — to be able to distinguish between the best and the worst once you achieved what you planned. This implies extensive experience.

Would you invest in venture? Share your ideas in comments 💬


t.me/ideafactory1/382
#BusinessEducation