Investing by following a lead investor, with a track record for successfully investing in Startups, is a great way to learn about the asset class and achieve a return.
In a recent article published by me in the AFR - Why you shouldn’t be an angel investor in startups, Australian early stage angel investors often treat startup investing like horse racing. They punt with money they are willing to lose and approach the investment with a lack of discipline which leads to very poor returns.
The medium profile of an angel investor is someone with 9 years investing experience, making 10 investments per year, with 14.5 years previous experience as an entrepreneur and deploying 10% of their wealth into angel investing.
If you don’t match the above profile or criteria, then you should looks at venture capital investing. This is a great way for you to learn the ropes and still contribute to the startup investing asset class.
Investing in Venture Capital comes with the following benefits for Investors;
A positive of Venture Capital investing is that there is not limit of distance, country or industry! Venture capital funds are all over the world, from Silicon Valley to London to Sydney and focus on different disciplines, such as medical science, technology and agriculture. Venture capital allow you to choose which fund you would like to join. The choices are varied. Venture Capital provides a way in which you can diversify your investment portfolio and get involved with a Startup that is passionate and driven to achieve. Investors have the ability to get involved in something they believe in.
Venture Capital is disruptive!
Every industry is affected by technology and globalisation. New companies producing new products, can change and improve people's lives. Investor that invest in venture capital are helping to change the world and have opportunities to do a whole lot of good.
Impressive Returns :-)
While bonds and public equities provide returns of roughly six or seven percent, the venture capital industry has seen an average return of nearly 20 percent since the mid 90s.
You will have heard of all of the unicorn businesses across the world, that have all been part of venture capital - facebook, twitter, Airbnb and Uber.
To protect your investment, you need to diversify. Maintaining a diversified investment portfolio has been well documented as the best move for long term investors.
The Government Loves It
Every government wants its economy to grow and venture capital allows for this. Venture Capital investments are in businesses, which means more jobs and opportunities for everyone. Many governments offer tax relief to VC investors an often allow profits to be paid out as tax free dividends.
Investing in Venture Capital can be intimidating at the beginning as you are putting a significant amount of money into a business that has no track record. This is a risk. However if you put your money into a VC fund, there is some protection for the fund will diversify and invest in a range of Startups, who are all likely to provide good returns.