Startup investing: the risks & rewards

By September 15, 2020For Angel Investors

Bure Valley Group is an investment brokerage business which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice. 

Investing in startups has the potential to launch someone into great wealth if they succeed. Yet this also carries the possibility of investment loss and, in the worst case, financial ruin. Finding intelligent ways to pick “winners”, therefore, is a key skill when it comes to startup investing and so it pays to leverage pre-vetted networks to increase your chances of success. Remember, most startups will fail – so this is not for the risk-averse.

In this guide, our investment team here at Bure Valley Group offer some thoughts on the pros and cons of startup investing – with a particular focus on how to mitigate the risks and maximise the reward potential. We hope you find this content helpful. Find out more about our EIS and other investment opportunities by visiting our portfolio page here. To enquire regarding our latest projects and funding, you can reach us via:

+44 160 334 0827

 [email protected]

 

Startup stages and investing

One of the reasons why startups are known for being “higher risk” for investors is that they have not proven their concept yet. At the very beginning they are just an idea in the business owner’s mind and the revenue stream, product and customer base are yet to be fully developed. At this stage in the company’s lifecycle, angel investors are often involved in seed investing to help the former develop its base in return for an equity stake. 

Assuming the business grows as expected, the investor can hope to reap a significant return on investment (ROI). This will vary from case to case, of course, yet it is not uncommon for successful startup investments to produce a 10X ROI over 3-10 years. This high potential rate of return is what can make the higher risk so worth it when it comes to startup investing.

As the business grows and establishes a stable and growing cash flow, it eventually progresses from the “seed” stage into a fully-fledged business. This is where it may seek venture capital (VC) funding, where larger sums are involved more from institutional investors. At this point, the investment usually becomes lower in risk since a strong business plan has been developed and implemented. Whilst company net profits may not yet be materialising, the business is steadily gathering pace and growth is becoming more spurred by reinvested revenues.

 

Finding promising, risk-mitigated startup opportunities

The key question, of course, is how to find startups which hold out high probability of success and which offer strong ROI potential. Without the right connections, moreover, it is difficult to find a startup in its very initial stages. Being a family member, friend or fellow founder of the forming startup will help, of course. Yet even this limits you from finding other promising startups which you might otherwise get involved in. 

This is where an investor network such as ours at Bure Valley Group can really help. By joining an exclusive membership such as this you not only gain access to pre-vetted projects which you could join other investors in investing in. You also increase the channels available to you so you can hear about new investment projects and ideas which are in their formative stages.

Even with a network like this in place, it’s still important to engage in appropriate due diligence to mitigate the risks to your portfolio. First of all, it’s a good idea to analyse the business plan of the startup – especially how they intend to grow their venture and generate profits. It’s also good to take a hard look at the core product(s). Startups have the potential to hugely disrupt markets by offering a new solution to a customer problem, opening the way to rapid growth. Yet it could be that the idea is so radical/innovative that it would not realistically “catch on” with customers.

Another important aspect of the startup to consider are its founders. What is their track record and experience with growing businesses? What are their personalities like – are they driven and united in a clear, committed vision? The character of the startup’s key people will also be critical to its success. The business is likely to come across multiple obstacles as it seeks to grow, and so they will need passion and purpose to get through these instances. 

Also, are these people open to outside ideas and advice from an investor such as yourself? Closed books, after all, are the ones that tend to gather dust. Finally, how flexible and nimble is the business and its founders to respond to changing events and market conditions. Suppose another wave of COVID-19 ravages the UK economy, unexpectedly. Could the business pivot appropriately if required and still maintain its steady progress towards greater growth?

 

Invitation

There are certainly many risks to factor in when investing in startups. Yet it is also possible to take many steps to help mitigate these and access a range of amazing ROI opportunities for angel investors. 

Get in touch today to start a conversation with our team, and discuss some of the great investment memorandums we have available here at Bure Valley Group:

+44 160 334 0827

 [email protected]