Bure Valley Group is an investment introducer platform 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 can be very exciting and rewarding. Not only can you access high potential returns (with the right strategy), but you can contribute to jobs and growth in the UK economy. Yet how do you know which startups to invest in? What percentage of your portfolio could hold early-stage investments like these? In this article, our team from our angel investor network offers some reflections. To find out more about our EIS and other investment opportunities in our exclusive investor network, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
+44 160 334 0827
Decide on your asset allocation
Before building a portfolio, it is important to ask yourself some key strategic questions. How long until you may need the money you want to invest? How much risk are you comfortable with? Do you want your portfolio to achieve a specific purpose (e.g. regular income versus growth)?
Your answers will play a key role in determining whether your portfolio should comprise 100% startups, 70%, 30% or another percentage. Startups offer higher potential returns than many other investments (e.g. bonds) but also higher risk. After all, 20% of UK startups fail in their first year and 60% will collapse within three years.
You can drastically lower the risk to your portfolio by having a thorough due diligence process, but you still need to be comfortable with the level of risk you are taking. Also, make sure your choice of investments reflects your goals. If you want to focus on generating a regular income (e.g. from dividends) then startups will likely form a smaller part of your portfolio. If you want to achieve growth, however, then startups could play a more important role.
Determine if startups are right for you
Almost anyone can invest in startups via a platform which offers P2P (peer-to-peer) lending. However, this is very different from angel investing – where a minority stake is usually sought in the business (e.g. 20%) to mentor and support it towards growth and profitability. This is a much more hands-on approach and the relationship between an angel investor and founder could last for five years or more. There is a higher wealth barrier to entry for angel investors and you need to be sure that you have the time, inclination and experience to build a large portfolio of specific early-stage companies (e.g. 20 or more!). Being part of an investor network (like ours at Bure Valley Group) can help you with the process, especially as you engage in due diligence.
Consider working with other startup investors
Investing in startups does not need to be a “lone wolf” experience. In fact, you often find more opportunities (and make better decisions) by rubbing shoulders with other experienced startup investors and even “syndicating”. Here, you can pool your funds into startups which you all feel hold promise and enables you all to get involved with more businesses – or larger ones which could offer higher returns. The unique industry knowledge, background expertise and skillset offered by each person can help the whole group overcome individual weaknesses and build a more efficient due diligence process. Also, working together can help spread out the risk to each investor – freeing up more of your capital to diversify into other startups.
Learn to recognise a good startup team
There are many ways for investors and startup founders to find each other (discussed in our article here). However, once contact is made, investors then need to determine whether the startup has a “winning team” that can carry the business to success. Naturally, you should be looking for people who are passionate about the project they are building.
Yet competence is also vital. Do the founders show a deep understanding of their marketplace and what the customer’s “pain points” are (which their product/service can address? Do they know what the competitive landscape is and how they fit into it? Do they know the barriers to potential new entrants who could potentially compete with them in the future? Do they have good business acumen regarding profit, loss and other key concepts – or do they just “believe” in their product? What is the track record of each founder?
Look for solid startup ideas
If you have strong knowledge in a particular field or sector (e.g. from your career) then it can be a good idea to initially build your startup portfolio from these areas. Since you are already highly familiar with the landscape they face, you can offer the founder(s) valuable insights and contacts whilst also having an edge when conducting your due diligence on different startups. Try to find startups that have a unique value proposition and a high potential for sustainable competitive advantage. If the business already holds key patents, for instance, then this will help them build a protective “moat” in the years ahead.
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827