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.
The landscape of early-stage ventures is notoriously volatile. For investors, it is vital to understand the risks involved – as well as potential returns. Yet, how can you balance the two effectively? Below, we offer some thoughts on how investors can thrive in this environment.
We hope these insights are helpful to you. To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page. For enquiries regarding our latest projects and funding, you can reach us via:
+44 160 334 0827
Diversification
Every seasoned investor knows that it is wise to “spread out” capital across different companies, markets and asset types. However, diversifying early-stage investments is not always easy. Perhaps there is a lack of UK startups in a particular niche. Or, maybe the regulatory and policy landscapes are shifting in an unfavourable direction.
It can help investors take a global view of their investments. The UK offers many attractive early-stage opportunities. Yet other nations, such as the US or Japan, might offer greater strengths in key areas where the UK is weak (and vice versa).
The potential returns from high-growth startups can be huge, yet the failure rate in this space is high. Consider seeking professional advice to explore the best diversification options in your particular case. Concentration risk needs to be addressed, of course. However, be careful not to “over-diversify” and thus “dilute” your potential returns.
Risk tolerance assessment
Early-stage investors typically have a bigger “stomach” for risk than other investors. Yet, they still differ in their risk tolerances and attitudes.
By being strongly self-aware of their “investor profile,” early-stage investors can build portfolios that authentically reflect these personal traits. Indeed, not doing so can be detrimental, leading to harmful, emotion-driven decisions such as “panic selling.”
It can help investors periodically review their risk tolerance – e.g., with a financial adviser’s help – to check whether their goals or profile have changed. For instance, ask yourself: “How would I react if my portfolio crashed suddenly by 20% tomorrow?”
If you know you would face an overwhelming urge to get out of the market(s), you might be taking on too much risk. However, if you are certain that you will continue to follow your long-term investment strategy, then you might be following the right strategy.
Due diligence
One great way to reduce portfolio risk is to ensure that every early-stage investment is thoroughly vetted before inclusion. Investors should be ruthless when analysing potential startups such as scrutinising the business model, market potential, competitive landscape, team expertise and financial projections.
This process also helps investors “stay the course” with their chosen early-stage investments when volatility and harsh conditions arrive. After all, these will have been accounted for during the due diligence stage.
Being part of a professional investor network can be very helpful with this process. Here at Bure Valley Group, we carefully vet each company before presenting it to our investors – giving them an additional layer of risk mitigation. Investors can then examine these “pre-vetted” projects together, drawing upon each others’ experiences and expertise to refine their decisions.
Active involvement and monitoring
One disadvantage of investing in larger companies is that investors are not privy to the “inner workings” of their management and operations. Knowing when the company is truly doing well or is in trouble can be difficult.
This is less of an issue for early-stage investors, such as angel investors, who take on more active involvement with their startups. Naturally, angels can identify emerging trends, anticipate market shifts and monitor founder performance – addressing many problems before they arrive.
However, investors need to be self-disciplined to maintain continuous engagement with founders – offering strategic guidance and leveraging networks to support their growth trajectories.
Exit strategy formulation
It is almost inevitable that certain startups will not perform to expectations. Here, it is vital that investors develop strong skills to know when to “stick it out”, and when to abandon an investment as a failure.
Investors can also prepare for exits by preparing for potential acquisitions, mergers, IPOs or secondary sales. Within the wider portfolio-building process, it is also prudent to be mindful of mitigating liquidity risk. Try to build a high degree of flexibility into your strategy to allow for capitalisation of evolving market dynamics, maximising value creation.
Invitation
Balancing risk and reward as an early-stage investor requires strategic planning, disciplined execution and ongoing adaptation. Prudent risk management strategies can pave the way for long-term success and minimise potential losses.
For UK investors, it is also helpful to consider investment “vehicles” which can maximise tax-efficient returns and mitigate some of the risks of early-stage companies. Two prominent examples include the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS), which offer a “loss relief” mechanism if a qualifying company fails.
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
