What are venture investments, what are their pros and cons

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Such investments are distinguished by high profitability and no less high risks.

What investments are called venture

Their name comes from the English word venture, which means "risky venture". And this characterizes well the subject of the conversation. Venture capital investments are investments in a start-up business or startup, from which it is not clear what will grow and whether it will grow in principle. But there is great opportunity behind risk.

You are investing in a completely young business, which sometimes attracts money even at the idea stage, so there is a high risk that it will burn out. But if a miracle happens and the company goes off, you will become a co-owner of a new Apple or Yandex.

Igor Faynman expert in personal finance and investment management

Neither banks nor leasing companies are ready to finance a start-up, and start-up entrepreneurs often do not have collateral. Therefore, they are forced to borrow money from venture capitalists, in exchange for providing a stake in the business.

If successful, the part received for the investment can be sold at great profit. Notable examples of venture capital firms include Zoom, Uber, and Airbnb. The cost of the latter, for example, has grown 14 thousand times since 2008.

What are the advantages of venture capital investments

High profitability

If the project in which you have invested, "shot", then it's like hitting the jackpot in the lottery. Think back to Airbnb. Or here's another example: corporate messenger Slack. Now the company is estimated at $ 18 billion, and in March 2010 it came to investors with a modest cost of $ 23.5 million.

The potential profitability may exceed 1,000% of the invested funds. Moreover, during the first few years.

Igor Faynman

Low entry threshold (with nuances)

According to the expert, you can start investing with small amounts. But it depends on the method you choose to go into venture capital investments. For a start, 100, 50 and even 30 thousand rubles may be enough. We will talk about the options available below.

Involvement in something great

If the company breaks into the top, you can be proud of your financial sense and the fact that at an early stage you considered the ingenious idea of the creators of the project.

What are the disadvantages of venture capital investments

High risk

The investment rule works 100% here: the higher the potential profitability, the greater the risks. The future of a startup is uncertain, and the likelihood that it will burn out is high.

The company has no obligations to you, and bankruptcy is a common routine process. When investing in a venture project, be prepared to part with the invested money.

Igor Faynman

The need to play for a long time

Of course, it happens that you have invested in a project and it quickly gained momentum - take and sell your share. But it won't be tomorrow anyway. In addition, if you hurry, you can lose money: development and appreciation are a long-running story.

Danger of fraud

According to Igor Fainman, this is a fairly common phenomenon in the world of venture capital investments. For example, financial pyramids can operate under this cover. And if you run into such, the money will be guaranteed to be stolen. Therefore, you need to very carefully study the projects with which you plan to deal.

How to start investing

There are several ways to enter a start-up business or startup through venture capital investments.

Through IPO

This is the first public sale of the company's shares (IPO - Initial Public Offering). As a rule, by this moment it has already passed some way, and investors can evaluate what they are investing in.

After the IPO, the company becomes public and reports on its activities in accordance with all the rules. Accordingly, an investor buys shares, investing his capital in business development, and hopes that securities will rise in price.

Directly before the IPO

You can enter the project directly at an early stage - to become a so-called business angel. Of course, for this you need to have large sums: 10 thousand rubles will not raise the company.

Through a venture fund

It is an organization that is focused on working with startups and innovative projects. The fund collects money from several investors, and then divides it between potentially successful projects.

This is the right strategy: if nine out of ten startups go bust and one goes out of business, profits can allow you to close losses and come out in profit. Actually, this is the point of venture capital investments.

At the same time, the specialists of the organization are engaged in the analysis of the potential success of projects. This is important, since funds often enter a project at an early stage, when the business as such does not yet exist.

Ideally, if the strategy works, the fund divides the profits between the investors according to their shares. However, Igor Fainman notes that the risk of investing money through a venture fund is quite high, since his expertise may be insufficient. Therefore, it is worth paying attention to the reputation of the fund.

Through crowdfunding platforms

At these sites, companies collect money for their projects, offering some kind of reward for investments. Usually we are talking about a product or gifts. But sometimes sponsors are promised a share in the company.

Through investor clubs

They are different, but in general, the meaning of the work of such an organization is to select projects suitable for the investor, oversee transactions and receive interest for this. At the same time, clubs provide an opportunity to participate in syndicated deals when several investors are united. Their role is more active here than in venture funds.

Investor clubs usually seek out startups in the early stages, which entails high risks. There is also a nuance.

Often scammers disguise themselves as a club and sell there not real projects, but air. You need to be as careful as possible.

Igor Faynman

Where to look for projects for venture capital investments

If you decide to act on your own, but have not yet thundered as an investor, to whom projects are lining up themselves, here's what you should pay attention to:

• Startup contests - this way you will not only learn about projects, but also immediately be able to assess their potential according to the conclusions of the jury.
• Accelerators and business incubators - they help young businessmen, you can help them too.
• Social networks - networking can work very well here, because you can get more information from another PR specialist who runs several startups than from other open sources.
• Profiled media - and not only for reading publications; for example, Rusbase has a database of startups looking for investments.

And in general, it is better to be open to different ways of obtaining information and look for projects for investment in various sources.