From being able to protect your investment against market volatility to aligning your investments with your personal values and, the benefits of venture capital speak for themselves. Nonetheless, to enjoy these benefits, you have to get it right. This means that you need a partner who understands venture capital and can help maximize your returns.
When you think of the word “startup,” you probably envision a team of around five people working in a garage or basement, trying to turn an idea into a successful business. While this might be the case for some new businesses, surprisingly enough, even companies that have been around for five years are still considered startups. This distorted view, among many others, is why so many investors shy away from venture capital.
The truth is that venture capital is very risky business. Statistics indicate that 90% of startups fail, with 10% of these going under in the first year. On the bright side, the ones that make it grow their revenues by 268%, 144%, and 71% in the first, second, and third years, respectively. While these numbers vary by sector and industry, investing in venture capital can be a promising undertaking if approached strategically.
Here are four more reasons why you should consider investing in venture capital:
You can diversify your investment portfolio by investing in venture capital. Generally, diversification with your public market investments allows you to spread your risk such that if one investment doesn’t perform well, the others can make up for these losses.
If you add venture capital to this mix, you generally have more to gain than lose. Since VC investments fall into private market asset classes, they aren’t affected by the market factors that may influence the performance of traditional asset classes like stocks and bonds.
Say you have a portfolio made up of both VC and traditional asset classes, and one of your stock investments experiences a significant downturn due to market volatility or company-specific issues. In this scenario, your venture capital investments may remain unaffected by the same market factors.
Additionally, the time horizon of VC investments is usually longer than other asset classes. This factor enhances your portfolio diversification because while traditional investment vehicles might experience short-term fluctuations due to market changes, most VC investments hold steady, with the potential for more significant returns in the long run.
As an investor, you simply can’t turn a blind eye to societal issues. Doing so isn’t just morally wrong (depending on what you believe in) but also a financial oversight.
This is because, at some point, these issues will affect your income — either positively or negatively. Many societal issues like environmental sustainability, social justice, and public health have a direct impact on the market, which ultimately affects your investments. That’s why having an impact on these issues as an investor is important.
One way to do this is through venture capital. Unlike traditional investments, VC allows you to direct your money into startups that address issues that concern you while enjoying financial returns.
For instance, political unrest — locally and globally — is one of the biggest factors that affect financial markets. If you value political stability, supporting startups with solutions or ones that actively address this issue allows you to have an impact on a cause you care about while benefiting financially.
Do you want to be at the forefront of discovering innovations that have the potential to disrupt the world? Then VC is exactly what you need to invest in. This asset class gives you access to a portfolio of startups and companies with solutions in various industries that have the potential to grow even before they become popular. You get to know what the next big thing is and how it will affect the industry and economy at large.
Additionally, you can appear in history books as one of the investors who believed in the company if it becomes a disruptor in the industry. For instance, we can’t talk about Facebook’s venture capital investment without mentioning Peter Thiel, who invested $500,000 for a stake of 10.2%.
Investing in startups means you are investing in companies when they are young, privately owned, and have lower valuations. Your investment has the chance of becoming more valuable over time if the company grows, gains customers, increases revenue, and maybe even goes public or is acquired.
While investing in venture capital comes with its fair share of risks, you stand the potential to gain high returns. From being able to protect your investment against market volatility to aligning your investments with your personal values and, the benefits speak for themselves.
Nonetheless, to enjoy these benefits, you have to get it right. This means that you need a partner who understands venture capital and can help maximize your returns.
At The Spaventa Group, our alternative investments allow you to choose from a range of emerging industries like space, fintech, AI, life sciences, robotics, and more.
Get in touch with us today to get access to high-demand private companies.