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Venture Investing Made Simple

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January 1st, 2020




Carmine Meoli

Being an early backer has its upside

Many investors wish to participate in the significant upside potential that presents itself by being an early backer of the leading companies of tomorrow. As an investor, you might one day even pride yourself of having accompanied a future unicorn from the early days to successfully going public with a USD billion-plus valuation.

What used to be exotic in the past is now quickly becoming mainstream

Compared to the booming and highly-developed venture community in the United States, investing in Swiss and European startups used to be almost exotic. These days are gone, as the capital invested in European ventures has more than quadrupled since 2013.

The European startup and venture space has grown rapidly

Family offices and institutional investors have integrated venture investments into their portfolios. Some have even started to build internal teams specialized in the segment. And big, established companies have increasingly moved from funding internal research & development departments to partnering with startups to drive innovation in their field. Young startups are driving innovation, and it has never been easier to establish a new venture and quickly access global markets.

In the past, only a few could gain entry to the exclusive club

The key drivers to successfully investing in the startup and venture space can be boiled down to network, experience, and execution. They are also the reason the segment has been notoriously difficult to access to anyone but a few insiders. The network ensures that the investor gets to see as many deals as possible, and not only the ‘lemons’ everyone else has passed on. This is important because only a tiny fraction of deals will survive the assessment and due diligence stages. Contrary to many other investment segments, successful startup and venture investors tend to continue to perform well over time. It indicates that skill and experience do count, certainly more than when investing in public stocks and bonds. This track record allows some top venture capital funds to handpick their investors, and raise the investment minima to USD 250 million and above. Finally, successful startup and venture investors can be trusted to execute every funding round flawlessly. By doing so they earn their trust in the close-knit community, which, to close the circle, secures them access to future deal flow.

What it takes to become a startup and venture investor today

We believe that everyone should have access to the future corporate leaders of tomorrow. But there are a few items to consider carefully:

Partner up

Chances are your day job does not allow you to build a network in the segment quickly enough. You might not be able to access enough deal-flow. Or you might lack the specific expertise to quickly assess the deals presented to you. Several of Stableton’s founders have been involved in, or have invested in, startups for years. Still, they have decided to adopt a co-investment approach to their startup and venture program. Stableton invests alongside highly reputed experts in the field (our program partner sees an impressive 95% of deals that happen in Switzerland and has participated in over 100 transactions and financing rounds!), and the investment team maximizes its time by evaluating only investment-ready transactions.

The only free lunch in investing is diversification

In addition to efficiency and bandwidth concerns, making single startup and venture investments remains risky. While the upside potential of a single investment is usually a multiple of what you would expect of a publicly-traded stock, many things can go wrong on the way from the garage to being a unicorn. There is no free lunch in investing, except for diversification. We strongly believe in the portfolio approach to this type of investing. This is why, for our startup and venture investment program, our guidelines require us to diversify our exposure across multiple companies, sectors, funding stages, and geographies, thereby mitigating the traditionally high default risk of investing in a single startup or growth company. It may make sense for you to consider this approach as well.

Ensure the investment structure suits your requirements

As a financial intermediary, you might have shied away from startup and venture investing for the reasons mentioned above. But what usually put the final nail into the coffin, was the implementation structure issue. Due to their fiduciary character, lack of securitization, and administrative overhead, these types of investments were virtually impossible to consolidate into a portfolio/risk-management system. Your investors would have had to execute those transactions themselves outside of any wealth management mandate. And there would have been no reporting to the levels you could offer for other asset classes. Our approach to this problem has been to focus on creating bankable products with a Swiss ISIN with low minima available through any bank. We are barely scratching the surface. Would you like to find out more about the details of this strategy, and how it could potentially fit in your existing portfolio?

Introducing the Stableton Unicorn Index AMC

Learn how an allocation to the most exciting and rapidly growing privately held companies can help to boost your portfolio.

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