Have you decided to enter the field of investing in startups and still don’t know what is the best model for your profile? See below, what are the types of investment for those who want to start investing in startups. The models cover all types of pockets and levels of experience in the field of this type of investment.
It is the initial investment in a startup, normally, it is the first contact with a startup being one of its founders. The average value of this type of investment varies, depending mainly on the area of activity in the market and the number of founding partners. Technological innovations usually have a greater initial contribution, it is not usually recommended for those who just want to invest without getting their hands dirty, after all, the founders are the first to work.
It is suitable for executives, entrepreneurs and other successful and experienced professionals — individuals. This type of investor wants to diversify their financial investments, but also participate in the company’s formation process as a mentor, due to their experience.
The amount invested varies on average between 5% and 10% of the investor’s equity. Most angel investors have excess funds available and are looking for a higher rate of return than traditional investment opportunities. The negotiation of this type of investment is done directly with the founders, to determine the value and percentage of the company that passes to the “angel”.
Reminds me of angel investing, but it’s a step above for being focused on funds (investment groups). As the idea is to pay the initial costs, structure and creation of the product, this type of modality have a contribution of up to 5 million reais. Normally, it does not require physical work from investors, only a “council” can be created to stand apart from decisions, with voting power or not.
The best example for smaller amounts of investment in exchange for a small piece of the company. No prior experience is required, so it is interesting for beginners. Equity crowdfunding, also known in Brazil as participatory investment, allows you to invest directly in startups through platforms authorized by the CVM, and thus, build a portfolio of startups with ease.
Why CVM? It’s not just any crowdfunding anymore. It is a real investment, which falls within the scope of the financial regulator, equity participation in public offerings of securities, so they need to go through the body.
Venture capital ( venture investment)
It is best suited for experienced companies or investment funds. Companies typically invest in businesses that have proven their revenue model or, if not, at least have a sizable, fast-growing customer base with a revenue strategy in place.
The average investment is high, as this type of modality is already made at a stage when the startup begins to have robustness, ranging between 1 and 20 million. It is associated with an investment fund, preferably known. Returns are normally controlled.
Investment modality in the startup maturation period, the last investment level, is mainly directed to larger companies with interests in the target market. The investment is very variable, medium companies usually invest 5 million dollars, while some global companies can reach billions in investment. The returns are controlled, but consistent, the ultimate goal may be the acquisition of the startup by the company that controls the fund.
These are the types of investments for startups, and if you want to get into the business, remember, they are long-term investments, there’s no point in being in a hurry to get a return.