Formulas for investing in startups

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FORMULAS FOR INVESTING IN STARTUPS

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There are different formulas that business angels can use to invest in startups, each with its own pros and cons.

Here are some of the most common formulae

  1. Individual investment: business angels can invest in one or several start-ups individually, choosing the project and the amount they wish to invest.
  2. Venture capital funds: business angels can invest in a venture capital fund that invests in start-ups. This allows them to diversify your portfolio (+) and share the risk with other investors.
  3. Investment in a BA holding company or network: Some business angels may choose to invest in a holding company that in turn invests in start-ups. This structure allows them to have more direct control over their investments and can be easier to manage (see TIP).
  4. Investment Club: Another approach is to form an investment club with other business angels. Together, they can invest in start-ups and share risk and information.

Each formula has its own advantages and disadvantages and it is important that business angels carefully assess their situation before making a decision.

A considerable proportion of business angels in Spain resort to alternative instruments to direct investment in start-ups to diversify their investments. The most common are venture capital funds and crowdequity platforms. (see figure 22).

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In addition to making direct investments, 36% have stakes in private equity funds (45% in 2019 and 35% in 2018), indicating that the interrelationship of both industries and activities remains, with a slight decrease compared to 2019 but in line with 2018. The use of crowdequity platforms by business angels decreased from 37% in 2019 to 29% in 2021. This could indicate the use of alternative formulas for indirect investment and diversification through vehicles such as venture capital funds, which are increasingly investing at more seed stage and therefore, are capturing a segment of investment previously occupied by platforms. The confluence of investors in the three scenarios, direct angel investment, through funds and through platforms, is already a palpable reality. The cross-cutting nature and the combination of different investment formulas is a reality that coexists naturally with angel investors.

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Jaime Cavero

Jaime Cavero

Presidente de la Aceleradora mentorDay. Inversor en startups e impulsor de nuevas empresas a través de Dyrecto, DreaperB1 y mentorDay.
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  1. Elvis Salavarria

    It is interesting to learn about the different ways of investing in startups, so it is clear that there is a variety of investment alternatives and this is good for both business angels and startups.

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Fórmulas para invertir en startups

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