What is venture capital investment
When there is not enough basic income or income from bonds, many begin to look for information about what venture capital investments are and how to make money from them. Everyone is attracted by the opportunity to make a quick profit, but not everyone is aware of the possible risks. And if we talk about venture, you can lose everything.
What is it, pros and cons
In simple words, venture investments are risky investments in any business, currency, startup. On the one hand, by investing money in such an enterprise, you can lose everything, but those who are lucky in some cases receive 1000 or more percent per annum.
So, for example, when purchasing shares of a little-known company, you can either forget about the money spent, or sell them a few years later with a tenfold benefit.
You have probably heard of companies such as Zoom, Uber or the same Google. They were not always leaders in their niche, no one could guarantee that they would grow. However, if earlier an investor invested $10,000 in them, now, after the takeoff of companies, he can sell a share for much more. It is worth noting that the yield depends on the investment period, usually about five years.
If there is only one plus of venture investments – high profits, then there are much more minuses. Among them:
- High risk: according to statistics, only 25% of venture projects return money to investors.
- Long wait: some projects take time to scale;
- Fraud: in some cases, companies build financial pyramids, and investors lose everything they have invested;
- High labor costs: it can take months to find a good project;
- High entry threshold: for participation in some projects, the minimum investment amount is from several million.
How to make money on venture investments: ways
Invest in blockchain and cryptocurrencies
ICO is the initial offer of a certain amount of a new cryptocurrency before it appears on the market. They organize ICO to attract investments, the system itself resembles something between crowdfunding and shares. So, for example, you buy new tokens for real money, which are used for development, and then you can resell them if the currency grows.
Another way is to invest in NFTs. This is the same as investing in art: for example, a painting by a little-known artist can rise in price a lot after a while. Here everything happens in the virtual world: you can become the sole owner of a video, photo and even a meme. There will be thousands of copies, but there will be only one original.
A more standard way is to invest in blockchain startups. There are already examples of high returns. Where mining hardware maker Bitmain was initially worth $422 million, it has grown in value to $12 billion in three years. Cryptocurrency exchange Coinbase was worth $300 million, and has become almost $2 billion.
Contact a venture capital fund
The first such funds appeared about 50 years ago in the United States. Now, over the past 10 years, their number and volumes have grown significantly. A venture fund is an organization that invests the money of investors in a large number of promising start-ups. The degree of risk is high, even though the funds are distributed among different companies, and professionals are engaged in their search.
Each fund collects its portfolio: these can be companies from specific areas of activity or at a certain stage, from a certain country. They usually look for projects that offer new solutions that are likely to be in demand.
5 largest venture funds:
- Runa Capital: attracted investments for Nginx and LinguaLeo, its share in the projects is up to 40%.
- Admitad Invest: works mainly with Internet startups.
- Kite Ventures: invests primarily in online services;
- ru-Net Ventures: on average, its share in projects is up to 35%, invested in Yandex and Ozon;
- IMI.VC: invests in games and applications, the fund’s share is on average 40%.
Invest in startup stocks on your own
Startups find it difficult to find support from traditional lenders, so they are looking for additional ways to get finance for development. When investing in startup shares, you need to take into account that you will have to wait 5-10 years for a profit, especially if you invest at the start of a project. Then the entry threshold is minimal, since the risk is almost 90%. Later, the risks will decrease, and the entry threshold will become higher.
If you choose this type of investment, try:
- Distribute a small amount of money among a large number of campaigns. So, one of them can grow in price so much that it covers losses and brings you into a plus.
- Invest only the amount you don’t mind losing.
- Distribute money among startups from different niches and countries.
People invest in different projects: some of them fail, but some of them become famous all over the world. For example, WhatsApp initially invested $250,000, and now the company’s profit has exceeded $16 billion. By investing in innovation, you can get huge returns.
At the same time, it is worth remembering the risks of venture capital investments. They can be reduced: do not invest at the initial stage, try to look into the future and hope not only for this option. Don’t forget to consider safer ways to receive money as well.