CHALLENGES OF

STARTUP INVESTING
Topics
Why invest in startups?

Informed decision-making

Building a diversified startup

portfolio: Why and how

Getting access to the best

startup investment opportunities
1. WHY INVEST IN
STARTUPS?

The high expected returns are an These figures are past returns, and they’re
taking only the US into consideration. But a
important reason why people
general outperformance of private markets,
invest in startups, but that’s not compared to public ones, intuitively makes
the only motivation. sense since venture capital is a more illiquid
(meaning that investors can’t sell their
There are several reasons why people are investments whenever they want) and riskier
attracted to investing in startups. First, asset class than equities. For this reason,
there’s the allure of financial returns, which investors are expecting higher returns from
means how many times investors get their venture capital. Otherwise, they wouldn’t
investment back. Unlike the returns in the bother.
public markets, which are measured in What the average return figure hides is a big
meager percentage points, business angels difference between the best and the worst
talk about multiples – 10x or even more. funds in the sample. Looking at the funds
Then, there lies satisfaction in learning that started in 1997, for example, the best
about emerging technologies and new 25% of them returned an astonishing 64%
business models way before mainstream annually on average, while the worst 25%
investors hear about a “trend” packaged into were a failure – they lost 1% every year. The
thematic funds. Furthermore, investors like reason for this discrepancy is that a large
helping young entrepreneurs realize their part of the returns in venture capital stems
ambitions, especially if their startups tackle from backing the rare companies that
society’s biggest problems. produce outsized returns. The returns from
venture capital follow a power-law curve,
which means that the bulk of returns are
Attractive financial returns produced by just a few companies.
The average financial returns from startup According to venture capital (VC) firm
investing are higher than those from public Andreessen Horowitz, 6% of the investments
equity markets. Over 20 years, venture made between 1985 and 2014 account for
capital returned 11% annually (net of fees 60% of the returns. If a fund doesn’t pick a
and carried interest) versus 7.5% for listed star startup, its performance will be
equities, according to Cambridge lackluster at best.
Associates.

Challenges of Startup Investing 3

THE POWER LAW CURVE OF VC

Image source: Alex Paterson-Pochet, j12 ventures

Most private investors don’t have access to Others might find the valuations of the
venture capital funds because they lack the public markets becoming increasingly hard
large investment sums (usually a million or to justify, and they turn to startups to find
more) to get into these funds. But there are high-growth companies at more attractive
opportunities for private investors to make valuations. Startup investing also offers the
direct investments in startups, be it through rare opportunity to achieve outsized returns
business angel networks, microfunds with that are less common in public markets and
smaller entry tickets, or investment measured by multiples instead of meager
platforms like Verve Ventures. percentage points. Furthermore, with
One lesson that the return distribution in VC companies staying private for longer and the
teaches is to build a diversified portfolio – number of listed companies in decline,
the chance of backing a startup that will be a investing in private companies before they
highflier is lower with just one or two go public is a logical next step from an
investor’s point of view.
investments than with 10 or more. However,
But it’s safe to assume (and this assumption
it’s also important to have some quality
rests on hundreds of investor onboarding
standards and invest in high-potential
calls Verve Ventures did) that many people
candidates only. Just adding more
are driven to investing in startups because
investments of doubtful quality isn’t
they expect not only a return premium over
diversification; it’s “diworsification.” Some
listed companies but also non-financial
investors see startups as a way to diversify
benefits, even if the possible financial
because the returns from startups aren’t
returns remain their main driver. What are
closely correlated to those from the public
these benefits?
markets.

Challenges of Startup Investing 4

EDUCATION INCLUDED
Whenever Verve Ventures organizes an Investors learn from analyzing listed equities
investor meeting, an hour is usually not as well, in all of the aspects mentioned
enough to answer all the questions. Investors above. But startup investing arguably
want to know more about the product, the creates an environment that’s more
competition, the business model, and rewarding for curious people. First, startups
numerous other points. People who invest in lack the organizational complexity that
startups are curious to learn more about new defines and burdens many multinational
things, and startup investing is a rewarding companies. This means that it’s easier to
learning setup. gauge what’s going on in a startup and where
it’s heading toward. Second, startups are
It can be argued that this curiosity is working on technologies that are usually
rewarded even more when investing in high- years ahead of becoming mainstream and
tech startups, since these are pushing the known to the wider public when these
technologies are packaged into “investment
limits of what’s technologically possible. Just
trend” products. And third, it’s possible to
to understand the basics of the problem a
have direct access to a startup’s founders,
high-tech startup is solving and the solution
who will, within reasonable limits, be happy
it’s proposing requires a mental effort. While
and proud to explain what they do. Talking to
poring over some technical presentation
the CEO of a listed company isn’t that easy:
might sound like an awful use of free time for
The investors are usually talking to a
some people, for the naturally curious
relationship manager at a bank, who, in turn,
investors, it’s a reward in itself to stay on top
might speak to a fund manager or analyst
of technological developments.
who has regular contact with the
management of said company. In the case of
The process of startup investing does not passive investment products such as
only offer a technological education but also exchange traded funds, many investors will
includes knowledge about business and law. not even know what the underlying
While interacting with startups, the investor companies are or what they do.
will time and again be confronted with
questions of building and expanding an While this passive form of investing has its
organization, sales processes, regulatory merits, it strips away all the excitement and
hurdles, competition, and other aspects of the struggle of the business world. In terms
business life. of “investainment,” (entertainment value of
investments) startup investing offers more
raw emotion and ambition and more direct
exposure to the ups and downs of capitalism
than any other investment. “I prefer
attending a startup pitch to going to the
cinema,” one investor once confided in me.

Challenges of Startup Investing 5

WHAT PROBLEM?
Investment decisions are silent statements ISo, it’s not just a problem that investors
of individual investors about what they think deem worthy of solving with an elegant
will have a prosperous future. These solution, but it’s also specific people whom
decisions can be broad and encompass investors are willing to back because they
entire countries or be specific and include see potential and drive. Observing founders
handpicked companies only; they can also be pitch their ideas teaches humility because
negative in the sense of not investing in many of them are incredibly gifted, and
specific areas out of moral reasons. some are good salespeople who put in a
However, the impact of a single investor’s tremendous amount of hard work to pursue
decision to invest in one particular listed their vision. Dedication and persistence are
company or not is negligible, and even larger necessary to succeed. And every once in a
institutional investors struggle to change the while, a person enters the room who can be
direction of companies they’re invested in. described only as “a natural-born
entrepreneur.”
With startups, the picture is different. At an
early stage, every single decision to invest or
For some, giving other people the means to
not makes a big difference; it can even tip
become entrepreneurs is a valuable goal in
the scale between a project continuing or
itself. Unsurprisingly, such investors tend to
grinding to a halt. These decisions have an
be or have been entrepreneurs themselves
impact on which technological avenues will
and now want to support the next
get explored with priority. It’s each and
generation of ventures.
everyone’s prerequisite to express through
their investment which problems they deem
worthy of solving.

From an investor’s perspective, making

technological progress possible, and seeing
one’s own contribution to the next step in the
development of a company, gives a sense of
importance that buying shares of a big
company can rarely convey. At the same
time, the bond is stronger than the one with
big companies. To put money in a young
company, the investors need a much higher
conviction than to put it into a multinational
company with a stable and profitable
business.

Challenges of Startup Investing 6

HELPFUL MANY REWARDS
INVESTORS AWAIT
So far, the emphasis has been on what Having a diversified stock portfolio makes
startups provide as value to the investor. But sense from a financial perspective. Building
one of the most interesting aspects of being a diversified startup portfolio is financially
invested in startups is that the investor can even more promising, but it is also more
actively contribute to the success of these rewarding in many other aspects: It will
ventures. This is a unique trait of this asset bring investors in contact with bright minds
class. and interesting startup co-investors; it’s a
direct and emotional form of investing that
Helping a startup succeed can take many sharpens the understanding of technological
forms, and which ones investors choose advances people won’t read about in the
depends primarily on their knowledge and newspaper soon. Our investors have
relationships. The most effective way to help probably learned more about the advances
is to introduce a startup to potential in agricultural robotics, single-cell
technology, and the different application of
customers. These potential connections
drones from interactions with startups than
make investors with a background in the
from some of the trend reports the big asset
same industry highly relevant for startups
managers churn out.
because they may be able to open many
doors. Startups are also constantly hiring,
Startup investing also allows making the
and people who know a bright potential
best use of one’s own professional skills and
candidate can play matchmakers in such a
connections to foster the development of a
situation. Then there’s a myriad of
startup and increase its chances of success.
organizational questions where investors can
Committing capital to solve important
help just by lending their expertise or opinion problems can be an end in itself, as can be
on a certain topic. fostering entrepreneurship. It’s, however,
also an incredibly slow form of investing: It
Finally, “every investor should be a takes a lot of time to identify promising
cheerleader,” as one investor once told me, startups and see them mature. It also takes
and in the age of social media, it doesn’t take a big leap of faith to make one’s first
much to help share the startup’s message investment. For those who’ve never invested
with the world. in startups before, as well as for those who
want to broaden their deal flow, Verve
Ventures offers a platform that provides
investment-ready deals (minimum
investment size of EUR 10,000) that include
all the necessary documentation – a good
place to start and learn about startup
investments.

Challenges of Startup Investing 7

2. INFORMED DECISION-
MAKING WHEN
INVESTING IN
STARTUPS
When it comes to startup invest-
ments, are people just betting or
taking an informed decision?
Getting good information in
private markets is hard work but
essential for success.
At any moment in time, there are thousands A common error of many investors who
of new companies in Europe looking for start looking at private companies is to get
fresh capital. Some of them will turn out to excited too easily: They hear about a deal,
be fantastic investments, others not so maybe from a colleague or friend who is an
much. Because the returns in venture capital investor in that company and, without
are quite dispersed (this means that evaluating alternatives, jump right into it. If
investors might lose it all on one investment that investment turns out to be a dud, they
and make ten times their money on another), might get discouraged and decide that this
it makes sense to build a portfolio and look space is not for them. If they continue their
at as many investment opportunities as journey, they automatically get more
possible. There’s a marked difference selective and, hopefully, more successful
between screening a lot of startups in order over time. Talking to many of entrepreneurs
to identify the rare gems and just investing in and delving into many more business
models sharpens the capacity to discern
what crosses ones path.
between the excellent and the mediocre.
It’s sound advice not to rush the first
startup investment. But then again, at some
point, investors need to write their first
check in order to get started. Investing in
startups, as opposed to just betting on
them, means making informed choices
about what sort of uncertainty and risk one
is ready to embrace.

Challenges of Startup Investing

INVESTING IN SAAS COMPANIES EXPLAINED 6
8
THE COST OF DIGGING
INFORMATION DEEPER
One of the main differences between public Even if an opportunity presents itself, the
and private markets is the availability and only ready information an investor usually
cost of information. A big listed company receives in the first place is a pitch deck,
publishes annual and quarterly reports. The which consists of PowerPoint slides
press covers it regularly, and several summarizing what the startup does. That’s
financial analysts write in-depth research it, and the quality of presentations varies.
reports about it. There’s a stock price to The work of researching information about
watch, which tells people about the the company, the market, the product, the
expectations of the financial markets. The founders, and other aspects of the business
most important point is that people are well needs to be done independently, without the
aware of this company. Investors still need to possibility of accessing secondary sources.
expend time and have the knowledge to This means a lot of work and, in the case of
digest this information and interpret it. But tech startups, specific knowledge to
interpret statements. It also necessitates
once they’ve made up their minds and the
spending time identifying people to talk to
valuation looks attractive, they can invest in
(such as potential customers, technological
a blink of an eye.
experts, and maybe even competitors) and
then actually talking to them. The upfront
The situation of a startup in its early stage is
investment in terms of time and energy is a
different. The founders might be ready to
lot higher if this due diligence is taken
change the world, but in terms of visibility,
seriously. And because it pays to invest only
they start from nothing. Investors must
in the startups with the highest potential,
somehow become aware of this opportunity.
one needs to often say no even after having
Having a network of sources that provides done some work already because a case
this access is commonly referred to as “deal might not be as attractive as it first
flow.” The more connected a startup investor appeared. This means that it takes a lot of
becomes, the more deals they’ll find out work to make one informed investment.
about. But deal flow is proprietary, and it’s Investing early in startups is a full-time job.
earned over time. For investors who just
started and are not plugged into the startup Private markets are much more
ecosystem yet, this deal flow will be a trickle discriminatory than public equity markets.
at best. No matter if someone is a billionaire or a
teenager with modest savings, if they want
to buy publicly listed stocks today, they can.
The hurdles for startup investments are
higher and not just because the financial risk
is higher.

Challenges of Startup Investing 9

DIGGING DEEPER
First of all, a startup can decline an offer to
invest, and there will be nothing an investor
Having a constant stream
can do about it. And what counts in this of high-quality investment
market is not only the size of the investment opportunities in one’s inbox
but also the amount of one’s social capital: is an unbeatable value
The well-connected, helpful, and successful proposition. It leaves
investors, those who have built a name and a
reputation, will always be the ones startups
investors in charge of
want to and do talk to first. If investors have decision-making but with a
“only” the capital they will definitely find drastically reduced burden
startups that need money. But they might not of finding the right
necessarily be the startups worth investing information.
in.
But what about people who would like to
There are, of course, ways to mitigate the access this asset class without the hassle
aforementioned problems. People who invest and hurdles involved? They can rely on Verve
in startups are generally a helpful bunch and Ventures to do the heavy lifting of screening
eager to share their knowledge with those more than 5,000 startups in order to come
who are just starting out. Then, there are up with about 30-40 of the best investment
usually ways to share the work associated opportunities per year. The Verve Ventures
with putting a financing round together, investment team consists of more than a
which means that the lead investor (who dozen people with diverse backgrounds and
usually also invests the largest amount and, has invested in over 100 startups. Over a
hence, bears most of the risk) will shoulder decade, they’ve gained invaluable
most of the work, and other investors can tag experience. They’ll digest and share the
along. And, in any case, most people tend to information needed to assess a case and
invest locally and in domains where they have prepare it for the investor’s use on a digital
sufficient expertise, which significantly platform.
reduces the investment universe, i.e., the
Working with Verve Ventures will also allow
number of startups that they even consider
investors to build a startup portfolio much
looking at.
more rapidly than they would be able to do
otherwise, and if they want to diversify
Despite the significant challenges, people
across different industries and geographies,
who have the right connections and master
something that might otherwise be unwise
the intricacies of assessing a startup and
to try, they can confidently do that. And
negotiating investment terms will enjoy this
because Verve Ventures invests in
work a lot, exactly because it’s challenging
companies at different stages, it also gives
and because they can use their skills to the investors the option to invest earlier or later
fullest. in the lifecycle of a startup, according to
their risk appetite.

Challenges of Startup Investing 10

3. BUILDING A DIVERSIFIED
STARTUP PORTFOLIO:
WHY AND HOW

Venture capital is a risky asset

class because, unlike in other
asset classes, the major part of
the expected returns come from a
handful of investments. But
there’s a way to mitigate this hit-
or-miss problem: Instead of trying
to foresee the future and bet big
on winners, investors should build
a broad portfolio of investments.

No seasoned investor buys just one or two According to a study of more than 20,000
stocks and hopes for the best. If there’s one venture returns in the US (see below), almost
generally accepted investment principle in two-thirds of the investments failed to pay
the financial world, it’s diversification, which back even the initial investment (which
means to spread one’s investment over a lot means a complete loss in most cases). A
of different stocks (and asset classes). This quarter made a return of 1x to 5x and around
tried-and-tested method reduces the risk of 6% brought back 5x–10x the invested capital.
individual investments and is bound to Very few investments (only 4%) have
increase long-term returns. It applies to achieved spectacular returns of much more
startup investments even more so. than 10x. This clearly shows how seldom
such exciting outcomes are. But still, 0.4%
The reason why diversification is essential in of the observed investments achieved a
the startup world has to do with the return multiple of above 50x, a massive return on
distribution of venture investments, which investment. With such a wide discrepancy
follows a power-law curve. It’s skewed to one between multiples, what can be said about
side. the total distribution of returns?

Challenges of Startup Investing 11

RIGHT-SKEWED DISTRIBUTION OF
U.S. VENTURE RETURNS

By companies going out

of business, acquired or
IPO 2004-2013
Image: Right-Skewed Distribution of U.S. Venture Return

This power-law distribution was also

confirmed by another study that covered
more than 7,000 investments made by funds
between 1985 and 2014 (see below).

Challenges of Startup Investing 12

THE BEST DEALS ARE WORTH MORE
THAN THE REST COMBINED
US venture
investments
1985-2014

Around half of all investments returned less

than the original investment, while only 6%
of deals produced a 10x return or more. One
finding is especially salient: This 6% of deals
were responsible for 60% of the total
returns. In other words: The best 420
investments returned more money than the
remaining 6,580.

Challenges of Startup Investing 13

RETURNS:
MORE SKEWED THAN MEETS THE EYE

It’s important to mention that both these

studies included only startups that actually
Public companies are
managed to obtain funding from venture not supposed to go
capital funds. This means these are
companies that passed the diligent vetting bankrupt, whereas
process of professional investors that look at accepting failures in a
hundreds of startups to make a handful of
investments each year. Furthermore, these startup portfolio is
are usually companies that have passed the
seed stage and have sufficient traction (sales
necessary to begin with.
or product development) in order to convince
professional venture capital investors of Many of the startups will fail because there
their potential. Countless more companies are many roadblocks to success – the
attracted money from business angels but technology might not work as expected, the
eventually fail to raise more money in later market might be slow to adopt it, or the
financing rounds from VC funds. Taking the startups get overrun by competitors.
survivorship bias (the fact that they exclude
startups that didn’t raise money from VCs But sometimes, the companies that succeed
and failed) of these studies into account, the do so in a spectacular way because they
final picture becomes even more skewed. invented a huge market that wasn’t there
before and came to dominate it.
Now, these are historical figures for just one
geography, but the substance of it is In contrast to the startup world, established
universally applicable: A few fortunate listed companies are much more mature and
investments make up the bulk of the returns generate more or less predictable revenue
this asset class delivers. This distribution is streams. Public companies are not supposed
skewed because venture capital consists of to go bankrupt, whereas accepting failures
early investments in companies that push the in a startup portfolio is necessary to begin
boundaries of technology and try to establish with. In order to have the potential to
new ideas and business models. generate returns of 10x or more, the
uncertainty of a company’s success needs to
be sufficiently large.

Challenges of Startup Investing 14

RETURN DISPERSION:
15 vs. 500 DEAL VC FUNDS

Average annual
manager return, IRR

Source: Monte Carlo Simulation by the magazine “Insitutional Investor” with 2’000 funds created by randomly picking deals using the deal-by-deal returns
distribution probability of Correlation Ventures. Gross IRR shown, without fees, as of June 30 2019

With startups, everyone is trying to pick the rare deals on the right side of the return
distribution (those with high multiples in the chart above) and avoid the ones on the far
left, and still, two-thirds of ventures fail (even the ones that are backed by VCs). It’s
also evident that the more investments one makes, the higher the probability that one’s
startup portfolio will include some of the great successes. How many investments
represent a meaningful diversification in the startup world? A simulation run by the
magazine “Institutional Investor” shows an interesting result with 500 investments
versus “only” 15 investments.

Challenges of Startup Investing 15

APPROACHES TO
DIVERSIFICATION

As the picture shows, broad diversification If an investor with a net worth of EUR 2
significantly reduces the breadth of the million is comfortable with investing 10% of
return distribution, eliminating the money- that sum in startups, this person could do
losing strategies and positively affecting the four tickets of EUR 50,000 each or back 20
median return. Diversification also makes different startups with EUR 10,000. From a
achieving an impressive result impossible, diversification perspective, the second
though. But this strategy still compares well approach makes more sense than the first
to returns from global equities and to many one. There’s also a third strategy that could
other asset classes, for that matter. prove to be successful, which consists of a
staggered approach.
But there are some lessons to be learned
from these observations. The first one is Only half of the money is invested at first
generally applicable: As with listed equities, (say, in 10 startups with a EUR 10,000 ticket
diversification is your friend. One should do each), while the other half is kept in reserve.
several smaller investments (say, a dozen) The investor then waits and sees how the
instead of just a few larger ones (just one or startups develop. It will become clearer over
two). This principle can guide investors even time which companies are on an impressive
when making the first investment because, in growth trajectory and merit follow-on
reality, most people will have a finite amount investments in later financing rounds. This
of money that they can invest in startups approach leads to a lower diversification
over their lifetime. Consequently, it seems than spreading investments across 20
prudent to start investing with small startups, but it increases the amount
amounts. What this means in terms of invested in those that turn out to be
numbers varies according to one’s total successful over time.
assets and an investor’s risk appetite, which
in turn determines the percentage of wealth
earmarked for startup investments.

Challenges of Startup Investing 16

DIVERSIFY ACROSS INDUSTRIES,
STAGES AND GEOGRAPHIES

A cognitive bias that leads to suboptimal Sometimes, investors say that they don’t
results while investing is the tendency to invest in X or Y because they don’t
invest only in what is close to what one understand it, and this is perfectly fine. If
knows (geographically or from a topical investors still would like to add a few
perspective), termed familiarity bias. Now, in investments outside of their comfort zone to
the context of startup investments, this bias avoid a strict industry focus, they can rely on
is a more tricky one, because especially for Verve Ventures to present them with such
active investors, it makes sense to invest cases.
close to what one knows best. If investors
are industry experts, they can help startups Diversification can also be applied in a
from this industry with their network and temporal dimension and in regards to the
advice. With such specific knowledge, one phases that startups are in. Take someone
also should have the necessary insight to who likes to invest early in startups: By
judge if a startup has a good chance to do making a few investments year after year,
well. If some industries or topics don’t the portfolio consisting of several vintages
interest a person at all, forcing onerself to will start to pay back capital from exits so
look at them isn’t fun. And investing close to that this money can be reinvested. Since
where investors live and where their network Verve Ventures offers investment
is based seems like a good start. opportunities from different stages, it allows
investors to also choose startups that have
This being said, there are arguments why found their recipe for success and already
broadening one’s topical and geographical make several millions of sales. These
investment horizon could be beneficial. startups are far less risky to invest in than
Europe has several startup hotspots, and it those that are earlier in their development,
might simply be that a startup in an industry but also offer less residual upside potential.
one is interested in comes from another In this regard, the risk-return profile of later-
country. As a pan-European investment stage growth startups is similar to that of
network, Verve Ventures can give this
listed small-cap equities.
access. If someone doesn’t have a strong
preference for a specific startup industry or
In conclusion, the dynamics of venture
their professional skills don’t readily
capital as an asset class make diversification
translate into one of them, these investors
a necessity, not an option. The more
might enjoy looking at as many investment
different startups an investor is able to back,
opportunities as possible and learning about
the better. Diversification should be taken
different topics.
into account when thinking about how much
to invest in a single startup.

Challenges of Startup Investing 17

4. GETTING ACCESS TO THE
BEST STARTUP INVESTMENT
OPPORTUNITIES

As the returns of startup Investors who would like to diversify by

investments are predominantly investing in startups often encounter the
problem of access. Because returns in
determined by a few rare
venture capital are distributed according to
successes, getting access to the
the power-law, investors want to make sure
best opportunities is essential. that they get access to the most promising
This is more difficult than it startups. But this isn’t easy.
sounds. Compared to public equity
markets, venture capital is a Business angels are usually the first
nontransparent asset class, and outsiders who invest in a company. In this
many attractive deals are first financing round (Seed round), which
competitive and hard to access. usually isn’t much bigger than, say, EUR 1 or 2
million, business angels might put in
For private investors, Verve
investment amounts of roughly EUR 20,000
Ventures offers access to such to 200,000 each. An entrepreneur doesn’t
financing rounds that are usually want (and shouldn’t have) to deal with
available only to institutional hundreds of investors, which means that
investors. investors need a certain sum to put on the
table.
Getting exposure to listed companies isn’t
complicated. Retail investors can invest in But even if some people have this kind of
the same stocks that the most sophisticated money, there’s no guarantee that they are
financial institutions own (perhaps with the aware of the Seed round of a given high-
exception of a few expensive stocks such as potential startup. And if they are, that
Berkshire Hathaway, which trades at around doesn’t automatically mean that the startup
a hefty USD 350,000). There’s a problem of has enough investable space in the round to
choice, with several hundred thousand accommodate them. High-potential startups
stocks available worldwide, but in general, can choose their future shareholders.
investors do not face a problem of access,
unless they want to invest small amounts in
more exotic stocks.

Challenges of Startup Investing 18

GETTING ACCESS TO THE BEST STARTUP
INVESTMENT OPPORTUNITIES

Some of the startups that get financed by As the most active Swiss investor and
business angels are successful enough to one of the most active in Europe, Verve
raise later financing rounds (called Series A, Ventures has a strong visibility in the
Series B, Series C, etc.) that amount to market.
several million, or tens of millions, and this With an investment team of more than a
money comes mainly from venture capital dozen people in different countries,
firms. Seed investors get a chance to invest Verve Ventures identifies promising
again in these financing rounds. However, for startups early and builds a relationship
those who missed the early entry point, with them.
there’s usually no way to get into such a Verve Ventures combines the financial
financing round. The reason is that firepower of our private and institutional
entrepreneurs want to get financing rounds investors and is able to invest from EUR
done in an efficient way, which means talking 0.5 million up to several million in a single
to a few venture capital firms that are eager financing round.
to contribute millions and also play a Verve Ventures has partnered with
significant role in follow-on rounds. This is several leading venture capital firms in
why business angels seldomly play a role in Europe to share deal-flow, which
these transactions. There are notable ensures that Verve Ventures hears about
exceptions, such as people who are upcoming financing rounds.
strategically relevant for the startup, e.g., a Verve Ventures have proven that it
new board member with industry expertise or systematically creates value for its
someone who can write large checks. If portfolio companies, which makes it an
someone can chip in EUR 5 million, people investor startups want to work with.
will usually hear them out. Verve Ventures has become the
investment platform of choice for many
For investors who might want to participate successful entrepreneurs who refer
with EUR 10,000 or more but missed the Seed investment opportunities to it.
round of a startup, Verve Ventures offers
access to later and bigger financing rounds.
The reason why Verve Ventures has access
to these investment opportunities and can,
hence, offer them to private investors are:

Challenges of Startup Investing 19

5. CONCLUSION

Investing in startups poses several Lack of information: Verve Ventures’

challenges that we have described specialists will prepare comprehensive
in detail in this report. and comprehensible documentation
Verve Ventures addresses many of about these startups, the investment
these challenges by providing a process and answer any questions
investors might have.
constant stream of opportunities
Lack of time: Verve Ventures setup
that have passed extensive due ensures that investors can reach an
diligence by investment informed decision about an investment
professionals. This solves several in a short time. Some people have busy
problems that investors face when professional lives and cannot or do not
venturing out on their own: want to put in the necessary number of
hours to be a business angel. For others,
Lack of a complete picture: Verve it’s about a reasonable relationship
Ventures has a systematic screening between the share of mind and share of
process based on our custom-built IT wallet. They want exposure to venture
infrastructure that allows its dedicated capital but spend their time mostly on
investment team to screen thousands of other things.
startups every year, more than any Lack of access: Because Verve Ventures
individual could possibly do on their own. is an active and helpful investor and can
Lack of experience in assessing startups: contribute millions per financing round,
A structured investment process by Verve Ventures get access to later
professionals who have screened financing rounds that are typically closed
thousands of startups ensures that only to private investors.
high-quality startups will be presented to Lack of proximity: With a digital platform
investors. and the remote investor meetings with
the founders Verve Ventures enables
people to invest in European startups no
matter where they live.

Challenges of Startup Investing 20

CONCLUSION

Thanks to Verve Ventures’ expertise,

investors get the best possible access to Verve Ventures is the
investment opportunities and the choice to leading pan-European
invest in a combination of startups from
different industries and several countries. startup investment
Verve Ventures gives investors the
opportunity to build a well-diversified
platform that allows
portfolio while still retaining the final say in you to invest in an
which companies to invest (unlike in a fund).
This process makes it possible to tailor the attractive but non-
exposure to specific investment criteria transparent asset
(e.g., stage or industry) while minimizing the
administrative work for each investment. class with confidence.

Challenges of Startup Investing 21

AUTHOR
Eugen Stamm
Eugen joined Verve Ventures in December 2018
and works as Startup Journalist. Before joining
Verve Ventures, Eugen worked as a financial
journalist for Neue Zürcher Zeitung. He has a
Master’s degree in law from the University of
Zürich.
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