Investing in start-ups can be risky. However, when start-ups
take off, the potential return is huge, Patrick O'Brien
Investing in start-ups is trending as 2016 takes a massive turn
towards expediting innovation and entrepreneurship. We hear about a
new idea being funded almost every minute. Right now, it is an
exciting phase globally, with almost every country trying to
nurture a start-up ecosystem to counter the uncertainties of
economic imbalances and loss of jobs due to tectonic shifts in the
investment and consumer markets.
Given the scenario, angel investors and venture capitalists have
the potential to change the world by supporting the right founders
and their start-ups.
Malta is an ideal breeding ground for start-ups, giving budding
entrepreneurs access to quality talent and lower burn rates of
capital. Most importantly, there are young entrepreneurs coming in
from all over Europe to take advantage of what Malta has to
One of the reasons why a start-up ecosystem thrives is the
availability of capital for a founder to get started or to scale
up. While funding for scaling a venture is the interest of venture
capitalists, seed funding for starting up is mostly fuelled by
There are two types of angel investors: structured and
professional angel groups or unstructured and individual investors.
Obviously, the structured and professional angel groups are making
the most out of the windfall gains when a start-up makes it
However, there is still a huge gap between the number of
aspiring entrepreneurs and available angel funding today. There are
a few million of us who are yet to warm up for the game or may be
sitting on the fence! Angel investors and venture capitalists are
now seeking opportunities which allow them to expand their
portfolios – investing in start-up is key. As an investor
they would be contributing to an entrepreneur's attempt to
innovate for the betterment of society through a valuable product
For investors, participating in the bottom of the pyramid
economy as one of the privileged few means they also benefit from
managing a large enterprise which once was a small business or a
start-up. For many investors, the appeal is securing a place in the
innovation economy while being engaged in the routine of a large
enterprise without any conflict of interest.
Investors also benefit from the growth of a start-up by taking
up an active role, if and when the need arises, while getting to
know the dynamics of a start-up ecosystem as an insider.
Diversifying the investment portfolio from standard offerings in
the market such as fixed deposits, property and mutual funds to a
direct experience of investing into those value creators who drive
the stock markets eventually is attractive. Reap windfall gains of
multiple times the original investment from an eventual exit by
promoters to a larger acquirer or from a planned IPO is the
The only obstacle to jumping on this bandwagon seems to be the
fear of losing the small portion of one's own net worth in case
the venture idea does not take off as expected. Nevertheless, the
feeling would be better than a roller-coaster ride at
The potential return for angel investors and venture capitalists
can be huge. Profits from a successful start-up can be in the
thousands of per cent and if a company is able to reach the level
of going public profits can be in the thousands of per cent.
However, any early stage or start-up business is considered very
high risk, no matter what the business is. As a result many angel
investors want a higher return in exchange for this risk, ideally
30 to 40 per cent.
Some will accept less and some will want more but this should be
your realistic target and objective for what an investor wants for
return on investment. The odds of increasing the investment returns
can be increased by retaining close ties with the company even
after the initial investment. When the angel investor continues to
be attached with the business, their experience can help flourish
the business. So far the typical angel investor tends to invest in
local companies as it is easier to do due diligence in local
companies before writing checks. Furthermore, mentoring local
companies is convenient for angels.
Source: Times of Malta
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