According to the stereotype, only business angels or well-known funds deal with venture capital investments. IT businessman and investor Rustam Gilfanov talks about whether a person without appropriate experience can invest in startups and make profits.
About Venture Capital investments
Venture capital investments are investments in upcoming projects in search of a scalable business model. For example, the Instagram startup was only a 12 months old when Facebook bought it for $1 billion. Such a business is called a “unicorn” – and every venture capitalist dreams of discovering it. Venture capital investments are the assets with the highest rate of return in the world. These are high-risk transactions: you can increase your investment tenfold and still lose all of it. That’s why startups are looking for investors: banks reject their loan applications due to the high risk. According to a report by Startup Genome, 92% of startups close in lower than three years.
Venture capital funds looking for superstar startups invest in several projects, hoping that at least one of them will repeat Instagram’s success. According to Wealthfront research, the top 2% of venture funds generate 95% of the profits.
Who can become a Venture investor
Rustam Gilfanov emphasizes that venture capitalists do not invest their last money. They often have a functioning business, real estate and capital. They use their spare money to develop future businesses.
Mr. Gilfanov advises newbies to first define their goals. If the goal is to make money, they have to remember the high risk. The expected efficiency ought to be at least 15% per 12 months. You can earn barely lower than this value on instruments that do not involve risk. Venture capital is not a liquid asset and it’s going to take a very long time to see the results.
Rustam Gilfanov advises novices to build their investment strategy on three pillars:
- Understanding trends and cases
- Critically evaluate people
- Find recent investors
A successful investor builds his brand and understands the topic and trends in detail. Since startups focus on the future, you need to understand what that future can be. For example, the trends of the near future are distant work, delivery and online education.
This is Rustam Gilfanov.
Gilfanov emphasizes the importance of co-investing, i.e. searching not only for startups, but also for other investors who could have greater resources. To start with, you need to look only for experienced investors. If we determine to work independently, we are going to have to spend money on specialists with a specific profile – investment analysts and lawyers. The only advantage of this approach is that the income will belong exclusively to one person.
Gilfanov advises newcomers to concentrate to the creative economy, where trends are set by bloggers, designers and podcasters. You should start investing in an area where you have some expertise. You can find the first startups in the accelerator finals and offer those projects that impressed you from 500,000 to 1 million rubles.
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