Angel investor? Why it’s time to consider VC funds
Investing in start-ups is easy. Successfully generating a strong return from investing in start-ups is hard.
In general, 90% of start-ups fail and research shows they have just a 0.00006% of becoming a Unicorn (valued at $1bn+).
To succeed in direct investments, your chances are improved by investing across a portfolio of 15-20+ start-ups, rather than just investing in one or two and hoping that you uncover the next Uber. Yet that’s exactly what most people do – invest in just a few businesses rather than diversify their risk across a portfolio of investments.
If you did decide to diversify your risk across a portfolio of investments and your typical individual investment is anywhere from £10k to £500k, multiply that by 15 or 20, and suddenly it’s a huge (and potentially unachievable) number. That’s where investing in a fund comes in.
Funds typically build a portfolio of many start-ups to spread the risk. A professional fund raises a large amount of money to invest across 20-30+ start-ups (some of the funds we work with invest in 100+) building up their portfolio of investments to give their investors the best chance of outsized returns, whilst taking into account that not all of their investments will be “home-runs”.
Across the course of a year, VC funds look at thousands of opportunities across different sectors and/or countries in order to find those which they think give them the best chance of outsized returns. They have specialist technology, networks and in-house analysts in order to find these companies. On top of this, the best start-ups are often inundated with interest and get to pick their investors, rather than the other way around, and those funds providing the best access to resources, networks and other competitive advantages, tend to win the allocation over individual investors.
All of these points make venture capital funds considerably more likely to find the stars.
As a result, the probability of success when working with a fund should be significantly higher versus going it alone, whilst the risk profile may also be reduced due to the quality and focus of the fund.
At Sprout, we don’t just pick any fund manager; we’re hand-picking the best across all stages of the venture ecosystem – whether seed or series A, all the way through to growth funds. The best managers who have evidence of a strong track record and outsized returns over a number of years, across a number of funds.
Back the managers who invest in the best. It’s the access you deserve.