At any moment in time, there are thousands of new companies in Europe looking for fresh capital. Some of them will turn out to be fantastic investments, others not so. Because the returns in venture capital are quite dispersed (you might lose it all on one investment and make ten times your money on another), it makes sense to build a portfolio and look at as many investment opportunities as possible. There is a marked difference between screening a lot of startups in order to identify the rare gems, and just investing in what crosses your path.

A common error of many investors that start looking at private companies is to get too easily excited. They hear about a deal, maybe from a colleague or friend that is an investor in that company, and without evaluating alternatives, jump right into it. If that investment turns out to be a dud, they might get discouraged and decide that this space is not for them. If they continue their journey, they automatically get more selective and hopefully, more successful over time. Talking to dozens or hundreds of entrepreneurs, and delving into many more business models sharpens the capacity to discern between the excellent and the mediocre. It is sound advice not to rush your first startup investment. But then again, at some point, you need to write your first cheque in order to get started. Investing in startups, as opposed to just betting, means making informed choices about what sort of uncertainty and risk you’re ready to embrace.

The cost of information

One of the main differences between public and private markets is the availability and cost of information. Take the example of a big listed company. It publishes annual and quarterly reports. The press covers it regularly, and several financial analysts write in-depth research reports about it. There is a stock price to watch, which tells you about the expectations of the financial markets. The most important point is that people are very well aware of this company. You still need to expend time and have the knowledge to digest this information and interpret it. But once you made up your mind and the valuation looks attractive, you can invest in a blink of an eye.

Now compare this situation to that of a startup in its early stage. The founders might be ready to change the world, but in terms of visibility, they start from nothing. As an investor, you must somehow become aware of this opportunity. Having a network of sources that provides this access is commonly referred to as “deal flow”. The more connected a startup investor becomes, the more deals they will find out about. But deal flow is proprietary, and it is earned over time. If you just started, and are not plugged into the startup ecosystem yet, this deal flow will be a trickle at best.

Even if an opportunity presents itself, the only ready information an investor usually receives in the first place is a pitch deck, which consists of PowerPoint slides summarizing what the startup does. That’s it, and the quality varies. The work of researching information about the company, the market, the product, the founders and other aspects of the business needs to be done independently, without the possibility to access secondary sources. This means a lot of work, and in the case of tech startups, specific knowledge to interpret statements. It also necessitates spending time identifying people to talk to (such as potential customers, technological experts and maybe even competitors) and then actually talking to them. The upfront investment in terms of time and energy are a lot higher if this due diligence is taken seriously. And because it pays to invest only in the startups with the highest potential, you need to often say no even after having done some work already, because a case might not be as attractive as it first appeared. This means that there is a lot of work done to just make one informed investment. Investing early in startups on your own is a full-time job.

Private markets are much more discriminatory than public equity markets. No matter if you’re a billionaire or a teenager with modest savings, if you want to buy publicly listed stocks today, you can. The hurdles for startup investments are higher, and not just because the financial risk is higher. First of all, a startup can decline your offer to invest, and there will be nothing you can do about it. And what counts in this market is not only the size of investment you are able to make, but the amount of your social capital. The well-connected, the helpful and successful investors, those that have built a name and a reputation will always be the ones startups want to and do talk to first. If you “only” have capital, you will definitely find startups that need money. But they might not necessarily be the startups worth investing in.

There are, of course, ways to mitigate the aforementioned problems. People who invest in startups are generally a helpful bunch and eager to share their knowledge with those that are just starting out. Then there are usually ways to share the work associated with putting a financing round together, which means that the lead investor (which usually also invests the largest amount and hence bears most of the risk) will shoulder most of the work and other investors can tag along. And in any case most people tend to invest locally and in domains where they have sufficient expertise, which significantly reduces the investment universe, i.e. the number of startups that they even consider looking at.

Despite the significant challenges, people who have the right connections, master the intricacies of assessing a startup and negotiating investment terms will enjoy this work a lot, exactly because it is challenging and because they can use their skills to the fullest. But what about people that would like to access this asset class without the hassle and hurdles involved? They can rely on Verve Ventures to do the heavy lifting of screening more than 2000 startups in order to come up with about 25 of the best investment opportunities per year. Our investment team consists of a dozen people with diverse backgrounds and has done about a hundred transactions. Over the course of a decade, they have gained invaluable experience. They will digest and share the information needed to assess a case and prepare it for your use on a digital platform. Working with us will also allow you to build a startup portfolio much more rapidly than you would be able to do otherwise, and if you want to diversify across different industries and geographies, you can confidently do that, which might otherwise be unwise to try. And because we invest in companies at different stages, it also gives you the option to invest earlier or later in the lifecycle of a startup, according to your risk appetite. Having a constant stream of high-quality investment opportunity in your inbox is an unbeatable value proposition. It leaves you in charge of decision-making, but with a drastically reduced burden of finding the right information.