More and more investors are betting on Venture Capital to promote emerging companies with high scalability potential in exchange for attractive returns. This investment model is fundamental to capitalizing ventures, but what are the advantages of investing in this industry in Mexico?
For investors, the possibility to promote small companies and ventures that promote innovation for better returns on their capital is recognized as “good capital”.
An investor, whether beginner or experienced, in search of better returns, chooses venture capital to grow their equity.
The impact of Venture Capital on innovation and the economy is evident. According to the Global Innovation Index, the leading countries in terms of Venture Capital investment as a percentage of GDP are Singapore with 2.5% of GDP, Israel with 2.1%, and the United States with 1.3% of GDP.
Benefits of investing and what to consider
Venture Capital funds specialize in investing in emerging companies with an innovative vision and high growth potential. These characteristics make this type of investment one of the most profitable.
Héctor Shibata, in a publication for EGADE Business Schoothe specifies that this investment model offers private capital in promising areas such as innovation, technology, and economic development.
This investment model is structured by specific stages: seed, growth, and investment rounds, in which the capital requirement is higher. The investor willing to venture into private equity must take into account that in each stage the characteristics.
For example, there are funds specialized in promoting companies in growth stages that require minimal amounts in contrast to funds for early-stage companies. Even the return and risk exposure are not the same in both funds. These elements should be kept in mind by the venture capital investor.
Benefits of investing in the entrepreneurial ecosystem
The Venture Capital industry not only stimulates an emerging economy and companies but also represents the following benefits:
- Boosting the entrepreneurial ecosystem
- Diversification of an investment portfolio
- Encourage companies in new sectors
- Invest in markets with potential and scalability
- Achieve financial goals in a determined period
You can also read: Mexico as a strategic player to promote investments in Venture Capital.
Tips for Investing in Venture Capital
While knowing the industry is essential, the investor must keep in mind how the fund in which he is going to invest is structured, returns, and possible risks, and, especially, not lose sight of his financial objectives.
Héctor Shibata points out that investing in venture capital has characteristics that cannot be ignored. Here are some tips on how to invest:
Understand how it works
The venture capital industry is structured. Not only is it about understanding what you will be investing in, but there are also different types of private equity funds with their life cycle, returns, and other characteristics such as fees.
In the same way, as in any other type of stock market operation, it is necessary to know the terms of the investment, the size of the fund, terms, commissions or any other type of jurisdiction. There are even specialized funds to promote companies at different stages and in different industries, such as technology and sustainability.
Specialized funds
Venture capital funds invest in different specific industries. Among the options, the investor can choose between a fund that bets on technology companies such as artificial intelligence or with a vision of social impact. The recommendation is to know how the sector in which you will inject your capital works.
Role of the investor
The work of an investor in the venture capital model will not be unrelated to the development of the company in which he has invested his capital. The private equity investor assumes a mentoring role to support the growth of emerging companies.
5 advantages of investing in Venture Capital
Venture capital is an investment alternative with double benefits. On the one hand, it is a bet to boost emerging companies with high scalability potential; meanwhile, for the investor, it is a long-term investment strategy with high returns.
hese are the advantages of investing in venture capital:
International investors
Venture capital in Mexico is a growing market. Its proximity to the United States, one of the most solid markets for this industry, makes it easier for international venture capital funds to be in Mexico.
Growing market
Investments in emerging companies in early stages have grown by 4% globally, while investment in growth-stage companies has grown by 8% annually, according to CrunchbaseThis reflects a growth trend in the industry.
Long term strategy
Investors in Private Equity, Venture Capital and Venture Debt funds have less exposure to risk in their investment strategy, therefore, they obtain better returns, even in times of economic crisis, unlike other investments such as equities that are linked to stock indices and may have an impact due to upward or downward movements in the market.
Portfolio diversification
Among the advantages of Venture Capital, this investment model promotes innovation and growth of emerging companies as an economic engine. Meanwhile, for the investor it allows them to access niches and markets that other traditional instruments do not.
Profitability
This investment represents an alternative to obtain better profitability. Investors who commit their capital to startups, on average, receive better returns than other types of investments. There are even investment models such as WORTEV CAPITAL that offers 24% returns per year.
Also having good planning will make it easier for your investments to be diversified and with better returns. Hence why it is important to have a financial advisor.
In recent years, with the incursion of new technologies, the growth of Venture Capital has been increasing. This type of investment was focused on those industries that managed to merge an innovative model and technology such as the financial market, health, biotechnology, medicine, consumption, among others.
WORTEV CAPITALas a venture capital fund, aims to generate an ecosystem for investors and entrepreneurs that will have a positive impact on all.
