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 a fundamental part of capitalizing on ventures, but what are the advantages of investing in this industry in Mexico?
For investors, the possibility of promoting small businesses and ventures that promote innovation in exchange for better returns for their capital is recognized as "good capital."
An investor, whether individual or experienced, in search of better returns turns to Venture Capital to grow his wealth
The impact of venture capital on innovation and the economy is evident. According to figures from the Global Innovation Index, the main countries for investment in private capital as a percentage of GDP stand out Singapore with 2.5% of GDP; Israel with an investment of 2.1% and the United States with 1.3% of GDP.
Benefits of investing and what to consider
Private equity funds specialize in investing in start-up companies with an innovative vision and high growth potential. Characteristics that make this type of investment one of the most profitable.
For the analyst Héctor Shibata en una publicación para EGADE Business Schoothe he specifies that this investment model offers private capital in promising areas such as innovation, technology and economic development.
With this investment model, it is structured by specific stages: seed, growth, and rounds in which the capital requirement is higher. The investor willing to venture into private capital must take into account that at each stage the characteristics and amount of capital is different.
For example, there are private equity funds specializing in boosting growth-stage companies that require minimal amounts in contrast to funds for early-stage companies. Even the return and risk exposure is not the same in both funds. These elements must be kept in mind by the investor in Venture Capital.
Investment in the entrepreneurial ecosystem
The private equity industry not only stimulates an emerging economy and companies, it also brings the following benefits:
- Boost to the entrepreneurial ecosystem
- Diversification of an investment portfolio
- Encourage companies in new sectors
- Invest in markets with potential and scalability
- Achieve financial goals within a certain period
You can also read: Mexico as a strategic player to promote investments in Venture Capital.
Tips for Investing in Venture Capital
Although knowing the industry in which you are going to invest is essential, the capital investor must keep in mind how the fund in which you are going to invest is structured, returns and possible risks and, especially, not lose sight of your financial objectives.
Héctor Shibata points out that investing in Venture Capital has characteristics that cannot be ignored. Below, we list these tips for investing in Venture Capital:
Understand how it works
The Venture Capital industry is structured. It's not just about understanding what you'll be investing in, there are also different types of private equity funds with their own life cycle, returns, and other features like fees.
In the same way as in any other type of stock market operation, it is necessary to know the terms of the investment, size of the fund, terms, commissions or another type of jurisdiction. There are even specialized funds to promote companies at different stages and from different industries such as technology or sustainability.
Specialized funds
Venture Capital funds invest in different specific industries. Among the options, the investor can choose between a fund that bets on technological 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.
Investor role
The work of an investor in the Venture Capital model will not be unrelated to the development of the company in which he injected 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 commitment to promote emerging companies with high scalability potential; meanwhile, for the investor it is a long-term investment strategy with high returns.
These 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 in this industry, makes it easier for there to be more international Venture Capital funds in Mexico.
Growing market
Investments in early-stage startups have grown 4% globally, while investment in growth-stage companies has grown 8% annually, according to Crunchbase. This reflects an industry growth trend.
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.
Cost effectiveness
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 CAPITAL, as a venture capital firm, aims to create an ecosystem for investors and entrepreneurs that positively impacts everyone.
