In the last post we addressed some environmental trends of 2020 that reinforce the growing concern with the transition to a more sustainable world. Interestingly, we came across a news story about Bill Gates leading more than $ 1 billion fund focused on fighting climate change by investing in clean energy innovation, which confirmed the idea that this market could indeed be an opportunity for both entrepreneurs and investors
“Anything that leads to cheap, clean, reliable energy we're open-minded to. (...) It's such a big market that if you're really providing a big portion of the world's energy, the value of that will be super, super big.”
These were the words of the Microsoft founder, which led us to ask a pertinent question. What is a good deal for an investor? Bill Gates clearly specified what he was looking for. Although the goals and the points of view of each investor are different, there are certain common points that must be present in any good investment. That's what we'll talk about in today's post!
First, good numbers are important. The most important part of investing is looking at the potential of high returns and a clear exit opportunity. In addition, it is important to know the likely time in the future you may have need of the funds. For the former fund manager John Arnold, getting a quick return is not a problem, as stated in the news:
“Being a 20-year fund with patient capital that’s not needing short-term gains allows us to have a longer-term outlook as well as fund technologies that don’t fit into the traditional VC model as it exists today”.
It is good to obtain return as soon as possible. However, it is preferable to look at the big-picture trajectory, and invest in companies that generate stable returns on invested capital. Looking at BGI’s values, startups take an average of 2.5 years to raise capital and our portfolio counts with 4 exits: Movvo, Mediwise, Samebug and Muzzley. Also, our portfolio includes startups such as FeedZai, which raised almost 80M euros.
Another important aspect is to keep up with profitable markets and have a visionary perspective regarding the market in which we want to invest. Studying the markets, staying away from saturated ones and betting on new sectors with growth potential may be a good idea. Investing requires making informed decisions based on things that have yet to happen. Read up on the things you have invested in, and look for resources that keep up with market trends, as well as the global economy. Also, have an open mind. Many smaller companies with innovative ideas, many from academia, have the potential to become the big names of tomorrow. Additionally, according to the Scaleup Portugal Report, the vertical of ICT leads to a greater attraction of investments (More than 100 million Euros), generating revenues (50%) and creating jobs (47.6%).
Finally, another important aspect is to diversify. The market fluctuates constantly, so make sure you have a diversified portfolio. Investors can manage and improve the balance between risk and return by spreading money across different investment types and sectors. Participating in demo days can be a good option to keep up with various sectors and ideas. The Ultimate DemoDay by BGI is on July 2nd and 3 accelerations - BGI Accelerator, EIT Digital Venture Program, EIT Climate-KIC Accelerator - will be pitching to top market players. You can find out more about it and register here. Also, the EIT Food Demo Day will be on the same day, where 8 successful startups will pitch to win a cash prize. If you are interested, know more information here.
Looking at the global landscape
Still within the "diversify", there are those who prefer to invest in startups abroad, for several reasons, one of which is access to a larger number of potential successes. Others simply prefer to stay away from investments overseas.
Portugal offers a favorable investment climate and the biggest source of investment in our country is foreign (87.59%), more precisely from the USA (58.64%), according to the Scaleup Portugal Report. We have already discussed the reasons in previous posts, but very suncitiously the climate and culture, the low effective tax burden, the free remittance of funds, the friendly residence permit regime and the possibility to apply for a EU passport, make Portugal a very attractive location. Still, Portugal is connected to the rest of the world thanks to its multicultural past. Compared to the rest of Europe, the Portuguese economic environment ranks 19th in the ranking of the best countries for business in 2020, out of a total of 46 European countries.
One of the most dynamic sectors that attract a significant level of global investment is Fintech, with a focus on Emerging Markets (Brazil, Mexico, and Southeast Asia). Other sectors such as Transportation, Mobility, Healthtech and Biotech are also gaining traction across the globe. Looking forward, technologies such as AI, Machine Learning, Automation, Blockchain, Cybersecurity and IoT will remain as very hot areas of investment globally.
Portugal is a country with good opportunities for startups and investors and has been growing and gaining notoriety over the past few years. In fact, and as we have seen in previous posts, our investors believe that we have good teams, good projects and good startups. As our investors in the Scaleup Report series mentioned, in Portugal we have more and more founders with a lot of experience and people sharing experience between themselves. Not only has been an evolution on the startups part, but also on investors, which add value to the whole ecosystem.
If you liked these tips, stay tuned because there will be similar content soon. And if you're interested in getting to know our startups better, don't miss the online demo day on July 2nd!