Investing in a startup is now simple

Marc Segura, CEO of Play Business, gives us 7 tips on how to make money by investing in a startup.

It's clear that the future of the global economy will be primarily driven by technological innovation. In recent years, a new group of innovative companies has emerged that solve a problem using technology, known as "startups". The advantage of these companies is that by using technology, they have a great capacity for scalability, meaning they can grow significantly without needing many resources, which can generate very attractive returns for their investors, although it should also be clear that they are high-risk investments. Did you know that if you had invested 1,000 pesos in Google in 1998 (without dilution), by 2010 your money would be worth approximately 42 million dollars? Until a few years ago, investing in a startup seemed like a complex task, only for millionaires or investment funds; however, with Play Business, now everyone can invest in startups easily by participating in collective funding or crowdfunding, which allows us to invest from 100 pesos monthly in a company that we find attractive and become a "player", as investors are called on Play Business. The investment model of Play Business has been so successful and attractive that they were invited to the Latin American Startups competition organized by the Massachusetts Institute of Technology (MIT). Talking with Marc Segura, CEO of Play Business, he gave us 7 tips on how to make money by investing in startups:

1. The key is in the execution more than in the idea: An idea is worthless if it doesn't have great execution, and it is the team that executes that winning idea, so we must value the team more than the idea, since the idea may change along the way.

2. The valuable thing is not today but what it will be tomorrow: Let's remember that even companies like Apple, Google, and Facebook had very ugly products at the beginning. When you invest in a startup, you are not investing for what it is today but for what the company will be in the future, but you pay the price for what it is today.

3. When investing in a startup, you win with future valuations, not with return on investment (ROI) through profit sharing: It is important to consider that many of these companies still do not generate sales and we cannot rely on an Excel full of assumptions; on the other hand, it is very likely that these companies, even with sales and great growth, will not provide returns in the first years or even ever, because it is most likely that they will reinvest their earnings to sustain their great growth. When you make money as an investor it is in the following investment rounds, where the startup is valued 10, 100, or even 1,000 times more than the price paid at the beginning.

4. Startups change an industry or go bankrupt: Startups can have 3 scenarios: grow a lot and be bought by a larger company, go public, or go bankrupt. What doesn't happen with startups is staying in the middle; either they change the industry forever, like Facebook, or they go bankrupt, like Hi5.

5. Everything is based on a numbers game: According to statistics, the portfolio of an angel investor or "player" will have the following scenarios: 50% will go bankrupt completely, 20% will only return the investment, 20% will give a small return of 2 or 3 times the investment, 9% will return 10 times the investment, and 1% will give a return of more than 20 times the investment. Thus, for the formula to work, it is recommended to invest in at least 5 startups over 5 years.

6. Investing in startups is a path full of challenges, adventures, and high risk: This type of investment can be very fun, and it can be more profitable than investing in the stock market, but it is also riskier. That is why it is recommended not to invest more than 30% of your monthly surplus after expenses and enjoy the process knowing that there will be good days and bad days. Everything is part of the game.

7. It's not just money but smart money: Out there, there is more capital than good ideas; hence, as an investor, it is very important to dedicate at least a couple of hours per month. These companies are in the early stage, so mentoring, connections, feedback, and any valuable support that can be given as an investor can make a difference for the success of the startup.

Marc is so sure of the benefits of collective funding that he challenged us to experience the adrenaline of a campaign on Play Business to understand what entrepreneurs go through when pitching their ideas and securing the necessary investment. We accepted the challenge and launched our Surfing Digital campaign, the first digital academy to learn and teach how the most successful companies of the 21st century operate, an experience that we will detail in a future article. All the great companies we see today started as a dream and something small, but with persistence, execution, and investment, they have managed to transform industries. One of the great advantages of technology is that now being part of these startups is something simple.