This document provides guidance on how to successfully invest in startups. It recommends having $500,000-$1,000,000 reserved for startup investing over 10 years. Investors should focus on scalable sectors like technology, life sciences, and green tech. To be successful, investors need knowledge of the sector, a strong network, risk tolerance, and patience. The document outlines the five steps of startup investing: sourcing deals, selection, negotiation, providing support, and harvesting returns. While many startups fail, the few that succeed can provide returns far greater than traditional investments.

1. How to invest in start-ups
Nicolas Berg*
Most entrepreneurial families have a positive affinity for founders. This article
provides the answers if, why and how you should invest in start-ups.
To successfully invest in start-up’s (Early-stage Private Equity), you need a little more
capital, knowledge, network, guts and patience than for classical assets such as listed
Equity or Bonds. A good entrepreneur or start-up investor must be patient and think in
decades, not in years or days such as fund managers or day traders.
Check if you qualify to invest in start-ups
If you can afford to mentally reserve a nice 10-year-budget of half a million dollars – a million
would be even more preferable, you match the first criteria for a good start-up investor. As a
start-up investor you would prefer highly scalable businesses with moderate capital needs.
As a result, concentrate upon hot, disruptive and scalable sectors such as Technology, Life
Sciences and Green-tech.
The quality criteria for good start-up investors are knowledge, network, guts and patience.
Those are the trails which successful SME entrepreneurs, athletes and artists have, while
hired managers and average people will typically show less risk appetite. If you are
successful as a provider of gourmet food, real estate, football goals or rock concerts you
might still be qualified to invest in that cool ICT or Life Science start-up you sourced,
because it might plan to sell food or real-estate through digital channels or solve health
problems of athletes or musicians. Statistics show that early-stage investors are three times
more successful if they have experience in the sector and actively support their start-ups
with relevant knowledge and network.
Successful start-up investors would rather invest in twenty 15-year-old talents such as
Martin Ødegård (prior zo Real Madrid’s acquisition) than in Cristiano Ronaldo. (AFP)

2. Why you should invest in start-ups
There are three reasons to go for start-ups: Economy, Returns, and Asset Allocation.
For a healthy Economy, start-
ups are more important than
established companies, as
shown by studies of Kauffman
foundation. Since the last four
decades start-ups have annu-
ally created around 3 million
new jobs, while existing com-
panies caused a net job loss of
1 to 4 million jobs almost every
year. In addition, disruptive
innovation is mostly generated
by start-ups. Successful large
corporations such as Micro-
soft, Apple and Google need to
regularly acquire innovative start-ups to remain on the top.
The average internal rate of return (IRR) of start-up investments by groups of business angel
investors is 27% (listed equity provides only 7%), according to a meta-analysis by RSCM.
The mean exit multiple is 2.5x (+150%), the median 0.9x (-20%). No other asset class
provides better returns than start-ups! That’s why ambitious value investors go for Private
Equity rather than Public Equity.
OurCrowd analysed ten
public companies that
achieved value multiples of
300x to 1000x since their first
investment round. After 2004
(Google, LinkedIn, Facebook)
more than 95 percent of the
value creation happened du-
ring the private phase. Be-
fore, in the 80s and 90s
(Apple, Microsoft, Oracle),
listed equity was appealing –
but now it’s boring.
Start-up investments help to also achieve a proper asset allocation due to its negative
correlation to bonds, commodities and real estate. An analysis by a UBS economist shows
that over the last 30 years the very best asset allocation, for a patient investor with a ten
years investment perspective, would have been 50 percent in Private Equity and 50 percent
in commodities, bonds and real estate.
How to successfully invest in start-ups
Within your Early-stage Private Equity portfolio you will need a proper diversification as well.
Put at least twenty eggs in your basket over a five-year-period (add another five years to
«sell the chicken»). Statistics show that even top investors will see 40 percent failures and
only about 10 percent «big wins» with a multiple of 20+. The few «big wins» will contribute
about 70 percent to your total returns.

3. The authors of Winning Angels suggest that investors should learn the five steps of start-up
investing: Sourcing, Selection, Negotiation, Support and Harvesting. To read, invest and
share experience in organized groups such as Angel Networks, Micro-VCs or Crowd-VCs
would be beneficial for a shorter learning curve.
You might have guessed that there is a conflict of objectives between a diversified portfolio
of 20 start-ups, and the active role an investor can play supporting a maximum of about 5
start-ups. The solution is to systematically co-invest with other trusted investors that follow
the same strategy, as a super angel with hired investment managers, an informal group of
angels, an angel network, a crowd-investing platform or as a General or Limited Partner of a
Micro-VC fund.
Let’s have a closer look at the five steps suggested by
Amis and Stevenson:
• Sourcing: To select well you need a good choice of
at least 300 deals a year. If you are not yet a
famous investor, you will need to join a good angel
network, Micro-VC or crowd-investing platform.
You achieve better results with a focused strategy
(sector, geography) and pro-active sourcing of
upcoming topics and trends. The great hockey
player Wayne Gretzky used to say: «I skate to
where the puck is going to be, not where it has
been». In 2001, the author began actively scouting
for Social Networks, as a result he discovered XING
in late 2003 when the founder pitched in Zurich.
The exit multiple for XING in 2007 was about 35x,
today it is a «unicorn».
• Selection: You will need rational criteria such as geography (2 hours range), sector (1
or 2), stage (seed or growth), scalability (30x exit multiple feasible), investment size
($25-200k) and future capital need (lower than $20 million).
• Negotiation: A fair valuation of $1 to 5 million pre-money and VC terms such as liqui-
dation preference, minority rights, tag-along/drag-along are musts. And a tough due
diligence (20-40 hours) promises five times higher returns in the long run. You should
focus on management due diligence by interviewing all core team members and
checking references face to face.
• Support: The lead investor(s) should sit in the board of directors and meet monthly
to provide knowledge and network such as introductions to potential customers,
market access or research partners, investors, candidates and exit partners. In fast
industries you speak with the CEO on a weekly basis. Upcoming threats or
opportunities will require even more support time.
• Harvesting: You should discuss your exit before you invest, insist on the original plan
and help to identify exit partners and eventually an M&A firm with the right track-
record. And you should spot the best timing for an early, great or «fire-sale» exit.
An ideal start-up investor focuses on the feasibility of a 30x upside risk, not on the 1x down-
side risk. If his or her preferred sector was football or music, he or she would rather scout
the twenty best talents such as 15-year-old football player Martin Ødegård (later at Real
Madrid) or Pop Idol Kurt Nilsen (later World Idol) than investing in Cristiano Ronaldo or the
Rolling Stones. In great talents they see the upside potential, in stars the downside.

4. *) Nicolas Berg (58) is a serial entrepreneur, business angel, co-founder of a Micro-VC-fund and Entrepreneurship
teacher based in Switzerland. This year he will publish «The Start-up Manual». Berg co-founded a dozen start-
ups and co-invested in more than 40 start-ups as a Business Angel or Investment Manager. 2004-10 he was
XING Country Manager in Switzerland. 1998 he founded the financial platform Borsalino that was acquired by
Ringier in 2000. 1992-98 he was an editor covering Finance, Business and Technology for a leading newspaper.
1986-87 he worked as a sales and management trainer in Norway.
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