All Eggs in the Venture Basket by Szymon Janiak


The post was originally published in Polish on Szymon’s LinkedIn profile. Szymon kindly agreed to republish what we think is of great value to our readers.

Investing most of your wealth in startups is complete foolishness. I am writing this with full responsibility as the founder of a VC fund. I most often encounter this with people who are starting their adventure with capital management. All these stories look more or less the same to me: ‘I have PLN 100K at my disposal, I had an amazing opportunity to invest it in a startup. Admittedly, they are just starting out, but the CEO says that they have a chance to be a global tycoon. If they become a unicorn and I pass, I’ll regret it for the rest of my life…’ Then, riding a wave of excitement, they sign a contract, make a transfer, and a dozen or so months later… There are cries, gnashing teeth, and fighting. Where’s my money?!

The fundamental reason for the problems with this type of investment is a simple lack of knowledge. Startups are a great and – at the same time – extremely risky asset class – you can make a lot of money on it, but at the same time it is easy to lose. This should be taken as an axiom. Being aware of this is crucial, because you should not put more than 10% of your wealth into this type of investment. Slightly more restrictive sources say as much as 5%. Importantly, these investments should also be diversified. With USD 100K, it’s definitely better to make 5K from them for 20K than one for the total. It’s extremely important to understand this.

I disagree with the opinion that both funds and startups scam investors. They enjoy the fact that they are ‘squeezing’ significant amounts out of them to influence financial liquidity significantly. After all, a big fund or a round is always a success, right? This is typical preying on ignorance that should not take place. On the one hand, everyone should be aware of the risks, but we, as members of this ecosystem, especially if we act as a professional entity, should not only take care of our own interests, but also mind those of the people with whom we work. If, at the end of the day, it turns out that out of 100 investors in funds or business angels, only 2 or 3 will make money, what impact will it have on the assessment of the entire industry?

One needs to invest wisely, diversify, and follow certain rules. ‘One-of-a-kind bargains’ rarely turn out to be real. More reason, less fantasy and emotion. This whole industry works on the basis of statistics, if it wasn’t, the funds wouldn’t have so many companies in their portfolios. It’s worth remembering this when you get an out-of-this-world proposal again.

It would seem that there’s not a lot to add to such an old truth, and yet the comment section did:

Startups have become a kind of fashion. And as it happens in such a case, there is more noise around it than hard work. Making a fortune effortlessly entices many naïve people, and this, in turn, attracts crooks.

Krzysztof Raszczuk, Investment Advisor at InsERT

Lately I’ve been talking to startups a bit, and the problem is the lack of knowledge about how the market works and how to prepare for the fight – yes, fight – for the customer.

Usually, the plan is like this – I want to build an MVP (yellow light) but I need money… I ask what they do after building an MVP, – and here usually comes a bizarre answer – we go to other markets…

I don’t know who told these people that once they have a piece of (unused) code, they will conquer the world.

Artur Adamczyk, Owner at Artur Adamczyk ActiveADS


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