12 Jul 2019 3:57 PM

Diversifying investments across various assets is often considered as a risk-efficient means of managing finance. While this has historically meant spreading finances into different types of shares, bonds or commodities, in the current economic environment ‘diversification’ could also refer to investing in multiple start-ups.

London has remained a fertile hotspot for start-ups for many years, with new companies in the UK’s technology sector having reached a record funding of circa $4.8 billion in the first five months of 2019. Inbound investments from US and Asian markets have also shown significant growth into Europe.

Before embarking on such a 'diversification' investment strategy it is advisable to do your homework first; here are a few points worth considering when choosing the type of start-ups to invest in:

  • Take time to fully understand the founding member's goals
  • Analyse the financial projections of the investees, for estimating the expected rates of return
  • Choose the right type of valuation to be carried out
  • Determine the extent of involvement which would be required in running the start-ups
  • Select a mix of start-ups based on your overall risk appetite

The key to diversification is not about the amount you have to invest, it is all about getting the right mix which can only be achieved through adequate research and detailed due diligence. These two are the absolute key in being a step closer to achieving optimum results.

If you would like to discuss this strategy further, or if you are in the process of purchasing or valuing a company, please do get in touch.