Weird question, isn’t it? It is so obvious that mankind’s progress and future are driven by technology, and every wealthy person needs to invest in the future. Well, it is probably not so obvious, at least in Europe. Compared to the US, the share of venture investments in the portfolio is mostly much lower in Europe.
European investors are generally more risk-averse. They prefer to be on the safe side and favour real estate. I believe that one important reason for that is the role of state. Let me explain. In US culture, traditionally, the state had less influence. People tend to rely on themselves. And wealthy people feel the necessity to give back. Europeans have always been used to a strong state that takes care of and helps. So why do I give back? I pay taxes.
One reason for investing in start-ups is definitely giving back. Supporting entrepreneurs and helping new technologies to be created. And be part of something new and big. Something that will have a huge impact.
One Czech wealthy person told me years ago that he doesn’t want to invest. He doesn’t want any profit. He wants to give out all his fortune. To charities, to those needed. Good intentions for sure. But it’s a bit funny. Endowments are, together with pension funds, the largest investor in VC in the USA. Supporting entrepreneurs and entrepreneurship is as vital as charity to me. Remember the saying – don’t give them fish; teach them how to fish. And in Europe even more. If something can change our bureaucratic, old-fashioned way of doing business, it is the rise of entrepreneurship.
But the main reason to invest is financial. Investors want to make money. In this case, greed is good for sure. Return on investment is the way we measure success. And VC is, in the long term, the most profitable asset class. But be careful. The power law is very strong here. A small portion of investments account for all the profit. You can lose 80% of your investments, and still, the remaining 20% will give you a very nice profit. So, if you invest to make money, do it wisely. I’ll come to that later.
Many entrepreneurs and corporates invest to keep up with the latest technology. Innovation. Today’s most prominent corporations were small start-ups not long ago (by the way, it is interesting to compare the average age of corporations in the US and Europe. The American ones are small children compared to their European peers. But they are the largest corporations in the world). And they often keep the startup mindset and invest to retain their superiority. ChatGPT is an excellent example.
Active investment also keeps you young. If you invest directly as an angel or through funds as an LP, you can spend your time with a community of inspiring people. If you want to be a good investor, you need to think about future trends. As it is a private market without trading, you make decisions for a long time. You don’t have to check the stock exchange daily, but you need to understand trends. And that comes with learning. For many investors, learning is one of the major assets they get from investing.
The good question is, why not invest? If you invest, you can lose all your money, that’s sure. And you can waste a lot of time because it is not easy to learn to make the right bets. But, as I see it, you lose much more if you don’t invest. Agree?
Do you want to discuss some topics? Do you have remarks or questions? Let me know; I will cover it in the coming posts.
Petr Sima, Founder and Partner @ DEPO Ventures | EBAN board member
