Investing in SAAS startups

risky, but so much fun

One of the best things about the world of investing is… wait. Yes, that you earn money with it. Ok ok. But besides getting rich (er), I really enjoy investing in UK SAAS startups.

Investing in young, small, ambitious startups is perhaps the riskiest thing you can do with your money. But the reason it can be so much fun is because you are involved with new ideas, concepts, trends and technologies.

What is startup investing?

Suppose you have an idea. And you develop that idea into a business plan with a prototype product, service, app or revolutionary way to send your in-laws to Mars.

Then you need people who believe in you and your idea. People who want to invest money in your startup and can help you make it a success.

In exchange for a share in your small, young company, you hold an investment round. You can do this privately by inviting acquaintances in your network to participate.

But nowadays it is possible to register your start-up financing with a crowfund network or an angel network with the SAAS community.

Investing in startups – Angel Investing

The term Angel Investing is popular in America and refers to investors who put money into companies before anyone even sees any profit in it. They are the “Angels”, so saviors of an idea or startup.

But also in the Netherlands there are now an estimated more than 10,000 investors in startups.

In exchange for investing money and taking a big risk, these Angels are often given one of the best conditions for becoming a co-owner of a small business.

For example, they take a 20% interest in a start-up and invest 100,000 euros in it. As a result, the first real value of a startup is generally 100,000 / 20% = 500,000 euros.

If successful, several more rounds often follow, which other investors can jump in. But at less favorable conditions than those of the Angel.

With such a next round, the value of the Angel’s part can increase significantly. Imagine that in the next round a number of investors want to get involved by investing 500,000 euros in the startup, against a combined 20% interest.

This makes it possible to recalculate the valuation of the startup. From 500,000 previously (for the Angel) to now 500,000 / 20% = 2,000,000 euros. And since the Angel also has a 20% stake, it would be worth 20% of 2 million = 400,000 euros. While in the first round he invested “only” 100,000 euros.

This is of course a simple calculation and it really is a bit more complex.

Why I invest in tech startups

I like it. For real! I am a technology enthusiast and I follow new developments closely. It is very interesting to be involved with entrepreneurs who are full of energy behind their product or service and who want to make it a success.

Like Mark Zuckerberg in the early days of Facebook. Successful investor Peter Thiel, among others, has joined in on this and that has done him no harm. Did he know Facebook was going to be that big? Probably not. But he saw something in the idea and in Mark that made him want to invest in Facebook and take the gamble.

So wouldn’t it be great to also have the opportunity to invest in something, even before it is a real success and everyone is talking about it? Yes! However, that is not the only reason why I want to invest in startups.