Investing in startups pays off for Czech investors, research shows


The concept of angel investing is not very well known in the Czech Republic. It consists in the fact that the investor, as an individual, invests directly in the startup and buys stakes in the company. He provides not only capital but also his experience and contacts. As an alternative way of investing, it is one of the more risky ones. But as research shows, Czech investors are more successful than expected. How is it possible? We have considered this question with Petr Šíma, the founder of the network of angel investors Depo Angels.

Investing in startups pays off for Czech investors, research shows

At the turn of 2019/2020, you did a survey of the current situation of angel investors in the Czech Republic. One of the indicators of research is the "exit" - how many investors sold their stake and left the startup. The goal is to sell the stake for a much higher price. How did Czech investors do?

We were pleasantly surprised that 42 % of investors who have invested in a startup already have an exit behind them. Given that this type of investment is a long-distance run (5-7 years), we can assume that investors have been doing an angel investing for quite a long time. Another possibility is that the time from investment to exit takes shorter terms in the Czechia. I am personally inclined to this fact. Most exits from Czech startups take the form of an M&A transaction, not an IPO (which is a symbol of successful investment in the USA). This is usually a sale to a strategic investor or financial partner. This can happen much earlier, even at the cost of lower value.

This level of evaluation was a huge and positive surprise for me. The return 20 times on investment is a huge success by our standards. What do you think about this?

The chart Multiple means how many times the sale price of the stake is higher than the invested investment.

56% of investments yielded an appreciation of 1-5 times. This is in line with what I mentioned a while ago, that most investment is outsourced to a strategic investor. However, given the risky nature of startup investments, even such an appreciation can be considered a success. Compared to Europe, this assessment is average.

Investments of 21 % of investors were valued between 5 and 20 times.

16 % of investors stated that they achieved a valuation higher than 20 times. I agree with you and I also consider it a great success, even though the amount of capital invested cannot be compared to the USA.

I was interested in the fact that only 5 % of investments were unprofitable. We should reconsider the fact that investing in startups is risky. How do you explain that?

It's a surprisingly low number. Probably the number of investors is small and those are investors who are serious about it (and responded to our survey). At the same time, they are successful both in selecting investments and in helping invested startups.

So can it be said that investing in startups can be interesting for investors even in the current pandemic crisis when the classic ways of investing do not work?

Looking back at history, many successful startups such as Facebook or Alibaba were created in times of crisis. By supporting innovation, we support the future. I believe that these results will give courage to those who are considering startup investing. Anyone can become an angel investor. If you don't know how to do it, it's ideal to be part of a club. For example, Depo Angels is a network of independent angel investors and funds looking for quality projects, co-investors and support.

How does it work in the angel network?

Our main goal is to simplify the investment process from start to finish. We search the projects around all over Europe for members, analyze them, do the pre-select, organize events where startups can present themselves, consult, look for suitable co-investors and provide legal and M&A advice. If the investor adds his knowledge and contacts, the startup can significantly accelerate difficult beginnings and increase the chances of success.

So is an angel investor a full-time job?

There are angel investors who are fully dedicated to their portfolio, however, there are many entrepreneurs and C-level managers who want to try it out and find out how it works. In such a case, I recommend the Grouport fund, which operates on the principle of engaged investment.

If you look at those results comprehensively, what would you say in the end?

I don't think any investor would be angry if his portfolio earned as much as the average portfolio of Czech angel investors. The words at the end are: let's invest. Let us invest in times of crisis. That's the only way we can get out of it. 

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