SeedBlink Blog

Tech Investors Academy, powered by SeedBlink, is a hybrid learning program designed for startup investors who want to enhance their venture capital knowledge.

This year’s edition of the Tech Investors Academy had a different format, taking the shape of an online course with four different modules on the following topics, which we’ll summarize on our blog in the upcoming weeks:

• Deal assessment and portfolio building  
• Legal conditions influencing different round types
• Cross-border investment strategies
• Understanding liquidity and secondary market transactions

During the first learning session, we explored the essentials of crafting a successful investment strategy. Participants learned to identify the key factors that drive portfolio performance, aiming for high returns of 10x and above.

This session was led by Angel Hadjiev, SeedBlink’s Regional Manager for SEE, experienced in mergers and acquisitions (M&A) and debt restructuring. Angel also invited Tihomir Dyankov, a Partner at Invenio Partners with extensive portfolio management experience and a history of working in the venture capital and private equity industry.

From their discussion, we have unpacked the most important things you should know to learn how to assess your deals successfully.

How do you build a strong portfolio in today’s environment?

Investing in startups and venture capital has a form of cyclicality that can significantly impact the portfolio that investors are trying to build. In today’s fundraising landscape, it can be particularly challenging due to fluctuating interest rates, inflation, and geopolitical uncertainties.

Historically, some of the best investments have been made during difficult times. It's easy to invest when the economy is thriving, money is abundant, and market sentiment is positive. However, staying committed to investing during downturns is one of the best strategic moves despite its challenges.

On average, investors can overcome difficult economic cycles and achieve a more stable and consistent return over the long term.

Look at the dynamics of markets' ups and downs to understand how to adapt strategy and navigate market transitions. Interest rates and inflation directly affect asset prices and returns, while geopolitical events can lead to sudden market volatility and shifts in investment landscapes.

Adjusting your investment thesis based on macroeconomic, geopolitical, and regional developments is often necessary, but keep in mind that some elements and factors will always exist.

While the sectors you focus on may change in response to these external factors, the core aspects of your investment strategy—such as the amount invested, follow-on investment rounds, and the number of investments—should remain constant.

mentions Tihomir Dyankov, Partner at Invenio Partners.

Diversify your portfolio

To manage the potential risks associated with investing in startups, investors focus on building a diversified portfolio.

A consistent investment strategy spreads investments across various opportunities, which can help mitigate the risks associated with this type of asset class.

By diversifying, investors can protect their portfolios from the volatility of private investments, ensuring a more stable and potentially lucrative outcome over time.

To efficiently diversify a portfolio, spread your investments across 20 to 25 companies and avoid being overly exposed to any single investment's failure. Additionally, we recommend allocating 20% to 30% of the investment budget for private assets towards follow-on investments to capitalize on opportunities with companies performing well and mitigate overall risk by spreading investments over a broad portfolio.

mentions Tihomir Dyankov, Partner at Invenio Partners.

How much of your portfolio should you invest?

When it comes to investing in private assets, it's generally recommended that private investors allocate between 5% and 10% of their net worth to this asset class. Private investments are inherently risky and highly illiquid, unlike publicly traded stocks, which can be easily bought and sold on the stock exchange. Ideally, choose to invest in platforms where the secondary market is part of the process to lower the risk of your portfolio.

Venture capital funds, for instance, often expect a return of 50% to 60% on seed investments to compensate for these risks. However, private investments require patience and a long-term commitment, as the pathway to realizing returns can be unpredictable and quite a long one.

One option for private investments is secondary markets, which offer a measure of liquidity that is typically unavailable in the private asset space. Secondary markets can make these investments slightly less risky, offering investors the option to realize their investments earlier, potentially at a discount.

4 important factors in deal assessment

When assessing deals, individual investors should start by making a personal assessment to understand why they want to invest, whether in startups or more advanced companies, and how much they are willing to invest.

The process takes into account their own network and investment portfolio. Due to their high risk and illiquidity, private assets typically represent only 5% to 10% of an individual's portfolio. Since investing in startups is a long-term game, with results often taking 3 to 10 years to materialize, investors must decide on the types of opportunities they want to pursue.

One of the most crucial factors in deal assessment is consistency in adhering to predefined investment parameters. From vertical to maturity or even instrument or specific investment rights, investors should remain strict about their investment criteria to avoid making mistakes. Venturing outside of one's comfort zone can lead to poor decision-making and potential losses. This principle applies to private assets and all types of investments.

Another key factor in the early stages of startup investments is assessing non-financial metrics. These include the quality of the team, the market potential, and the innovation of the product or technology. These factors can often be better indicators of future success than financials alone, especially when dealing with startups that may not yet have a proven revenue stream.

The next component is having a clear exit strategy from the beginning. Understanding and planning for how and when to exit an investment can significantly impact the realization of returns. Given current market conditions, strategic acquisitions are often more favorable than IPOs. This way, you can maximize their returns and align their exit strategy with market opportunities.

Another factor to consider is that if a startup hasn't shown significant growth within three years, it might be a good time to consider selling your ownership through a secondary market. If you regain your funds, you can reinvest them in new and more promising opportunities.

What matters more in deal assessment?

When you are investing in companies in difficult times that don’t generate significant revenues but show potential for substantial revenue growth, you might consider focusing on the next three elements:

• Team
• Market
• Technology

Assessing the team before the deal.

Investors often focus on determining whether the founder is truly dedicated to the idea or just testing the waters. Spend time with the founders to understand their commitment and motivation for building and growing the company.

After determining the founder's commitment, the next step is to uncover their motivations. Asking questions like, "Why is the founder in this space?" and "Is it purely for financial gain, or are there deeper reasons?" can reveal a lot.

Knowing what keeps them awake at night and whether this is something they are passionate about every day can indicate their likelihood of persevering through challenges.

A founder with a strong "why" is more likely to find solutions to problems and push through tough times, which is crucial for the business's success. A passionate and committed founder can often distinguish between success and failure.

Additionally, Tihomir mentioned that, as an investor, he also looks for the founder's ability to attract additional team members, either as co-founders leading the company or as one of the first key employees. A founder who can persuade other senior team members to join gives investors a good pillar on which to step in the company's development.

What comes first, the market or the deal?

While there is an open discussion about whether the market comes first in deal assessment, there is no doubt that sooner or later, you’ll have to consider it.

Prioritization can come from how involved VCs are in the daily operations of the companies in which they invest. Smaller funds typically manage fewer investments, usually around eight to ten per fund.

The approach allows for a more hands-on approach, providing substantial company support and guidance, but also comes with more strict investment criteria, focusing on selecting the best teams to ensure success.

On the other side, larger VC funds often manage between 50 and 100 investments in a single fund, making it difficult to stay deeply involved with each one. In these cases, a significant market opportunity can compensate for a less-than-stellar team or product because the sheer market potential can drive growth and returns.

Some investors believe a strong, committed team can navigate and succeed even in a decent market. A great team can differentiate themselves, build a competitive advantage, and drive the company forward, overcoming market challenges.

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