Investing in privately held tech companies
Why was I able to invest five thousand dollars in Space X and similarly access a diverse group of late-stage US based startups, while I have close to zero exposure to any of MENA’s great startup stories??
Why, you ask? Let’s break this down together…
SpaceX is a private company founded by Elon Musk that is very well funded and growing rapidly (definitely does not need my five thousand dollars to survive). The shares were bought from early angel investors who sold part of their stake through a secondary sale and not as part of a primary fundraise. For me however, the 0.000000…01% I own matters. Every time I see a new rocket launch, I feel part of the story. I’m engaged, I’m excited and I’m talking about SpaceX to my friends.
We reference the US here as it has one of the most active secondary markets for privately held venture backed companies. Investors have the option to invest at different stages of a startup’s lifecycle and at a range of investment sizes – empowering investors to diversify their portfolio and consider risk / return and liquidity in their allocation strategies.
So how do we get in on MENA startups?
Angel investors in MENA do get good opportunities to access early-stage startups in their first few fundraising rounds. Joining angel investment groups or other venture networks for example helps with this. When made, those investments are often locked up for a long period of time, with a potential to make significant returns if the startup succeeds in 5, 6, 7, 8… years.
But if you are like the majority of us, you probably:
- Don’t have access to a good pipeline of early-stage deals
- Your risk appetite does not allow you allocate large amounts to startups that have not yet proven product-market fit
- You can’t afford to have your money locked-up in any single investment for more than a few years
If any of these apply to me does this mean I’m locked out of the venture ecosystem in MENA? Not at all. This is where Zest comes in. We are democratizing access to the venture ecosystem across different stages of growth – including those who are proven regional winners in growth / scaling mode.
Now that you know how to get in, what are you getting yourself into? Skipping the J-curve
Investing in later-stage startups, which generally means Series A / B or 4+ years into the startups lifecycle has several unique features that investors can benefit from as compared to those that enter early.
- Lower risk: startups are risky, however, once a startup proves product-market fit and enters its growth phase, risk can be better assessed, and investors can make informed decisions in line with their risk / return tolerance
- Shorter time to liquidity: entering at later stages of a company’s lifecycle often means the startup is closer to an exit (eg. public listing, acquisition, or other liquidity event)
- Diversification: holding investments across in a wider range of companies at different stages of growth within your venture portfolio can be beneficial in many ways – a diversified basket of investments can provide for more stable returns overall
- Attractive valuations: secondary transactions (opportunities to buy from existing shareholders) often trade at discounted prices.
- Be part of the innovation: opportunities to engage with and be part of leading startups within the regional ecosystem. Speak their stories and experience their journeys.
Investing across a startups’ lifecycle can be risky at each stage – but if we want you to walkaway with anything from this article it is that you should be able to access both early and later-stage opportunities, diversify your allocation and feel empowered to choose the investments that interest you.
Empowering investors with access
Zest is bridging the gap and allowing individuals (and institutions) to invest in previously inaccessible proven winners, with a more palatable ticket size. Our platform digitizes the investor process and utilizes best practice legal and compliance governance so you don’t have to worry about the details.
Simply register, access and invest.
Join Zest here.