How to invest in startups: Driving innovation and maximizing returns

Investing in startups is not only profitable, it is also essential to ensure a competitive economy and strengthen the entrepreneurial ecosystem. Despite the competitiveness challenges it faces, Europe has a growing startup ecosystem in sectors such as AI, renewable energy, and biotechnology, offering attractive opportunities for investors seeking diversification and high return potential. 

In Spain, companies like Recover in the circular economy, TravelPerk in business travel, Peptomyc in cancer biotechnology, Typeform in SaaS technology, and Cabify in mobility and transport are examples of startups that have successfully attracted funding and gained strong market positions. 

Startups are no longer a niche — they’re strategic assets

This reflects the maturity of a startup ecosystem with increasingly solid strategies, greater institutional support for technological innovation, and key events connecting entrepreneurs and investors, such as the Esade Entrepreneurship Summit to be held in Barcelona on May 28, 29 and 30. 

The trend is clear: startups are no longer a niche and have become strategic assets. But what does making investment decisions in this field really involve? What criteria are key? Teresa Corrales, teaching fellow at Esade, former director of Executive Education Programs, and a seasoned finance, addressed these questions in a session held during the recent Esade Live Experience, a day for partners, candidates, and alumni to discover the new Madrid campus. 

Why invest in startups? Key benefits and opportunities

Investing in startup companies is no longer a niche activity reserved for insiders. It has become a mainstream strategy for anyone seeking portfolio diversification, exposure to high-growth sectors, and a direct hand in shaping the economy. Beyond the financial appeal, investing in a startup business supports innovation (internal or external) and creates economic, business, and social impact.

The data supports this view. According to the IV Study of Venture Capital Fund Profitability in Spain (EY, 2023), startup investment has delivered returns of 11.2%, outperforming the Ibex 35 (the benchmark stock market index in Spain) and nearly doubling the return on real estate over 10-year periods. It’s a high yield, but as Teresa Corrales notes, “it requires taking risks, identifying opportunities with clear criteria, acting strategically, and building a portfolio.”

Main benefits of investing in startups

• Portfolio diversification: startups have low correlation with traditional assets such as the stock market or real estate.
• High potential return: venture capital funds have consistently outperformed stock market indices over 10-year horizons.
• Impact on innovation: investors contribute to the development of solutions that transform entire sectors.
• Access to emerging sectors: AI, biotech, renewable energy and financial technology are some of the areas with the greatest potential.
• Tax advantages: in the UK, investment in start-ups is eligible for income tax deductions of up to 50% of the amount invested (Start-ups Act, 2022).

Can anyone invest in startups? Understanding your options

One of the most common questions people ask is: can anyone invest in startups? The short answer is yes, but the method and minimum amount will depend on your investor profile, available capital, and appetite for risk. Here are the main ways to invest in startups today:

• Business angel: direct investment in early stages (pre-seed or seed), with a ticket usually between £10,000 and £150,000. It involves a close relationship with the founding team and often contributes networking and experience.
• Venture capital (VC) funds: collective vehicle managed by professionals who invest in a portfolio of startups. They allow access with a lower minimum investment capital in startups and delegate management.
• Equity crowdfunding platforms: allow participation in financing rounds with low tickets (from £500), democratising access to this type of asset. They are the most common route for those looking to invest in startups with minimal capital.
• Corporate venture capital (CVC): Large corporations invest in startups as part of their open innovation strategy through dedicated CVC arms. This allows them to stay close to emerging technologies and business models while generating financial returns.

Each modality has different implications in terms of liquidity, time horizon and level of due diligence required. Understanding how to invest in startups according to your own investor profile is the first step in making informed decisions.

How much to invest in startups?

How much to invest in startups depends on your financial situation, risk tolerance, and chosen investment vehicle. A general rule of thumb is to treat startup investment as a high-risk, high-reward asset class and allocate only a portion of your overall portfolio,  typically between 5% and 15% for most individual investors.

For business angels, the recommended approach is to build a portfolio of at least 10–15 startups to spread risk, since the majority of early-stage companies will not return capital. Diversifying across multiple startup investments is key to managing the inherent risks of investing in startups.

If you're just starting out, equity crowdfunding is the most accessible entry point, allowing you to invest in startup ideas for a few hundred pounds while you build experience and knowledge.

Where to invest in start-ups: Geography and sectors

The question of where to invest in start-ups can be approached from two complementary perspectives: the geographical ecosystem and the sector or vertical activity.

In terms of geographical ecosystem, Spain has a mature ecosystem, with Barcelona and Madrid as the main hubs. At European level, the State of European Tech report ranks Iberian tech start-ups in increasingly relevant positions in the digital health, fintech and sustainability verticals.

By sector, those looking to invest in tech startups today have a wide universe to choose from: applied artificial intelligence, cybersecurity, biotechnology, sustainable mobility and industrial automation platforms are some of the areas with the greatest potential and capital attraction in Europe.

Investing in startup ideas early in high-growth sectors gives investors both financial upside and the opportunity to support solutions to real-world problems.

Profitability and innovation: the perfect tandem

Time to bust the myth: investing in startups isn’t just about financing technology. It means anticipating needs, identifying where value is being created, and backing models that can scale efficiently and swiftly — three essential elements for assessing a startup’s viability, profitability, and innovation potential. 

Identifying a promising investment opportunity takes more than passion. It requires method and vision

In this landscape, the investor — particularly the business angel — plays a more active role than it might seem. They bring not only capital, but also networks, experience, and credibility. Today’s investor is not just a patron of entrepreneurship, but a builder of ecosystems. 

How to identify a high-potential startup

As Corrales explains, spotting a promising investment opportunity takes more than enthusiasm — it demands method and vision. High-potential startups share identifiable traits. It’s also essential to assess the growth logic: What’s the business model? What are the market entry barriers? These questions are key to gauging whether a project can turn innovation into profitability. 

Selection criteria: what to look at before investing

Before participating in a funding round, several key aspects should be carefully examined: 

• The founding team: their strength, industry experience, and execution capabilities.
• The real competitive advantage of the product or service.
• The business model:  is it scalable? How does the company make money, and how does that evolve as it grows?The market opportunity, including the size of the target market and projected growth.
• The market opportunity, including the size of the target market and projected growth.
• The exit strategy: how and when the investment will be recouped. 

From a financial perspective, the business plan should go beyond figures — it must be well-reasoned, with clearly defined assumptions, a justified CAPEX, solid competitive analysis, and realistic growth forecasts. Beyond an optimistic income statement, the financial plan should enable cash flow projections that support a well-timed financing strategy and effective negotiation. 

Startup valuation: How to price your investment 

Traditional valuation methods don't apply well to early-stage startups. These companies are expected to grow rapidly, and their financial profile will change significantly — meaning their future valuation is typically far higher than their value at the point of initial investment. Tools like discounted cash flow (DCF) or EBITDA multiples are not appropriate at this stage, where uncertainty is high.

Instead, investors use specialised approaches:

• The VC Method: projects an exit value, sets expected returns, calculates the required ownership percentage, and translates this into share price and allocation.
• The Scorecard Method: compares the startup to a benchmark of similar companies, adjusting valuation based on team quality, market size, and product differentiation.
• The Berkus Method: assigns value to five key risk-reducing factors, providing a pre-revenue valuation based on what has already been validated.

Valuing startups isn’t about applying traditional formulas or relying solely on analysis. As Teresa Corrales points out, “it’s also about providing context and vision.” 

The startup investment environment is demanding, which makes preparation and vision essential

In the AEBAN 2025 Report, business angels identify several obstacles they frequently face. These include the difficulty of finding strong opportunities, lack of liquidity, economic and political volatility, and the need to identify solid co-investors. These are real barriers that highlight just how demanding the environment is—and why preparation and vision are key. 

The real risks of investing in startups

No guide to investing in startups would be complete without addressing the risks. The risks of investing in startups are real and significant, most early-stage companies fail, and even well-funded startups can fall short of expectations.

Common challenges highlighted in the AEBAN 2025 Report include:

• Difficulty finding strong, high-quality investment opportunities.
• Lack of liquidity, startup investments are typically locked up for 5–10 years.
• Economic and political volatility affecting valuations and funding rounds.
• The need to identify reliable co-investors and build trust within investment syndicates.

These barriers make preparation and a clear investment framework essential. Understanding the risks of investing in startups upfront is not a reason to avoid them, it's a reason to approach them strategically.

Designing the future: the best return

The entrepreneurial ecosystem is booming. Investing in startups is no longer just an interesting alternative—it’s a strategic and necessary move. In this context, events like the Esade Entrepreneurship Summit are becoming real drivers of economic transformation. 

Behind every investment decision lies the challenge of generating not only financial value but also long-term impact. It’s about actively contributing to the evolution of the economy toward new horizons—and backing not only what already exists, but what is still to be built.

Ready to start? Whether you're exploring digital investment in startups for the first time or deepening an existing portfolio, the key is the same: invest with method, vision, and a clear understanding of both the opportunity and the risk.