Investing in startups: Driving innovation, 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 24 and 25. 

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

In recent years, investment trends have shifted. Beyond financial appeal, investing in startups offers portfolio diversification, supports innovation (internal or external), and contributes to entrepreneurship with economic, business, and social impact. For executives and business angels, it also allows them to align their investments with the trends transforming key industries. 

The data supports this view. According to the III 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.” 

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.
• 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. 

Future valuation: making the investment tangible

When it’s time to make an investment decision, traditional valuation methods don’t apply well to startups. These companies are expected to grow, and their financial state is likely to change significantly. This means their future valuation is higher than in the initial capital injection phase. Thus, tools like discounted cash flow or EBITDA multiples are not suitable in early stages, where uncertainty prevails. 

Instead, approaches such as the VC Method, Scorecard Method, or Berkus Method, among others, are used to estimate a startup’s future value and determine the investment stake and price per share. 

The VC Method involves projecting an exit value, setting expected returns, calculating the required ownership percentage, and translating this into share allocation and pricing — all key elements in investment negotiations. This is also where factors such as dilution risk — which considers possible subsequent funding rounds — and the importance of clear shareholder agreements following term sheet negotiations come into play. 

The real challenges for investors

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 2024 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. 

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.