Institutional investors are more than happy to support the startup that can make it big: A recent survey by The Washington Post and Bloomberg found that 58 percent of institutional investors surveyed support the venture-backed companies that go public.
That number was higher than that for institutional investors in the U.S. as a whole, where just 20 percent support the start-ups.
“You have a lot of investors who have been invested in the companies before, and they’re going to be very invested in these companies, too,” said Michael Shatz, managing partner at Shatz and Co., a New York-based venture capital firm.
“It’s the same with startups.
It’s a good place to be, but they can’t go public, so there’s a lot more to the equation than just investing.”
The survey found that nearly one-third of institutional funds also say that they expect to support startups with a net-worth of $1 billion or more, and that they are more likely to support a company that raised $500 million or more than a company with a valuation of less than $100 million.
“I think the biggest thing that institutional investors are really looking for is that they have a solid business plan, they’re not going to make money overnight, they have solid investors behind them,” Shatz said.
“I think that’s the big selling point.”
One caveat is that it is hard to gauge the extent to which these investments reflect the companies’ ability to turn a profit.
Shatz explained that, when it comes to the tech-heavy venture capital sector, investors tend to be more focused on the long-term and short-term financial performance of the companies they are supporting.
“Investors are looking for long-run success and that’s really what we’re looking for,” Shanks said.
“The reality is that the vast majority of VCs that are going to go public have a strong business plan and are very profitable,” he added.
Shatz said that the lack of venture-funded start-up investments, especially in the tech space, could be an issue in the next year.
“As a VC investor, you have to be really focused on your long-range financial plan,” he said.
For the most part, Shatz expects to see more money coming into the tech industry.
“A lot of people who are going public have their financials and their plans, and I think that people who haven’t been in VCs, but I think are interested in the sector, I think they’re really going to see a lot less money coming in,” Shats said.
But it may not be long before investors realize that the investments they are giving up on are not necessarily worth it.
“We are in the midst of a massive bubble in VC investments,” Shaztsaid.
“We see a bunch of people are putting money in companies that are really not going anywhere, and we’re seeing a lot in the last few years that’s just not going where they want to go.
That’s not really a great way to get in.”
For more of The Post’s tech coverage, go to the Washington Post, Washington Post Tech and the Web site for the Association of American Publishers.
For the full survey, go here.