How to invest in startups and small businesses in expansion? – The Economic Journal

How to invest in startups and small businesses in expansion? - The Economic Journal


Investment in startups and expanding small businesses requires increased attention, and sometimes starting to support a different project begins even at home: fostering intrapreneurship. Investors are business partners, but must take into account factors such as the 'break-even point' of the project.

For small investors, in addition to the economic-financial variables that must be taken into account when investing in a business – including the internal rate of return, human capital, etc. – the justification of the break-even point [quando o total das receitas é igual ao total dos gastos] and that of burn rate [taxa na qual uma nova empresa usa o seu capital de risco para financiar custos indiretos antes de gerar fluxo de caixa positivo] "They require a lot of attention."

Octávio Viana, president of the Association of Investors and Capital Markets Technical Analysts (ATM), told Jornal Econômico that "there is a great tendency to neglect the real capital requirement burn rate expected and other normal contingencies in a business to start ", which is often due" to the desire to start with projects quickly and without large financial resources. " In his view, the attitude can lead to the premature death of these businesses or to unexpected capital increases.

Although ATM associates are generally oriented towards investment in the securities market, in projects with some history and maturity, Octavio Viana stresses that one of the main concerns of the investor is the burn rate it's the break-even point of the project: "A startup, because it is starting, usually has an outflow of capital (via initial costs and costs in project construction) greater than its inflow (still small because it is a business to start) resulting in a burn rate which, if not properly taken care of, could result in the premature end of the project (in premature insolvency) even before reaching maturity and showing that it was economically viable. "

Paulo Caldas, Director of Economy, Entrepreneurship, Financing and Innovation of the Portuguese Industrial Association (AIP), points out to the Economic Journal that venture capital can be used to create and develop a company or to invest in its capital. "Compared with other sources of financing, such as bank credit, public subsidies, offers on the stock market and the raising of private investors, it stands out for the concrete analysis of the projects presented, their growth potential and the relationship with the risk ", exemplifies the AIP spokesman.

According to Paulo Caldas, these investors are business partners, help give gas to marketing strategies and product development and are easier to resort to traditional banking. In addition, they "promote rigorous management" and the "integrated development of business solutions, from the management of the company to its distribution or marketing strategies".

Miguel Nuno Portugal, professor of Entrepreneurship and Market Studies at the European University, believes that most Portuguese companies are not prepared to develop 'in-house' creative and innovative ideas to join their business, so they seek solid ideas in the market and financial sustainability, based on the idea that "If I am not a fisherman, I have to go to the market to buy fish".

"It would be very good if Portuguese investors, mostly entrepreneurs, supported the initiatives of their employees and helped develop these creative and innovative ideas (intrapreneurship), otherwise they are forced to believe in the startups that are presented to them as the last stronghold for innovation, often opposed to their core business, disadjusted to corporate culture and inappropriate in the market where they carry out most of their activity, "says the university professor to the Economic Journal.

The author of the book "Entrepreneurship – Strategic Management" also emphasizes that Entrepreneurship "is not reduced to the opening of new businesses". "Unfortunately, it is usual to hear that" that person "is a great entrepreneur, because he has already opened three bars, a hairdresser and a mini market in the neighborhood", he points out, remembering that this concept "is above all the ) with innovation (action). Without these two ingredients we are not talking about entrepreneurs, but about entrepreneurs. "



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