Investing in random group of startups secures better returns than firms backed by Dragons’ Den stars
Investing in a random group of fast-growing firms could secure better returns than the companies backed by Dragons' entrepreneurs, according to the latest research.
Publicly reported investments made by Dragons' celebrity judges, including Deborah Meaden, Peter Jones and Theo Paphitis, in 2011 and 2012 grew at an average rate of 16 per cent up to this year, analysis by investment platform Syndicate Room found.
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Meanwhile, a study into every UK startup that raised seed or venture equity finance in 2011, a group of 506 companies, found the cohort had grown at an average rate of 28 per cent per year to 2018.
Syndicate Room co-founder Tom Britton said: “This research further highlights the importance of diversification – it’s one of the most powerful tools any startup investor can use.”
An investor that had backed the cohort with £10,000 eight years ago would have made £72,800 in the years since, the research showed.
Analysis of investments made in 2011 within the group of start-ups showed that only 38 per cent of UK venture capitalists were able to outperform the cohort as a whole.
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Britton added: “But what has surprised us most are the returns that our simulation of 30 plus completely blind investments often produced.
“Just like exchange traded funds and index funds made public markets accessible, I’m really excited to see the profound effects that radical startup diversification will have on the venture capital industry.”