Startup investing is an alternative investment class within private equity. This type of investing refers to the investment in privately-held companies not listed on a public stock exchange.

These private companies range from early-stage innovations to later-stage commercializations.

While 97% of all companies are privately held, private equity and startup investing have primarily only been available to institutional investors and ultra-high net worth individuals, who invest either directly or via experts (e.g. venture capital or growth equity funds).

These sorts of investors can dedicate substantial sums of money (millions) over an extended investment period.

However, the democratization of access to private equity and startup investing has taken off* — making it a great time for you to start considering why and how to start investing in startups.

Always feel free to reach out if you have any questions!

Why invest in climate tech startups

As a startup investor, you buy a piece of a privately-held company with your investment.

Your capital is exchanged for equity — a portion of ownership in a company and rights to its potential future profits.

If the company turns a profit, you make returns proportionate to your amount of equity in the startup; if the company is sold, you get the corresponding share of that selling price; and if the startup fails, you can lose the money you’ve invested.

But why would someone want to invest in an asset with a high risk of failure and long holding periods for the companies that do make it?

Well, privately-held companies have the potential to grow fast, meaning that a winner could make you a 10x or even 100x returns. Plus, it is well documented that more and more companies are staying private for longer.

According to FundersClub, if one waits to invest in a startup once it’s public, they might be missing out on 95% of the gains.*

Massive global players like Google, Apple and Microsoft all started as startups. Can you imagine how much money early investors made from those tech giants above?

On top of the returns, true impact and innovation investing happen at startups.

We detail 4 reasons why one should consider investing in startups:

Note: Regardless of how you invest, many startups fail and the successful ones can take 10 or more years to grow to a point where an investor makes a rewarding exit.

1: Innovation and value creation

When you invest in startups, you are investing in innovation.

Startups are mostly successful if they address an unmet need or a gap in the market. The technological innovations and creative solutions of startups challenge our status quo and can act as catalysts for societal change, economic recovery and responsible growth.

In the context of climate startups, the first half of global greenhouse gas (GHG) emissions can be mitigated with mature technologies (e.g. solar panels).

To mitigate the rest of our GHG emissions, it requires innovative startups with technologies, proven at most in the lab, to reach commercial scale for us to reach net-zero.

Plus, at nearly $3 trillion, the value creation of the global startup economy is on par with the GDP of a G7 economy.*

2: Investor impact

The impact of capital allocation for startups is critical — they depend heavily on the capital they raise from investors to fund their growth and product development. By investing in startups, investors can directly provide working capital to emerging leaders and innovations not yet scaled.

For how to maximize your impact as an investor, we wrote a full guide here.

3: Diversification

Diversification in your portfolio is a powerful way to mitigate your investment risks. One example of this: there’s often less correlation between the performance of private companies and the behavior of macro-level shifts in the overall market.* Plus, you can invest in startups that fit your personal and diversification values since startups across industries and emerging markets are all looking for (require) funding.

4: Return potential

Startup investing is a high-risk, high-reward asset class — the big risk of investing in an early-stage company can be rewarded with returns much higher than public companies.

Let’s look at Tesla.

On the first day of Tesla’s IPO, the company shares increased by 40.53%, giving its Series A investors a ±50x return on their investment, which has grown significantly since then.*

While the past performance of startups does not guarantee future success, with the right due diligence, you may find a diamond in the rough with huge returns.

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Sounds like something you want to be a part of, right?

Cool! Let’s dive into the different ways of how you can start investing in startups.

How to invest in climate tech startups

Each pathway to investing in startups comes with its set of advantages, requirements, difficulties and risks. Below, we break down four common ways you can invest in startups.

Angel investing

Difficulty: 🔥🔥🔥  |  Risk: 🍀🍀🍀

Angel investors are often wealthy individuals who invest their own capital directly into startup companies during the early stages of development, receiving an ownership stake in return. On top of the financial requirements (at least $10K, sometimes $1 million in liquid assets), typically angel investors possess a strong network and direct personal relationships with the founders of a startup to get a foot in the door. The most successful startups can typically choose who they partner with, which means it’s important to ‘bring something to the table’ to be allowed to invest in these companies. Angel investors will generally invest in seed-stage startups, giving these companies the much-needed cash flow to get to the last stage of technical development and market entry. More than just capital, angel investors often can provide valuable technical skills, market insights and a network to help a startup to grow and accelerate.

Advantages of angel investing

  • Direct Influence: Angel investors often have the opportunity to advise and influence the startup's direction.
  • High Potential Returns: Investing at an early stage can yield significant returns, albeit with higher risk.

Disadvantages of angel investing

  • High Risk: Investing in a single startup increases risk exposure.
  • Time-Intensive: It demands significant time for due diligence, networking and portfolio management.

Crowd equity or crowdfunding

Difficulty: 🔥🔥  |  Risk: 🍀🍀🍀

Crowd equity involves investing ‘smaller’ sums of money together with a larger number of investors (the ‘crowd’) — in exchange for shares in that startup.

This method of investing happens on online platforms where businesses create profiles that include their pitches, financial statements and other information.

This approach differs from trying to attract sizable investments from angel investors or venture capital (VC) funds (described below).

Crowd equity investors may be able to get involved for as little as $100 depending on the platform. The startups available to invest in tend to be early-stage, seed startups. That said, more and more established brands are using it as a co-funding tool together with raising capital from VCs.

Cowboy, a Brussels-based e-bike startup, raised a €71 million Series C funding round while also raising €2.7 million in crowdfunding — a unique way to further engage its community of fans and riders.

Advantages of crowd equity

  • Ease of Access: Online platforms make entry into startup investing simpler.
  • Lower Entry Barrier: More accessible investment amounts allow wider participation.
  • Investor Control: Investors choose which startups to invest in.

Disadvantages of crowd equity

  • Self-Management: You are responsible for the research and portfolio diversification, which can make it more time-intensive.
  • High Risk: The risk is especially high if you only invest in one or a handful of startups, especially with limited startup opportunities on these platforms.
  • Limited Selection: While quality crowd equity opportunities have increased recently, it’s still not typically where top founders look first to raise capital.

Direct private equity or venture capital fund

Difficulty: 🔥  |  Risk: 🍀🍀

A private equity (PE) or venture capital (VC) fund raises money from various sources to invest in startups and scaleups. These funds are managed by investment teams of experts in the field. Generally, those who can invest in PE and VC funds are family offices, institutional investors (pension funds, university endowment funds, etc.), and high-net-worth individuals (with assets over $1 million). PE and VC funds make investments according to their specific investment mandate, which normally is structured around:

  • Industry (fintech, consumer, health, climate technology, etc.)
  • Stage (seed investments, early-stage, late-stage, growth equity, etc)
  • Geography (continent, country or regional)
  • Impact (positive impact on the planet, societal impact, etc.)

This mandate is put into practice by the fund managers who are responsible for sourcing investments, the investment decisions and determining the amount of capital given to each startup. These fund managers also have the capability and responsibility to maximize the returns of these startups. They do so by providing them with additional resources like industry knowledge and connections, helping a startup scale with speed. A typical VC fund raises between €50 million – €500 million and invests in 10-30 startups over an investment period of three to four years.

Advantages of a direct fund

  • Expert Management: Funds are managed by professionals who select and negotiate investments.
  • Provide support: Funds provide expertise, network and reputation to help companies grow.
  • Diversification: Funds typically invest in multiple startups (10-30), offering risk diversification.

Disadvantages of a direct fund

  • High Minimum Investment: Entry often requires substantial capital (€2-10 million).
  • Network Dependent: Accessing top funds usually requires strong industry connections.
  • Performance Variability: There's significant variance in fund performance, necessitating knowledge and diligence to select the top funds.
  • Fee Considerations: Investment involves fees, which can influence overall returns.

Venture capital fund of funds (FoF)

Difficulty: 🔥  |  Risk: 🍀

A fund of funds is an investment vehicle where one investment goes into multiple PE or VC funds (described above). A typical FoF selects between 5 to 10 underlying funds. So, while one fund spreads your investment across 10-30 companies, a fund of funds spreads it across more than a hundred companies.

Advantages of Fund of Funds

  • Diverse Portfolio Management: FoFs invest in multiple VC funds, offering broad diversification.
  • Expert Selection: FoFs are managed by professionals who select and have access to the best VC fund opportunities.
  • Logistical Ease: FoFs handle the complexities of building and managing a diverse portfolio.

Disadvantages of Fund of Funds

  • Capital Requirement: Similar to direct funds, a significant initial investment is typically required.
  • Indirect Involvement: Investors are removed from direct engagement with startups or individual fund managers.
  • Additional Fees: FoFs include an extra layer of fees on top of the underlying VC or PE fund’s fees.

Stop betting, start investing in startups

Solving the biggest challenges are also the biggest investment opportunities. Luckily, with more access and ways than ever before, you can start supporting climate tech innovations solving real emission problems.

With Carbon Equity, you get to put the leading climate private equity and venture capital investment teams to work for you. Their professional investors and specialists build you a highly diversified portfolio and provide the companies with the support needed to scale.

Via our portfolio fund, your capital is spread across multiple leading funds and hundreds of climate solutions — from early-stage innovations to late-stage commercializations. This provides an investment focused on creating tangible climate impact and financial returns.

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Important: All investments here are considered high-risk; investors may lose some or all of their invested capital. The information here is not investment advice or should be used as investment advice.

General financial risks of investing in startups
  • Investing in a startup puts the entire amount of your investment at risk, meaning you can lose your full investment.
  • Startup investing is not a quick way to make money. Most startups take at least five to seven years to generate an investment return, if at all.
  • It may be difficult to sell your position. Startup investments are privately held companies meaning your equity is generally illiquid.