A few years ago I got the first six-figure dividend from my company. Shortly after I did two things: went on a beach vacation at a luxury resort and joined two business clubs.
The vacation was fantastic, but attending the clubs boosted my dopamine tenfold. Wow, that is it, thought I. I am really there, I am successful. We are discussing serious things, listening to presentations from startup founders looking for investment. Everything is like what real adults, real rich people do. Wow.
Investing in startups seemed like something you inevitably do after you have some money. Like after kindergarten you go to school, after school you go to college.
A couple of years later, the new toy energy faded and I started to compare the real pros and cons of funding startups with other types of investments.
Risk/reward is not everything
On the surface, participating in a startup round seems quite balanced. Yes, there is a high risk of losing all your money, but in case of success, you get an enormous reward. But risk/reward is not the whole story.
Startup investments are also long-horizon and illiquid: you cannot withdraw your money at will.
Are there high-risk/high-reward investments, but also with liquidity? Of course! Just look at the stock market with margin. Or leveraged index ETFs. Or even a leveraged structured product. I do not recommend them, mind you. These are just examples. My point is that in the open market we have plenty of other opportunities.
Let’s briefly compare pre-IPO startup investments and the stock market with margin:
Risk/return: both carry high risk and (potentially) high reward.
Time horizon: startups are long-term only — public markets allow any horizon.
Liquidity: low or non-existent for startups — high for the stock market.
Process: bespoke agreements, legal support required — standardized contracts under state regulation.
If leveraged bets can seem somewhat reasonable by comparison, that alone speaks volumes.
On top of that, investing in startups is also possible via the open market, without serious problems with liquidity! We are talking about more mature startups, and consequently lower returns, to be sure. But the actual difference in annual rate of return might not be so dramatic.
It is possible to hit a superstar company as a VC or angel and get a 20x return -- over 7-10 years. But it is also possible to hit another superstar company on the open market and get a 4x return in one year. Take Nebius as an example: the price jumped from 20 to 80 EUR in 6 months (April -- September 2025).
Can pre-IPO startup investments be expedient? Of course! But only if you actually know what you are doing and aren't just buying a flashy presentation with hyped trends. For example:
You have deep industry knowledge and your analysis confirms a high probability of success.
You want access to particular market insights or technology because it is useful for your own company.
Being involved in startups is rather entrepreneurship than investing. If your goal is returns only, you need to consider it a full-time job, not a portfolio diversifier. You really have to be involved in the industry in order to get access to juicy deals, increase your bargaining power, and know the real track record of founders. Why? Because you compete with people who do have all those advantages.
Another bit of wisdom I learned the hard way: if an investment opportunity comes bundled with dopamine, it is the opportunity I should skip.
This publication is for informational and educational purposes only. It is not investment advice, tax advice, or a recommendation to buy or sell any security. I am not a licensed financial advisor. Investing involves risks, including the possible loss of capital. Always do your own research or consult a professional before making financial decisions.