Investing in innovation
The honest comparison.
What investing in innovation has historically returned against bonds, housing and equities, with sources; and the large print of the risk before the small print. For the investor who loves risk, and wants to play it with method.
5 min read
Why innovation
Growth comes from the frontier.
In the long run, new wealth does not come from sharing out better what already exists: it comes from productivity, and productivity comes from innovation. Whoever funds the frontier of knowledge is the one who captures the multiples when a technology reaches the market: it is the investment with the highest ceiling there is, and also, for that very reason, the most uncertain. Both things are true at once, and this page exists to tell them together.
The comparison
The orders of magnitude, with sources.
The chart below does not compare annual averages: it compares what is left of one euro after ten years, with price rises already discounted. That is the unit that matters when deciding where to put money, because an annual percentage says little until it compounds. Sources: historical return series for bonds, equities and housing from A. Damodaran (NYU Stern) and the price index of the Federal Reserve Bank of Minneapolis; for the multiple of a startup that reaches the market, the historical order of magnitude on the capital of the early rounds. These are nominal, long-run orders of magnitude: not a projection, nor a promise.
And there is something no chart of this kind can show: most startups do not make it. The figure in the last bar is what happens when one does, and that is why the next section is about risk before you take any decision.
What is left of one euro after ten years
The large print
Risk and reward, on an interactive map.
We built it so you can see the risk with your own eyes before putting in a euro. It has the curve with real venture data and eight controls: method, time, unpredictability, market and floor. Move them and the map responds: where a startup competes, how much reward is at stake and what you keep if it goes wrong.
Explore the interactive map of risk and reward →
And the order in which the questions are best asked, with its final criterion, is in the four questions of risk.
The Volcano box
Two ways in, and a different worst case.
The map above describes the market; this describes your pocket. The tax investor combines the stake with a certain tax credit, with the qualification shielded by the binding reasoned report. The credit and the BIN do not depend on the startup's outcome: they are recovered through your taxes, whatever happens. The total-loss bar simply does not exist for you; your exact figure is calculated by the tax simulation. The private investor enters the startup with a closed-formula convertible note from day one. Much of the research cost is already borne by tax capital and public funds, and what they do not cover is, exactly, their place: the early phases, those with the greatest multiplication factor. With the portfolio to diversify and the private simulation for the numbers.
«Let everyone divide his money into three parts: a third in land, a third in business and a third to hand.»
To discuss it with someone
Does your adviser handle it?
This page is written so that whoever does your taxes can read it too. If you would rather they saw it before you decide anything, send it to them.
Your scenario, in numbers.
John F. Kennedy, 1962