Online Forex trading is developing faster and faster. New technologies are being integrated into existing platforms, and the quality of service is improving thanks to advanced investing tools and strategies.
The exit from investments for a venture investor is one of the indicators of the effectiveness of his capital investments.The best brokerage companies offer their clients an optimal set of tools for venture investments. There is also the DotBig broker among the top platforms.
DotBig broker was founded in 2003. In those years, the company worked in narrow fields and was exclusively an intermediary in the foreign exchange market. Today, the company can be called a universal broker that operates in almost all countries of the world.
Venture Investments Specifics
The basic goal of every venture capitalist is to make a profit. However, the main characteristic of venture capital is associated with a high level of risk. The “2-6-2” rule has already become natural, when out of 10 projects in the field of new technologies, two projects turn out to be dead ends, six survive, but reach modest growth rates, and only two repeatedly repay the funds invested in them.
The life cycle of venture capital investments in a company usually does not exceed 3-5 years. During this time, the company should become stronger, demonstrating the ability to develop and recoup the funds invested in it, thereby ensuring a full refund to the venture capitalist with a certain share of profit.
The investor’s profit is primarily determined based on the terms stipulated in the contract between the venture investor and the organization, and depends on its profitability and the investor’s exit strategy from the company. In some cases, the return of the invested amount may be conditional upon the expiration of a certain lifetime of venture capital investments in the company, in other cases, the timing of the exit may remain uncertain.
The amount of income in most cases is stipulated as a fixed percentage of the investment amount, or determined in other ways. The exit strategy from investments is also defined in the contract, however, under the influence of various external and internal factors, it can be adjusted and changed by the time of the exit. The possibility of such a change should be specified in the contract.
Exit Strategies
Well, exit strategies of investing are the ways that venture capitalists (and founders) profit from their contributions. These may include exit through an initial public offering (IPO), sale of the company to a strategic investor, buy-back, or liquidation. The given method depends on the stage of the company’s life cycle and an assessment of its current state and development prospects.
IPO (Initial Public Offering)
The company enters the stock market with its securities.
This allows you to:
- Attract investments for business development.
- Get access to stock trading for all interested investors.
A type of IPO is a secondary public offering (SPO), when a business sells already issued shares that are already dealt on the stock exchange.
Sale to a strategic investor
The company (or the share of venture investors in it) is being sold to a large corporation. A corporation can integrate the company being purchased (if it is a controlling stake) into its business structure.
The strategy is often implemented with the participation of a corporation from the same industry to which the company being purchased belongs, and the buyer’s business is expanding. Another case is the purchase of a company from another industry, the goal is to diversify the business of the buyer company.
A special feature of the strategy is the non-public nature of the transaction — often information about the details of the transaction is not disclosed, as the purchasing company may consider this information as a trade secret.
Buy-back
An investor sells his stake in a venture capital company to the managers or founders of that company. This usually happens when a company moves from a venture-based business model (which assumes active growth) to a dividend one (which assumes small growth but constant profit generation).
Important note by DotBig investments experts: buybacks are the exception rather than the rule for venture financing.
Liquidation
The strategy is used when the investor incurs losses from the invested investments, and the company itself has a high level of debt. Write-off mechanisms can be liquidation, power of attorney, and management.
Special feature: in venture financing, there is often a liquidation privilege — the right of the shareholder to receive a certain amount upon liquidation of the company before payments are made in favor of the holders of ordinary shares. For example, a “two-fold liquidation privilege” means that when a company is liquidated, an investor has the right to receive a priority amount twice the investment amount.
Investments Strategies by DotBig
Below are some strategies that are available on the DotBig site.
- Long-term
- Investing in stocks. The platform offers access to shares of the world’s largest companies, from technology giants to corporations in the energy and healthcare sectors. You can choose direct or portfolio investments: invest money in several stocks, which reduces the risk.
- Investments in bonds. The platform provides access to different types of bonds, which allows you to diversify your portfolio. For example, you can select:
- A ladder strategy is the purchase of securities with different maturities, which reduces financial risks and allows you to earn a steady income.
- Portfolio diversification — investments are distributed among different types of bonds, which minimizes risks.
- Medium-term
- Investing in indexes. The DotBig trading allows you to invest in global economic trends, such as the NASDAQ, S&P 500, and DAX indices.
- Investments in raw assets. It is possible to invest in oil, precious metals and agricultural products, which ensures stability in conditions of instability in stock markets.
- Short-term
- CFD trading. It allows traders to make money on fluctuations in the value of assets without buying them directly. According to DotBig reviews, the site offers CFDs on stocks, commodities, cryptocurrencies and indices, which makes it possible to flexibly adapt strategies to the market situation.
- Using trading advisors. Programs for automatically concluding transactions based on predefined criteria and algorithms. Trading robots analyze historical data and the current situation in the financial markets, determine the most profitable entry points into a position and conclude transactions without the intervention of a trader.
- Copy trading. This platform allows investors to copy trades of experienced and successful traders in real time.
Conclusion
When choosing a specific exit strategy, a venture capitalist needs to analyze a number of factors that determine the positive and negative consequences of a particular exit option. It is necessary to predict the outcome of the chosen strategy, comparing it with the costs of its implementation. With DotBig forex broker, new and seasoned investors will achieve profits from investments faster.