5 essential criteria for investing in impact starts-ups: A guide for private investors

Private investors are increasingly exploring the exciting world of start-up investments, a space traditionally reserved for professional investors. This shift is opening doors for individuals to support innovative and sustainable companies while potentially reaping substantial returns. With inflation in the European Union currently at +2.8% (eurostat, February 2025), traditional savings and bonds are becoming less attractive. Venture Capital (VC) investments, though riskier, offer the potential for significantly higher returns.

Getting started with investing in impact start-ups can feel overwhelming, especially when evaluating risk and return potential. That’s why we at Invesdor Group provide investors with a unique opportunity to efficiently diversify into start-ups – an advantage typically reserved for those with large portfolios. As Europe’s leading impact investing platform, we enable investments across various sectors, company stages, and geographies, making start-up investments & equity funding more accessible while maximizing both financial and ethical returns.

1. Think big: Why market potential is key to start-up success

When investing in start-ups, one of the first questions to ask is: How big is the market? And: How fast is it growing?

Market potential is a measure of the total revenue or sales opportunities available for a product or service. It reflects the demand for the solution a start-up offers and provides insight into the scalability and profitability of a business idea. Start-ups operating in large, rapidly expanding markets – such as clean energy or artificial intelligence – are far more likely to scale successfully than those targeting stagnant or niche markets.

What to look for:

• Size of the market: Is the market large enough to support significant growth?
• Growth trends: Is the market expanding, and at what rate?
• Market share potential: Can the start-up capture a meaningful portion of the market?

INVESDOR pro tip:

For larger investments, take the time to research market reports, study competition, and analyze barriers to entry. If you’re investing smaller amounts, focus on diversifying across different start-ups to reduce risk. Invesdor’s project pages provide detailed market overviews, helping you make an informed decision. Before each project goes live, our team of due diligence experts also does an in-depth market analysis. Only a few selected companies pass all criteria and make it on to our platform.

2. Solving real problems: The importance of product-market fit

Does the start-up’s product or service solve a real problem? A clear product-market fit is critical for long-term success. Start-ups and scale-ups that address pressing needs or solve significant problems are more likely to attract customers and grow. A company using artificial intelligence to detect contaminated water has higher growth potential than one offering a less impactful and innovative solution. At Invesdor, our experienced team rigorously evaluates product-market fit to select only the most promising opportunities.

What to look for:

• Competitive advantage: Does the start-up offer something unique or significantly better than competitors?
• Customer demand: Is there a proven need for the product or service?
• Scalability: Can the solution be scaled to meet growing demand?

INVESDOR pro tip:

On each project page, we have a “why invest” section with some of the most important arguments for investing in the company. In the “business model” section, you can find a detailed description of how the company operates and generates revenue. The “market” section gives you an overview of the company’s market environment, barriers to entry, and characteristics of this specific market.

3. The power of people: Why a strong team matters

A start-up’s success largely depends on its team. A strong, experienced team can execute ideas effectively and adapt to challenges as they arise.

What to look for:

• Industry expertise: Do the founders and key team members have relevant experience?
• Track record: Have they successfully navigated challenges in the past?
• Passion and perseverance: Are they genuinely committed to their vision?

INVESDOR pro tip:

Review the team’s profiles on the company’s project page at Invesdor to get insight about the key team members’ experience, expertise, and role at the company. Our team ensures all start-ups presented on our platform meet stringent criteria before being presented on the platform, including a thorough assessment of their team’s expertise and vision.

4. Financials and valuation: Keep an eye on the numbers

A start-up’s financial health and valuation are key indicators of its viability. While start-ups often lack an extensive financial history, understanding their revenue projections, burn rate, and valuation is essential. Start-ups with high burn rates (spending a lot) can be risky, especially if they are far from profitability. Remember that risk should always be offset with a higher expected return! 

In this context, it is crucial to assess the company’s viable exit opportunities, as these determine how investors can recover their capital – ideally with a return on investment. Professional investors place significant emphasis on exit potential when evaluating opportunities. In practice, the most common exit strategies for innovative, high-growth companies include mergers and acquisitions (M&A), initial public offerings (IPOs), and management buyouts (MBOs).

What to look for:

• Burn rate and runway: How quickly is the company spending its funds? And what are future funding needs?
• Revenue projections: Are the forecasts realistic? 
• Valuation: Is the start-up reasonably valued compared to competitors?
• Exit opportunities: Does the company have a clear path to liquidity for investors?

INVESDOR pro tip:

Revenue and EBITDA are two figures that give you insights about the expected company growth. For software companies, pay close attention to metrics like Annual Recurring Revenue (ARR). Invesdor’s project pages provide detailed financial insights to help you make informed decisions.

5. Invest with heart: Aligning your values and interests

Investing in start-ups isn’t just about numbers; it’s also about connecting with companies that align with your values and interests. When you invest in fields you understand, you gain a competitive advantage. 

If you’re passionate about climate protection, consider investing in companies like RiverRecycle, a company that developed a machine to remove garbage from rivers. For MedTech enthusiasts, a company like PIRCHE – who use AI to revolutionize organ transplants – could be a good fit. At Invesdor, we follow a strict “no harm”-policy. The companies we present on our platform should have no harmful impact on the environment, society or the economy. We highlight companies that have committed themselves to contributing to the United Nations’ Sustainable Development Goals (SDGs) with our “OnePlanet” label. By doing so, they not only do no harm, but they also actively do good to achieve those goals. Information about the specific SDGs a company is contributing to can be found on the project page. 

What to look for:

• Personal Connection: Does the start-up’s mission resonate with your professional background or personal interests?
• Moral Identification: Does the company align with your values, such as sustainability or social impact?

INVESDOR pro tip:

Before making your first investment, define your investment goals and identify who you are as an investor. Is financial return your only goal or is it important for you to also make a positive impact with your investment? Are you ready to take risks to maximize returns or would you rather accept smaller returns for a bit more security? 

Conclusion

Finding the right start-up investment involves balancing market analysis, industry knowledge, and a clear understanding of the team, financials, and personal values. At Invesdor, our experts analyze hundreds of opportunities each year, offering only the best options to our investors.

Start your journey with Invesdor today. Explore curated impact investment opportunities across diverse industries and countries – and invest in growth companies striving for positive change in the world. Together, let’s build a portfolio that aligns with your goals and values.