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8 Types of Business Models & the Value They Deliver

• 26 May 2016

You want to start a company but aren’t sure about a viable business model. How might you create something that people are willing to pay for and could earn you a profit?

Before diving into potential strategies, it’s important to understand what a business is and does. At its heart, a business generates value for its customers. A business model is a specific method used to create and deliver this value.

What Is Value in Business?

A successful business creates something of value . The world is filled with opportunities to fulfill people’s wants and needs, and your job as an entrepreneur is to find a way to capitalize on these opportunities.

A viable business model is one that allows a business to charge a price for the value it’s creating, such that the business brings in enough money to make it worthwhile and continue operating over time. Whatever the business is offering must also satisfy the customer’s needs and quality expectations.

It’s important to note that value is subjective. What’s valuable to one person may not be to another. Moreover, the concept of value excludes any moral judgments about the intrinsic worth of an offering. For example, while most would agree that human life is more valuable than sports, some professional athletes make far more money than the average brain surgeon.

Nonetheless, the concept of value provides a useful bedrock on which to begin building your business model. In particular, consider what forms of value people are willing to pay for. Here are eight potential business models and the forms of value they deliver—as well as the pros and cons of each—to help you get started.

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8 Types of Business Models to Explore

A product is a tangible item of value. To run a successful product-focused business, try to produce the item for as low a cost as possible while maintaining a reasonable level of quality. Once the item is produced, your objective should be to sell as many units as you can for as high a price as people are willing to pay to maximize profit.

Products are all around us. From laptops to books to HBS Online courses (products don’t have to be physical), products are a classic form of value with high upside if you can get them right.

• Pros: Many products can be easily duplicated. Thus, firms can achieve economies of scale after bearing some upfront costs of production.
• Cons: Physical products need to be stored as inventory, which can increase costs. They can also be damaged or lost more easily than, say, a service.

Related: How to Create an Effective Value Proposition

A service involves offering assistance to someone else for a fee. To make money from your service, provide a skill to others that they either can’t or don’t want to do themselves. If possible, repeatedly provide this benefit to them at a high quality.

Like products, services are in abundance, especially in the knowledge economy. From hairdressers to construction workers to consultants to teachers, people with lucrative skills can earn good money for their time.

• Pros: If you have a skill in high demand or a skill that very few others have, you can charge a fair price for your time and stand out in your field.
• Cons: If you don’t charge enough for your services, or many people have your skill, your business may not be as lucrative.

3. Shared Assets

A shared asset is a resource that many people can use. Such resources allow the owner to create or purchase the item once and then charge customers for its use. To run a profitable business around shared assets, you need to balance the tradeoff of serving as many customers as you can without affecting the overall quality of the experience.

For instance, think of a fitness center. A gym typically buys treadmills, ellipticals, free weights, bikes, and other equipment and charges customers monthly membership fees for access to these shared assets. The key is to charge customers enough to maintain and, if needed, replace their assets over time. Finding the right range of customers is the key to making a shared asset model work.

• Pros: This model provides people access to a lot of assets they wouldn’t otherwise have access to. In addition, many people are willing to pay a lot for access to trendy social spaces.
• Cons: Because they don’t own the assets, customers have little incentive to treat your resources well. Make sure you have enough in your budget for quick fixes, if necessary.

4. Subscription

A subscription is a type of program in which a user pays a recurring fee for access to certain specified benefits. These benefits often include the recurring provision of products or services. Unlike a shared asset, however, your experience with the product or service isn’t affected by others.

To have a successful subscription-based offering, build a subscriber base by providing reliable value over time while attracting new customers.

The number of subscription services has exploded in recent years. From magazines to streaming services to grocery and wine delivery subscriptions, businesses are turning to the subscription-based model, often with great success.

• Pros: This model provides certainty in the form of predictable revenue streams, making financial forecasting a bit easier. It also benefits from a loyal customer base and customer inertia (for instance, customers may forget to cancel their subscription).
• Cons: To run this model, your business operations must be strong. If you can’t deliver value consistently over time, you may want to consider a different business model.

5. Lease/Rental

A lease involves obtaining an asset and renting it out for an agreed-upon amount of time in exchange for a fee. You can lease virtually anything, but it’s in your best interest to rent assets that are durable enough to be returned in good condition. This ensures you can lease the good multiple times and, perhaps, eventually sell it.

To profit from leases, the key is to ensure that the revenue you get from leasing the asset before it loses value is greater than the purchase price. This requires you to price the rental of the item strategically and potentially not lease to those who may not return it in good condition. This is why many rentals of high-value items require references, credit checks, or other background information that can predict how someone may return the leased item.

• Pros: You don’t have to have a novel idea to make money using a lease business model . You can purchase assets and rent them to others who wouldn’t buy them for full value and earn a premium.
• Cons: You need to protect yourself from unexpected damage to your assets. One way to do so is through insurance.

6. Insurance

Insurance entails the transfer of risk from a customer to a seller of an insurance policy. In exchange for the insurance company (the seller of the policy) taking on the risk of a specified event occurring, they receive periodic payments ("premiums" in insurance lingo) from the policyholder. If the specified event doesn’t happen, the insurance company keeps the money, but if it does, the company has to pay the policyholder.

In a sense, insurance is the sale of safety—it provides value by protecting people from unlikely, but catastrophic, risks. Policyholders can take insurance out on almost anything: life, health, house, car, boat, and more. To run a successful insurance company, you have to accurately estimate the likelihood of bad events occurring and charge higher premiums than the claims you pay out to your customers.

• Pros: If you calculate risk accurately, you’re guaranteed to make money using the insurance business model.
• Cons: It can be difficult to accurately calculate the likelihood of specific events occurring. Insurance only works because it spreads risk over large numbers of policyholders. Insurance companies can fail if a large portion of policyholders is impacted by a widespread, negative event they didn’t see coming (for example, the Global financial crisis in 2007 and 2008).

Related: 5 Steps to Validate Your Business Idea

7. Reselling

Reselling is the purchasing of an asset from one seller and the subsequent sale of that asset to an end buyer at a premium price. Reselling is the process through which most major retailers purchase the products they then sell to buyers. For example, think of farmers supplying fruits and vegetables to a grocery store or manufacturers selling goods to a hardware store.

Companies make money through resale by purchasing large quantities of items (usually at a bulk discount) from wholesalers and selling single items for a higher price to individuals. This price raise is called a markup.

• Pros: Markups can often be high for retail sales, enabling you to earn a profit on the items you resell. For example, a bottle of water might cost 10 cents to produce, whereas a customer may be willing to pay $1.50 or more for the same bottle.
• Cons: You need to be able to gain access to quality products at low costs for the reselling business model to work. You’ll also need the physical space to store inventory to manage sales cycles.

8. Agency/Promotion

Agents create value by marketing an asset, which they don’t own, to an interested buyer. They then earn a fee or a commission for bringing the buyer and seller together. Thus, instead of using their own assets to create value, they team up with others to help promote them to the world.

Running a successful agency requires good connections, excellent negotiation skills , and a willingness to work with a diverse set of individuals. One example is a sports agent who promotes players to teams and negotiates on their behalf to get the best deal. In return, they typically receive compensation equal to a certain percentage of the contract.

• Pros: You can highly profit from expertise and connections in your industry, be it publishing, acting, advertising, or something else.
• Cons: You only get paid if you seal the deal, so you have to be able to live with some uncertainty.

Setting Your Business Up for Success

These eight types of business models each have pros and cons and deliver value in their own ways. If you’re looking to start a business and need a place to start, one of these could be the best fit for your venture and entrepreneurial skill set .

Interested in honing your entrepreneurial skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn the language of the business world.

This post was updated on February 19, 2021, and is a compilation of two posts, previously published on May 26, 2016, and June 2, 2016.

About the Author

Investment Model

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on July 04, 2023

Are You Retirement Ready?

Table of contents, definition of investment model.

Investment Model is a strategy or plan that outlines how investors intend to allocate their assets and invest their money.

The model depends on the individual's investment goals, risk tolerance, and investment time horizon. Investment Models are essential to investors as they guide them to make sound investment decisions that are in line with their goals.

Types of Investment Models

Value Investing Model

Value investing is an investment strategy that involves picking stocks that are trading below their intrinsic value .

This model is based on the premise that the market sometimes undervalues good companies, and as a result, investors can buy them at a discount. Value investors aim to identify these undervalued stocks and hold them for an extended period until the market corrects its price.

Growth Investing Model

Growth investing is a strategy that focuses on companies that have the potential to grow significantly in the future.

Investors who adopt this model look for companies with high earnings growth rates, high returns on equity, and other metrics that suggest they have strong growth prospects. Growth investors often pay a premium for these stocks since they believe the future growth will be worth the investment.

Income Investing Model

Income investing is an investment strategy that focuses on generating a steady stream of income . Investors who adopt this model invest in stocks or bonds that pay regular dividends or interest payments.

These investments are often less volatile and provide a predictable income stream, making them suitable for retirees or investors who are risk-averse.

Index Investing Model

Index investing is an investment strategy that aims to match the performance of a specific index, such as the S&P 500 .

Instead of picking individual stocks, investors who adopt this model buy a basket of stocks that represent the index. This model is passive and often has lower fees than other models.

Momentum Investing Model

Momentum investing is a strategy that focuses on buying stocks that have been trending upwards in the market.

This model is based on the premise that stocks that have been performing well will continue to perform well in the future. Investors who adopt this model buy stocks that have had strong recent performance and sell stocks that have been underperforming.

Socially Responsible Investing Model

Socially responsible investing is an investment strategy that focuses on investing in companies that have strong environmental, social, and governance (ESG) practices. Investors who adopt this model invest in companies that are committed to sustainable and ethical practices.

Creating an Investment Model

Assessing investment goals.

The first step in creating an investment model is to assess investment goals. Investors should determine their investment objectives, risk tolerance, and investment time horizon.

Identifying Investment Options

After assessing investment goals, investors should identify the investment options that are available to them. This includes stocks, bonds, mutual funds , and ETFs .

Determining Asset Allocation

The next step is to determine the asset allocation that is appropriate for the investor's investment objectives, risk tolerance, and investment time horizon. This involves deciding how much of the portfolio should be invested in different asset classes .

Creating an Investment Plan

Once the asset allocation has been determined, investors should create an investment plan that outlines their investment strategy. This includes selecting investments that meet their investment criteria and developing a plan for monitoring and adjusting the portfolio.

Monitoring and Adjusting the Investment Model

Investors should regularly monitor their investment portfolio to ensure that it remains in line with their investment objectives and risk tolerance. Rebalancing the portfolio may be necessary if the market fluctuates or if the investor's investment objectives change.

Key Elements of an Investment Model

Investment Objectives

Investment objectives are the goals that an investor hopes to achieve through their investments. These objectives vary depending on the individual's financial situation, age, risk tolerance, and investment time horizon.

Some common investment objectives include capital preservation, income generation, long-term growth, and tax efficiency .

Risk Tolerance

Risk tolerance refers to an investor's ability to handle fluctuations in the market. Investors who have a high-risk tolerance are willing to accept higher levels of risk to achieve higher returns. Conversely, investors who have a low-risk tolerance prefer less volatile investments, such as bonds or cash.

Investment Time Horizon

Investment time horizon refers to the length of time an investor intends to hold their investments. Investors who have a long-term investment horizon can afford to take more risks and invest in assets with higher volatility .

Conversely, investors who have a short-term investment horizon should focus on more stable investments.

Asset Allocation

Asset allocation is the process of dividing an investment portfolio among different asset classes, such as stocks, bonds, and cash.

The allocation is based on an individual's investment objectives, risk tolerance, and investment time horizon. Proper asset allocation can help investors achieve their investment goals while minimizing risk.

Investment Selection Criteria

Investment selection criteria refer to the standards that investors use to evaluate potential investments. These criteria vary depending on the investment model, but some common factors include company fundamentals, growth potential, valuation, and industry trends.

Diversification

Diversification is the practice of investing in a variety of assets to reduce risk. Investors who adopt this model spread their investments across different asset classes, sectors, and geographies. Diversification can help investors achieve their investment objectives while minimizing risk.

Rebalancing

Rebalancing is the process of adjusting the allocation of investments in a portfolio to maintain the desired asset allocation. This practice is essential since market fluctuations can cause the value of different assets to change, resulting in an unbalanced portfolio.

Benefits of Having an Investment Model

Provides a Clear Investment Strategy

An investment model provides investors with a clear strategy for investing their money. This strategy outlines the investor's goals, risk tolerance, and investment time horizon, ensuring that their investments are aligned with their objectives.

Helps to Minimize Emotions in Investment Decision-Making

Investment decisions can be emotional, and investors can be prone to making irrational decisions based on fear or greed. An investment model helps investors make logical and rational investment decisions by providing a framework for decision-making.

Facilitates Disciplined Investing

Disciplined investing is crucial to achieving long-term investment goals. An investment model helps investors stick to their investment strategy by providing a disciplined approach to investing.

Helps to Achieve Long-Term Investment Goals

Investment models are designed to help investors achieve their long-term investment goals. By outlining investment objectives, risk tolerance, and investment time horizon, investors can develop a strategy that is tailored to their specific needs.

Helps to Manage Risk

Investing involves risk, but an investment model can help investors manage that risk by providing a diversified portfolio and a disciplined approach to investing.

An investment model is an essential tool for investors seeking to achieve their financial goals .

By understanding the different types of investment models available, investors can select a strategy that aligns with their investment objectives, risk tolerance, and investment time horizon.

Creating an investment model involves assessing investment goals, identifying investment options, determining asset allocation, and developing an investment plan that outlines investment criteria and monitoring strategies.

Key elements of an investment model include investment objectives, risk tolerance, investment time horizon, asset allocation, investment selection criteria, diversification, and rebalancing.

By having an investment model, investors can benefit from having a clear investment strategy, minimizing emotions in investment decision-making, facilitating disciplined investing, achieving long-term investment goals, and managing risk.

Overall, an investment model is a valuable tool that can help investors make informed decisions and achieve financial success.

Investment Model FAQs

What are investment models, and why are they important.

Investment models are strategies or plans that outline how investors intend to allocate their assets and invest their money. They are important because they guide investors to make sound investment decisions that are in line with their goals.

What are the key elements of an investment model?

The key elements of an investment model include investment objectives, risk tolerance, investment time horizon, asset allocation, investment selection criteria, diversification, and rebalancing.

How do investment models help to minimize emotions in investment decision-making?

Investment models help to minimize emotions in investment decision-making by providing a framework for decision-making. They help investors make logical and rational investment decisions based on their investment objectives, risk tolerance, and investment time horizon.

What are the benefits of having an investment model?

The benefits of having an investment model include providing a clear investment strategy, minimizing emotions in investment decision-making, facilitating disciplined investing, helping to achieve long-term investment goals, and managing risk.

How can investors create an investment model?

To create an investment model, investors should assess their investment goals, identify investment options, determine asset allocation, create an investment plan, and monitor and adjust the investment model as necessary. It is important to consider investment objectives, risk tolerance, and investment time horizon when creating an investment model.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Investment Company Business Plan

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Investment Company

Executive summary executive summary is a brief introduction to your business plan. it describes your business, the problem that it solves, your target market, and financial highlights.">.

This sample plan was created for a hypothetical investment company that buys other companies as investments.  In this sample, the hypothetical Venture Capital firm starts with $20 million as an initial investment fund.  In its early months of existence, it invests $5 million each in four companies.  It receives a management fee of two percent (2%) of the fund value, paid quarterly.  It pays salaries to its partners and other employees, and office expenses, from the management fee.

The investments show up in the Cash Flow table as the purchase of long-term assets, which also puts them into the balance sheet as long-term assets.  You can see them in this sample plan, in the first few months.

In the third year, one of the target companies fails, so $5 million is written off as failure.  You’ll see how that looks as a $5 million sale of long-term assets in the cash flow, and a balancing entry of $5 million in costs of sales in the profit and loss, making for a loss and write-off that year.  The result is a tax loss, and the balance of investments goes to $15 million.

In the fifth year, one of the target companies is transacted at $50 million.  You’ll see in the sample how that shows up as a $45 million equity appreciation in the sales forecast, plus a $5 million sale of long-term assets in the cash flow.  At that point there’s been a $45 million profit, and the balance of long-term assets goes down to $10 million.

This is a simplified example.  The business model holds long-term assets and waits for them to appreciate.  It doesn’t show appreciation of assets until they are finally sold, and it doesn’t show write-down of assets until they fail.  Sales and cost of sales are the appreciation and write-down of assets, plus the management fees.

The explanation above has been broken down and copied into key topics in the outline that are linked to corresponding tables.  These topics are:

• 2.2     Start-up Summary
• 5.5.1  Sales Forecast
• 6.4     Personnel
• 7.4     Projected Profit and Loss
• 7.5     Projected Cash Flow
• 7.6     Projected Balance Sheet

Company Summary company overview ) is an overview of the most important points about your company—your history, management team, location, mission statement and legal structure.">

Content has been omitted from this sample plan topic, and following sub-topics.  This sample plan has an abbreviated plan outline.  With the exception of the Executive Summary, only those topics linked to key tables have been used.

The focus of this sample plan is to show the financials for this type of company.  Brief descriptions can be found in the topics associated with key tables.

2.1 Start-up Summary

This hypothetical Venture Capital firm starts with $20 million as an initial investment fund.  The venture capital partners invest $100,000 as working capital needed to balance the cash flow from quarter to quarter. 

Market Analysis Summary how to do a market analysis for your business plan.">

Strategy and implementation summary, sales forecast forecast sales .">.

Management Summary management summary will include information about who's on your team and why they're the right people for the job, as well as your future hiring plans.">

7.1 personnel plan.

This hypothetical company pays salaries to its partners and other employees, and office expenses, from the management fee of two percent (2%).

Financial Plan investor-ready personnel plan .">

8.1 projected profit and loss.

Please note that in the third year one investment is written off as a failure, producing a $5 million cost which ends up showing a loss for the year of nearly $5 million.  The sale of equity at the end of the period enters the sales forecast and the profit and loss statement as a $45 million gain. 

8.2 Projected Cash Flow

The Cash Flow shows four $5 million investments made in the first few months of the plan. 

In the third year, one of the target companies fails, so $5 million is written off as failure.  You’ll see that shows as a $5 million sale of long-term assets in the cash flow, and a balancing entry of $5 million in costs of sales in the profit and loss, making for a loss and write-off that year.  The result is a tax loss, and the balance of investments goes to $15 Million.

In the fifth year, another investment is transacted at $50 million.  This shows up as a $5 million equity appreciation in the Sales Forecast, plus a $5 million sale of long-term assets in the Cash Flow.  At that point there’s been a $45 million profit and the balance of long-term assets goes down to $10 million. 

The partners invest an additional $100,000 in the fourth year as additional working capital to balance the cash flow of the company. 

8.3 Projected Balance Sheet

You can see in the balance sheet how the ending balances for long-term assets were not re-valued.  They remain at the original purchase price until they are sold, or written off as a complete loss.  There is a $5 million write-off in the third year, and a sale of $5 million worth of assets in the last year.  That sale of $5 million in assets produces the $5 million sale at book value plus the $45 million gain in the sales forecast and profit and loss table.

8.4 Business Ratios

The Standard Industry Code (SIC) for this type of business is 7389, Business Services.  The Industry Data is provided in the final column of the Ratios table. 

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Investment Bank Business Model

Step-by-Step Guide to Understanding the Business Model of an Investment Bank

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What is the Investment Bank Business Model?

An investment bank is a financial intermediary that performs a variety of services, primarily:

Raising Capital and Security Underwriting

• Mergers & Acquisitions
• Sales & Trading
• Retail and Commercial Banking

Table of Contents

How Does an Investment Bank Earn Money?

Mergers and acquisitions advisory services (m&a), sample merger process: transaction timeline, sales and trading division (s&t), retail brokerage and commercial banking, history of investment banking, financial crisis (post-2008).

Investment banks earn profit by charging fees and commissions for providing these services and other kinds of financial and business advice.

• Securities include stocks and bonds, and a stock offering may be an initial stock offering (IPO).
• Underwriting is the procedure by which an underwriter brings a new security issue to the investing public in an offering. The underwriter guarantees a certain price for a certain number of securities to the company (client) that is issuing the security (in exchange for a fee). Thus, the issuer is secure that they will raise a certain minimum from the issue, while the underwriter bears the risk of the issue.

Learn More →   Investment Banking Primer

Investment banks are middlemen between a company that wants to issue new securities and the buying public. So when a company wants to issue, say, new bonds to get funds to retire an older bond or to pay for an acquisition or new project, the company hires an investment bank. The investment bank then determines the value and riskiness of the business in order to price, underwrite, and then sell the new bonds. Banks also underwrite other securities (like stocks) through an initial public offering (IPO) or any subsequent secondary (vs. initial) public offering. When an investment bank underwrites stock or bond issues, it also ensures that the buying public – primarily institutional investors, such as mutual funds or pension funds, commit to purchasing the issue of stocks or bonds before it actually hits the market. In this sense, investment banks are intermediaries between the issuers of securities and the investing public.  In practice, several investment banks will buy the new issue of securities from the issuing company for a negotiated price and promote the securities to investors in a process called a roadshow . The company walks away with this new supply of capital, while the investment banks form a syndicate (group of banks) and resell the issue to their customer base (mainly institutional investors) and the investing public. Investment banks can facilitate this trading of securities by buying and selling the securities out of their own account and profiting from the spread between the bid and the ask price.  This is called “making a market” in a security, and this role falls under “Sales & Trading.”

Gillette wants to raise some money for a new project. One option is to issue more stock (through what’s called a secondary stock offering).  They’ll go to an investment bank like JPMorgan, which will price the new shares (remember, investment banks are experts at calculating what a business is worth).  JPMorgan will then underwrite the offering, meaning it guarantees that Gillette receives proceeds at ($share price * newly issued shares) less JPMorgan’s fees.

Then, JPMorgan will use its institutional salesforce to go out and get Fidelity and many other institutional investors to buy chunks of shares from the offering. JPMorgan’s traders will facilitate the buying and selling of these new shares by buying and selling Gillette shares out of their own account, thereby making a market for the Gillette offering.

You’ve probably heard of the term “Mergers and acquisitions” or M&A.  It’s an important source of fee income for investment banks as the fee margin structure is substantially higher than most underwriting fees). This is why M&A bankers are some of the highest paid and highest profile bankers in the industry. As a result of much corporate consolidation throughout the 1990’s M&A advisory became an increasingly profitable line of business for investment banks. M&A is a cyclical business that was hurt badly during the financial crisis of 2008-2009, but rebounded in 2010, only to dip again in 2011. In any event, M&A will likely continue to be an important focus for investment banks.

JP Morgan, Goldman Sachs, Morgan Stanley, Credit Suisse, BofA/Merrill Lynch, and Citigroup, are generally recognized leaders in M&A advisory and are usually ranked high in M&A deal volume . The scope of the M&A advisory services offered by investment banks usually relates to various aspects of the acquisition and sale of companies and assets such as business valuation, negotiation, pricing and structuring of transactions, as well as  procedure and implementation. Investment banks also provide “fairness opinions” – documents attesting to the fairness of a transaction. Sometimes firms interested in M&A advice will approach an investment bank directly with a transaction in mind, while many times investment banks will “pitch” ideas to potential clients.

When an investment bank takes on the role of an advisor to a potential seller (target), this is called a sell-side engagement .  Conversely, when an investment bank acts as an advisor to the buyer (acquirer), this is called a buy-side assignment .  Other services include advising clients on joint ventures, hostile takeovers, buyouts, and takeover defense.

When investment banks advise a buyer (acquirer) on a potential acquisition, they also often help to perform what’s called due diligence to minimize risk and exposure to an acquiring company, and focus on a target’s true financial picture. Due diligence basically involves gathering, analyzing and interpreting the target’s financial information, analyzing historical and projected financial results, evaluating potential synergies and assessing operations to identify opportunities and areas of concern. Thorough due diligence enhances the probability of success by providing risk-based investigative analysis and other intelligence that helps a buyer identify risks – and benefits – throughout the transaction.

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Week 1-4: Strategic Assessment of Possible Transaction

The Investment Bank will identify potential merger partners and confidentially contact them to discuss the transaction. As potential partners respond, the Investment Bank will meet with potential partners to determine if a transaction makes sense. Follow-up management meetings with serious potential partners to establish terms

Weeks 5-6: Negotiation and Documentation

• Negotiate Definitive Merger and Reorganization Agreement
• Negotiate Pro Forma Composition of Board of Directors and Management
• Negotiate Employment Agreements, as required
• Ensure Transaction Meets Requirements for a Tax-Free Reorganization
• Prepare Legal Documentation Reflecting Results of Negotiations

Week 7: Board of Directors Approval

The Client’s and Merger Partner’s Board of Directors Meet to approve the transaction, while the Investment Bank (and the investment bank advising the Merger Partner) both deliver a Fairness Opinion attesting to the “fairness” of the transaction (i.e., nobody overpaid or underpaid, the deal is fair). All definitive agreements are signed.

Weeks 8-20: Shareholder Disclosure and Regulatory Filings

Both companies prepare and file appropriate documents (Registration Statement: S-4), Schedule Shareholder Meeting. Prepare filings in accordance with antitrust laws (HSR) and begin preparing integration plans.

Week 21: Shareholder Approval

Both companies hold Shareholder Meeting to approve transaction

Weeks 22-24: Closing

The merger, acquisition, or reorganization formally closes, with the agreed upon shares (and/or cash consideration) issued.

Institutional investors such as pension funds, mutual funds , university endowments, as well as hedge funds use investment banks in order to trade securities.  Investment banks match up buyers and sellers as well as buy and sell securities out of their own account to facilitate the trading of securities, thus making a market in the particular security which provides liquidity and prices for investors.  In return for these services, investment banks charge commission fees. In addition, the sales & trading arm at an investment bank facilitates the trading of securities underwritten by the bank into the secondary market .

Revisiting our Gillette example, once the new securities are priced and underwritten, JP Morgan has to find buyers for the newly issued shares.  Remember, JP Morgan has guaranteed to Gillette the price and quantity of the new shares issued, so JP Morgan better be confident that they can sell these shares. The sales and trading function at an investment bank exists in part for that very purpose. This is an integral component of the underwriting process – in order to be an effective underwriter, an investment bank must be able to efficiently distribute the securities. To this end, the investment bank’s institutional sales force is in place to build relationships with buyers in order to convince them to buy these securities (Sales) and to efficiently execute the trades (Trading).

Sales Division

A firm’s sales force is responsible for conveying information about particular securities to institutional investors.  So, for example, when a stock is moving unexpectedly, or when a company makes an earnings announcement, the investment bank’s sales force communicates these developments to the portfolio managers (“PM”) covering that particular stock on the “buy-side” (the institutional investor). The sales force is also in constant communication with the firm’s traders and research analysts to provide timely, relevant market information and liquidity to the firm’s clients.

Trading Division

Traders are the final link in the chain, buying and selling securities on behalf of these institutional clients and for their own firm in anticipation of changing market conditions and upon any customer request. They oversee positions in various sectors (traders specialize, becoming experts in particular types of stocks, fixed income securities, derivatives, currencies, commodities , etc…), and buy and sell securities to improve those positions. Traders trade with other traders at commercial banks, investment banks and large institutional investors.. Trading responsibilities include: position trading, risk management, sector analysis & capital management.

Equity Research Division

Traditionally, investment banks have attracted equity trading business from institutional investors by providing them with access to equity research analysts and the potential of being first in line for “hot” IPO shares that the investment bank underwrote.  As such, research has traditionally been an essential supporting function to equity sales and trading (and represents a significant cost of the sales & trading business)

From 1932 until 1999 there was a law called The Glass-Steagall Act, which said that commercial banks can lend money, extend lines of credit, and open checking and savings accounts, while investment banks can underwrite securities, advise on M&A , and provide institutional brokerage services. Under the Glass Stegall Act, commercial banks and investment banks had to limit their respective activities to those which traditionally fell under those respective labels.

Late 1999 saw the repeal of the Depression-era Glass-Steagall Act, marking the deregulation of the financial services industry. This now allows commercial banks, investment banks, insurers, and securities brokerages to offer one another’s services. As such, many investment banks now offer retail brokerage (retail meaning the customers are individual investors rather than institutional investors) as well as commercial lending. For example, today you can open a checking account with JP Morgan via its Chase brand, while JP Morgan offers investment banking services and asset management.

Until 1999, one financial institution providing all of these services under one roof was technically not allowed (although many post-enactment loopholes basically neutered the law long before 1999). It is not an understatement to say that deregulation has transformed the financial services industry, with the repeal paving the way for mega-mergers and consolidation in the financial services industry. In fact, many blame the repeal of the Glass-Steagall as a contributing factor to the financial crisis in 2008-9.

Undoubtedly, investment banking as an industry in the United States has come a long way since its beginnings. Below is a brief review of the history:

• 1896-1929 : Prior to the great depression, investment banking was in its golden era, with the industry in a prolonged bull market.  JP Morgan and National City Bank were the market leaders, often stepping in to influence and sustain the financial system.  JP Morgan (the man) is personally credited with saving the country from a calamitous panic in 1907. Excess market speculation, especially by banks using Federal Reserve loans to bolster the markets, resulted in the market crash of 1929, sparking the great depression.
• 1929-1970 : During the Great Depression, the nation’s banking system was in shambles, with 40% of banks either failing or forced to merge. The Glass-Steagall Act (or more specifically, the Bank Act of 1933) was enacted by the government with the intent of rehabilitating the banking industry by erecting a wall between commercial banking and investment banking. Additionally, the government sought to provide the separation between investment bankers and brokerage services in order to avoid the conflict of interest between the desire to win investment banking business and duty to provide fair and objective brokerage services (i.e., to prevent the temptation by an investment bank to knowingly peddle a client company’s overvalued securities to the investing public in order to ensure that the client company uses the investment bank for its future underwriting and advisory needs). The regulations against such behavior became known as the “Chinese Wall.”
• 1970-1980 : In light of the repeal of negotiated rates in 1975, trading commissions collapsed and trading profitability declined.  Research-focused boutiques were squeezed out and the trend of an integrated investment bank, providing sales, trading, research, and investment banking under one roof began to take root.  In the late 70’s and early 80’s saw the rise of a number of financial products such as derivatives, high yield an structured products, which provided lucrative returns for investment banks.  Also in the late 1970s, the facilitation of corporate mergers was being hailed as the last gold mine by investment bankers who assumed that Glass-Steagall would some day collapse and lead to a securities business overrun by commercial banks. Eventually, Glass-Steagall did crumble, but not until 1999. And the results weren’t nearly as disastrous as once speculated.
• 1980-2007 : In the 1980s, investment bankers had shed their stodgy image. In its place was a reputation for power and flair, which was enhanced by a torrent of mega-deals during wildly prosperous times. The exploits of investment bankers lived large even in popular media, where author Tom Wolfe in “Bonfire of the Vanities” and movie-maker Oliver Stone in “Wall Street” focused on investment banking for their social commentary. Finally, as the 1990s wound down, an IPO boom dominated the perception of investment bankers. In 1999, an eye-popping 548 IPO deals were done – among the most ever in a single year — with most going public in the internet sector. The enactment of the Gramm-Leach-Bliley Act (GLBA) in November 1999 effectively repealed the long-standing prohibitions on the mixing of banking with securities or insurance businesses under the Glass-Steagall Act and thus permitted “broad banking.” Since the barriers that separated banking from other financial activities had been crumbling for some time, GLBA is better viewed as ratifying, rather than revolutionizing, the practice of banking.

The greatest global financial crisis since the Great Depression was triggered in 2008 by multiple factors including the collapse of the subprime mortgage market, poor underwriting practices, overly complex financial instruments, as well as deregulation, poor regulation, and in some cases a complete lack of regulation.    Perhaps the most substantial piece of legislation that emerged from the crisis is the Dodd-Frank Act, a bill that sought to improve the regulatory blind spots that contributed to the crisis, by increasing capital requirements as well as bringing hedge funds, private equity firms, and other investment firms considered to be part of a minimally regulated “shadow banking system.” Such entities raise capital and invest much like banks but escaped regulation which enabled them to over-leverage and exacerbated system-wide contagion. The jury is still out on Dodd-Frank’s efficacy, and the Act has been heavily criticized by both those who argue for more regulation and those who believe it will stifle growth .

Investment Banks BHCs Conversions: Goldman Sachs Example

“Pure” investment banks like Goldman Sachs and Morgan Stanley traditionally benefited from less government regulation and no capital requirement than their full service peers like UBS, Credit Suisse, and Citi. During the financial crisis, however, the pure investment banks had to transform themselves to bank holding companies (BHC)  to get government bailout money.  The flip-side is that the BHC status  now subjects them to the additional oversight.

Industry Prospects Post-Crisis

Investment banking advisory fees in 2010 were $84 billion globally, the highest level since 2007. Although the official scorecard isn’t in, based on press releases from the largest financial institutions, 2011 will see a significant decline in fees. The future of the industry is a highly debated topic.  There is no question that the financial services industry is going through something pretty significant post-crisis.  Many banks had near-death experiences in 2008 and 2009, and remain hobbled.  2011 saw much lower profitability for many of the largest financial institutions. This directly impacts bonuses for even the entry level investment banker, with some pointing to smaller fractions of ivy league graduating classes going into finance as a harbinger of a fundamental shift . That being said, those trying to break into the industry will find that compensation is still high compared to other career opportunities.  Also, the job function of an M&A professional has not dramatically changed, so the professional development opportunities haven’t changed.

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Business Model

A business model helps shape a company's marketing and sales plans, its growth potential, and its ability to attract investors. Investors use business models to assess a company’s profit potential while entrepreneurs use them to shape their ideas into a sound business structure.

What Is a Business Model?

A business model provides a framework for a company's monetization strategies. It focuses on defining the audience (customer segment), unique selling proposition, brand positioning, method of delivery, and distribution channels to create a profit-making formula.

Business models shape all aspects of a company's development and growth. Therefore, they may change over time to adapt to new marketplace opportunities, technologies, or distribution channels.

Types of Business Models

With many types of business models, companies may implement several models simultaneously to maximize profits.

Typical business models include:

User-generated content

Bricks and mortar retailer

Direct sales or multi-level marketing (MLM)

Advertising based

Diversified model

e-Commerce retail

Subscription model

Freemiums (giving away a free product to sell more later)

Two-sides marketplace

Manufacturing

Distributor

Risks and Profit Potential Vary Among Business Models

Entrepreneurs launching a new company often compare various business models and select one that is likely to generate the best revenues.

User-Generated Content

Some models offer more significant risks, such as user-generated content. While it has a lower startup cost than building a traditional publisher's website, the risk of lawsuits from copyright infringement, low-quality content that degrades SEO potential, and fickle search engine algorithm changes can make user-generated content a risky venture with uncertain profit potential.

SaaS (“software as a service”) companies have high startup costs but more stable long-term profit potential. SaaS companies rely on cloud-based software delivered by subscription to multiple customers. Innovation, customer service, and a stable subscription base are success drivers for higher long-term rewards.

Successful entrepreneurs utilize the business model canvas to compare different business models and select the one that leverages their strengths for the highest profits.

A franchise exists when a parent corporation creates a unique product, strong brand, and replicable business model, then sells it to others to own and operate independently. The parent company licenses the franchise (or a replicable business model) to independent business owners.

In return, franchisees must adhere to the rules set forth by the parent franchise company. They must use the required products and methods of production, adhere to strict advertising and marketing policies, and run their business per the franchise's requirements.

Typical franchises include popular eateries such as McDonald's, Dunkin' Donuts, and Baskin Robbins, as well as service-based franchises such as Edward Jones Investments, Great Clips, and Visiting Angels home-care nursing assistance.

Brick-and Mortar

A brick and mortar business model depends upon a physical store location that sells products and services solely through the storefront. These types of businesses were the norm until mail order, with the internet creating new distribution channels.

Direct Sales/MLM

Direct sales or multi-level marketing (MLM) companies follow a business model that relies heavily on networks of distributors who recruit more people to become distributors. Each distributor receives a commission on products sold and distributors may also receive a commission from the network of distributors they have personally recruited into the company.

Typical direct sales businesses include Tupperware, Avon, Mary Kay, LulaRoe, doTerra Essential Oils, Beach Body, and many more.

Advertising-Based

An advertising-based business model generates revenue solely from the advertisers who either pay for advertising space (print or digital) or time (television or radio ads). The product itself is given away for free to reach the largest number of people.

Telephone books were some of the earliest advertising-based business models. These (and similar directories) offered convenient sources of information before the internet and earned profits from advertisers who paid to have their businesses showcased through display ads. Broadcast television and traditional broadcast radio are great examples of advertising-based companies.

New advertising-based models include blogs and websites which earn profits from digital advertising. Like broadcast radio and television, the content itself is available to view at no charge. Advertising revenues generate these businesses' gross profits.

Business Models Can Change Over Time

As companies find new markets, discover new distribution channels, or develop new products, companies can change their original business model or add additional ones.

For example, McDonald's began as a barbecue founded by brothers Mac and Maurice McDonald. In 1954, Ray Kroc, a salesman, found that the McDonald brothers had created a simple yet effective formula for producing low-cost, tasty hamburgers and shakes. With Kroc's help, the company shifted from a brick-and-mortar model to a franchise.

Today, McDonald's owns over 36,889 outlets in 120 countries worldwide. The corporation reports that 90% of these are franchises.

The Business Model Canvas

In the early 2000s, Alexander Osterwalder invented the business model canvas to help businesses develop and analyze potential business frameworks.

The business model canvas features nine sections or 'building blocks' that define customer segments, value propositions, revenue streams, distribution channels, customer relationships, key activities, resources, partners, and cost structures. The model also guides users through the major areas of consideration for a business's structure and strategy.

Several Examples of Business Models

Entrepreneurs often look to existing business models for ideas and inspiration. Below, several common business model examples offer ideas as to how each framework generates profits for owners and/or investors.

SaaS Business Model

The SaaS business model features centrally-hosted software that can be licensed by multiple customers. Customers pay a subscription fee to utilize the software. Cloud computing – linking numerous networked servers through internet hosts – enables SaaS companies to scale quickly and offer software to multiple customers at once.

Because SaaS is subscription-based, revenue tends to be steady and recurring. SaaS companies can instead focus on building product loyalty and enhancing subscription models.

Amazon Business Model

Amazon is run according to a diversified business model . This model includes online stores (which account for 52% of Amazon revenues), as well as physical store locations, AWS services like site hosting, third-party sellers, subscription services, and advertising revenue.

Begun solely as a bookseller, Amazon quickly realized that their actual 'product' was an user-friendly e-commerce store. This unique selling point – combined with an extensive warehouse network that enabled them to ship products quickly from multiple locations – created the perfect environment for adding countless product categories.

Once Amazon became the “everything store”, a natural business model extension was included in the advertising model. This encouraged book publishers and product sellers to advertise their goods for a premium position on the Amazon product search results. Third-party sellers have continued to capitalize on the enormous volume of web traffic the site attracts, enabling smaller business owners to reach more customers.

The Uber Business Model

Uber runs according to a 'two-sided' marketplace business model. The company acts as the middleman/broker between two sides: drivers and those who need a ride. Uber created a sophisticated and streamlined platform that easily and quickly connects someone with a need (riders) to someone who can fill that need (drivers). The company derives profits from each transaction, taking a percentage from gross booking.

Consumers' increasing reliance on smartphones and the on-demand economy converged to make Uber’s two-sided marketplace business model incredibly lucrative. Their unique selling point is convenience: Consumers can request a driver anywhere, anytime, using an app quickly downloaded to their smartphones. Unlike hailing a cab, they don't have to stand out in the cold, rain, or snow waiting until an available taxi happens to pass by.

Diversified Business Models

Combining multiple business models (or using a variety of business models) in a single company is called a diversified business model. As companies mature, they often shift from their original business model to a diversified model to embrace technological advances, open new markets, or add product categories.

Examples of Diversified Business Models

Walmart began as a “dime store” offering high-value, low priced products in a single brick and mortar location. Gradually, Sam Walton expanded the number and location of brick and mortar stores. The company eventually shifted to a diversified model incorporating e-commerce, brick and mortar, and third-party sellers through their online shopping portal.

AAA offers subscription-based automotive roadside service but also produces travel guides. These guides are partially funded through advertising, as well as a review and endorsement service for hospitality businesses (e.g. restaurants, hotels).

Publishers sell magazines and newspapers via subscription. In addition, they may use three or more additional models to generate profits: retail (individual copies available for purchase at newsstands or supermarkets), advertising revenue, and freemiums (giving away free copies to doctors and dentists for their waiting rooms).

How Investors Analyze Business Models

Business models offer insights into a company's long-term profit potential. Investors tend to focus on several areas before choosing companies to add to their portfolios: This is especially true of market size, product demand, scalability, and the ability to add new channels.

These components have the most significant potential to impact net income , which is the accurate way investors measure a company's wealth-generating potential. If net income increases, the company is doing well and can be a good investment.

Market Size and Product Demand

Business models include insights into the marketplace, like customer demand, potential for reaching new customers, and expansion opportunities. These insights help investors and analysts understand whether a company has long-term profit potential.

Breyer Model Horse sells realistic and beautifully detailed horse figurines. For decades, collectors have displayed, shown, and competed with their figures for prizes. The company's current business model has expanded to multiple toys for children (e.g. plush toys and mobiles, play barns, posable rider dolls).

By expanding their product line beyond collectibles, the company has increased its customer base to both the collector market and parents of small children. They improved their opportunity to increase gross profit while sustaining their USP as a brand for people who love horses.

Scalability

Scalability refers to a company's ability to expand or grow with the same amount of resources. If a company is limited by geography, customer demand, service delivery, or product availability, its potential for growth and profitability is also limited unless the business model shifts.

Taxi companies provide drivers, cars, and dispatch services. They’re limited, however, by the number of cab drivers employed, medallions issued by the city, cars available, and people seeking rides in New York City.

Conversely, Uber can scale exponentially because its product is its app (rather than providing drivers and vehicles). As long as people need rides and drivers require a flexible income source, Uber can continually scale to meet demand.

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How to Invest in Startups: A Comprehensive Guide

Learn how to invest in startups, from finding strategic opportunities to evaluating the risks and rewards.

Find your next investment

Identify high-growth startups and industry trends so you know where to invest.

Investing in a startup demands more than just financial acumen — it requires a deep exploration of the market and entrepreneurial landscape. While it’s a risky endeavor for some, it can also be thrilling and purposeful, offering high personal and financial rewards and putting you at the forefront of innovation. 

Whether you’re a seasoned investor looking to diversify or a newcomer exploring the potential of startup investments, these insights and actionable steps will help you navigate the complexities of this high-potential, high-risk endeavor.

Ways to invest in startups

• Angel investing
• Crowdfunding
• Venture capital
• Startup accelerators and incubators
• Private equity trusts
• Direct investments
• Secondary markets

Let’s start by reviewing the various ways you can invest in startups. These include traditional avenues like angel investing and IPOs to contemporary options such as crowdfunding and private equity trusts. Each approach offers distinct considerations, letting you choose the strategy that best serves your needs and goals.

1. Angel investing

Angel investing is a form of early-stage investment where affluent individuals provide capital to startups in exchange for equity. Angel investors typically invest their own funds, and they play a crucial role in the startup ecosystem by supporting entrepreneurs during their initial stages of development. In addition to offering financial backing, they also provide valuable mentorship, industry connections, and strategic guidance to founders.

Angel investments are made in the seed or early stages of a company, when there’s both high risk and potential for significant returns. Successful angel investors possess a keen eye for promising ventures, a strong network within the entrepreneurial community, and the ability to navigate the uncertainties inherent in the startup landscape. Both AngelList and Angel Investment Network are popular platforms for connecting entrepreneurs with investors for startups .

2. Crowdfunding

Crowdfunding platforms allow a large number of investors to contribute small amounts of money to a project or small business. Platforms like Kickstarter and Indiegogo enable entrepreneurs to showcase their ideas and products to a global audience, attracting funding from backers who may receive rewards, early access or discounted products in return.

Equity crowdfunding platforms, such as SeedInvest and Crowdcube , take this concept a step further, allowing backers to invest in startups and receive equity shares. This democratization of investment provides an alternative to traditional funding models, empowering both startups and a diverse range of investors to participate in the early stages of innovative ventures.

3. Venture capital

Venture capital involves professional firms pooling funds from various investors to invest in startups with high growth potential. Venture capitalists play a pivotal role in the startup ecosystem by injecting substantial amounts of capital into companies poised for rapid expansion.

VCs typically engage in multiple rounds of funding and, in return, receive equity in the startups they invest in. Beyond the financial investment, venture capitalists often bring strategic insights, industry expertise, and a vast network that can significantly contribute to the growth of the startups in their portfolio.

While venture capital offers startups the resources needed to scale, it also comes with the expectation of substantial returns. This symbiotic relationship between investors and startups is a cornerstone of innovation and growth within the tech industry.

4. Startup accelerators and incubators

Startup accelerators and incubators are programs designed to support the growth and development of early-stage companies. In exchange for equity, these programs offer startups access to mentorship, resources, office space and sometimes initial funding.

Accelerators typically have a fixed-duration program that culminates in a demo day, where startups pitch their businesses to a room full of potential investors. Y Combinator and Techstars are well-known examples of such programs.

Incubators, on the other hand, provide more extended support and a collaborative environment for startups to mature. These initiatives not only offer financial assistance but also foster a culture of innovation and collaboration that is invaluable for startups navigating the challenges of building a sustainable business in competitive industries.

Initial Public Offerings represent a critical milestone in the lifecycle of a startup, signaling its transition from a private to a public company. When a startup decides to go public, it offers shares to the general public through a regulated stock exchange for the first time.

Investors, including institutional funds, retail investors and even individual enthusiasts, can participate in the IPO process. This presents a unique opportunity to invest in a company during its early stages of being publicly traded, allowing investors to be part of the company’s growth story.

Pro Tip: Get the most up-to-date information on IPOs with a quick search on Crunchbase. You can also customize your search using filters for IPO date, valuation and more. Take a look at this list of recent IPOs .

6. Private equity trusts

Private equity trusts pool capital from multiple investors and deploy it across a range of private companies, often spanning various industries and stages of development. These trusts are managed by professional fund managers with expertise in selecting and managing investments in the private markets. Investing in private equity trusts is a way for individuals to gain exposure to a diversified portfolio of private companies, including startups. 

7. Direct investments

Direct investments involve high-net-worth individuals, family offices or institutions making direct equity investments in startups without going through a formal venture capital fund. This approach enables investors to have a more hands-on role in their investment decisions and often involves a direct relationship with the startup founders. Direct investments can take place at various stages of a startup’s development, from the seed stage to later rounds of financing.

8. Secondary markets

Investors and shareholders interested in selling or buying shares in private companies can use dedicated platforms such as SharesPost , EquityZen and other private marketplaces. This offers liquidity to early investors, employees or other stakeholders who hold shares in startups, allowing them to sell their positions before a company goes public or is acquired. Additionally, this enables new investors to enter into established startups, offering an alternative investment avenue outside traditional fundraising rounds.

How to invest in startups

• Learn about the startup ecosystem
• Understand the risks and rewards of startup investing
• Assess your readiness
• Define your investment goals
• Know what to look for
• Research investment opportunities
• Connect with startups and founders
• Estimate the startup’s valuation
• Do your due diligence
• Choose an investment method
• Negotiate the deal
• Manage your investment

Now that you understand the different ways you can invest in startups, let’s go over the steps for investing, from start to finish. From understanding the fundamentals of the startup ecosystem to making informed investment decisions and actively managing your portfolio, these steps will equip you with the knowledge you need to get started as a startup investor. 

1. Learn about the startup ecosystem

If the world of startup investing is new to you, start by learning the basics. This includes familiarizing yourself with both the startup ecosystem and industry trends. 

First, you’ll need to know about the various stakeholders and their roles. This includes the founders, angel investors, venture capitalists, accelerators and incubators we discussed in the section above.

Next, learn about the startup lifecycle, from ideation and seed funding to Series A, B, and beyond. Each stage comes with its own set of challenges, opportunities and investment dynamics that you should be familiar with. 

• Pre-seed funding is the initial capital injection a startup receives, typically from founders, friends or family, to validate a concept or develop a prototype.
• Seed funding represents the stage where startups secure external investment to scale operations, conduct market research and develop a minimum viable product (MVP).
• Series A is the first significant round of venture capital financing, enabling startups to expand their market reach, enhance product development and solidify their business model.
• Series B occurs when startups seek additional capital to scale their operations, expand market presence and prepare for further growth.
• Series C is a round where mature startups secure capital to accelerate growth, explore new markets and potentially prepare for an IPO.
• Series D and subsequent funding rounds involve further capital infusions to support large-scale expansion, potential acquisitions and solidify the startup’s position in the market.

In addition, don’t forget to keep tabs on industry trends – a must for any serious investor. This will help you understand which industries are up-and-coming, which are undergoing significant shifts, and which are and aren’t worth your money.

Pro Tip: Check out the Crunchbase Unicorn Board , which tracks the most valuable companies in the word, and the Crunchbase Emerging Unicorn Board , which tracks companies that are on the path to unicorn status. Both lists are updated real-time and provide invaluable data on market trends and hot companies. 

2. Understand the risks and rewards of startup investing

We mentioned above that investing in startups is inherently risky, and it’s important to understand what those risks are before getting started. It’s also important to understand the potential rewards and how they stack up against those risks so that you can make the right investment decisions.

The risks of investing in startups include:

• High rate of startup failure: Startups face a considerable risk of failure, with a significant percentage not surviving beyond their early stages. Factors such as market competition, financial mismanagement or unforeseen challenges can contribute to this high failure rate.
• Market volatility: The startup ecosystem is susceptible to market fluctuations and economic downturns. Economic uncertainties can impact consumer spending, funding availability and overall market conditions, affecting the success of startups.
• Lack of liquidity: Unlike publicly traded stocks, startup investments often lack liquidity. Investors may face challenges in selling their stakes, especially if the startup is not acquired or does not go public.
• Operational challenges: Startups are inherently agile and innovative, but this flexibility can also lead to operational challenges. Rapid growth, shifting market dynamics and adapting to customer feedback pose risks that require effective management.

All that said, many people dedicate their careers to startup investing because they find it to be incredibly rewarding. These rewards include:

• Potential for high growth: Successful startups can experience exponential growth, offering investors the potential for substantial returns. Early investment in a company with a groundbreaking idea or disruptive technology can lead to significant financial rewards.
• Innovation and impact: Investing in startups provides the opportunity to support groundbreaking ideas and innovations. Beyond financial returns, investors can contribute to the development of solutions that address societal challenges and transform industries.
• Diversification: Including startups in an investment portfolio can enhance diversification. If well-managed, a diversified portfolio may mitigate risks associated with the broader market, providing a counterbalance to traditional investment assets.
• Early access: Investing in startups allows investors to access new and exciting opportunities before they become mainstream. This early entry can lead to advantageous terms and the possibility of being part of a company’s foundational success.

As an investor, understanding the potential pitfalls and benefits ensures a more nuanced approach to building and managing a startup-focused portfolio.

3. Assess your readiness

Once you familiarize yourself with how startup investing and funding work, you’ll need to take an inward look at your own readiness as an investor. This self-assessment involves evaluating various aspects of your financial standing, risk tolerance and time commitment. Ask yourself the following questions to decide whether startup investing is right for you.

Financial readiness

• Liquidity: Do I have the necessary liquid funds available for startup investments without jeopardizing my day-to-day financial needs?
• Diversification: Have I considered how startup investments fit into my overall investment portfolio, and does it align with my diversification strategy?
• Emergency fund: Is my emergency fund sufficiently established to handle unexpected financial challenges that may arise from startup investment volatility?

Risk tolerance

• Understanding risk: How comfortable am I with the higher risk associated with startup investments, and do I understand the potential for both rapid growth and failure?
• Long-term perspective: Can I maintain a long-term perspective, recognizing that startup investments may take time to mature and generate returns?
• Risk mitigation strategies: Can I play an active role in managing and mitigating risks, including staying informed about market trends and adapting my strategy as needed?

Time commitment 

• Active or passive approach: Do I prefer a more active or passive investment approach, and how much time can I realistically allocate to research, due diligence and portfolio monitoring?
• Education and networking: Can I commit time to continuously educate myself about the startup ecosystem and build a network with founders, investors and others in the space?
• Management of investments: Do I have the capacity to actively manage my startup investments, attend meetings and engage with founders based on the level of involvement I choose?

Alignment with overall goals

• Financial objectives: How well do startup investments align with my broader financial objectives, including wealth accumulation, diversification and support for innovative ventures?
• Exit strategy: Have I considered my preferences for exit strategies, whether they involve short-term gains, long-term growth or a strategic exit?
• Impact on lifestyle: To what extent do startup investments align with my overall lifestyle and personal goals, and have I assessed their potential impact on my financial well-being?

Once you’ve thought through these questions and assessed your readiness, it’s time to move on to the next step: outlining your goals as an investor.

4. Define your investment goals

This stage is all about clarifying what, exactly, you hope to gain from investing in startups. Your investment objectives will dictate which startups you choose to invest in, how you want to invest, and how much risk you’re willing to take.

Are you primarily seeking to grow your wealth through potential high returns? This is one common reason to invest in startups. If this is your goal, set expectations around your desired level of risk and the timeline over which you expect to see returns.

Beyond financial gains, some startup investors are driven by the desire to support innovative ideas and contribute to the growth of groundbreaking ventures. This may be an attractive goal if you find fulfillment in driving cutting-edge development in tech, or if you want to contribute to social and environmental causes through impact investing.

Of course, you can also seek a combination of financial returns and supporting ideas that align with your values. You might look for ventures that not only have the potential for profitability but also contribute positively to our world. Whatever your goals, defining them clearly will help you make investment choices based on your broader vision for impact and financial growth. 

5. Know what to look for

While no one can say for sure whether a startup will succeed or fail, you can gather information to ensure that your investment decision ultimately aligns with your objectives. Go into your research with the following factors in mind: 

• Market size and dynamics: Familiarize yourself with the trends and dynamics of the industries and markets you’re interested in. Identify any shifts, emerging opportunities or potential challenges that might impact startups in those spaces. You should also assess the expansion potential of these markets, including their current size and capacity for growth. 
• Product-market fit: Evaluate how well a startup’s product or service meets the needs of its target audience. Positive feedback, customer testimonials and early traction are indicators of a strong product-market fit. You should also assess the startup’s ability to iterate and adapt based on user feedback, which will be crucial for maintaining relevance and staying competitive.
• Differentiated idea: Identify what sets the startup apart from existing solutions in the market. Does it have a unique value proposition that differentiates it from its competitors? Research the competitive landscape, as well as the barriers to entry and potential challenges from both direct and indirect competitors.
• Quality of the team: Evaluate the experience and expertise of the founding team. Look for a diverse skill set that covers key areas such as technology, marketing and operations. This also includes investigating the team’s track record, including previous successes, failures or relevant industry experience.
• Good business model: Examine the startup’s business model and how it plans to generate revenue. Likewise, understand the cost and efficiency of customer acquisition, as a scalable and cost-effective customer acquisition model is crucial for profitability. 
• Good pricing model: Assess whether the pricing model aligns with the perceived value of the product or service and is a reliable formula for sustainable profit. You should also consider whether it allows for flexibility to adapt to market changes, customer feedback and potential shifts in the competitive landscape. Some of the most common pricing models include advertising-based (making money off ads), transaction-based (providing a platform for transactions and receiving a cut) and subscription-based (making money from subscriptions rather than one-time transactions).
• Scalability: Understand whether the startup has a clear roadmap for growth. Founders must have a plan for how they’ll scale their operations, whether that involves expanding into new markets, launching new products, increasing production capacity or growing the customer base.

6. Research investment opportunities

Now that you know what to look for, it’s time to identify the companies you might want to invest in. 

Start by going to Crunchbase , a comprehensive database that provides detailed information on startups, their funding rounds, their leadership team, other investors and industry trends. You can use the search filters to narrow down your focus based on location, industry, company size,  funding stage, funding date and more. This will surface companies that match the criteria you’re looking for. 

Importantly, this data also reveals key growth signals that indicate the health of a particular startup. Here are some tips for how to use these insights to inform your investment decision:

• Gather data on funding rounds , such as a startup’s total funding and its most recent funding stage and amount. Large amounts of recent funding are indicators that a startup is on a path toward growth.
• Check for the involvement of other investors. High-profile investors or those with a track record of successful exits can add credibility to a startup.
• Review the leadership team. Dig into the founders’ experience, industry expertise and any notable achievements that demonstrate their ability to lead the company. Additionally, check whether the leadership team is growing and attracting top talent, which is indicative of a company’s financial health and its ability to execute its vision.
• Gather employment and layoffs data. Active hiring patterns – or, on the flip side, layoffs – are both key indicators of how a startup is doing.
• Stay up-to-date on mergers and acquisitions. Information about whether a company has acquired another company, has been acquired themselves, or has merged with another company can give you a clearer picture of where that company is headed.
• Keep an eye out for IPOs. A company going public will change your investment strategy and is also a clear indicator of top players in the market.

You should monitor this data on an ongoing basis, while continually checking for new startups that match your preferred criteria. You can do this by setting automatic alerts on Crunchbase so that you get immediate updates when a company raises new funding, undergoes changes in leadership and more. These sample lists will help you get started:

• Series B Companies that Raised At Least $30M in the Past 3 Months
• Active Cybersecurity Companies that Raised a Series A in the Last Two Years
• Software Recently Funded in the Last 6 Months   

Pro Tip: Build custom searches to find the types of companies you’re looking for, including recently funded companies and growing startups. For more details on how to use Crunchbase’s best-in-class company data to inform your investment strategy, learn how to find investments on Crunchbase .

7. Connect with startups and founders

In addition to conducting data-driven research, directly engaging with the people behind the company allows you to gain a more complete understanding of their mission and vision, culture and potential challenges. One effective way to initiate these connections is by attending industry events, conferences and networking meetups. These forums provide valuable opportunities to interact with founders, key team members and fellow investors. 

Social media platforms, particularly LinkedIn and X (formerly Twitter) , have also emerged as powerful tools for connecting with startups and their founders. Follow the profiles of startups you find intriguing, actively participate in relevant discussions and reach out via direct message. Many founders are receptive to engaging with potential investors who express genuine interest in their endeavors. Establishing these connections, either in person or online, will enrich your understanding of the startup landscape, position you as an engaged and proactive investor, and create a foundation for ongoing dialogue with key stakeholders. 

8. Estimate the startup’s valuation

As you conduct research and build connections, you’ll identify startups you’re seriously considering investing in. You’ll need to estimate the valuation of these startups in order to ultimately make a smart investment decision. 

While calculating an exact valuation can be challenging, especially for early-stage startups, investors often employ methods that provide a reasonable estimate. One commonly used approach is the comparable company analysis, where the startup’s key metrics, such as revenue, growth rate and market potential, are compared to those of similar companies that have undergone funding rounds. This method helps in establishing a valuation benchmark, offering insights into where the startup stands relative to its peers.

Another approach is the discounted cash flow analysis, which involves estimating the startup’s future cash flows and discounting them back to present value. While more complex, DCF allows for a more detailed exploration of the startup’s financial projections and potential return on investment.

9. Do your due diligence

You’ll also need to conduct a thorough and meticulous due diligence process to mitigate risks and make well-informed decisions. This phase involves a comprehensive examination of various aspects of the startup, ranging from its financial health and market positioning to the competency of its leadership team.

Financial due diligence is critical – it involves an in-depth analysis of the startup’s financial statements, revenue model, and historical and projected financial performance. Scrutinize the funding history, including the terms and conditions of previous rounds, to get insights into the startup’s capital structure and investor relations.

Equally important is operational due diligence, where investors delve into the day-to-day operations of the startup. Understanding the scalability of the business model, potential operational challenges and the efficiency of internal processes is crucial for predicting future success.

Finally, legal due diligence ensures compliance with regulations, assessment of intellectual property rights and identification of any potential legal liabilities. It’s a good idea to consult experts in these fields to guide you through the due diligence process.

10. Choose an investment method

We mentioned the different ways to invest in startups at the beginning of this article, and now it’s time to select your preferred investment method. This is a pivotal decision, as it involves a careful consideration of your risk tolerance, financial goals and level of involvement.

One common avenue is direct investments, where investors directly contribute capital to a startup in exchange for equity. This method provides a hands-on approach, allowing investors to actively participate in the growth and strategic decisions of the startup.

Angel investors, in particular, play a crucial role in this category, often providing not just capital but valuable mentorship and guidance to early-stage startups. Multiple angel investors may come together through angel investor networks, where they can leverage their combined expertise and resources for a more impactful support system.

For those seeking a more diversified and passive approach, investing through venture capital funds can be an attractive option. These platforms pool capital from multiple investors to fund a portfolio of startups, offering a broader exposure to different ventures. 

Another method gaining popularity is crowdfunding, which democratizes the investment landscape by allowing individuals to contribute smaller amounts of capital to startups. Equity crowdfunding platforms provide access to a wide range of investment opportunities, making startup investing more accessible to a broader audience.

Additionally, for those looking to invest in startups that have already matured, IPOs offer the chance to buy shares of a startup as it goes public.

Each method comes with its own set of advantages and considerations, and the choice ultimately depends on factors such as risk appetite, investment horizon and the desire for direct involvement in the startup ecosystem. Take another look at the first section of this guide to review other ways to invest, and chat with a mentor to help you make the right investment decision for your goals.

11. Negotiate the deal

Let’s say you’ve chosen a startup to invest in and are ready to move forward. The negotiation stage is a critical juncture in the startup investment process, where terms are hammered out, and the foundation for the investor-founder relationship is established. Successful negotiation requires a delicate balance between securing favorable terms and fostering a collaborative partnership.

Start by understanding the key elements of the deal, including the valuation, equity stake and any additional preferences attached to the investment. This proposal often comes in the form of a term sheet, which covers essential aspects such as the valuation, investment amount, ownership stake and any protective provisions or rights the investor may seek. Review the term sheet prior to negotiations so that you have a clear framework for your discussion. 

As negotiations unfold, clear communication is paramount. As an investor, you should express their expectations, whether it’s a seat on the board, information rights or involvement in strategic decisions. Founders, in turn, may present their vision for the company and their reasoning behind the proposed terms.

Negotiations may involve give-and-take, with both parties working towards a consensus that aligns with their respective goals. Consider consulting a skilled attorney specializing in startup investments to review term sheets, agreements and regulatory compliance and ensure that your interests are protected.

12. Manage your investment

Once the deal is sealed, your journey as a startup investor will enter a new phase — one that involves active management and strategic involvement. You’ll need to regularly engage with the startup’s leadership team and stay informed about its progress. Attend board meetings or investor updates to gain insights into the company’s strategic decisions, financial performance and any challenges it may be facing. Being an engaged investor allows you to offer support and guidance when needed while ensuring alignment with the startup’s trajectory.

Beyond active involvement, managing your investment also entails staying attuned to market dynamics and industry trends. The startup ecosystem is ever-changing, and factors such as evolving technology, regulatory changes or shifts in consumer behavior can impact a startup’s prospects. Regularly reassess your investment strategy and consider whether adjustments are needed based on the startup’s performance and changes in the external environment. 

Finally, make sure to seek professional advice throughout the research, decision-making and management process. Engage with financial advisors, particularly those with expertise in venture capital and startup investments, as you explore potential opportunities, assess risks versus returns and manage your portfolio. Additionally, consider consulting with mentors or seasoned investors at various stages of your investment journey, as their firsthand experience can help you navigate challenges and make strategic decisions. 

How much can you invest in startups?

Are you still wondering how much, exactly, you should be investing? It’s important to keep in mind that there’s not only the question of how much you should invest, but how much you can . 

For accredited investors, who meet specific income and net worth requirements, the limits are often dictated by personal financial capacity and risk tolerance. Angel investors contribute an average of $25,000 to $100,000 per deal, with a 20-30% average return . That said, this number can vary greatly, and returns, of course, aren’t guaranteed.

If you’re a non-accredited investor going the crowdfunding route, regulations will dictate how much you can invest. Crowdfunding platforms impose certain restrictions on investment amounts within a specific timeframe. As of 2023, non-accredited investors with an annual income or net worth less than $124,000 can invest a maximum of 5% of those amounts (whichever is greater), while those with an annual income and net worth greater than $124,000 can invest up to 10%. Refer to the U.S. Securities and Exchange Commission for the most up-to-date information.

Not only should you strike a balance between ambitious investment goals and prudent risk management, but you should also familiarize yourself with the rules and regulations surrounding different investment strategies.

How to make money investing in startups

At this point, you’ve learned everything you need to know about how to invest in startups. Now comes the next question: how do you actually make money from your investments? 

There are several ways to generate returns. One primary avenue is equity appreciation — as the startup progresses and achieves key milestones, the value of your equity stake can increase substantially. This appreciation is often realized during exit events, such as acquisitions by larger companies or when the startup goes public through an IPO. Successful exits can lead to significant financial gains for investors.

In addition to equity appreciation, some startups may distribute profits through dividends. However, it’s essential to note that this is less common, particularly in the early stages of a startup’s development when the focus is often on reinvesting profits for further growth. Investors should carefully assess a startup’s financial structure and policies regarding profit distribution.

Active involvement in the growth and strategic decisions of the startup is an indirect, but equally important, way to make more money off your investment. Providing strategic guidance, leveraging industry expertise and fostering valuable connections can contribute to the overall success of the startup and, consequently, generate greater returns.

Platforms and sites for startup investing

• Angel Capital Association

If you’re ready to start finding startups to invest in , take a look at these well-regarded platforms and websites. These sites can help you discover new companies, engage with key stakeholders and ultimately invest in startups of interest.

1. Crunchbase

Crunchbase is a comprehensive platform for investors seeking robust, best-in-class data on startups. It offers detailed profiles of companies, including funding history, information about the leadership team and industry trends, and is a critical tool for discovering and researching startups. As an investor, you can use Crunchbase to track funding rounds, identify key players in specific industries and gain insights into the competitive landscape. Crunchbase also delivers personalized recommendations and lets you set custom alerts to monitor companies of interest. Learn more about finding investments with Crunchbase.

2. AngelList

AngelList is a prominent platform connecting startups with investors, particularly angel investors. It offers a curated list of startups seeking funding and facilitates the investment process. Investors on AngelList can discover early-stage startups, review their pitches and connect directly with founders. The platform streamlines the investment process, making it accessible to a broader network of angel investors.

3. StartEngine

StartEngine is an equity crowdfunding platform that empowers both accredited and non-accredited investors to discover and invest in a diverse range of startups and emerging companies. Through StartEngine, individuals can access investment opportunities with relatively lower minimum investment requirements, fostering a more inclusive approach to startup investing.

4. Crowdcube

Crowdcube enables individuals to invest in small companies in return for equity or an annual return. It provides investors with access to a variety of startups, spanning different industries and geographical locations, and facilitates international investment opportunities for those looking to diversify their portfolios.

5. Angel Capital Association

The ACA is an organization that connects accredited angel investors. While not a platform in the traditional sense, it serves as a network that enables investors to discover opportunities and collaborate on investment deals. The ACA fosters a community of angel investors, providing opportunities for collaboration, knowledge-sharing and co-investment. It is a valuable resource for investors seeking to engage with like-minded individuals.

These platforms and sites serve as valuable tools for investors seeking to explore and engage with startup investment opportunities. Use these tools, along with your own network of entrepreneurs and investors, to stay well-informed about a startup’s progress, industry trends and market dynamics.

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Goldman Sachs Business Model

The Goldman Sachs business model is centered around providing four primary financial services — Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management — to individuals, corporations, governments, and institutional clients across the globe. Goldman Sachs is not your ordinary investment bank. It’s a powerhouse of strategic thinking, financial expertise, and unwavering commitment to excellence.

Goldman Sachs has built an empire on its ability to identify and capitalize on market trends. It uses innovative financial instruments and unparalleled industry knowledge to generate profits for itself and its clients. At the heart of Goldman Sachs’ business model lies a relentless pursuit of success. Whether navigating global finance’s complexities, pioneering new investment strategies, or leveraging cutting-edge technology, the firm is always at the forefront of change.

But what truly sets Goldman Sachs apart is its people. With a talent pool that’s second to none, the firm attracts the brightest and most driven minds from around the world. A common goal unites these individuals: to push the boundaries of what’s possible and deliver superior results for their clients. In short, Goldman Sachs is a company that’s constantly pushing forward, innovating, and looking for ways to create value for its stakeholders. It’s a model of success that’s been honed over decades and will continue to shape the future of finance for years to come.

A brief history of Goldman Sachs

Goldman Sachs is one of the world’s leading investment banks, providing a wide range of financial services to clients around the globe. Founded in 1869 by Marcus Goldman, a German-born immigrant who established the firm as a small commercial paper trading business in New York City, Goldman Sachs has since evolved into a global financial powerhouse with a reputation for innovation, risk management, and client service. Headquartered in New York City, Goldman Sachs has a global presence with offices in major financial centers worldwide, including London, Tokyo, Hong Kong, and Singapore. The firm operates in more than 40 countries and has over 30,000 employees.

Goldman Sachs’ business model is based on four primary pillars: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. In Investment Banking, Goldman Sachs provides advisory services for mergers and acquisitions, underwriting services for equity and debt securities, and structured finance solutions for clients in various industries. The firm offers trading and market-making services across various asset classes, including equities, fixed income, currencies, and commodities in Global Markets.

In Asset Management, Goldman Sachs manages and invests assets for institutional and individual clients, offering solutions such as mutual funds, private equity, hedge funds, and other alternative investments. Lastly, in Consumer & Wealth Management, the firm provides banking and investment services to high-net-worth individuals and institutional clients, focusing on personalized advice and tailored solutions.

One of the hallmarks of Goldman Sachs is its ability to adapt to changing market conditions and rapidly evolve its business strategies to stay ahead of the curve. This agility is reflected in the firm’s diverse revenue streams, which range from investment banking and trading to asset management and consumer banking. This diversity has helped Goldman Sachs weather the storms of economic uncertainty and remains a top player in the finance industry for over 150 years.

However, Goldman Sachs has faced its fair share of successes and failures. In the early years, the firm played a significant role in helping finance the US economy’s growth, including providing capital for the expansion of the railroad industry. The firm also participated in some of the most significant financial events of the 20th century, including the founding of the World Bank and the initial public offering (IPO) of Ford Motor Company. The company has continued to innovate and expand its business, but it has also faced criticism for contributing to the financial crisis of 2008. The firm has been accused of contributing to the crisis by involving complex and risky financial instruments like mortgage-backed securities.

Despite these challenges, Goldman Sachs has maintained its reputation as one of the world’s most prestigious financial institutions. Goldman Sachs’ strong emphasis on innovation and its ability to adapt to changing market conditions sets it apart from other investment banks. The firm has pioneered technology and digital finance and is willing to experiment with new business models and strategies.

Additionally, Goldman Sachs greatly values building deep and lasting relationships with its clients. This focus on client service has helped the firm to establish a loyal client base and maintain its position as a top player in the finance industry. By taking the time to truly understand the unique needs and objectives of each individual or institution it serves, Goldman Sachs can provide bespoke solutions that deliver real value and drive long-term success.

In conclusion, the Goldman Sachs business model is a testament to the power of innovation, adaptability, and client-centricity. The firm’s ability to navigate changing market conditions and provide customized solutions has allowed it to remain a top player in the finance industry for over a century and a half. Despite facing significant challenges, Goldman Sachs has continued to evolve and grow, cementing its place in the banking industry.

Who Owns Goldman Sachs

Goldman Sachs is a publicly-traded company, which means it is owned by shareholders who buy and sell its stock on various stock exchanges worldwide. As of May 2023, the largest shareholders of Goldman Sachs are institutional investors, such as mutual funds, pension funds, and hedge funds. The current CEO of Goldman Sachs is David Solomon, who took over the role in October 2018, succeeding Lloyd Blankfein.

Goldman Sachs Mission Statement

Goldman Sachs’ mission statement is “to advance sustainable economic growth and financial opportunity globally.”

How Goldman Sachs works

Goldman Sachs is a multinational investment bank providing financial services to corporations, governments, and individuals. It is widely recognized as a leader in the financial services industry and has built a reputation for delivering innovative and effective solutions to its clients. Here’s how Goldman Sachs works and what differentiates it from other financial institutions.

The first key area of focus for Goldman Sachs is investment banking. The company offers its clients a wide range of investment banking services, including underwriting and distributing securities, advising on mergers and acquisitions, and helping companies raise capital. It is also involved in various trading activities, including buying and selling stocks, bonds, and other financial instruments. Additionally, Goldman Sachs manages assets for various clients, including individuals, institutions, and governments. The company’s asset management division includes mutual funds, hedge funds, and private equity. 

Asides from asset management, Goldman Sachs, provides insights and recommendations to clients about various financial markets and securities. The company’s research team comprises highly experienced analysts who combine data and analysis to provide clients, traders, and portfolio managers with valuable insights about potential investment opportunities. Furthermore, the company also manages various types of risk, including market, credit, and operational risks. 

How Goldman Sachs makes money

As a financial institution, Goldman Sachs makes money through investment banking, trading,  asset management, securities service, and consumer banking. Below are more details on each income stream;

• Investment banking

Goldman Sachs works with clients to help them raise capital through various financial products such as initial public offerings (IPOs), bonds, and other types of securities. The bank also advises clients on risk management, strategic planning, and mergers and acquisitions.

Goldman Sachs is one of the largest trading firms in the world, with a strong presence in equities and fixed-income markets. The company uses sophisticated algorithms and trading strategies to profit from market fluctuations. Additionally, Goldman Sachs engages in market-making activities, acting as a middleman between buyers and sellers of securities.

• Asset management

Goldman Sachs manages assets for many clients, including pension funds, sovereign wealth funds, and high-net-worth individuals. The company offers a variety of investment strategies, including passive index-tracking funds, active equity funds, and alternative investments such as hedge funds and private equity.

Securities services

In addition to providing clearing, settlement, and custody services, Goldman Sachs offers financing and securities lending to other financial institutions. These services help clients manage their positions and provide liquidity to the markets.

• Consumer banking

In recent years, Goldman Sachs’ consumer banking arm, Marcus, has rapidly grown. In addition to personal loans and savings accounts, Marcus offers credit cards and other financial products. The bank uses sophisticated underwriting models and digital platforms to offer competitive rates and a seamless customer experience. Additionally, Marcus partners with other fintech companies to offer their products through its platform.

Goldman Sachs Business Model Canvas

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Goldman Sachs Customer Segments

Goldman Sachs’ customer segments are:

• Individuals
• Corporations
• Governments
• Financial institutions

Goldman Sachs Value Propositions

Goldman Sachs’ value propositions are:

Value Propositions for Individuals:

• Competitive interest rates : Marcus, Goldman Sachs’ consumer banking arm, offers competitive interest rates on its personal loans and savings accounts. This allows individuals to earn higher returns on their savings and pay lower interest rates on their loans;
• No fees: Marcus does not charge any fees for personal loans, savings accounts, or other products. This can be a valuable benefit for individuals looking to avoid unnecessary fees;
• Flexible loan options : Additionally, Marcus offers personal loans with flexible repayment terms and no prepayment fees. This allows individuals to customize their loan to their specific needs and pay it off early without penalty;
• Simple digital experience : Marcus provides an easy-to-use digital platform for individuals to manage their accounts and access their funds. This can be especially valuable for individuals who prefer a digital-first banking experience;
• Customer support: Marcus offers dedicated customer support for individuals who need assistance with their accounts or have questions about the products. This support is available through various phone, email, and online chat channels.

Value Propositions for Corporations:

• Capital raising expertise: Goldman Sachs deeply understands capital markets and helps corporations raise capital through various financial products such as IPOs, bonds, and other securities. This expertise allows corporations to access the capital they need to grow and expand their businesses;
• Mergers and acquisitions advice : The company provides strategic advice to corporations on mergers and acquisitions. This includes everything from valuation analysis to negotiation strategies, helping corporations make informed decisions about potential transactions;
• Risk management solutions: Goldman Sachs offers risk management solutions to corporations, including hedging strategies to protect against market volatility and other risks. This helps corporations manage their financial risks and protect their bottom line;
• Trading and liquidity services : Goldman Sachs is one of the largest trading firms in the world, with a strong presence in equities and fixed-income markets. It provides trading and liquidity services to corporations, helping them manage their positions and access the capital markets;
• Industry expertise: Goldman Sachs has deep expertise across various sectors, including healthcare, technology, and energy. This expertise allows the company to provide tailored advice and solutions to corporations in these industries.

Value Propositions for Governments:

• Debt financing expertise: Goldman Sachs has a long history of working with governments on debt financing activities, including bond offerings and other debt securities. The company’s deep expertise in debt financing allows governments to access the capital they need to fund important projects and initiatives;
• Strategic advisory services: The company provides strategic advisory services to governments, including advice on fiscal policy, budget planning, and economic development. This advice can help governments make informed decisions about their financial priorities and long-term goals;
• Public-private partnerships: Goldman Sachs has experience working with governments to develop public-private partnerships (PPPs) that can help fund infrastructure and other projects. These partnerships can provide governments access to private capital and expertise while ensuring that projects are developed and managed financially sustainably;
• Risk management solutions: Governments must manage their financial risks and protect their budgets from unforeseen events. As such, Goldman Sachs offers risk management solutions to governments, including hedging strategies to protect against market volatility and other risks;
• Capital markets expertise: The company also has deep expertise in capital markets, including both equity and debt markets. This expertise allows the company to help governments structure and execute complex financial transactions that can help fund important initiatives.

Value Propositions for Financial Institutions:

• Market access : Goldman Sachs provides financial institutions access to various financial markets, including equities, fixed income, currencies, and commodities. This allows financial institutions to execute trades and manage their positions more effectively;
• Liquidity: The company is one of the largest liquidity providers in the world, offering financial institutions access to deep pools of liquidity in both electronic and voice markets. This can help financial institutions manage their risk and execute trades more efficiently;
• Customized solutions: Also, it offers customized solutions to financial institutions, including risk management products and financing solutions. These solutions can be tailored to the specific needs of each institution, helping them manage their balance sheets and generate additional revenue;
• Research and analysis: Financial institutions need in-depth research and analysis on various markets and sectors. As such, Goldman Sachs provides financial institutions with insightful research to make more informed investment decisions and stay up-to-date on market trends;
• Technology and innovation: Goldman Sachs has invested heavily in technology and innovation, developing cutting-edge trading and risk management platforms. This technology helps financial institutions manage their positions more effectively and make more informed trading decisions.

Goldman Sachs Channels

Goldman Sachs’ channels are:

• Social media
• Physical meetings

Goldman Sachs Customer Relationships

Goldman Sachs’ customer relationships comprise:

• In-person meetings
• Chat and messaging
• Video conferencing

Goldman Sachs Revenue Streams

Goldman Sachs’ revenue streams are:

• Asset Management
• Securities Service

Goldman Sachs Key Resources 

Goldman Sachs’ key resources include:

• Human resources
• Technology and infrastructure
• Financial resources
• Reputation and brand
• Intellectual property
• Partnerships and networks
• Regulatory compliance and legal expertise

Goldman Sachs Key Activities

Goldman Sachs’ key activities include:

• Trading and market making
• Securities lending
• Research and analysis
• Risk management
• Regulatory compliance
• Corporate social responsibility

Goldman Sachs Key Partners

Goldman Sachs’ key partners include:

• Technology providers
• Service providers
• Regulators and government entities
• Business partners
• Non-profit organizations

Goldman Cost Structure

Goldman Sachs’ cost structure includes:

• Compensation and benefits
• Occupancy and facilities
• Professional services
• Marketing and advertising
• Regulatory and compliance costs

Goldman Sachs Competitors

Below are some of Goldman Sachs’ competitors:

• JPMorgan Chase : Founded in 1799 by Aaron Burr, JPMorgan Chase is one of the oldest and largest financial institutions in the United States. Unlike Goldman Sachs, it is large in size and scale, with diverse business segments, including investment banking, commercial banking, asset management, and consumer banking. JPMorgan Chase serves over 60 million customers through its network of over 5,000 branches. Besides its diverse business segments, the bank is known for its technological innovation, which focuses on improving customer experience and efficiency. The bank has also faced regulatory scrutiny following the 2008 financial crisis. JPMorgan Chase has over 250,000 employees worldwide and reported $129.8 billion in revenue in 2020;
• Morgan Stanley : Founded in 1935 by Henry S. Morgan and Harold Stanley, Morgan Stanley is a leading investment bank with a global presence. Its key differentiator from Goldman Sachs is its focus on wealth management. A significant portion of its revenue comes from managing the assets of high-net-worth individuals and institutions. Morgan Stanley serves over 4 million clients through its network of over 1,200 offices in 43 countries. Along with its wealth management focus, Morgan Stanley has a strong reputation for its advisory and underwriting services, particularly in the technology sector. The bank has tried diversifying its revenue streams, including a recent acquisition of Eaton Vance, a leading investment management firm. Morgan Stanley reported $48.2 billion in revenue in 2020 and has over 80,000 employees worldwide;
• Citigroup : Founded in 1812 as the City Bank of New York, Citigroup is a global financial services company with a diverse set of business segments, including investment banking, consumer banking, and credit card services. It focuses on retail banking, serving over 200 million customer accounts across 160 countries. Citigroup has over 2,600 branches worldwide. It has faced challenges recently, including significant regulatory fines and a history of high-risk lending practices. The bank has undergone a restructuring process to simplify its business model and improve efficiency, including a focus on digital banking. Citigroup reported $74.3 billion in revenue in 2020 and has over 200,000 employees worldwide;
• Bank of America : Founded in 1904 as Bank of Italy, Bank of America is a global financial services company that operates in all 50 US states and over 35 countries. It focuses on consumer banking, with a significant portion of its revenue coming from deposits, credit cards, and mortgages. Bank of America serves over 66 million customers through its network of over 4,000 branches. Also, it is known for its strong corporate and investment banking capabilities, particularly in mergers and acquisitions and debt underwriting. The bank has also made a significant commitment to sustainability, including a goal of achieving net-zero greenhouse gas emissions by 2050. The bank reported $85.6 billion in revenue in 2020 and has over 200,000 employees worldwide;
• Barclays : Founded in 1690 as a goldsmith banking business, Barclays is a global financial services company with a strong presence in Europe and the United Kingdom. It focuses on retail banking and credit card services and its significant presence in investment banking and wealth management. Barclays serves over 24 million customers across 4,750 branches in 55 countries. Along with its strong presence in the UK, Barclays has a significant presence in Africa and the Middle East through its Barclays Africa Group subsidiary. The bank has faced criticism over its involvement in controversial industries such as fossil fuels and arms trading but has committed to sustainability and reducing its carbon footprint. Barclays reported £21.8 billion in revenue in 2020 and has over 80,000 employees worldwide.

Goldman Sachs SWOT Analysis

Despite its successes, Goldman Sachs is not without its weaknesses. Also, there are some opportunities the company can leverage to strengthen its position in the market while eliminating the threats that stand in its way. Below, there is a detailed swot analysis of Goldman Sachs.

Goldman Sachs Strengths

Below, there are Goldman Sachs’ strengths:

• Expertise : Goldman Sachs has a strong reputation for expertise in investment banking, securities trading, and asset management. This expertise comes from the firm’s history of working with a diverse set of clients and executing complex financial transactions;
• Global Presence : With offices in major financial centers worldwide, Goldman Sachs’s global reach enables it to serve clients in different regions and markets. This presence also gives the firm valuable insights into global economic trends and market conditions;
• Innovation : Often being at the forefront of new financial products and technologies, Goldman Sachs has a track record of innovation. This is evident in the firm’s development of electronic trading platforms, structured products, and other financial innovations;
• Talented Workforce : The company is known for attracting and retaining top talent in the finance industry. The firm’s rigorous hiring process and a strong culture of collaboration and mentorship help to create a talented workforce that can deliver value to clients.

Goldman Sachs Weaknesses

Here are Goldman Sachs’ weaknesses:

• Controversies : Goldman Sachs has faced controversies over the years, including accusations of unethical behavior and conflicts of interest. These controversies have led to legal and regulatory challenges, as well as damage to the firm’s reputation;
• Dependence on Trading : The company generates a significant portion of its revenue from securities trading and market-making activities. This dependence on trading can make the firm vulnerable to market volatility and limit its ability to diversify its revenue streams;
• High Costs : Goldman Sachs has a reputation for being a high-cost firm, with a significant portion of its expenses going toward compensation for employees. This high-cost structure can limit the firm’s ability to compete with lower-cost firms and impact profitability;
• Regulatory Scrutiny : As a large financial institution, Goldman Sachs is subject to significant regulatory scrutiny from various authorities. This scrutiny can lead to increased compliance costs and limit the firm’s ability to pursue certain business opportunities.

Goldman Sachs Opportunities 

Below, there are Goldman Sachs’ opportunities:

• Sustainable Investing : With the increasing focus on ESG (Environmental, Social, and Governance) factors, Goldman Sachs can capitalize on the growing demand for sustainable investing solutions. It can leverage its expertise and resources to offer ESG-focused products and services to clients;
• Digital Transformation : As the financial industry transforms digitally, Goldman Sachs can seize opportunities to digitize its operations and offer new digital products and services. This includes the development of digital platforms for trading and asset management;
• Emerging Markets : The firm can expand its global presence by targeting emerging markets with high growth potential. This can involve establishing new offices or partnerships in regions such as Asia and Africa, with a growing demand for financial services;
• Mergers and Acquisitions : With its strong expertise in investment banking and M&A, Goldman Sachs can take advantage of opportunities to advise clients on strategic transactions. This can involve helping clients with mergers, acquisitions, and divestitures, as well as providing capital raising and financing solutions.

Goldman Sachs Threats 

Lastly, here are Goldman Sachs’ threats;

• Competition : Goldman Sachs faces intense competition from other large financial institutions, as well as new entrants to the market, such as fintech startups. This competition can limit the firm’s ability to win new business and impact pricing and profitability;
• Regulatory Environment : As a large financial institution, Goldman Sachs is subject to significant regulatory oversight and compliance requirements. Changes to the regulatory environment, such as increased scrutiny or new regulations, can impact the firm’s operations and profitability;
• Economic Uncertainty : The firm’s revenue is closely tied to the performance of the global economy and financial markets. Economic uncertainty, such as recession or market volatility, can impact the firm’s revenue and profitability;
• Reputation Risk : Goldman Sachs’ reputation has been damaged by past controversies and negative media coverage. This reputation risk can impact the firm’s ability to attract and retain clients, as well as limit its ability to pursue specific business opportunities.

Conclusion  

Goldman Sachs is a leading global financial institution with a reputation for expertise, innovation, and a talented workforce. However, the firm faces challenges such as competition, regulatory oversight, economic uncertainty, and reputation risk. To remain competitive and capitalize on opportunities, Goldman Sachs can focus on sustainable investing, digital transformation, expansion into emerging markets, and providing M&A advisory services. Overall, the firm’s success will depend on its ability to navigate these challenges and adapt to changes in the global financial landscape.

Daniel Pereira

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14 Business Model Types: Understanding and Choosing Where Your Business Fits

According to Weill and his co-authors , the four business activity typologies and the four asset typologies can be integrated into a chart that categorizes fourteen different possible business models.

Note:  Both Creator/Human Assets and Distributor/Human Assets categories are omitted from this model. This is because both categories are illegal and immoral. A Creator/Human Assets business model is where a person or business enslaves another human being and sells that person to a buyer. A Distributor/Human Assets business model is where a person or business buys and sells slaves. Both business models were practiced in the past, but are now considered highly illegal and morally repugnant in virtually all nations and cultures around of the world. In contrast, the two other “Human asset” categories are legal and widespread. People can rent out their time, effort and labor to others in a voluntary exchange (Contractor) or be a Broker between Contractors and prospective employers (temp agencies or headhunters).

The fourteen possible business model archetypes are examined below in detail.

1. Manufacturer – Creator of Physical Assets (products)

Creator makes physical assets and sells directly to the consumer

Description:  The business goal of this type of Manufacturer is to create physical products and sell them directly to customers. These manufacturers can sell their products directly to consumers through either a live salesperson, via ecommerce , or through a Broker. The keys to this business model are that 1) Manufacturers own the asset (product) until the end user purchases it from them and 2) the Manufacturers either own or control their participation in the sales channels they use to reach buyers.

Examples:  Oakley, Nike, Dell, Apple , Nintendo

Advantages:  Increased margins, brand building, and building personal relationships with customers. Apple is an example of a large, global company that sells its products directly to consumers through its Apple Stores.

Key Challenges:  Creating products that fill a customer need and effectively distributing those products to consumers. This means the business must focus on two big and often divergent missions (production and consumer marketing).

Creator makes physical assets and sells to Distributors or Retailers

Description:  The business goal of this type of Manufacturer is to create physical products and sell them to wholesale or retail intermediaries who then sell those products to consumers.

Examples:  Intel, Kimberly Clark, Sony, Chiquita, Johnson & Johnson

Advantages:  These Manufacturers have the ability to focus on creating and producing products efficiently. The Manufacturer can gain wide commercial exposure through multiple sales channels. The Manufacturer can also transfer the asset’s property rights to others quickly and move large volumes of product per sale. This strategy is often good for mass produced hit products or commodities.

Key Challenges:  Manufacturer must accept lower margins. Manufacturer has less control over its brand and customer relationships.

2. Inventor – Creator of Intangible Assets (Virtual or IP Products)

Creator sells directly to a customer

Description:  The business goal of this type of Creator is to create an intangible good and sell it to others. The sale of the Intangible Asset can be conducted directly by the Inventor or through Distributors or Brokers. The key aspect of this business model is the Inventor sells the absolute rights of ownership to the Intangible Asset to another (this is not a limited license or rental). This type of transaction sometimes happens when a company in financial distress (or bankruptcy) sells the intellectual property it created to stay or become solvent.

Examples:  This business model is virtually non-existent for a public company.

Advantages:  Potential for high margins.

Key Challenges:  Considerable business risk in terms of time, effort and money; often very difficult to find buyers; difficult to scale.

3. Entrepreneur

Description:  An Entrepreneur is either a company or individual that creates and sells companies. The individuals who create and sell companies are either “serial entrepreneurs” or active early-stage investors.  Entities that create and sell companies are incubators, venture capital firms and innovative companies. The measure of success in this category is maximizing ROIC – Return on Invested Capital. Founders of businesses who do not sell their companies are not counted in this business model.

Examples:  This business model ( creating a company then selling it ) is very rarely pursued by public companies as a business model.

Advantages:  Potentially, a successful entrepreneur can get fantastic returns on their investment of time and capital.

Key Challenges:  Risking significant equity assets in starting and growing a venture, overcoming barriers of entry; companies can be illiquid, possibility of bankruptcy.

4. Wholesaler/Retailer

Description:  A Wholesaler/Retailer is a Distributor who buys and sells physical assets without changing the fundamental nature of those assets. The value Wholesaler/Retailers bring to the marketplace is they specialize in connecting Manufacturers and consumers. Wholesaler/Retailers aggregate products from various Manufacturers, and use distribution and logistics economies of scale to offer those products and services to customers. The primary business goals of Wholesaler/Retailers are to create and execute superior logistics in order to maximize margins. The primary tension in this business is keeping product and service margins as high as possible while successfully competing against both established competitors and new market entrants.

Examples:  Wal-Mart, Nordstrom, Macy’s, Amazon

Advantages:  The barriers of entry for niche Wholesaler/Retailers are quite low; these business models can be systematized.

Key Challenges:  Barriers of entry to become a low-cost leader or differentiated Wholesaler/Retailer are often high due to the large infrastructure and logistics networks needed to leverage economies of scale and/or economies of scope.

5. Intellectual Property Trader

Description:  An Intellectual Property (IP) Trader buys and sells intangible assets. This may include firms that buy and sell copyrights, patents, trademarks, mobile device applications (mobile apps), digital currencies, domain names, etc. If a company uses this business model, it is more likely than not that company also uses the Intellectual Property Landlord business model.

Examples:  This business model is very rarely pursued by public companies as a business model.

Advantages:  Intellectual Property Traders can have low fixed costs.

Key Challenges:  Finding willing buyers and sellers of the intangible assets can be difficult and the transaction costs can be steep. The task of properly valuing intangible assets is quite difficult.

6. Financial Trader

Description:  A Financial Trader buys and sells financial assets without significantly altering them. Financial Traders mainly buy and sell stocks and securities. Financial Traders invest in a wide range of private or public companies and securities .

Examples:  Vanguard, Goldman Sachs, JP Morgan Stanley.

Advantages:  Financial Traders can achieve high profitability by recognizing undervalued or overvalued assets and employing an appropriate trading strategy to exploit these opportunities.

Key Challenges:  Financial Traders can suffer huge losses due to a systemic financial crisis. The majority of Financial Traders cannot achieve better sustained returns than the overall market.

7. Physical Landlord

Description:  Where a person or entity either creates or purchases a physical asset and sells (rent, lease or admission) a limited right to a customer to use that property. This is a widely used business model and prominent in the following industries: real estate rental and leasing, accommodation, transportation and entertainment or recreation.

Examples:  Hilton Hotels, Zipcar, Netflix, Hertz Rental Car.

Advantages:  Often the income from renting or leasing activities can be passive. Acquiring physical assets can be a significant barrier of entry for market entrants. Real estate asset prices can rise over time and can be used as a source of financing for business operations.

Key Challenges:  The capital costs of acquiring assets to rent or lease to others is usually significant and is a substantial barrier of entry for a new market entrant. Furthermore, the assets to be rented or leased must have and maintain steady market demand.

8. Intellectual Property Landlord

An Intellectual Property Landlord is a person or entity that either creates or buys intellectual property assets (trademarks, patents, trade secrets, copyrights…) and then sells a limited right to use that intellectual property to customers. There are three major subtypes of this business model:

a. Publisher

Description:  Publishers provide limited use of information assets (software, video, audio, databases…) in return for a purchase price, subscription or license fee. The Publisher grants the customer certain limited rights to use a copy of an information asset (the limitation could be time, scope or amount). The Publisher retains the right to make and sell additional copies of the information asset to other customers.

Examples:  Disney, HBO, Random House, Microsoft, Apple (iTunes).

Advantages:  The costs to create additional copies of an information asset are usually small to negligible. Copyrights and trademarks provide some legal protection for the information assets.

Key Challenges:  Generating information products is usually labor intensive. Attracting and retaining customers is critical for success as a Publisher.

b. Brand Manager – Franchisor

Description:  A Brand Manager (Franchisor) leases the limited use of a trademark or other elements of a brand (trade secrets, process knowledge) to a customer (Franchisee).

Examples:  McDonald’s, Wendy’s, Curves.

Advantages:  The Brand Manager business model can allow a successful company clone their business model, allowing their brand to expand rapidly and extract continuing rents from franchisees.

Disadvantages:  Franchisors lack direct ownership of their Franchisees’ assets. Franchisors lack direct control over their Franchisees and must rely on contracts to constrain their business decisions.

c. Attractor

Description:  An Attractor publishes information IP products to gain the attention of potential customers. Once the Attractor has the attention of potential customers, it taps one or more revenue models to monetize that customer attention (advertising, freemium…).

Examples:  New York Times, NBC.

Advantages:  This is a potentially lucrative business model for Attractors who develop and offer valuable or popular content.

Disadvantages:  An Attractor relies on network effects and multi-sided platforms where one customer segment subsidizes the other. It is often difficult for a company to correctly gauge how one customer segment should subsidize the activities of the other.

9. Financial Landlord

A Financial Landlord lends liquid financial assets (cash) to a customer under certain conditions that the customer promises to fulfill. There are two major subtypes of this business model.

Description:  A lender provides cash to a customer on the condition that, within a predetermined timeframe, the customer agrees to pay back the amount borrowed plus a fee (interest). In a sense, a Lender rents money to a borrower. Often the Lender

Examples:  Bank of America, Wells Fargo, Lending Tree.

Advantages:  A Lender can hedge its risk in lending to a borrower by requiring the borrower to pledge collateral (or other terms) to protect against a potential loan default by the borrower. If a borrower meets all of its loan obligations, the Lender will earn a predictable stream of cash flows.

Key Challenges:  Lenders must be experts in determining the credit worthiness of a borrower. There is generally a high level of competition among companies who use this business model. Interest rate risk can erode profits. This is a highly regulated industry and its regulatory framework could be a significant barrier of entry for a new market entrant.

b. Insurance

Description:  Insurers provide their customers conditional financial reserves in exchange for a fee (premium). A customer cannot have access to these monies unless the customer sustains a predetermined category of loss.

Examples:  AIG, Farmers.

Advantages:  Steady and predictable cash flows.

Key Challenges:  Risk management – catastrophic events and natural disasters can overwhelm an insurer. Also this industry is heavily regulated and could present a significant barrier of entry for a new market entrant.

10. Contractor – Landlord of Human Labor

Description:  A Contractor sells a service provided primarily by people to a customer. Common contractor services are, but not limited to: consulting, construction, education, tax and legal services, personal care, package delivery, live entertainment and healthcare . Customers pay Contractors usually on a fee-for-service basis where the fee is usually (but not always) based on the amount of time the services require. In a sense, all employees are contractors.

Examples:  Accenture, Federal Express.

Advantages:  Often low barriers of entry; potentially low capital intensity.

Key Challenges:  Companies that employ this business model are usually difficult to scale. Credentials and certifications can be a significant barrier of entry. Businesses that employ this business model are employee-centric (their labor generates the revenue) and sometimes difficult to organize and manage.

Note:  A Contractor and Physical Landlord can be confused – Physical Landlords can provide human services that are necessary for their assets’ value propositions. The differentiator between the two business models is what kind of asset is essential to the nature of the service being provided.  For example, a bus company such as Greyhound would be classified as a physical landlord because the essence of the service is to transport people from one place to another. Conversely, a maritime shipping company would be classified as a contractor because the essence of the service provided is the transportation of goods from one place to another.

11. Financial Broker

Description:  Financial Brokers match buyers and sellers of financial assets. This business model includes insurance brokers, large stock brokerage firms, and large investment banks that underwrite IPOs.

Examples:  Etrade, Charles Schwab, Ameritrade, Goldman Sachs.

Advantages:  Market participants can be highly profitable; there are huge opportunities for economies of scale using this business model.

Disadvantages:  The success of this business model requires network effects – the more people who use the platform increases the overall value of the platform. This can be exceedingly difficult to establish for a new market entrant.

12. Physical Broker

Description:  A Physical Broker matches buyers and sellers of physical assets. A physical broker may connect buyers and sellers of physical assets (eBay) or owners and renters of physical assets (Airbnb).

Examples:  eBay, Priceline, Century 21, Airbnb.

Advantages:  There is a significant opportunity to create market opportunities using this business model for Physical Brokers who facilitate exchanges between owners of physical assets and people who want to rent those assets. Network effects can establish powerful barriers of entry for an established Physical Broker firm.

Disadvantages:  New firms who attempt to use this business model may face significant barriers of entry due to the network effects of established brokerage firms.

13. Intellectual property (IP) Broker

An Intellectual property (IP) Broker matches buyers and sellers of intangible assets or owners and renters of intangible assets.

Examples:  Valassis. There are very few large firms who employ this business model.

Advantages:  There are future market opportunities for using this business model because new and different types of IP assets are being created all the time. An example of a relatively new form of IP that can be brokered is phone apps.

Disadvantages:  It is difficult to determine the value of intangible assets . Buyers and sellers of intellectual property have a hard time agreeing on IP asset prices. This can inhibit deal volume for IP Brokers.

14. Human Resources (HR) Broker

A Human Resources (HR) Broker matches buyers and sellers of human services.

Examples:  LinkedIn, GlassDoor, Odesk.

Advantages:  This business model benefits from the increasing trend of companies hiring contractors for project work. Network effects can create a hugely profitable business through facilitating the buying and selling of labor.

Disadvantages:  New market entrants can have great difficulty overcoming established firm’s barriers of entry (network effects).

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• 2021 Outlook on Media & Telecom M&A Transactions - May 12, 2021

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Covid-19 impact on us private capital raising activity in 2020, healthcare 2021: trends, m&a & valuations, 2021 outlook on media & telecom m&a transactions.

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Making Smart Investments: A Beginner’s Guide

• Matthew Blume

Reduce the risk factor, increase the reward factor, and generate meaningful returns.

If you make smart decisions and invest in the right places, you can reduce the risk factor, increase the reward factor, and generate meaningful returns. Here are a few questions to consider as you get started.

• Why should you invest? At a minimum, investing allows you to keep pace with cost-of-living increases created by inflation. At a maximum, the major benefit of a long-term investment strategy is the possibility of compounding interest, or growth earned on growth.
• How much should you save vs. invest? As a guideline, save 20% of your income to to build an emergency fund equal to roughly three to six months’ worth of ordinary expenses. Invest additional funds that aren’t being put toward specific near-term expenses.
• How do investments work?    In the finance world, the market is a term used to describe the place where you can buy and sell shares of stocks, bonds, and other assets. You need to open an investment account, like a brokerage account, which you fund with cash that you can then use to buy stocks, bonds, and other investable assets.
• How do you make (or lose) money? In the market, you make or lose money depending on the purchase and sale price of whatever you buy. If you buy a stock at $10 and sell it at $15, you make $5. If you buy at $15 and sell at $10, you lose $5.

Where your work meets your life. See more from Ascend here .

Are you a saver or spender?

• MB Matthew Blume  is a portfolio manager of private client accounts at  Pekin Hardy Strauss Wealth Management . He also manages the firm’s ESG research and shareholder advocacy efforts. He earned a B.S. in electrical engineering from Valparaiso University and an MBA from Northwestern University’s Kellogg School of Management. Matthew is a CFA charterholder.

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The Business Models Investors Prefer

New research suggests that the stock market particularly values business models based on innovation and intellectual property..

• Business Models

Image courtesy of Flickr user alvazer.

Why are investors so bullish on companies like Apple and Disney? Is it financial metrics, great management, industry prowess, good investor relations or good timing? Probably all of these. But something else may be at work, too. In research we conducted at the MIT Sloan School of Management, we found that the stock market consistently values certain types of business models more highly than others. Specifically, we found that in recent years, investors have favored business models focusing on licensing intellectual property (such as Walt Disney’s business model) and a certain kind of highly innovative manufacturing (such as Apple’s).

We developed a framework that includes 14 types of business models. (Surprisingly, we found there is no universally accepted definition of the important concept of a business model.) Then, using data from Compustat, we classified all the more than 10,000 companies that are publicly traded on U.S. exchanges within the framework by identifying the percentage of each company’s revenue generated through each of the 14 business models; we used a combination of manual classification and a custom-developed rule-based software program. By classifying companies’ revenue into these 14 business models, a new picture emerged of not only individual companies, but businesses more generally. The individual classifications were then aggregated to construct an index for each business model. Those indices then allowed us to compare total stock market returns — as measured by changes in stock price plus dividends — for different business models in the U.S. markets over a 12-year period, from 1997 through 2009. The results provide insight into investor treatment of various business models. In particular, the findings underscore the importance of innovation and intellectual property in the U.S. economy.

Related Research

T.W. Malone, P. Weill, R.K. Lai, V.T. D’Urso, G. Herman, T.G. Apel and S.L. Woerner, “ Do Some Business Models Perform Better than Others? ” working paper 4615-06, MIT Sloan School of Management, Cambridge, Massachusetts, May 18, 2006.

Our business model framework is based on defining the types of assets a company sells and the rights it grants customers to use those assets. We define four asset types and four ways companies manage asset rights to generate revenue.

About the Authors

Peter Weill is a senior research scientist and chairman of the Center for Information Systems Research at the MIT Sloan School of Management. Thomas W. Malone is the Patrick J. McGovern Professor of Management and the founding director of the MIT Center for Collective Intelligence at the MIT Sloan School of Management. Thomas G. Apel is a research affiliate with the Center for Information Systems Research. The research team also included George Herman, Stephanie L. Woerner, Steve Kahl, Richard K. Lai, Victoria T. D’Urso and more than 20 MIT undergraduate, graduate and postgraduate students. This research was funded by the National Science Foundation (grant number IIS-0085725), the MIT Center for Collective Intelligence and the MIT Center for Information Systems Research.

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• Product management
• Business planning

What is a business model? (Plus, how to define yours)

Last updated: March 2024

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics for addressing challenges.

Forward-thinking companies integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. That is why many choose tools that make it possible to quickly build and share a business model. In Aha! software, for example, there are multiple ways to build a model and connect it to everyday work. One of the quickest ways is by using our whiteboard template — featured below.

Get this business model whiteboard template — with a free trial .

Start using this template now

You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download free Excel and PowerPoint business model templates in this guide .

This article covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

15 elements of a brilliant business strategy

This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

The components of a business model include everything the organization needs to document and internalize so that the team can implement all three value focuses. This includes the market in which you operate, organizational strengths and challenges , essential elements of your product or products, and how you will generate revenue.

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

• What is value-based product development?
• What is a go-to-market roadmap?

What is a business roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Competitor analysis templates

• How to price your product
• How to position your product

Below are three types of business model layouts available in Aha! software that you can use to succinctly assess what is possible and what challenges could arise for your business.

Whiteboard business model template

Articulate the foundation of your product or service in a whiteboard-style format. The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Business model canvas

This business model canvas included in Aha! Roadmaps uses drag-and-drop components within a flexible layout. You can rename or hide components as needed. And you can create as many strategic models in your workspace as you would like.

How to craft a product strategy in Aha! Roadmaps

How to use the strategic model template in Aha! Roadmaps

Free Excel and PowerPoint business model templates

• Lean canvas

Similar to the business model canvas, the lean canvas in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise, single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market

Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve

What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP)

What will you build and how will you support it?

4. Create a pricing strategy

How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach

How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices

How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability

How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges

Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model

Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings

What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

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• Sample Business Plans

Investment Company Business Plan

The possibility for substantial financial gains is one of the main advantages of an investment company. As the company expands and gains customers, it has the potential to generate large fees and commissions based on investment portfolios.

Are you looking for the same rewards? Then go on with planning everything first.

Need help writing a business plan for your investment company? You’re at the right place. Our investment company business plan template will help you get started.

Free Business Plan Template

Download our free investment company business plan template now and pave the way to success. Let’s turn your vision into an actionable strategy!

• Fill in the blanks – Outline
• Financial Tables

How to Write An Investment Company Business Plan?

Writing an investment company business plan is a crucial step toward the success of your business. Here are the key steps to consider when writing a business plan:

1. Executive Summary

An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.

Here are a few key components to include in your executive summary:

• Market Opportunity: Summarize your market research, including market size, growth potential, and marketing trends. Highlight the opportunities in the market and how your business will fit in to fill the gap.
• Marketing & Sales Strategies: Outline your sales and marketing strategies—what marketing platforms you use, how you plan on acquiring customers, etc.
• Financial Highlights: Briefly summarize your financial projections for the initial years of business operations. Include any capital or investment requirements, associated startup costs, projected revenues, and profit forecasts.
• Call to Action: Summarize your executive summary section with a clear CTA, for example, inviting angel investors to discuss the potential business investment.

Ensure your executive summary is clear, concise, easy to understand, and jargon-free.

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2. Business Overview

The business overview section of your business plan offers detailed information about your company. The details you add will depend on how important they are to your business. Yet, business name, location, business history, and future goals are some of the foundational elements you must consider adding to this section:

Describe what kind of investment company you run and the name of it. You may specialize in one of the following investment businesses:

• Mutual fund companies
• Venture capital funds
• Private equity funds
• Asset management companies
• Pension fund managers
• Describe the legal structure of your investment company, whether it is a sole proprietorship, LLC, partnership, or others.
• Explain where your business is located and why you selected the place.
• Future Goals: It’s crucial to convey your aspirations and vision. Mention your short-term and long-term goals; they can be specific targets for revenue, market share, or expanding your services.

This section should provide a thorough understanding of your business, its history, and its future plans. Keep this section engaging, precise, and to the point.

3. Market Analysis

The market analysis section of your business plan should offer a thorough understanding of the industry with the target market, competitors, and growth opportunities. You should include the following components in this section.

• Competitive Analysis: Identify and analyze your direct and indirect competitors. Identify their strengths and weaknesses, and describe what differentiates your investment company services from them. Point out how you have a competitive edge in the market.
• Regulatory Environment: List regulations and licensing requirements that may affect your investment company, such as securities laws, anti-money laundering laws, KYC, market regulations, etc.

Here are a few tips for writing the market analysis section of your investment company business plan:

• Conduct market research, industry reports, and surveys to gather data.
• Provide specific and detailed information whenever possible.
• Illustrate your points with charts and graphs.
• Write your business plan keeping your target audience in mind.

4. Products And Services

The product and services section should describe the specific services and products that will be offered to customers. To write this section should include the following:

• Portfolio management
• Financial planning
• Investment research and analysis
• Wealth management
• Mutual funds and exchange-traded funds
• Investment advisory services: Investment advisory services might include professional advice on asset allocation, investment strategies, and portfolio construction. Both discretionary and non-discretionary investment advisory services available or not should be mentioned.
• Additional Services: Mention if your investment company offers any additional services. You may include services like retirement planning, estate planning & wealth transfer, business succession planning, etc.

In short, this section of your investment business plan must be informative, precise, and client-focused. By providing a clear and compelling description of your offerings, you can help potential investors and readers understand the value of your business.

5. Sales And Marketing Strategies

Writing the sales and marketing strategies section means a list of strategies you will use to attract and retain your clients. Here are some key elements to include in your sales & marketing plan:

• Pricing Strategy: Describe your pricing strategy—how you plan to price your services and stay competitive in the local market. You can mention any discounts you plan on offering to attract new customers.
• Marketing Strategies: Discuss your marketing strategies to market your services. You may include some of these marketing strategies in your business plan—social media marketing, Google ads, SEO, email marketing, content marketing, etc.
• Sales Strategies: Outline the strategies you’ll implement to maximize your sales. Your sales strategies may include direct sales calls, partnering with other businesses, consultative selling, etc.
• Customer Retention: Describe your customer retention strategies and how you plan to execute them. For instance, introducing loyalty programs, discounts on annual membership, personalized service, etc.

Overall, this section of your investment company business plan should focus on customer acquisition and retention.

Have a specific, realistic, and data-driven approach while planning sales and marketing strategies for your investment business, and be prepared to adapt or make strategic changes in your strategies based on feedback and results.

6. Operations Plan

The operations plan section of your business plan should outline the processes and procedures involved in your business operations, such as staffing requirements and operational processes. Here are a few components to add to your operations plan:

• Staffing & Training: Mention your business’s staffing requirements, including the number of employees, consultants, or data analyst needed. Include their qualifications, the training required, and the duties they will perform.
• Operational Process: Outline the processes and procedures you will use to run your investment company. Your operational processes may include portfolio management, client onboarding, investment research & analysis, trade execution & settlement, etc.

Adding these components to your operations plan will help you lay out your business operations, which will eventually help you manage your business effectively.

7. Management Team

The management team section provides an overview of your investment business’s management team. This section should provide a detailed description of each manager’s experience and qualifications, as well as their responsibilities and roles.

• Founders/CEO: Mention the founders and CEO of your investment company, and describe their roles and responsibilities in successfully running the business.
• Organizational structure: Explain the organizational structure of your management team. Include the reporting line and decision-making hierarchy.
• Compensation Plan: Describe your compensation plan for the management and staff. Include their salaries, incentives, and other benefits.

This section should describe the key personnel for your investment company, highlighting how you have the perfect team to succeed.

8. Financial Plan

Your financial plan section should provide a summary of your business’s financial projections for the first few years. Here are some key elements to include in your financial plan:

• Profit & loss statement: Describe details such as projected revenue, operational costs, and service costs in your projected profit and loss statement . Make sure to include your business’s expected net profit or loss.
• Cash flow statement: The cash flow for the first few years of your operation should be estimated and described in this section. This may include billing invoices, payment receipts, loan payments, and any other cash flow statements.
• Balance Sheet: Create a projected balance sheet documenting your investment company’s assets, liabilities, and equity.
• Financing Needs: Calculate costs associated with starting an investment company, and estimate your financing needs and how much capital you need to raise to operate your business. Be specific about your short-term and long-term financing requirements, such as investment capital or loans.

Be realistic with your financial projections, and make sure you offer relevant information and evidence to support your estimates.

9. Appendix

The appendix section of your plan should include any additional information supporting your business plan’s main content, such as market research, legal documentation, financial statements, and other relevant information.

• Add a table of contents for the appendix section to help readers easily find specific information or sections.
• In addition to your financial statements, provide additional financial documents like tax returns, a list of assets within the business, credit history, and more. These statements must be the latest and offer financial projections for at least the first three or five years of business operations
• Provide data derived from market research, including stats about the industry, user demographics, and industry trends.
• Include any legal documents such as permits, licenses, and contracts.
• Include any additional documentation related to your business plan, such as product brochures, marketing materials, operational procedures, etc.

Use clear headings and labels for each section of the appendix so that readers can easily find the necessary information.

Remember, the appendix section of your investment firm business plan should only include relevant and important information supporting your plan’s main content.

The Quickest Way to turn a Business Idea into a Business Plan

Fill-in-the-blanks and automatic financials make it easy.

This sample investment company business plan will provide an idea for writing a successful investment company plan, including all the essential components of your business.

After this, if you still need clarification about writing an investment-ready business plan to impress your audience, download our investment company business plan pdf .

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Frequently asked questions, why do you need an investment company business plan.

A business plan is an essential tool for anyone looking to start or run a successful investment business. It helps to get clarity in your business, secures funding, and identifies potential challenges while starting and growing your business.

Overall, a well-written plan can help you make informed decisions, which can contribute to the long-term success of your investment company.

How to get funding for your investment company?

There are several ways to get funding for your investment company, but self-funding is one of the most efficient and speedy funding options. Other options for funding are:

Small Business Administration (SBA) loan

Crowdfunding, angel investors.

Apart from all these options, there are small business grants available, check for the same in your location and you can apply for it.

Where to find business plan writers for your investment company?

There are many business plan writers available, but no one knows your business and ideas better than you, so we recommend you write your investment company business plan and outline your vision as you have in your mind.

What is the easiest way to write your investment company business plan?

A lot of research is necessary for writing a business plan, but you can write your plan most efficiently with the help of any investment company business plan example and edit it as per your need. You can also quickly finish your plan in just a few hours or less with the help of our business plan software .

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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Investment Company Business Plan Template

Written by Dave Lavinsky

Investment Company Business Plan

Over the past 20+ years, we have helped over 1,000 entrepreneurs and business owners create business plans to start and grow their investment companies. On this page, we will first give you some background information with regards to the importance of business planning. We will then go through an investment company business plan template step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What is an Investment Company Business Plan?

A business plan provides a snapshot of your investment company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategy for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for an Investment Company

If you’re looking to start an investment company, or grow your existing investment company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your investment company in order to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Investment Companies

With regards to funding, the main sources of funding for an investment company are bank loans and angel investors. With regards to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to confirm that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Investors, grants, personal investments, and bank loans are the most common funding paths for investment companies.

Finish Your Business Plan Today!

How to write a business plan for an investment company.

If you want to start an investment company or expand your current one, you need a business plan. Below we detail what you should include in each section of your own business plan:

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your Executive Summary is to quickly engage the reader. Explain to them the type of investment company you are operating and the status. For example, are you a startup, do you have an investment company that you would like to grow, or are you operating investment companies in multiple markets?

Next, provide an overview of each of the subsequent sections of your business plan. For example, give a brief overview of the investment company industry. Discuss the type of investment company you are operating. Detail your direct competitors. Give an overview of your target customers. Provide a snapshot of your marketing plan. Identify the key members of your team. And offer an overview of your financial plan.  

Company Analysis

In your company analysis, you will detail the type of investment company you are operating.

For example, you might operate one of the following types of investment companies:

• Closed-End Funds Investment Company : this type of investment company issues a fixed number of shares through a single IPO to raise capital for its initial investments.
• Mutual Funds (Open-End Funds) Investment Company: this type of investment company is a diversified portfolio of pooled investor money that can issue an unlimited number of shares.
• Unit Investment Trusts (UITs) Investment Company: this type of investment company offers a fixed portfolio, generally of stocks and bonds, as redeemable units to investors for a specific period of time.

In addition to explaining the type of investment company you will operate, the Company Analysis section of your business plan needs to provide background on the business.

Include answers to question such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of investments made, number of client positive reviews, reaching X amount of clients invested for, etc.
• Your legal structure. Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry analysis, you need to provide an overview of the investment industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the investment industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your strategy, particularly if your research identifies market trends.

The third reason for market research is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your business plan:

• How big is the investment industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential market for your investment company? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: companies or employees in specific industries, couples with double income, families with kids, small business owners, etc.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of investment company you operate. Clearly, couples with families and double income would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, include a discussion of the ages, genders, locations and income levels of the customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can understand and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other investment companies.

Indirect competitors are other options that customers have to purchase from that aren’t direct competitors. This includes robo investors and advisors, company 401Ks, etc. You need to mention such competition as well.

With regards to direct competition, you want to describe the other investment companies with which you compete. Most likely, your direct competitors will be investment companies located very close to your location.

For each such competitor, provide an overview of their businesses and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as:

• What types of clients do they serve?
• What type of investment company are they and what certifications do they have?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you provide better investment strategies?
• Will you provide services that your competitors don’t offer?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For an investment company, your marketing plan should include the following:

Product : In the product section, you should reiterate the type of company that you documented in your Company Analysis. Then, detail the specific products you will be offering. For example, in addition to an investment company, will you provide insurance products, website and app accessibility, quarterly or annual investment reviews, and any other services?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your marketing plan, you are presenting the services you offer and their prices.

Place : Place refers to the location of your company. Document your location and mention how the location will impact your success. For example, is your investment company located in a busy retail district, a business district, a standalone office, etc. Discuss how your location might be the ideal location for your customers.

Promotions : The final part of your investment company marketing plan is the promotions section. Here you will document how you will drive customers to your location(s). The following are some promotional methods you might consider:

• Advertising in local papers and magazines
• Commercials and billboards
• Reaching out to websites
• Social media marketing
• Local radio advertising

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your investment company, including researching the stock market, keeping abreast of all investment industry knowledge, updating clients on any new activity, answering client phone calls and emails, networking to attract potential new clients.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to land your Xth client, or when you hope to reach $X in revenue. It could also be when you expect to expand your investment business to a new city.  

Management Team

To demonstrate your investment company’s ability to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally you and/or your team members have direct experience in managing investment companies. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act like mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing an investment company or successfully advised clients who have achieved a successful net worth.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet and cash flow statements.

Income Statement : an income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenues and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you take on one new client at a time or multiple new clients? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets : Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your investment company, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a bank writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

In developing your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing an investment company:

• Cost of investor licensing..
• Cost of equipment and supplies
• Payroll or salaries paid to staff
• Business insurance
• Taxes and permits
• Legal expenses

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your office location lease or list of clients that you have acquired.  

Putting together a business plan for your investment company is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will really understand the investment industry, your competition, and your customers. You will have developed a marketing plan and will really understand what it takes to launch and grow a successful investment company.  

Investment Company Business Plan FAQs

What is the easiest way to complete my investment company business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily complete your Investment Company Business Plan.

What is the Goal of a Business Plan's Executive Summary?

The goal of your Executive Summary is to quickly engage the reader. Explain to them the type of investment company you are operating and the status; for example, are you a startup, do you have an investment company that you would like to grow, or are you operating a chain of investment companies?

Don’t you wish there was a faster, easier way to finish your Investment Company business plan?

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to hire someone to write a business plan for you from Growthink’s team.

Other Helpful Business Plan Articles & Templates

Investment Company Business Plan Template

Written by Dave Lavinsky

Investment Company Business Plan

You’ve come to the right place to create your Investment Company business plan.

We have helped over 1,000 entrepreneurs and business owners create business plans and many have used them to start or grow their Investment Companies.

Below is a template to help you create each section of your Investment Company business plan.

Executive Summary

Business overview.

NovaGrowth Investments is a startup investment company located in Aurora, Colorado. The company is founded by Thom Anderson, an investment broker from Colorado Springs, Colorado, who has amassed millions of dollars for his clients over ten years while working at Clear River Investments. Because Thom has gained an extensive following of clients who have already indicated they will follow him to his new investment company, he has made the initial steps into forming NovaGrowth Investments. Thom plans on recruiting a team of highly-qualified professionals to help manage the day-to-day operations of a premier investment company in every aspect of marketing and advising in the land acquisition investment company.

NovaGrowth Investments will provide a wide array of services for investors, in particular those related to the optimal attention and time needed to secure valuable investments on their behalf. Investors can feel confident and secure, knowing that Thom and his team are looking out for their interests in every aspect of the land acquisition process. What’s more, NovaGrowth offers customized guarantees of investment performance that are singular within the investment company industry.

Product Offering

The following are the services that NovaGrowth Investments will provide:

• Analysis and expansive vetting of land acquisition opportunities up to 5M acres
• Extensive market research that secures in-depth findings
• Consistent and competitive returns while managing risk effectively
• Full spectrum wealth management
• Comprehensive array of software tools/programs to capture critical intelligence
• Unique strategies tailored for each individual client
• “New investor” welcome package with goal-setting seminar included
• “Boots on the Ground” team of investment analysts who visit each location under consideration and offer a full report plus video capture of the land
• Oversight and management of each portfolio and customized suggestions

Customer Focus

NovaGrowth Investments will target individual investors. They will also target corporate investors who are seeking land acquisitions. They will target fast-growing companies known to be seeking additional tracts of land. NovaGrowth Investments will target industry partners (cattle ranchers, horse breeders, etc) that could benefit from land acquisition as an investment.

Management Team

NovaGrowth Investments will be owned and operated by Thom Anderson. He recruited Jackson Byers and Kylie Carlson to manage the day-to-day operations of the investment company and oversee human resources.

Thom Anderson is a graduate of Cambridge University in the U.K., where he graduated with an International Business bachelor’s degree. He spent five years in the U.K. sourcing land for a large investment firm as an entry-level investment advisor.

Upon his return to the U.S.,Thom obtained his investment broker’s license and was employed by Clear River Investments in Colorado Springs, Colorado. Within one year, Thom secured over 5M in investments for his clients and, within five years, he amassed over 25M in land acquisition investments on behalf of his clients.

Jackson Byers is a graduate of the University of Illinois, where he graduated with a master’s degree in Accounting. His former role at Clear River Investments was as the Associate Accountant, where he managed the normal business accounting processes for the firm. He will serve as the Staff Accountant in the startup company and will assist in overseeing the day-to-day operations of the firm.

Kylie Carlson was hired by Thom Anderson as his Assistant and worked for him at Clear River Investments for over ten years. Her new role will be the Human Resources Manager, overseeing personnel and the processes that are regulated and required by Colorado.

Success Factors

NovaGrowth Investments will be able to achieve success by offering the following competitive advantages:

• Friendly, knowledgeable, and highly-qualified team of NovaGrowth Investments
• “Boots on the Ground” team of investment analysts who visit each location under consideration and offer a full report plus video capture of the land.
• NovaGrowth Investments offers outstanding value for each client in both their management fees and land acquisition percentages. Their pricing denotes quality and value and their results continually substantiate it.

Financial Highlights

NovaGrowth Investments is seeking $200,000 in debt financing to launch its NovaGrowth Investments. The funding will be dedicated toward securing the office space and purchasing office equipment and supplies. Funding will also be dedicated toward three months of overhead costs to include payroll of the staff, rent, and marketing costs for the marketing costs. The breakout of the funding is below:

• Office space build-out: $20,000
• Office equipment, supplies, and materials: $10,000
• Three months of overhead expenses (payroll, rent, utilities): $150,000
• Marketing costs: $10,000
• Working capital: $10,000

The following graph outlines the financial projections for NovaGrowth Investments.

Company Overview

Who is novagrowth investments.

NovaGrowth Investments is a newly established, full-service investment company in Aurora, Colorado. NovaGrowth Investments will be the most reliable, effective and value-driven choice for private and commercial investors in Aurora and the surrounding communities. NovaGrowth Investments will provide a comprehensive menu of portfolio and land acquisition services for any potential investor to utilize. Their full-service approach includes a comprehensive seminar and helpful introductory information for first-time investors.

  NovaGrowth Investments will be able to manage the investments and acquire new investments for their clients. The team of professionals are highly qualified and experienced in investment brokerage and land acquisitions. NovaGrowth Investments removes all headaches and issues of trying to locate safe and secure investments and ensures all issues are taken care of expeditiously while delivering the best customer service.

NovaGrowth Investments History

Thom Anderson is a graduate of Cambridge University in the U.K., where he graduated with an International Business bachelor’s degree. He spent five years in the U.K. sourcing land for a large investment firm as an entry-level investment advisor. Upon his return to the U.S.,Thom obtained his investment broker’s license and was employed by Clear River Investments in Colorado Springs, Colorado. Within one year, Thom secured over 5M in investments for his clients and, within five years, he amassed over 25M in land acquisition investments on behalf of his clients.

Since incorporation, NovaGrowth Investments has achieved the following milestones:

• Registered NovaGrowth Investments, LLC to transact business in the state of Colorado.
• Has a contract in place for a 10,000 square foot office at one of the midtown buildings
• Reached out to numerous contacts to sign on with NovaGrowth Investments.
• Began recruiting a staff of seven and four office personnel to work at NovaGrowth Investments

NovaGrowth Investments Services

The following will be the services NovaGrowth Investments will provide:

Industry Analysis

The investment company industry is expected to grow over the next five years to over $1.3 trillion. The growth will be driven by ongoing vast opportunities for individuals and organizations seeking to grow their wealth The growth will be driven by new technology that navigating the complexities of the financial markets The growth will be driven by an increase in the interest of individuals in “making their own way” in the world The growth will be driven by the stability of land ownership as an on-going and important element in investment portfolios.

Costs will likely be reduced as technology continues to advance, allowing better-informed acquisition interest and supplemental risk mitigation Costs will likely be reduced as younger investors, such as Gen Z and millennials, continue to express an interest and desire for land acquisition investments, which indicates an increased number of sellers will enter the market due to favorable conditions.

Customer Analysis

Demographic profile of target market.

NovaGrowth Investments will target those potential individual investors in Aurora, Colorado. They will target businesses with a track record of land investments or a need for land due to company growth. NovaGrowth Investments will target industry partners (cattle ranchers, horse breeders, etc) that could benefit from land acquisition as an investment.

Customer Segmentation

NovaGrowth Investments will primarily target the following customer profiles:

• Individual investors
• Businesses with a record of land investments or those seeking land due to internal growth
• Industry partners seeking additional land for livestock or farming purposes

Competitive Analysis

Direct and indirect competitors.

NovaGrowth Investments will face competition from other companies with similar business profiles. A description of each competitor company is below.

CapitalMax Advisors

CapitalMax Advisors is a startup investment company in Colorado Springs, Colorado. The owner, Barry Jackson, is a graduate of Purdue University and has been an investment advisor for over ten years. He recently launched Capital Max Advisors to meet what he coined, “The Great Asset Allocation” investment opportunities within the city of Colorado Springs. Barry has hired ten associates from his former employer’s company to seek investors who are primarily interested in asset allocation investments and the company is promising reduced portfolio management rates for the first six months of business.

CapitalMax Advisors is a full-service investment company with a strong following of investors who were delighted by Barry’s performance on their behalf at his former employer. The expectation is that CapitalMax Advisors will live up to their primary purpose, which is to oversee and direct asset allocation to maximize returns in substantial numbers.

WealthWise Investments

Owned by Tamara and Loren Downs, WealthWise Investments is known for it’s assertive actions on behalf of clients. The company was founded in 2010 and currently offers a diverse range of investment products and services. They specialize in ETFs, mutual funds, and alternative investments. WealthWise Investments is known for its expertise in risk management, technology-driven investment strategies, and statewide reach beyond it’s home city of Colorado Springs.

WealthWise Investments offers excellent services to clients; however, clients have noted publicly that the fees and service charges are high in tandem with the asset allocation gains. There have been two complaints noted with the state regulatory agencies. Meanwhile, Tamara and Loren Downs continue to employ efforts to bring technology-driven tools into the investment company that will trim staff and distribute higher rates on behalf of investors.

FinTech Capital Management

FinTech Capital Management is a five-year-old company located in Denver, Colorado. The focus of the company is on financial technology investments on behalf of their client investors. Currently, the company has recorded stable and growing levels of profitability and has been tagged as an investment management firm known for its expertise in mutual funds and retirement planning They offer a sizable range of investment strategies, including equity, fixed income, and asset allocation funds. They are tech-driven and focus on research-driven investment decisions to fulfill the goals of their clients in long-term wealth creation.

In addition to tech acquisitions, FinTech Capital Management is also directed toward senior investors, with brokerage, retirement planning, wealth management, and mutual funds in their services offered. They provide a range of investment options, from individual stocks and bonds to managed portfolios and retirement accounts, many of which are perfect for those investors who have amassed a sizable portfolio, but are becoming risk-averse as they age. FinTech Capital Management is owned by The Thurgood Family Trust with the Thurgood brothers, Jonathan and Regis, responsible for day-to-day management. It has been recently suggested that the firm may be sold if the right buyers were to approach.

Competitive Advantage

NovaGrowth Investments will be able to offer the following advantages over their competition:

Marketing Plan

Brand & value proposition.

NovaGrowth Investments will offer the unique value proposition to its clientele:

• Unique investment strategies tailored for each individual client

Promotions Strategy

The promotions strategy for NovaGrowth Investments is as follows:

Word of Mouth/Referrals

Thom Anderson has built up an extensive list of contacts over the years by providing exceptional service and expertise to former clients and potential investors. The contacts and clients will follow him to his new company and help spread the word of NovaGrowth Investments.

Professional Associations and Networking

The executives within NovaGrowth Investments will begin networking in professional associations and at events within the city-wide industry groups. This will bring the new startup into focus for other companies, providing a path to increased clients and strategic partnerships within the city.

Social Media Marketing

NovaGrowth Investments will target their primary and secondary audiences with a series of text announcements via social media. The announcements will be invitations to the opening of the company, with a champagne reception and information regarding the services available at NovaGrowth Investments. The social media announcements will continue for the three weeks prior to the launch of the company.

Website/SEO Marketing

NovaGrowth Investments will fully utilize their website. The website will be well organized, informative, and list the services that NovaGrowth Investments provides. The website will also list their contact information and biographies of the executive group. The website will engage in SEO marketing tactics so that anytime someone types in the Google or Bing search engine “Investment company” or “Investment opportunities near me,” NovaGrowth Investments will be listed at the top of the search results.

The pricing of NovaGrowth Investments will be moderate and on par with competitors so customers feel they receive excellent value when purchasing their services.

Operations Plan

The following will be the operations plan for NovaGrowth Investments. Operation Functions:

• Thom Anderson will be the owner and President of the company. He will oversee all staff and manage client relations. Thom has spent the past year recruiting the following staff:
• Jackson Byers will provide all client accounting, tax payments and monthly financial reporting. His title will be Staff Accountant.
• Kylie Carlson will provide all employee onboarding and oversight as she assumes the role of Human Resources Manager.

Milestones:

NovaGrowth Investments will have the following milestones completed in the next six months.

• 5/1/202X – Finalize contract to lease office space
• 5/15/202X – Finalize personnel and staff employment contracts for NovaGrowth Investments
• 6/1/202X – Finalize contracts for NovaGrowth Investments clients
• 6/15/202X – Begin networking at industry events
• 6/22/202X – Begin moving into NovaGrowth Investments office
• 7/1/202X – NovaGrowth Investments opens its doors for business

Financial Plan

Key revenue & costs.

The revenue drivers for NovaGrowth Investments are the fees they will charge to clients for their investment acquisition and portfolio management services.

The cost drivers will be the overhead costs required in order to staff NovaGrowth Investments. The expenses will be the payroll cost, rent, utilities, office supplies, and marketing materials.

Funding Requirements and Use of Funds

NovaGrowth Investments is seeking $200,000 in debt financing to launch its investment company. The funding will be dedicated toward securing the office space and purchasing office equipment and supplies. Funding will also be dedicated toward three months of overhead costs to include payroll of the staff, rent, and marketing costs for the print ads and association memberships. The breakout of the funding is below:

Key Assumptions

The following outlines the key assumptions required in order to achieve the revenue and cost numbers in the financials and in order to pay off the startup business loan.

• Number of Clients Per Month: 175
• Average Revenue per Month: $437,500
• Office Lease per Year: $100,000

Financial Projections

Income statement.

Balance Sheet

Cash Flow Statement

Investment Company Business Plan FAQs

What is an investment company business plan.

An investment company business plan is a plan to start and/or grow your investment company business. Among other things, it outlines your business concept, identifies your target customers, presents your marketing plan and details your financial projections.

You can easily complete your Investment Company business plan using our Investment Company Business Plan Template here .

What are the Main Types of Investment Company Businesses? 

There are a number of different kinds of investment company businesses , some examples include: Closed-End Funds Investment Company, Mutual Funds (Open-End Funds) Investment Company, and Unit Investment Trusts (UITs) Investment Company.

How Do You Get Funding for Your Investment Company Business Plan?

Investment Company businesses are often funded through small business loans. Personal savings, credit card financing and angel investors are also popular forms of funding.

What are the Steps To Start an Investment Company Business?

Starting an investment company business can be an exciting endeavor. Having a clear roadmap of the steps to start a business will help you stay focused on your goals and get started faster.

1. Develop An Investment Company Business Plan - The first step in starting a business is to create a detailed investment company business plan that outlines all aspects of the venture. This should include potential market size and target customers, the services or products you will offer, pricing strategies and a detailed financial forecast. 

2. Choose Your Legal Structure - It's important to select an appropriate legal entity for your investment company business. This could be a limited liability company (LLC), corporation, partnership, or sole proprietorship. Each type has its own benefits and drawbacks so it’s important to do research and choose wisely so that your investment company business is in compliance with local laws.

3. Register Your Investment Company Business - Once you have chosen a legal structure, the next step is to register your investment company business with the government or state where you’re operating from. This includes obtaining licenses and permits as required by federal, state, and local laws.

4. Identify Financing Options - It’s likely that you’ll need some capital to start your investment company business, so take some time to identify what financing options are available such as bank loans, investor funding, grants, or crowdfunding platforms.

5. Choose a Location - Whether you plan on operating out of a physical location or not, you should always have an idea of where you’ll be based should it become necessary in the future as well as what kind of space would be suitable for your operations.

6. Hire Employees - There are several ways to find qualified employees including job boards like LinkedIn or Indeed as well as hiring agencies if needed – depending on what type of employees you need it might also be more effective to reach out directly through networking events.

7. Acquire Necessary Investment Company Equipment & Supplies - In order to start your investment company business, you'll need to purchase all of the necessary equipment and supplies to run a successful operation.

8. Market & Promote Your Business - Once you have all the necessary pieces in place, it’s time to start promoting and marketing your investment company business. This includes creating a website, utilizing social media platforms like Facebook or Twitter, and having an effective Search Engine Optimization (SEO) strategy. You should also consider traditional marketing techniques such as radio or print advertising. 

Learn more about how to start a successful investment company business:

• How to Start an Investment Company

Capital Investment Model

Evaluate the return and payback on a company's capital investment

What is a Capital Investment Model?

Most companies make long-term investments that require a large amount of capital invested in the initial years, mostly in fixed assets such as property, machinery, or equipment . Due to the significant amount of cash outflows required, companies perform a capital investment analysis to evaluate the profitability of an investment and determine whether it is worthy. This is especially important when a business is presented with multiple potential opportunities and needs to make an investment decision based on the long-run returns they can get.

To assess the profitability of a capital investment, companies can build a capital investment model in Excel to calculate key valuation metrics including the cash flows , net present value (NPV) , internal rate of return (IRR) , and payback period .

In this guide, we will outline the major line items that should be included in a capital investment model and how to use the calculated metrics to evaluate the investment.

#1 Revenues, Expenses and Profit

The first step to building a capital investment model is to determine the cash flows for the investment period. In this simplified model, we are presenting the income statement using the minimal number of line items – revenue, expenses, and profit. By subtracting the expenses from the annual revenue we can determine the profit for each year within the investment period, which will be used as cash inflows for the capital investment.

#2 Capital Investment and Cash Flow

Next, we need to determine the amount of capital invested in the project, which equals the cash outflows during the investment period. With that information, we can then calculate the annual cash flows using the following formula:

Cash Flow (Annual) = Profit – Capital Investment

The cash flow line will be the major input in the calculations of net present value (NPV) and internal rate of return (IRR) for this capital investment.

We also need to determine the cumulative cash flow, which is essentially the sum of all cash flows expected from the investment. The cumulative cash flow figures will be used to compute the payback period of the investment.

#3 Net Present Value (NPV)

The net present value (NPV) is the value of all future cash flows over the entire life of the capital investment discounted to the present. In this example, we will determine the NPV using three different discount rates – 10%, 15%, and 20%. This rate is often a company’s weighted average cost of capital (WACC) , or the required rate of return investors expect to earn relative to the risk of the investment.

In Excel, you can use the NPV function to find the present value of a series of future cash flows with equal time periods. The formula for the NPV function is = NPV(rate, cash flows).

In this example, the NPV of this capital investment would be $120,021 when the discount rate is 10%, $77,715 when the discount rate is 15%, and $48,354 when the discount rate is 20%. It tells us that when there is a higher risk associated with a capital investment, investors expect to pay less today and a higher return in the future.

#4 Internal Rate of Return (IRR)

The internal rate of return (IRR) is the expected compound annual rate of return earned on a capital investment. IRR is usually compared to a company’s WACC to determine whether an investment is worthy or not. If the IRR is greater than or equal to the WACC, then the company would accept the project as a good investment. Vice versa, the company would reject the investment if the IRR is less than the WACC.

You can use the IRR function in Excel to compute the rate of return based on a series of future cash flows. The formula for the IRR function is =IRR(rate, cash flows).

#5 Payback Period

The last metric to calculate for a capital investment is the payback period , which is the total time it takes for a business to recoup its investment. The payback period is similar to a breakeven analysis but instead of the number of units to cover fixed costs, it looks at the amount of time required to return the investment.

A simple way to calculate the payback period is to count the number of periods until the company earns a positive cumulative cash flow on the investment. In the example provided, the company starts to have positive cumulative cash flow in year 5 and, thus, the payback period for this investment is 5 years.

#6 Cash Flow Chart

Besides calculating the payback period, a cash flow chart is also a good way to visualize the cash flow trend over the investment period and the time when the investment breaks even. In the example above, the column chart in blue represents the annual cash flow of the investment, while the line chart in orange shows the cumulative cash flow over the period.

The point where the orange line intersects with the horizontal axis is the breakeven point, where the company earns zero cumulative cash flow and begins to recognize positive cash flow after paying back all of the initial investment.

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We hope this has been a helpful guide on what is a capital investment model and how to use it to evaluate the return on an investment. CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level.

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Business models innovation in investment banks: a resilience perspective

• Open access
• Published: 17 June 2020
• Volume 39 , pages 51–78, ( 2022 )

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• Boumediene Ramdani   ORCID: orcid.org/0000-0002-0201-5738 1 ,
• Ahmed Binsaif 2 ,
• Elias Boukrami   ORCID: orcid.org/0000-0002-4081-5023 3 &
• Cherif Guermat   ORCID: orcid.org/0000-0002-0754-0152 4  

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Firms frequently change their business models in order to respond to internal and external challenges. This study aims to explore how investments banks adjust their business models in response to internal and external challenges. Based on a qualitative data from ten major investment banks operating in the largest financial market in the Middle East, we show that investment banks can achieve resilience by adjusting their business models through continuous activity changes in response to internal and external challenges. Specifically, investment banks adjust their business models through deploying alternative combinations of activities from a broad repertoire of activities. Within the same bank, divisions that respond to external challenges tend to sustain their performance, whereas resilient divisions that respond to both internal and external challenges tend to bounce back or achieve substantial increase in performance levels. This study contributes to the literature by proposing resilience as an alternative approach to business model innovation and by providing insight into how firms adjust their business models by altering specific activities in response to both internal and external challenges.

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Firms frequently change their business models (BMs) in order to respond to internal and external challenges. While some firms need to respond to internal challenges such as organisational capabilities (Teece, 2018 ), and learning processes (Futterer, Schmidt, & Heidenreich, 2018 ), other firms need to address external challenges such as changing demands of stakeholders (Amit & Zott, 2015 ), new technology (Cozzolino, Verona, & Rothaermel, 2018 ), and deregulation (Casadesus-Masanell & Ricart, 2010 ). Business Model Innovation (BMI) has been suggested as a way to respond to these challenges by adjusting BMs, and as a new source of innovation that goes beyond product and process innovation (Osiyevskyy & Dewald, 2015 ). Although there is no commonly recognised definition of a BM, scholars tend to agree that a BM is about the value proposition the enterprise delivers to its customers, how it creates that value, and how it captures a portion of it (Wirtz, Pistoia, Ullrich, & Göttel, 2016 ; Massa, Tucci, & Afuah, 2017 ; Foss & Saebi, 2017 ). Moreover, researchers are increasingly becoming interested in how BM evolves over time (Saebi, Lien, & Foss, 2017 ).

There is an ongoing debate regarding what constitutes a BMI. Some scholars claim that BMI constitutes varying degrees of innovation. As Khanagha et al. ( 2014 : p. 324) put it “ activities can range from incremental changes in individual components of business models, extension of the existing business model, introduction of parallel business models, right through to disruption of the business model, which may potentially entail replacing the existing model with a fundamentally different one ”. Researchers advocating this inclusive definition highlight that BMI could be new to the firm as well as new to the industry. Studies show that BMI may affect only a single component (e.g. Schneider & Spieth, 2013 ), “one or more” components (e.g. Sorescu, Frambach, Singh, Rangaswamy, & Bridges, 2011 ), “two or more” components (e.g. Lindgardt, Reeves, Stalk, & Deimler, 2009 ), or the entire BM components and the links between the components (e.g. Velamuri, Bansemir, Neyer, & Möslein, 2013 ). However, other scholars stress that BMI has to be new to the industry (e.g. Aspara, Hietanen, & Tikkanen, 2010 ). Innovation here is typically disruptive where a completely new BM is introduced. In differentiating the types of BMI, Foss and Saebi ( 2017 ) use two dimensions of BMI, namely the degree of novelty (new to a firm vs. new to an industry), and scope of innovation (modular vs. architectural change). As a result, they suggest four types of BMI: evolutionary (fine-tuning process), adaptive (changes in the overall BM that are new to a firm), focussed (changes within one area of the BM), and complex (change the entire BM).

The BMI literature suggests that firms can adjust their BMs through adaptation, which is “ the process by which management actively aligns the firm’s business model to a changing environment ” (Saebi et al., 2017 , p. 569). Some studies focus on how firms adapt their BMs suggesting several approaches namely trial-and-error (Morris, Schindehutte, & Allen, 2005 ), learning (Teece, 2010 ), fine-tuning process (Demil & Lecocq, 2010 ), and continuous adjustments (Landau, Karna, & Sailer, 2016 ). Other studies focus on the conditions facilitating BMI. Firms are more likely to adapt their BMs under conditions of perceived threat than under conditions of perceived opportunities (Saebi et al., 2017 ). Despite the numerous studies on the drivers (e.g. Saebi et al., 2017 ), processes (e.g. Landau et al., 2016 ), and consequences (e.g. McNamara, Peck, & Sasson, 2013 ) of BM adaptation, there is still limited knowledge of how firms adjust their BMs.

Another less explored avenue for adjusting BMs is resilience, which is the ability “ to respond more quickly, recover faster or develop more unusual ways of doing business under duress than others ” (Linnenluecke, 2017 : p. 4). Dewald and Bowen ( 2010 ) suggest that “ resilience depends on a simultaneous internal and external evaluation of the situation ” (p. 212). This line of research stops short of disclosing how firms adjust their BMs in response to internal and external challenges. To fill this gap, our study aims to explore how investments banks can achieve resilience by adjusting their BMs in response to both internal and external challenges.

We choose to study investment banks for at least two reasons. First, Crotty ( 2009 ) argues that investment banking is a complex and risky business, and investment banks face continuous shift in market and regulatory environments. For instance, five of the largest independent investment banks in the US lost their independence in 2008: Bear Stearns and Lehman Brothers failed, Merrill Lynch was taken over by Bank of America, and Goldman Sachs and Morgan Stanley became bank holding companies to qualify for bailout money (Crotty, 2009 ). One of the main reasons for their failure has been attributed to the ambiguity and complexity of their BMs. This could be due to running multiple divisions (i.e. Asset Management, Brokerage, Investment Banking, and Custody Services) independently with ‘Chinese Wall arrangements’ (Lipton & Mazur, 1975 ) to avoid conflicts of interest. Second, investment banks throughout the world have made significant changes to their BMs after the 2008 financial crisis as they were forced by regulators to entirely abandon their old BMs by maintaining lower levels of leverage and accepting lower risk and lower returns (Teece, 2010 ).

Political and economic instabilities are real challenges for businesses in general and investment banks in particular throughout the Middle East. Saudi Arabia, as well as the Gulf region, has been hit by at least three major crises in the past three decades. The first crisis was the invasion of Kuwait by Iraq in August 1990, and the ensuing Gulf war that threatened not only the economies of the Gulf states but also their very existence (Finlan, 2003 ). The second major crisis was the 2006 IPO crisis in Saudi Arabia. This crisis was caused by an oversubscription to company shares on the Saudi stock market (Jeambey, 2007 ). From a peak on 25 February 2006, the Saudi stock market index fell by about 65% (Lerner, Leamon, & Dew, 2017 ). The crisis was felt across the entire Gulf economies. The third crisis was the 2008 global financial crisis, which caused the Saudi stock market to fall even further than it had in 2006 (Lerner et al., 2017 ). In addition, the Middle East region is well-known for its political instability; ranging from the Iraq-Iran war, the Arab Spring, to the current wars in Yemen, Syria and Libya.

Since the 1980s, the financial sector in Saudi Arabia has been given a priority as part of the Saudi government diversification policy away from the dependence on oil revenues (Samargandi, Fidrmuc, & Ghosh, 2014 ). As a result, the government has built financial markets, an efficient banking system, and a competitive insurance sector. Recently, the government launched the National Transformation Program (Saudi Vision 2030). Evidence suggests that although Saudi Arabia still depends on the oil sector, investment in Saudi stock market boosts Saudi economic growth (Jawadi & Ftiti, 2019 ). The shift in the Saudi policy makers towards a more sustainable economy and away from oil dependence makes investment banks an ideal context to study how firms adjust their BMs in response to internal and external challenges.

Theoretical background

Business model resilience.

An emerging body of research in BMI advocates that firms respond to internal and external challenges through resilience. According to Lengnick-Hall and Beck ( 2005 ), resilience is an organisational capacity to adjust routines in order to overcome challenges. BM resilience has emerged as one of the key themes in a recent review of resilience in business and management research (Linnenluecke, 2017 ). Research in this area posits that firms are able to respond to challenges through continuously adjusting, adapting and reinventing their BMs. However, “ the boundaries of organizational resilience have been ill defined and wide ranging ” (Dewald & Bowen, 2010 : p. 199). This field has included studies that range from continuous adjustment (Hamel & Valikangas, 2003 ), surviving an industry attack (Gittell, Cameron, Lim, & Rivas, 2006 ), and adoption or resistance of new disruptive BMs (Dewald & Bowen, 2010 ).

Resilient firms maintain a broad repertoire of options to effectively respond to challenges (Boisot & Child, 1999 ; Lengnick-Hall & Beck, 2005 ). Having a flexible inventory of alternatives enables firms to take a different path from that which is the usual (Sutcliffe & Vogus, 2003 ), adopt unexpected and timely responses to market shifts (Ferrier, Smith, & Grimm, 1999 ), and increase the odds of success (Eisenhardt & Tabrizi, 1995 ). Using the resilience perspective, this study will show the repertoire of options available to investment banks. To do that, it is necessary to outline the BMI challenges and dimensions.

BMI challenges

Firms adjust their BMs in response to challenges (Egfjord and Sund, 2020 ), antecedents (Amit & Zott, 2015 ), and/or barriers (Bocken & Geradts, 2019 ). These challenges have been argued to impact organisational outcomes including influencing business performance (Aversa, Furnari, & Haefliger, 2015 ), financial sustainability (Santos, Pache, & Birkholz, 2015 ), future growth (Gilbert, Eyring, & Foster, 2012 ), firm’s value (Eyring, Johnson, & Nair, 2011 ), competitive advantages (Tallman, Luo, & Buckley, 2018 ), and strategic flexibility (George & Bock, 2011 ). A full review of the BMI literature undertaken by the authors reveals two internal (challenges top management, and organisational culture) and seven external challenges, namely crises, regulations, client demands, new technologies, competitive pressure, industry, and service providers. Table 1 gives detailed explanation on each of the nine identified challenges. Relevant references are also provided for each challenge.

Activity-based approach

In BMI research both element-based and activity-based approaches have been used (Clauss, Kesting, & Naskrent, 2019 ; Spieth, Schneider, Clauß, & Eichenberg, 2019 ). The former is a high abstraction approach that views BMI as a change of BM elements. Although restrictive, this approach has been used to help communicate changes in BMs (e.g. Aversa et al., 2015 ). However, the latter approach views BMI as a change in BM activities (e.g. Tykkyläinen & Ritala, 2020 ). This view goes beyond identifying specific innovation components to by detailing the change in activities performed when adjusting BMs. Based on this view, we use Ramdani, Binsaif, and Boukrami ( 2019 ) activity-based framework (Fig.  1 ). This framework consists of four dimensions and 16 sub-dimensions. Unlike previous conceptualisations that identify the elements associated with BMI, this framework could be used to detail the activity changes within each sub-dimension.

BMI Framework (Ramdani et al., 2019 ). Ramdani et al., 2019 . Business model innovation: a review and research agenda. New England Journal of Entrepreneurship, 22 (2): 89–108

The four top level dimensions of BM identify different facets of the firm’s business. The following is a brief review of these four dimensions:

Value proposition : firms adjust their BM activities by rethinking what a firm sells, exploring new customer needs, acquiring target customers, and ensuring the benefits offered will be perceived by their customers. Prior studies in BMI research show that firms adjust their BMs by exploring various alternatives of core offering (Clauss, 2017 ), meeting unsatisfied needs in other markets (Eyring et al., 2011 ), altering activities in the value chain to acquire target customers (Kiron et al., 2013 ), and articulating a value proposition that is attractive for price-sensitive customers (Wu, Ma, & Shi, 2010 ).

Operational Value : firms adjust their BM activities through configuring key assets and sequencing activities to deliver the value proposition, establishing links with key partners and suppliers, and exposing the various means by which a company reaches out to customers. Studies in BMI research highlight that firms can adjust their BMs through integrating various assets (Al-Debei & Avison, 2010 ), developing new processes (Mason & Spring, 2011 ), forming new partnerships (Clauss, 2017 ), and adopting new distribution channels (Cao, 2014 ).

Human Capital : firms adjust their BM activities by experimenting with new ways of doing business, tapping into the skills and competencies (Hock-Doepgen, Clauss, Kraus, & Cheng, 2020 ) needed for the new BMs through motivating and involving individuals in the innovation process. Prior studies in BMI research show that firms can adjust their BMs through learning from previous experiences (Yunus, Moingeon, & Lehmann-Ortega, 2010 ), changing the level of participation in performing the activities (Sorescu et al., 2011 ), adopting different compensation and incentive policies (Brea-Solís, Casadesus-Masanell, & Grifell-Tatjé, 2015 ), and assembling cross-functional teams (Michel, 2014 ).

Financial Value : firms adjust their BM activities by capturing value through alternative revenue streams, changing the price-setting mechanisms, and assessing the financial viability and profitability. Studies in BMI research highlight that firms can adjust their BMs through introducing new cost structures and revenue models (Clauss, 2017 ), exploring ways to manage cash-flows, and generating more profit (Sorescu et al., 2011 ).

Research method

In order to explore how investment banks adjust their BMs, this study employs a qualitative approach (Yin, 2014 ). Multiple in-depth case studies are adopted because research in this field is still in its infancy and researchers are seeking new perspectives (Eisenhardt, 1989 ). Purposive sampling was used to select investment banks that operate all four divisions (i.e. Asset Management, Brokerage, Investment Banking, and Custody Services). As a result, our final sample is 10 fully-licenced investment banks operating in Saudi Arabia.

To ensure the trustworthiness, the authors addressed credibility, transferability, dependability and confirmability based on the criteria developed by Guba ( 1981 ). Credibility refers to the internal validity of the data. This was established through the use of triangulation. Primary data collected through semi-structured interviews was verified with the available secondary data (annual reports, financial statements, websites, and brochures). Transferability refers to external validity, which was achieved through the audio recording and transcription of interviews as well as through the purposeful sampling to collect the data from various top management positions where participants included chairman, executives, heads of division and heads of department. Dependability refers to reliability, which was established through ensuring that participants reflect on their experiences covering events that occurred up to 3 years prior to the interviews as well as recent events. Finally, confirmability refers to the objectivity of the data, which was achieved through independently auditing the findings, comparing and refining the interpretations among the authors.

Semi-structured interviews were conducted with participants that had key positions in all four divisions (see the Appendix – Table 6 ). The participants were asked questions on their banks’ goals and strategy, followed by a set of questions focusing on BM activities relating to value proposition, operational value, human capital and financial value, and questions on the their responses to current internal and external challenges. Interviews were recorded and transcribed to develop the full cases. The data was triangulated (Jick, 1979 ; Gibbert, Ruigrok, & Wicki, 2008 ) by cross checking the data with internal documents and publicly available information including the Capital Market Authority (CMA), the Saudi Arabian Monetary Authority (SAMA), the Saudi Stock Exchange (Tadawul) and the Ministry of Finance. In total, we conducted 29 interviews, each of which lasted between 46 and 140 min.

Using the validated transcripts, case studies were compiled for each investment bank. Then, the data was coded by two researchers independently (Mayring, 2014 ). After that, each case was analysed using thematic content analysis to explore how firms adjust their BMs. By analysing the content relating to challenges and the associated changes in activities, the authors were able to link what makes firms change their BMs and how they adjust them. Cross-case analysis (Eisenhardt, 1989 ) was conducted with two researchers present looking at comparing BMs as well as the challenges and activity changes for each division. The researchers went through several iterations between literature, data and findings until a consistent map was drawn for all BMs. Using the resilience perspective, a repertoire of activities was developed to show all possible activity changes.

One of the main findings of this paper is a map that describes the various options available to investment banks to respond to internal and external challenges. Table 2 presents this repertoire of specific activities for all four divisions. The first column shows the BM four dimensions starting with value proposition. The second column shows the four sub-dimensions for each of the four dimensions. For instance, the first sub-dimension for Operational Value is “Key Assets”. The remaining four columns show the actual activities available as a means to respond by adjusting their BM to potential challenges. For example, a Brokerage division under the “Distribution Channels” sub-dimension has four activities (online, mobile, direct calls and branches). This means that if an investment bank identifies that a threat can best be dealt with from the ‘Operational Value-Distribution Channels’ side, it can use the online activity alone or in combination with the other three tools (mobile, direct calls and branches). Of course, the managers can see a solution as a combination of many dimensions, sub-dimensions and activities.

Table 2 reveals three important aspects of resilience. First, we note the richness and diversity of activities that can help BMs to navigate through difficult terrain. Although some cells (as represented by an individual cell in the table) have one or two activities only, the vast majority of cells contain five activities. The second aspect is the specificity of various activities to the division and BM sub-dimension. Except from a single case (Direct communication under “Perceived Customer Value”), activities do not repeat across divisions or across sub-dimensions. The third aspect is that some divisions have a richer set of activities than others. The highest is Asset Management with 59 activities, followed by Investment Banking and Brokerage with 49 and 46 activities respectively. Custody Services has the least activities, with 31 activities only.

Table 3 summarises the main findings of this paper. The rows of the table show the BM dimensions and sub-dimensions that have been impacted. The columns show the challenges influencing each of the four divisions. Finally, the cells show whether, for a particular cross between BM sub-dimension and challenge, the firm uses activities intensively, moderately or not at all. In the following, we focus only on the most utilised activities.

We begin by highlighting the type of challenges to which divisions are subjected to. First, different divisions have different types and numbers of challenges. For example, the Asset Management and Investment Banking divisions have the highest number of challenges (five each). Custody Services has the least challenges with two only. The type of challenges varies across the four divisions, with two divisions sharing no more than two types of challenges. For example, Asset Management and Brokerage share “Client Demands” which no other division has. There is one exception. The “Crises” challenge is shared by three divisions, which makes it the most important challenge to investment banks. Second, out of the 16 challenges reported by interviewees, only three are internal (shaded columns), and these are found in Asset Management and Investment Banking divisions.

The pattern of results shown in Table 3 can be summarised as follows. First, different divisions deploy different sets of activities even for the same challenge. For example, if we take the “Client Demands” challenge, Asset Management uses “Revenue Stream” activity, while Brokerage uses “Key Assets” activities (but they use the same three other activities). Second, different divisions have different intensities of activity. By far the most activities deployed are for Asset Management, which totals 44 different activities. This division outshines the other three divisions, with the closest being Brokerage with 14 activities only.

Third, there is a significant difference as to what dimensions of the BM are given priority in overcoming the various challenges. Here we notice one dominant BM dimension and two dominant sub-dimensions. The most important dimension is Value Proposition with 31 sub-dimensions involved throughout the firm. Operational and Financial Value dimensions are also important with 19 and 16 sub-dimensions respectively. The human capital dimension is virtually inexistent, having only 3 out of the possible 64 sub-dimensions involved.

The most important sub-dimension is “Core Offering” which is involved in 15 out of the possible 16 challenges throughout the firm. The second and fourth highest sub-dimensions are “Customer Needs” and “Target Customers” with 9 and 7 challenges respectively. All three sub-dimensions form the core “Value Proposition” dimension. The third most important sub-dimension is “Revenue Stream”, with involvement in 8 challenges. The table also reveals that there are five unimportant sub-dimensions (zero challenges), and three weak sub-dimensions (3 or 2 challenges in total).

Overall, depending on the challenge faced, investment banks respond by adjusting their BM through deploying alternative combinations of activities from the repertoire. In Asset Management division, Table 3 shows that investment banks respond to the six challenges by altering eight sub-dimensions with a total of 44 activities.

To obtain further insights as to what kind of specific activities are used by investment banks, we produce detailed activity responses to the challenges faced by each division. We will focus here on presenting the activity responses to challenges in the Asset Management division (highlighted in Table 4 ). Activity responses to challenges faced by other divisions are included in the Appendix. Within the Asset Management division, two main sub-dimensions are dominant, namely the “Core Offering” and “Revenue Stream”. Within “Core Offering”, innovative investment is used as an activity against all five threats, whereas under “Revenue Stream” the fees-based model is dominant.

In the Asset Management division, investment banks respond to five challenges with a repertoire of activities. Top management push asset managers to create new investment products and alter both current revenue streams and overall margins. Asset managers respond to clients’ demands by creating new investment products to meet needs for new categories of customers, and adopting a new revenue model that is based on sharing the returns. In response to financial crisis, asset managers created a new offering with low margins and low returns to meet the demands of the new customer base that have fixed income and low-risk profile. To adhere to regulations and maintain the division’s performance, asset managers created new funds to target international investors and modified the fee structure of some funds to absorb the regulator’s imposed costs. Finally, asset managers responded to competitive pressure by hiring new asset managers, expanding the portfolio of investment products, charging lower fees for niche investment products.

For the remaining divisions, the repertoire of utilised activities is detailed in the Appendix (Tables  8 , 9 , 10 ). The Brokerage division responds to four challenges, namely competitive pressure, new technologies, client demands, and crises. As the competition intensifies this division invests in its brokerage system to approve margin lending (loans for trading) online, and deploy multi-brokerage models where clients are charged either through trading commissions or lending revenues. The technology challenges were dealt with by improving the brokerage system to allow clients to trade via online platforms or through smartphones. Investment banks also deployed multi-channel communication tools as a means to change some of the key processes such as opening online accounts. This led to reducing the staff and branch costs, but increased the IT costs. Clients’ demands were responded to by improving their brokerage systems to facilitate access and transactions for active traders. After the 2008 financial crisis, investment banks introduced margin lending to encourage trading. However, after the market stabilised, investment banks changed the parameters for margin lending to increase returns by charging trading commissions.

Investment Banking divisions face both internal and external challenges, including top management, service providers, organisational culture, new technologies, and crises. The response to top management challenges led to diversifying portfolio of investment services to attract new customers internationally such as corporates and government institutions interested in buying family-owned businesses. This meant that revenue streams (such as fixed, transaction-based, and success fees) were negotiated depending on the deal. One of the teams responsible for IPOs suggested changing a labour intensive process. A software was developed to automate the process, which led to reducing staff costs, quickening the process of delivering services, and finishing the deal faster for corporates in order to go public. Because banking advisory services depends on the participation of other parties such as accountants, legal firms, commercial banks, and underwriters, services may not be delivered in a timely fashion. Thus, in response to service providers’ challenges, Investment Banking divisions change their partnerships with legal firms and hire experienced investment banks that are able to deliver reliable services. The response to new technologies focused on new online and mobile distribution channels to make it easier for clients to access services, monitor their progress, and provide them with reports. Finally, during times of fluctuations in the market, this division focuses more on advisory services where non-listed firms prepare their IPOs or preferred private equities and only go public if the market conditions are favourable.

In Custody Services division, investment banks respond to two external challenges, namely industry demands and regulations. Custody Services division responded to industry demands by offering their services to non-listed firms, investment banks, and mutual investment funds. Technical investment banks partners were established to perform custody services at a lower cost and deliver these services to other banks bringing in new revenues. Finally, to adhere to new local regulations, investment banks were forced to assign an independent custodian to carry out safekeeping and administration, which meant that some banks were consuming these services locally through other investment banks or outsourcing these activities to an international partner. By improving their custody systems, investment banks incurred new IT costs.

To assess the performance of each division for 2016 and 2017, revenue growth data is highlighted in Table 5 . Looking at the cumulative growth for each division, the data suggest that divisions responding to only external challenges tend to sustain their performance levels as highlighted in Brokerage and Custody Services divisions. However, divisions responding to both internal and external challenges (i.e. Asset Management and Investment Banking) tend to bounce back in the Asset Management division and increase growth substantially in the Investment Banking division.

Firms respond to internal and external challenges through adaptation and/or resilience. The adaptation perspective focuses on responding to external challenges (Saebi et al., 2017 ), whereas the resilience perspective focuses on responding to both internal and external challenges. All divisions responded to external challenges. This may explain the focus of previous studies on responding to external challenges through adaptation. However, this study shows that resilience can be achieved by responding to both internal and external challenges. As a result, revenue growth bounced back in the Asset Management divisions, and increased substantially for Investment Banking divisions.

In their response to internal challenges, both divisions responded to top management. Asset managers withheld periodical meetings to discuss performance and review new trends in the industry in order to develop new investment products. In the Investment Banking division, financial advisory and arrangements were delivered with guarantees from the top in terms of execution and professionalism. Different management challenges are posed when carrying out BMI (Foss & Saebi, 2017 ). Moreover, Investment Banking responded to the challenge of organisational culture. By embracing an innovative culture, Investment Banking division was able to capitalise on new ideas emerging from internal teams. In short, creative culture has positive effects on firms undertaking BMI (Bock et al., 2012 ).

In their response to internal and external challenges, investment banks maintain a broad repertoire of activities that are used to adjust their BMs. Firms keep a broad repertoire of options to overcome challenges (Boisot & Child, 1999 ; Lengnick-Hall & Beck, 2005 ). Although previous studies claim that firms are able to respond to challenges through continuously adjusting their BMs (Landau et al., 2016 ), it is not clear how such a continuous adjustment of BMs takes place. We demonstrate how investment banks continuously adjust their BM through deploying alternative combinations of activities from the repertoire in response to specific internal and/or external challenge.

To adjust their BMs, investment banks modify a combination of activities. Previous studies in BMI have shown that firms adjust their BMs by changing a single component to replacing the entire BM (Saebi et al., 2017 ). This study shows that investment banks deploy a variety of activities. While the most important set of activities are found within the value proposition, followed by the operational value and the financial value dimensions, the lowest activity changes occur in the human capital dimension. This could be due to the challenges faced, the nature of the industry, and the context. This study shows that investment banks tend to mainly respond to external challenges including clients’ demands, crises and competitive pressure. In their response, investment banks focus more on rethinking their value proposition through expanding their core offering and meeting customer needs. Previous studies have focused on modifying the value proposition due to external challenges (e.g. Demil & Lecocq, 2010 ). Moreover, the nature of the financial services industry could have influenced which activity changes investment banks must focus on. The operational value and financial value activities remain less changeable than value proposition due to the maturity of the industry as well as the stringency of the regulatory environment. Also, it is a well-known practice that investment banks attract the highest talents because they can afford them. This may explain why human capital activity changes are the lowest changed compared to other activities. According to Chivers ( 2011 ), training in investment banks tend to be more “informal and on-the-job in nature”. He argues that this informal learning was “ad hoc, poorly recorded, and limited in scope”. Also, he claims that investment bankers prefer learning by doing. This may explain why human capital activity changes are the lowest changed compared to other activities. Previous studies show the particularity of certain industries (e.g. Aversa et al., 2015 ). Finally, the context of this study might have influenced activity changes. This study is conducted in an emerging economy, where the BMs are usually replications of existing BMs in developed economies rather completely new BMs. This could explain why activity changes focus more on the value proposition to adapt their replicated BMs (Landau et al., 2016 ).

Theoretical implications

By revealing how investment banks adjust their BMs in response to internal and external challenges, this study makes at least four contributions to BMI literature. First, it confirms that firms adjust their BMs not only in response to external challenges (Amit & Zott, 2015 ), but also in response to internal challenges (Teece, 2018 ). In this paper, we summarise and list the internal and external challenges that influence firms to change their existing BMs. Also, we show that resilience can be achieved by responding to both internal and external challenges. Second, this study provides important insights into how firms change their existing BM using a repertoire of activities. Using the resilience perspective, this study provides insight into how firms adjust their BMs by altering specific activities, an area that has not been sufficiently covered. This study captures activity changes by empirically examining the BMI framework. Third, this study brings together internal and external perspectives of the BMI literature, and provides evidence on the challenges and the associated activity changes for each of the four investment banking divisions. Fourth, this study adds evidence to industry-focused BMI by examining BMI in an understudied industry context (i.e. investment banks).

Managerial implications

This study has several implications for senior executives, analysts and regulators. It provides senior executives with a repertoire of activities that can be used to adjust their BMs. The repertoire can be used in conjunction with internal and external challenges to navigate BMI. This repertoire can be used not only by executives working in investment banks, but also by executives in other sectors to develop their own repertoire of potential BMs. Moreover, this study provides analysts and investors with a tool to help them understand investment banks BMs. The repertoire could be used by investors and financial analysts to complement their financial, industry and company analyses. By using this repertoire, analyst could demystify the complexity of activities, identify risks for each activity, and rationalise the different financial and operational performances. Furthermore, this repertoire could be used by regulators to legislate based on informed understanding of activity changes. This repertoire could help regulators navigate activity changes, communicate these changes with investment banks, and legislate accordingly.

Limitations and future research

Apart from the typical limitations that apply to qualitative studies, we highlight three areas for future research. First, this study fills a significant gap in our understanding of the internal challenges (Foss & Saebi, 2017 ) by demonstrating that firms need to respond to top management and organizational culture. Future research should further unravel other internal challenges such as organisational capabilities. Second, this study demonstrates that investment banks achieve resilience through continuously adjusting their BMs by maintaining a repertoire of activity changes. Future studies should explore flexible repertoires of options in other industries and how they compare to the findings of this study. Also, it will be interesting to track the sequence of activity changes, which was not captured in our study. Another avenue for future research is to investigate the levels of resilience among a group of firms facing similar internal and external challenges. Third, although this study showed how firms adjust their BMs in response to internal and external challenges and the associated performance levels for divisions, more research is needed to show activity changes and link them to performance levels. It would be interesting to further examine the association between BM changes and firm performance.

The aim of this study was to explore how investments banks adjust their BMs in response to internal and external challenges. Using the resilience perspective, case evidence from ten investment banks operating in the largest financial market in the Middle East was qualitatively analysed. The findings of this study suggest that investment banks adjust their BM through continuous activity changes in response to internal and external challenges. To overcome challenges, investment banks maintain a broad repertoire of activities that are used to adjust their BMs. Investment banks respond by adjusting their BMs through deploying alternative combinations of activities from the repertoire in response to specific internal and/or external challenges. In their response to internal and external challenges, investment banks deploy a variety of activities. While the most important set of activities are related to the value proposition, followed by the operational value and the financial value dimensions, the lowest activity changes occur in the human capital dimension.

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Ramdani, B., Binsaif, A., Boukrami, E. et al. Business models innovation in investment banks: a resilience perspective. Asia Pac J Manag 39 , 51–78 (2022). https://doi.org/10.1007/s10490-020-09723-z

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What Is an Investment Company?

Understanding an investment company, closed-end funds, mutual funds, unit investment trusts (uits), the bottom line.

• Investing Basics

Investment Company: Definition, How It Works, and Example

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

Investopedia / Michela Buttignol

An investment company is a corporation or trust engaged in the business of investing the pooled capital of investors in financial securities. This is most often done either through a closed-end fund or an open-end fund (also referred to as a mutual fund). In the U.S., most investment companies are registered with and regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940 .

An investment company may be known as a "fund company" or "fund sponsor." They often partner with third-party distributors to sell mutual funds.

Key Takeaways

• An investment company is a specialized business that is engaged in the business of investing pooled capital into financial securities.
• Investment companies can be privately or publicly owned, and they engage in the management, sale, and marketing of investment products to the public.
• Investment companies make profits by buying and selling shares, property, bonds, cash, other funds, and other assets.

Investment companies are business entities, both privately and publicly owned, that manage, sell, and market funds to the public. The main business of an investment company is to hold and manage securities for investment purposes, but they typically offer investors a variety of funds and investment services, which include portfolio management , recordkeeping, custodial, legal, accounting, and tax management services.

An investment company can be a corporation, partnership, business trust, or limited liability company (LLC) that pools money from investors on a collective basis. The money pooled is invested, and the investors share any profits and losses incurred by the company according to each investor’s interest in the company. For example, assume an investment company pooled and invested $10 million from a number of clients, who represent the fund company's shareholders. A client who contributed $1 million will have a vested interest of 10% in the company, which would also translate into any losses or profits earned.

Investment companies are categorized into three types:  closed-end funds , mutual funds (or open-end funds ), and  unit investment trusts (UITs). Each of these three investment companies must register under the Securities Act of 1933 and the Investment Company Act of 1940.

Investment companies may charge fees on their products, including management fees and other expenses, which can reduce returns. Investors should carefully review the fund's prospectus and performance before investing in a closed-end fund.

Closed-end funds issue a fixed number of shares that may then be traded on stock exchanges. As demand increases or wanes for fund shares, the supply of them remains the same. The price of the shares is thus determined by demand in the market and can trade at a premium or discount to the fund's net asset value (NAV) (although the units or shares of closed-end funds are typically offered at an initial discount to their NAV).

Investors who want to sell shares will sell them to other investors on the secondary market at a price determined by market forces and participants, making them not redeemable. Since investment companies with a closed-end structure issue only a fixed number of shares, back-and-forth trading of the shares in the market has no impact on the portfolio.

Mutual funds have a floating number of issued shares and investors may sell or redeem their shares back to the fund or the broker acting for the fund at their current net asset value at each trading day's closing NAV. As investors move their money in and out of the fund, the fund expands and contracts, respectively. Open-ended funds are often restricted to investing in liquid assets, given that the investment managers have to plan in a way that the fund is able to meet the demands for investors who may want their money back at any time. 

Mutual fund companies may charge fees, including management fees, 12b-1 fees, and other expenses, which can reduce returns (although the trend has been that fees have gotten lower over time). Mutual funds are popular among investors because they can offer diversification and professional management. However, investors should carefully review the fund's prospectus and performance before investing in a mutual fund.

A unit investment trust (UIT) issues a set number of units that represent undivided interests in a specific, fixed portfolio of securities. They have a specified termination date, and investors receive a pro-rata share of the UIT's net assets upon termination. UITs are passive investments in that they typically invest in a fixed portfolio of securities, such as stocks or bonds, and are not actively traded or rebalanced like the portfolios of mutual funds or closed-end funds. UITs may charge fees, including a creation and development fee, a trustee fee, and other expenses, which can reduce returns.

Each of these fund types can invest in a variety of securities, such as stocks, bonds, and commodities. Some may also use leverage to enhance returns, but this also increases the risk involved.

Is a Hedge Fund an Investment Company?

Private investment funds that only accept money from investors with a substantial amount of assets (i.e., accredited investors ) are not considered to be investment companies under the federal securities laws. These funds are exempt from the registration requirements under the Investment Company Act of 1940, but they are still subject to other securities laws and regulations. Private investment funds include hedge funds , private equity funds , and venture capital funds .

What Was the First Investment Company?

Investment companies have been around since the 1800s. The first mutual fund, the Massachusetts Investors Trust, was established in 1924 to allow small investors to invest in the stock market. It was an open-end fund, which became the most popular type of investment company. An iteration of this fund operates under the ticker MITTX.

How Can Investment Companies Be Socially Responsible?

Socially responsible investing (SRI) became a growing trend in the investment industry, and some investment companies specialize in SRI strategies. These companies invest in companies that have a positive impact on society and the environment, while avoiding companies that engage in practices that are harmful to people or the planet.

Investment companies can play a role in philanthropy. Donor-advised funds (DAFs) allow individuals to donate money to a charitable organization, while still retaining some control over how the funds are invested and distributed. This can be a tax-efficient way to support charitable causes while also benefiting from the investment returns.

Investment companies are legally defined and regulated entities that pool money from investors to invest in a portfolio of securities, such as stocks, bonds, and commodities. They are regulated by the Securities Act of 1933 and the Investment Company Act of 1940, which set forth various registration, disclosure, and reporting requirements. Investment companies are categorized into three types: closed-end funds, mutual funds (open-end funds), and unit investment trusts (UITs). Each type of investment company has its own characteristics, benefits, and risks. Investors should carefully review the offering documents, past performance, and risk factors before investing in any investment company or fund.

Investor.gov. “ The Laws That Govern the Securities Industry .”

Investor.gov. “ Closed-End Funds .”

U.S. Securities and Exchange Commission. “ Mutual Funds and ETFs: a Guide for Investors .” Pages 4, 9, 31.

U.S. Securities and Exchange Commission. “ Mutual Funds and ETFs: a Guide for Investors .” Pages 5, 52.

Investor.gov. " Hedge Funds ."

Investment Company Institute. “ How US-Registered Investment Companies Operate and the Core Principles Underlying Their Regulation .” Page 1.

MFS. “ Massachusetts Investors Trust .”

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How to Write an Investment Proposal [Template + Examples]

Published: June 28, 2024

As a writer, I’m extremely familiar with the concept of proposals. We write these sorts of proposals to convert clients, persuade buyers, and grow our business in the short term. However, investment proposals are a bit different — these proposals are written with a unique purpose for a specific audience and with some high stakes attached.

An investment proposal is the key to long-term business growth for many businesses, so it’s important to get it right.

In this article, I’ll define investment proposals, compare them to the business proposal, and then break down the components. I’ll provide a template, look at investment proposal examples, and even hear some tips for writing from a professional.

Table of Contents

What is an Investment Proposal?

Investment proposal vs. business proposal, 10 components of an investment proposal, how to write an investment proposal [+template], investment proposal examples [+tips].

An investment proposal is a document outlining the plan for a business. You use it to attract or convert investors to fund your organization. It covers the strategy of your business, the market, and financial projections, making it an essential document for conversion — empowering them to invest.

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• » 6 Elements of an Investment-worthy Business Model

• 29 Jun 2020
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6 Elements of an Investment-worthy Business Model

No one enters the business world with a desire to fail.

Becoming an entrepreneur opens a world of possibilities, and though one of these is the potential for failure, everyone hopes for great success and financial prosperity. Operating a business isn’t easy, and many people expect challenges and difficulties on the way to the top. However, many underestimate the importance of having a strong business model in place before the first sale is made.

A business model sets the foundation for how your business will operate, how you will create value for your customers, and how you will advance past industry competition. It is also a starting point for investors like  Mark Stevens  to evaluate the potential of the company. Investors need to have reasonable assurance that their money will be put into a business venture that is worth the risk, and a business model is revealed through the business plan. These steps help you create a streamlined plan for your business, focusing on growth and longevity.

Identify Your Audience

Without carefully choosing a specific audience, you don’t give your business the opportunity to address the individuals and markets that either need or want your services or products. A target market shouldn’t be based on a general assumption about community needs, but it should focus on a specific profile that includes the personas of two or three types of buyers. Come up with a profile for the ideal customer, then work out to incorporate correlating demographic information. Think of the problem your product or service will have and which group of buyers this would most benefit. Consider Walmart, the major retailer. This is a company that fits almost every purchase need of the average shopper, but you won’t find contractors or homebuilders headed there for home furnishings. In spite of their huge success and national presence, the retailer still knows who their specific audience is.

Determine Your Business Processes

Before you are able to connect with customers or hire employees, you should be able to define each area of activity that will make the business model work. The core aspects of your operations are the most crucial functions to develop. Don’t just know what they are but also be comfortable with the resources and efforts it will take to make them run smoothly. Things like marketing, product delivery, and invoicing all are all key activities to understand.

Document Key Resources

The different aspects of the operation will inevitably rely on different resources to work efficiently. Compile a master list of key business resources, then go through and makes sure that your business model has the capital it needs to provide these resources. Your resources aren’t limited to vendor and supplies, but also storage facilities, a digital presence, customer lists, and financial capital.

Develop Your Product’s Value Proposition

Unless you are in a niche business with little competition, you will need to find a way to rise to the top of your field. Identifying  your value proposition  is usually done in the early stages of business development, as you look for creative ways to solve an industry need. As you prepare to market your services, you will need to bring that value to the front of the discussion. Your value is more than just a price point. Contrary to popular opinion, consumers aren’t just worried about the price. They want to know about quality and what makes one product or business a better choice. Sustainability, customer service, self-service options, or a revolutionary idea can support why your product has value. Develop a product delivery system that keeps your product and business valuable and relevant to consumers for a long period of time.

Secure Business Partners

In the business world, no man is an island. You may not need or want a financial partner or investor, but you won’t be able to conduct business without the help of advertising partners, suppliers or vendors, and networking connections. Look for partners that have a specialty service or supply chain in your industry, as this can help eliminate third party and transport costs.  Negotiate your contracts  carefully, looking at quality and consistency, in addition to the cost. Make sure those you partner with understand your goals and business model, as the relationship you form will either promote or detract from them.

Allow for Innovation

Over time and as your business becomes more successful, you need to leave room for growth through innovation. Create consumer loyalty by developing a brand that they can get behind, but deliver the products they are looking for with quality service. Your business model may need to adapt to consumer trends, so don’t feel that this plan must remain static. As your business begins to understand the needs of the consumer and what may be happening in the market, revisit your business model and adapt it to foster continued success.

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Jacobi releases Model Portfolio Tech to help investment firms capitalise on booming opportunity

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26 Jun, 2024, 07:32 CST

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The search for technology to support model portfolio management and portfolio construction services is increasing as companies look to centralise and scale their model portfolio management and compete in a rapidly growing market.

BRISBANE, Australia , June 26, 2024 /PRNewswire/ -- The utilisation of model portfolios among financial advisers has emerged as a transformative force, with staggering growth in model portfolios projected to continue over the next decade. And with good reason, they offer an efficient method for diversification, risk management, and portfolio construction, with personalisation features to match the unique financial goals and risk tolerances of clients.

Financial advisers are also increasingly turning to asset managers for assistance in managing the model portfolios they build and maintain for clients.  Jacobi's model management technology enables asset managers to scale the portfolio construction services they offer financial professionals. The technology enables a platform that can centralise performance and risk analytics, integrate investment workflows, and produce professional reports to share with clients.

An early adopter of Jacobi's model technology, leading asset manager T. Rowe Price has seen improved process efficiencies and enhanced engagement with clients.

Chris Augelli , Head of Advisor Engagement & Portfolio Construction Solutions at T. Rowe Price ,  says:

"Jacobi's technology has enabled us to work faster and handle the increasing demand for our portfolio construction services. Having the team on one common platform through Jacobi has facilitated collaboration in real-time, which has supported our effectiveness in meeting clients' needs."

Tanya Bartolini , Chief Revenue Officer at Jacobi , says:

"Our technology helps us partner with asset managers such as T. Rowe Price to scale and connect workflows, driving enormous efficiencies – and ultimately increasing their market distribution."

About Jacobi

Jacobi Inc. is a global investment technology provider that streamlines multi-asset investment processes and enables portfolio design, analysis, and client engagement. Its unique "open architecture" platform allows users to tailor the platform by integrating their own code, models, data, analytics, and applications.

Founded in 2014, Jacobi provides its technology to top-tier investors across the globe, including some of the world's leading asset and wealth managers, pension funds, asset owners, and investment consultants. 

About T.Rowe Price 

Founded in 1937, T. Rowe Price helps people around the world achieve their long-term investment goals. As a large global asset management company known for investment excellence, retirement leadership, and independent proprietary research, the firm is built on a culture of integrity that puts client interests first. Investors rely on the award-winning firm for its retirement expertise and active management of equity, fixed income, alternatives, and multi-asset investments. T. Rowe Price manages $1.54 trillion in client assets as of May 31, 2024 , and it serves millions of clients globally.

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Integrating traditional and blockchain financial models: a blueprint for future investments.

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Dr. Clemen Chiang is the CEO of Spiking .

We are on the verge of a new era of investing that will leverage the strengths of traditional financial models and the advancements of blockchain technology. Blockchain is no longer a fringe technology in finance. Major financial institutions, including BlackRock and HSBC , are adopting blockchain-based funds and platforms, and a growing number of countries around the world are launching, developing or researching central bank digital currencies .

As a fintech entrepreneur with years of experience in both portfolio management and financial innovation, I am excited about the immense opportunities we can unlock by combining these two domains. But I have also observed an urgent need to bridge the gap between the models that have historically guided Wall Street's money managers’ investment decisions and the rapidly evolving blockchain currencies and applications that will shape future investments.

In 2022, BlackRock CEO Larry Fink predicted that "the next generation for markets, the next generation for securities, will be tokenization of securities,” meaning that stocks, bonds and other financial instruments will eventually be converted to digital assets on a blockchain. I share this vision that, in the future, every single asset class will be tokenized on an open, immutable ledger—from stocks and real estate to art and vintage whiskey.

The current landscape is fragmented and confusing. Traditional financial models rely on a vast array of metrics, such as price-to-earnings ratios and debt-to-equity ratios. Blockchain assets have their own set of metrics, such as on-chain analysis for cryptocurrencies. The sheer volume and diversity of these metrics can be overwhelming, especially for the average investor, and investors need to be able to compare apples to apples, not apples to oranges.

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To navigate this new terrain effectively, we must develop integrated frameworks that enable investors to evaluate blockchain options and stocks through the same lens, with the same criteria. Comprehensive integration will help us get the best of both worlds: the wisdom of traditional financial analysis and the transparency and security of blockchain.

The Value Of Traditional Models

Fundamental financial models such as the capital asset pricing model (CAPM), efficient market hypothesis (EMH) and modern portfolio theory (MPT) continue to offer money managers valuable guidance in investment decisions in the following ways.

• Fundamental analysis: Evaluating a company's financial statements, management and competitive advantages, as well as market conditions to determine its intrinsic value.

• Technical analysis: Using historical price data and trading volumes to forecast future price movements.

• Quantitative analysis: Employing mathematical models and statistical techniques to determine risk and return.

• Sentiment analysis: Assessing market sentiment through news, social media and other sources to gauge investor behavior and potential market moves.

The Benefits Of Blockchain

Traditional models also have constraints and inefficiencies when trying to address modern financial challenges. When integrated with Wall Street data, blockchain tools can improve important metrics.

• Transparency: Blockchain’s transparent ledger system enables immediate verification of transactions, significantly reducing the risk of fraud and increasing investor trust in data.

• Real-time data: Blockchain continuously updates and validates transaction records on its

decentralized ledger, allowing money managers to monitor and analyze real-time data from traditional and digital currency transactions.

• Asset tokenization: When traditional assets, including stocks, bonds and real estate, are represented as digital tokens on a blockchain, it lowers high barriers to entry in markets that were previously inaccessible to many investors. Tokenization allows fractional ownership, making it easier for people to buy and sell portions of these assets.

An Integrated Model For The Future

I believe that a framework that successfully combines data and insights from both traditional and blockchain-based assets must focus on several key areas.

• Unified metrics: We need to create comprehensive metrics that can be applied across all assets. For example, in my company, we've developed a proprietary "universe net purchase" metric that tracks the net buying and selling activity of major money managers for stocks and digital currencies.
• Transparent data analysis: We can offer investors a more complete, timely picture of asset movements and market trends by highlighting financial data from traditional sources on a transparent blockchain ledger.
• Risk assessment: By integrating blockchain data with traditional risk models, we can provide investors with a more nuanced understanding of portfolio risk across diverse asset classes.
• A dedicated blockchain bridge: We need to develop a blockchain specifically designed to ensure interoperability between existing financial systems and various blockchains. This bridge should support real-time data synchronization, implement advanced cryptographic techniques for data security and privacy and include features such as smart contracts for automated compliance and trade execution.
• Unified regulatory alignment: As regulatory bodies such as the SEC begin to oversee both traditional and blockchain-based assets, we have an opportunity to create standardized reporting and compliance frameworks that span both worlds and encourage collaboration between regulators, financial institutions and blockchain experts.
• A common investing approach: We need to establish standardized valuation metrics, benchmarks and analytical tools that can be applied to stocks and digital currencies. By developing clear guidelines for future asset tokenization, we can also prioritize consistency and comparability as financial systems evolve.

In our efforts to move toward integrating and analyzing traditional and blockchain-based assets, my team and I are developing the FIAT methodology:

• Fundamental: Incorporating key financial metrics from all relevant sources.

• Insider: Tracking the transactions of major money managers across stocks and digital currencies.

• Alert: Monitoring news and social media sentiment from a wide range of sources.

• Technical: Applying advanced charting and trend analysis to all asset classes.

As we move toward a future where tokenization becomes increasingly prevalent and blockchain plays a greater role in financial portfolios, the tools and methodologies we develop today will be influential in shaping how and where we invest. We need holistic, multifaceted frameworks that can help us create more effective, transparent and accessible financial systems for all investors.

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Transforming property investment in Dubai: Shard’s co-ownership model explained

Shard’s CEO tells Gulf Business that its co-ownership model offers a pathway to affordable luxury living in Dubai’s booming property market

Shard, a property ownership company, is differentiating itself in the UAE’s high-end real estate market, through a new model.

The firm announced that its co-ownership model will open to investors starting July 1, and promises to make luxury real estate more accessible to a broader audience. This model, which has seen success globally, allows for part-ownership of premium properties, enabling more individuals to partake in Dubai’s booming real estate sector.

Shard’s co-ownership scheme offers 1/8th ownership of luxury properties, complete with the owner’s name on the title deed, highlighted the launch announcements. This model provides all the benefits of premium property ownership at a fraction of the cost, it added.

The company has selected some of Dubai’s most sought-after locations for its listings, including Downtown Dubai, Bluewaters Island, and Palm Jumeirah. These areas are known for their luxurious lifestyle offerings, from world-class dining and entertainment to stunning views and prime beachfront access.

Seamless ownership

Shard ensures a hassle-free experience through its dedicated management services. The company explained that it handles all aspects of property management, from maintenance and repairs to scheduling stays for co-owners. This service is facilitated through a custom website and mobile app, providing transparency and ease of use.

The co-ownership model simplifies the complexities of property ownership, such as large financial commitments, paperwork, and ongoing maintenance. Shard’s dedicated team supports co-owners throughout the entire purchase and ownership process, making it an appealing option for those looking to enjoy the perks of premium property ownership without the associated burdens.

Strong partnerships

In a move to strengthen its market presence, Shard has partnered with leading real estate agencies and proptech companies, including BetterHomes and Huspy. These collaborations enhance Shard’s ability to list and acquire top-tier properties, leveraging a vast network to offer exclusive opportunities.

The co-ownership model, popular in regions like the US, Europe, and Southeast Asia, is expected to rapidly gain traction in the UAE, driven by the booming real estate market. Shard’s entry into this market aligns with the increasing demand for flexible and cost-effective property ownership solutions.

To explain the new model, István Juhász, CEO and co-founder of Shard , speaks to Gulf Business .

Q: What is the co-ownership model and how does it work?

The co-ownership model is a modern approach to owning luxury properties, designed to make high-end real estate more accessible.

Under this model, each property is divided into 1/8th shares, allowing up to eight individuals to co-own a portion of the property.

Each co-owner is listed on the title deed, ensuring legal ownership and allowing for personal use of the property. Specifically, with Shard’s model, each owner is entitled to exclusive use of the property for 44 days a year. These days can be scheduled flexibly, either for personal enjoyment or to rent out the property for income.

Unlike timeshares, Shard’s co-ownership model ensures that co-owners hold actual ownership stakes in the property.

This means any appreciation in property value benefits the owners directly.

Shard handles all aspects of property management, from maintenance to rental services, providing a hassle-free ownership experience. Owners can sell their shares at any time through Shard’s digital platform, which also allows them to manage their bookings and track rental income.

Q: What types of properties does Shard offer for co-ownership?

Shard curates a selection of the top 1 per cent of premium properties in Dubai’s most desirable locations, such as Downtown Dubai, Marina, Creek, and Palm Jumeirah.

These properties come fully furnished and equipped with high-end amenities. By partnering with leading real estate agencies like BetterHomes and Huspy, Shard ensures that their listings represent the best opportunities in the market.

The properties are tailored for a luxurious lifestyle and are managed entirely by Shard to maintain their high standards.

Q: How is co-ownership different from fractional ownership?

Co-ownership differs from fractional ownership in two key ways:

• Direct ownership on title deed: In co-ownership, each co-owner’s name is directly listed on the property’s title deed, ensuring clear and direct ownership. In contrast, fractional ownership typically involves owning shares in a company that holds the property, which can feel more detached and does not always guarantee direct access to the property.
• Personal use and flexibility: Co-owners in Shard’s model can personally use the property for a set number of days each year (44 days). This provides an opportunity to enjoy the property first-hand. In fractional ownership models, properties are often rented out long-term, meaning owners rarely get to use them.

Q: What is the legal framework that supports co-ownership in Dubai?

Dubai’s legal system supports co-ownership through laws such as Law No. 27 of 2007 on Encumbrance of Real Property Units (the “Joint Property Law”) and Law No. 7 of 2006 regulating Real Property Registration in the Emirate of Dubai (the “Property Registration Law”).

These laws provide a clear structure for co-ownership agreements, outlining the rights and obligations of co-owners. They also ensure that multiple individuals can be listed on a single title deed, allowing for up to eight co-owners to share legal ownership of a property.

Q: How will investors benefit from co-ownership with Shard?

Co-ownership with Shard offers several benefits for investors such as access to premium properties as investors can own a share of luxury real estate starting from Dhs200,000 making it a more accessible way to participate in Dubai’s high-end property market.

Additionally, instead of investing in a single property, investors can spread their investment across multiple properties, enhancing their portfolio and reducing risk.

This model, futhermore, brings in high rental yields and caapital appreciation. Co-owners can generate income from renting out their property share and benefit from the property’s increasing value.

As part of our services, Shard handles all aspects of property management, including maintenance, taxes, and rental services, ensuring a seamless experience for co-owners.

Another benefit of co-owning a property is that investors can enjoy 44 days of personal use per year, allowing for a luxurious lifestyle or the opportunity to use it as per their convenience.

Q: Does co-ownership impact existing market inventories or inspire new developments?

Co-ownership models can significantly influence the real estate market.

In markets where co-ownership has been introduced, such as the US with companies like Pacaso, the availability and desirability of premium properties have increased.

Co-ownership can make high-end real estate more accessible, driving demand and potentially inspiring developers to create properties specifically designed for this model.

In Dubai, Shard’s entry into the market could lead to similar trends, encouraging the development of properties that cater to the co-ownership model’s unique requirements.

Q: What motivated Shard to introduce the co-ownership model in Dubai?

I was inspired by the challenge of finding an appealing real estate investment option.

Traditional property purchases required significant capital and concentrated risk, while real estate funds felt impersonal. The idea of co-ownership offered a balance—allowing real ownership at a lower entry cost.

Given Dubai’s booming real estate market and the high demand for flexible, luxury living options, introducing the co-ownership model here was a logical step.

Read: Pioneering proptech: Transforming real estate through blockchain

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With a Senator Questioning Plug Power's Government Loan, Is This an Opportunity to Buy the Stock?

• Plug Power is looking to fix a flawed business model by producing its own hydrogen for its fuel cells.
• A Department of Energy loan that has come into question would help it complete its network of hydrogen plants.
• The stock looks like a lottery ticket at the moment.
• Motley Fool Issues Rare “All In” Buy Alert

NASDAQ: PLUG

The stock initially soared on the loan news, but it now trades below where it was before the announcement.

Shares of Plug Power ( PLUG 6.83% ) surged in May after the company announced that it had received a conditional commitment for a $1.66 billion loan from the U.S. Department of Energy (DOE). However, the stock is now well below where it was before the announcement, and one U.S. senator has called the loan into question.

The stock, meanwhile, is now down over 70% in the past year.

Let's look at the proposed DOE loan, why it is being called into question, why it is so important for Plug Power, and whether the slide in the stock is a buying opportunity.

Fixing a flawed business model

Plug Power has long been grappling with a flawed business model, which it has set out to fix. The company initially found a niche selling fuel cells used in forklifts and other material-handling equipment to companies with high-volume, three-shift warehouses like Amazon and Walmart .

But the flaw in its business model was that it would sell the hydrogen fuel needed to run its fuel cells at a loss. This could be seen in the company's most recent results, where negative gross margin led to a $159 million gross loss.

Just to emphasize how bad this is, the loss was measured before any corporate costs. The company loses a lot of money on the hydrogen fuel it sells, although in the first quarter, it also lost money on the equipment it sold.

Obviously, acquiring or making something for $3 and then selling it for $1 is not a durable business model, but that is pretty close to what Plug Power did last quarter with hydrogen fuel. Over the years, the company has mostly obtained hydrogen from third parties and sold it to its customers at a huge loss.

This is why it has embarked on building a network of its own hydrogen plants that can produce fuel that it can sell to its customers for a profit.

This is where the DOE loan comes in. In May, the company was given the chance to secure the loan -- if certain conditions to be negotiated by the company and the government are met -- to help it build out its hydrogen plant network. If it is approved, the loan would help fund up to six green hydrogen production facilities.

Plug Power already has two plants up and running, and another is expected to be complete by the end of the year, and that would meet about 65% of where it sees demand headed.

The loan would help create a large plant in Texas scheduled for next year that would meet its customer needs and allow it to expand beyond that.

However, in June, Sen. John Barrasso, a Republican from Wyoming who is the ranking member of the Senate Committee on Energy and Natural Resources, asked the DOE's inspector general to investigate "any potential impropriety" by the the DOE’s Loan Programs Office and the loan program's director, Jigar Shah, due to possible conflicts of interest. The senator also questioned Plug Power's viability given its $1.4 billion in losses last year.

While Plug Power could pursue financing elsewhere if the loan ultimately does not get approved, the terms and interest rates would undoubtedly be much less favorable. And given the company's financial position and negative operating cash flow , there is no guarantee it would be able to find an institution to lend it the money.

Image source: Getty Images.

Is the sell-off a buying opportunity?

Plug Power shares shot up as much as 70%, to $4.90, in the day after the DOE loan offer was announced. Today it is trading more than 15% below where it was before the announcement.

If the loan is approved, there should be some immediate upside potential given the past reaction and where the stock now trades. However, that could be short-lived.

Plug Power, meanwhile, has said it is looking to get to gross margin breakeven in its fuel business in the fourth quarter, which would not be dependent on the loan. That is a potential catalyst, but a break-even gross margin is still not a complete solution because it will not make the company profitable or start generating cash.

At this point, I would view Plug Power more like a lottery ticket. If it gets the loan, builds out its plants, and turns positive in gross margin and free cash flow, there could be tremendous upside in the stock. But just like most lottery tickets, there is also the chance it becomes worthless.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy .

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