Co-investment is at the heart of Innovestor’s operational model and opens the doors to targets normally accessible only to professional investors. Innovestor differs from typical venture capitalists and financial services companies in that it offers its own investment targets also to other investors. Together the investment rounds are bigger, which enables negotiating better deals in regard to both profits and risks. This approach further decreases total costs for each investor.
Innovestor makes co-investing as easy as possible: via its online co-investment platform, it is effortless to invest into pre-vetted companies with already negotiated deal terms. Innovestor also co-ordinates all post investment activities for each company. So far Innovestor has only invested in early stage growth companies, with rapidly growing popularity and interest. Dozens of growth companies have been invested in through the co-investment model, with the investment usually targeted for helping the company’s product development or internationalization efforts. The investment size of each round is typically around 1 million euros.
This spring Innovestor is expanding its co-investment operations. The model remains the same but the investment targets now include also commercial properties located in growth areas. These property targets have previously been beyond the reach of many investors even though investing in commercial properties is an attractive option, for example for someone considering investing in residential properties.
Investing in residential properties typically results in around 4% of annual returns, whereas in commercial properties starting returns can be between 8 – 10%. The total annual return can be significantly higher, too, if the property’s value increases during the holding period. This, in turn, can be realized for example by successfully renewing the rental agreements or by otherwise improving the property. Another benefit compared with residential property investments is that risks are more diversified due to several tenants in one property instead of just one.
Many of Innovestor’s current co-investors are already active property investors and have hoped for a model like this. The process starts with Innovestor buying the property and then ‘securitizing’ its ownership by organizing a directed share issue. The entire ownership can be broken down into smaller parts according to each investor’s individual needs and capabilities. The shares are also completely transferrable which allow for trading on the secondary market. As with any investment, investing in commercial properties naturally has its own risks which shall be familiar and known to the investor.
Innovestor’s property professionals carefully choose each target and carry out proper due diligence as part of the investment process. Unlike in real estate funds, the targets’ cash flows are completely transparent to the investors. The investment size is also smaller than in residential investments: you can own a of piece of 5 – 10 million euro valued property by making a minimum investment of 25 thousand euros.
A part of the purchase price is covered with a property investment loan provided by a Finnish bank. The bank does its own due diligence to verify the quality, risks, and value of the target meaning that the loan on average increases returns on the investors’ equity invested. Investments are made only in targets which meet with Innovestor’s quality, risk, and profit criteria and a quarterly report of the target will be sent to the investors. The carefully chosen property aims at an annual dividend cash flow of around 6 – 7% and an annual total return of over 10% (IRR).
Co-investing in real estate is an emerging global trend. For example Cadre in the US has grown rapidly since a broader investor base has been able to access larger investment targets. Innovestor is now bringing this model to Finland and Finnish investors. The goal is to offer 2 – 4 targets per year and also expand abroad, for example to other Nordic countries.
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Here you can find more information on Innovestor’s commercial properties.