Comparison of startups vs established companies: risk and reward

When we think about investing, a question that never gets old often arises: Is it better to invest in new, high-growth companies or in large, established companies?

The reality is that both options have advantages and disadvantages. There's no single answer, because every investor has a different profile, different risk tolerances, and objectives that can range from "growing wealth as quickly as possible" to "protecting what I already have."

In this article, we'll compare, clearly and simply, what you can expect from each type of company: emerging companies (startups, young or disruptive companies) and established companies (large, stable companies with years in the market). The goal is for you to understand, in a practical way, the balance between risk and reward, and to be able to consider which profile best suits your investment style.

1. What is a startup company?

A startup is a company in the early stages of growth. It may be experimenting with new business models, technologies, or ways to solve a problem. These are the companies that "show great promise" but haven't yet demonstrated their ability to sustain their results for many years.

Typical characteristics:

• Rapid growth or the potential for very rapid growth

• Limited financial history

• Novel products or services

• Unproven business models

• High sensitivity to economic changes

These are companies that, if successful, can multiply the value of the investment in a short time. But they can also disappear or lose value rapidly if something goes wrong.

2. What is an established company?

A well-established company is a large, stable company with a proven business model. These are brands that most people recognize, that have weathered several crises, and have demonstrated their ability to continue operating even in challenging environments.

Typical characteristics:

• More predictable revenue and profits

• Long financial history

• Recognized brand

• Global operations or dominant position in their sector

• Lower volatility

These companies are often not expected to experience spectacular growth, but rather to continue generating stable revenue and profits.

3. Risk: How dangerous is it to invest in each one?

Startups: High Risk

Investing in a startup can be like riding a roller coaster. Prices can rise quickly with good news, but they can also fall just as fast if the market reacts negatively.

Main Risks:

1. High volatility: The price of their shares can fluctuate significantly in a single week.

2. Limited historical data: There isn't enough information to analyze how they perform during times of crisis.

3. Dependence on external funding: Many startups spend more than they earn. If the money runs out, they can run into trouble.

4. Fierce competition: Sometimes the market is saturated with similar companies.

But be aware: High risk doesn't necessarily mean bad; it simply means that things can go very well… or very badly.

Established Companies: Low to Moderate Risk

These companies tend to be more predictable. They have consistent revenue, a solid customer base, and a strong competitive position.

Key Advantages:

1. Lower volatility

2. Proven track record in economic crises

3. Stable and consistent revenue

4. Clear strategies and solid models

However, an established company is not synonymous with "risk-free." It simply means that the range of returns is usually less extreme.

4. Reward: How big is the earning potential?

Startups: High Rewards

They are a favorite among those looking to multiply their investment. When a startup succeeds, it sometimes experiences explosive growth, especially in sectors like technology, artificial intelligence, clean energy, or biotechnology.

Examples of potential rewards:

• Companies that grow 300%, 500%, or even more in 5 years.

• Disruptive changes that create entirely new markets.

• Competitive advantages based on innovation and speed.

The key here is that the potential is enormous, but nothing is guaranteed.

Established Companies: Moderate but Stable Rewards

They typically offer slower, but steady, growth. It's rare for an established company to triple its value in a short time, but it is common for them to:

• Generate dividends,

• Repurchase shares,

• Increase their value year after year,

• Weather crises without collapsing.

In short: less excitement, more stability.

5. Which is better (startups vs established companies) according to the investor profile?

If you like risk and have a long-term horizon:

Startups can be attractive. They're ideal if:

• You don't need the money in the short term

• You're tolerant of sharp declines

• You're willing to diversify (because not all of them will survive)

• You're excited about innovation

The key here is usually to balance many small positions instead of putting all your eggs in one basket.

If you prefer stability and avoiding unnecessary scares:

Established companies are better for you. They're ideal if:

• You're looking to protect your capital

• You're interested in receiving dividends

• You want less volatility

• You're more concerned with the long term than explosive growth

Many investors combine these companies with bonds or funds for even greater stability.

6. What about a mixed portfolio?

Most successful investors combine both types. A balanced portfolio might look like this:

• Established companies → for stability

• Emerging companies → for growth

  
  

This allows you to take advantage of opportunities without a drop in an emerging company wiping out your entire portfolio.

Furthermore, mixing large and small companies allows you to strengthen your strategy with benefits such as:

• Diversification

• Exposure to different economic cycles

• Different types of risk

• Exposure to both innovation and stability

7. Key factors when evaluating any company

Regardless of whether it's an emerging or established company, it's important to review:

1. Revenue and earnings

2. Debt structure

3. Cash flow (actual cash inflows and outflows)

4. Competitive advantage

5. Industry risks

6. Management team

7. Growth prospects

A startup may be promising, but if it's burning through cash uncontrollably, that's a red flag. An established company may appear stable, but if it's losing market share year after year, that's also a red flag.

8. Which option has historically been more profitable?

Over time, successful startups tend to offer higher returns than established companies. However, their failure rate is very high.

On the other hand, established companies tend to offer more moderate returns, but with much lower risk.

This means that the "average" return of an emerging market portfolio can be very good… but only if you choose wisely and diversify.

9. Conclusion: risk vs reward

No type of company is inherently "better." The choice depends on your personal goals.

• Startups → higher risk, higher profit potential, greater uncertainty.

• Established companies → lower risk, moderate growth, proven stability.

In an ideal world, a well-structured portfolio blends both to balance the best of each.

The key is to know yourself as an investor, understand your goals, and make decisions aligned with your risk tolerance. If you do that, choosing between startups vs established companies will no longer be a gamble, but a strategy.