Could Investability ratings help pension funds invest in innovative startups?

Investability ratings can play a pivotal role in helping pension funds invest in innovative startups, a market they have traditionally avoided due to high perceived risk, lack of knowledge and experience (unlike VCs) - and a lack of standardised, ratings. Here's how investability ratings can help bridge that gap:

✅ 1. Standardised Risk Assessment

Pension funds are risk-averse by design, focused on long-term, stable returns. Startups are typically non-standardised, opaque, and volatile. Investability ratings introduce a standardised way to assess startup quality, similar to how credit ratings/scores assess the creditworthiness of large companies and SMEs for bonds and loans. This allows pension funds to compare early-stage companies using transparent, objective criteria.

✅ 2. Institutional-Grade Due Diligence at Scale

Pension funds lack the resources to perform due diligence on thousands of startups. Investability ratings, especially when powered by AI, enable automated, expert-level assessments at scale, flagging startups that meet predefined quality and governance thresholds. This reduces diligence costs and increases confidence in investment decisions.

✅ 3. Portfolio Diversification and Risk Mitigation

By using investability ratings, pension funds can:

• Diversify into innovation without blindly accepting higher risk.

• Build index-style portfolios of highly rated startups.

• Use ratings to allocate capital based on risk-adjusted scoring, mitigating the binary risk of early-stage investing.
  

✅ 4. Regulatory and Fiduciary Confidence

Pension funds operate under strict fiduciary duties and regulatory frameworks. Ratings can:

• Provide audit trails and justifications for investment decisions.

• Offer third-party validation of startup potential, making investments more defensible to trustees, auditors, and regulators.
  

✅ 5. Enable Market Access through New Financial Products

Investability ratings could enable:

• Startup bond-like structures where returns are pooled and underpinned by highly rated ventures.

• Startup index funds or VC-ETF hybrids, appealing to pension fund mandates.

• Securitisation of startup portfolios based on average investability scores, opening up structured innovation vehicles.
  

✅ 6. Support Long-Term Innovation Goals

Pension funds increasingly have ESG, innovation, and impact mandates. Investability ratings can help them identify mission-aligned startups in climate tech, health tech and social innovation — vetted for both impact and commercial potential.

🧭 Final Thoughts

The Startup/SME investment gap remains one of the biggest missed opportunities in global funding. Pension funds have the capital to close that gap — but not yet the tools to do so confidently.

Investability ratings could be one of the tools needed. If built transparently, adopted widely, and linked to investable structures, they could give pension funds a safer, scalable way to back the next generation of  SMEs and boost real-economic growth sought by Governments, worldwide.

📌 

Pension Fund Barrier	Investability Rating Solution
High perceived risk	Standardised scoring framework
Lack of transparency	Objective, data-backed insights
High diligence cost	Scalable automated assessments
Fiduciary duty	Ratings = defensible decisions
No suitable vehicles	Rated portfolios enable access