Yesterday you took a brief quiz on angel investing.
You were tasked with evaluating five early-stage companies and determining whether or not you’d invest.
How do you think you did?
Well you’re about to find out...
Start-up #1 – Coffee Bean Retailer
Remember the coffee company started by two teachers and a writer?
Well, it might’ve sounded like a silly idea. I mean, how can you build a big business by only selling coffee beans out of a local shop?
Well, this company might’ve originally started out selling beans.
But today, it sells the beans and the coffee… and food… and coffee machines… and has thousands of retail locations in dozens of countries.
There are literally three of their stores on the same block as my home here in New York City.
By now you’ve probably guessed that this company is none other than Starbucks.
You might’ve already known the story behind Starbucks, but most folks don’t.
The company originally started out by selling beans. But when its head marketing honcho – now, CEO, Howard Schultz – had his first cup of freshly brewed gourmet Italian espresso, he created an entirely new vision for the company.
He actually left Starbucks for a period of time to start his own new business, but would ultimately return a short time later to acquire his former employer. And the rest, as they say, is history.
Start-up #2 - College Dating
But what about the second company? Did you invest in this one?
I would completely understand if you didn’t. The company was being run by a bunch of college kids and the idea of helping other college kids find cute dates around campus just doesn’t sound very compelling, does it?
Well, if you had passed on this investment you would’ve missed out on one of the most profitable investments of all time: Facebook.
Facebook’s first investor, Peter Thiel, invested in the company when it was just getting started.
He put in $500,000 in exchange for 10% of the business.
When the company went public in 2012, he cashed out for $1 billion. That’s a 200,000% return.
Start-up #3 - Grocery Delivery
Now what about the grocery delivery service?
That sounded like a “no brainer” investment, right?
Experienced management, past history of success, with a product that was addressing a real customer demand.
Well, if you had invested in this company, you would’ve lost your shirt.
The company, Webvan.com, was one of the most famous start-up failures of all time.
The company burned through over $800 million in venture capital and IPO proceeds in approximately 3 years.
Start-up #4 - Tablet Computing
And what about our mobile device company? The company founded by former Apple execs that had a breakthrough “tablet computing” device?
That had to be winner, right?
Wrong.
The company, Go Corp., had big ambitions, a clear vision and an experienced team.
What it didn’t have was timing.
The internet was only just getting started. Connection speeds were slow and the hardware the company used was even slower.
In other words, it wasn’t an “iPad.”
After running through $75 million in funding, the company was eventually absorbed into AT&T and was ultimately shuttered.
However, a little over a decade later, Apple went on to launch the iPad.
Which has since become one of the fastest growing consumer electronics products in history.
Timing, after all, is everything.
Start-up #5 - Online Clothing Retailer
And finally we had our global retailer opportunity.
This is a company you might’ve heard of in 1999. It was one of the most well-funded private companies of all time.
In total the company was able to raise $135 million from sophisticated investors from around the globe.
They rapidly grew from zero to over 400 employees in only a few months.
They rolled out a $40 million ad campaign for their launch.
And within 6 months...
... They went out of business.
The company: Boo.com.
It was one of the most spectacular early-stage failures of all time. From start to finish, the company blew through that $135 million in funding in only 18 months.
Investors lost everything.
Lessons Learned
So what’s the big takeaway from all of these start-up stories?
Well, there are many, but the most important is that when it comes to early-stage businesses, it’s difficult to tell which ones will succeed and which will fail.
Some ideas are awful. But the entrepreneurs behind them are brilliant and eventually shift strategies around until they succeed… like Starbucks.
Other ideas and teams sound perfect, but they have poor timing. Like Go Corp. and their tablet computer.
And other times, founders simply get carried away and spend too much money assuming they’ll be successful.
There are, in other words, many ways that an investment can go wrong.
The only way to protect yourself against all of these risks:
Diversification.
We’ll tell you more about how to quickly diversify your early-stage investments in tomorrow’s email.
It’s the most important e-mail we’ve sent you yet. Be on the lookout for it at 7:00 AM sharp!
Best Regards,
Founder
Crowdability.com
