Everyone knows the “simple” way to make money in the market:
Buy low and sell high.
For example, buy into a stock when it IPOs, then cash out when it trades higher.
But today I’ll show you a different way to profit from an IPO. This is a way to make money — a lot of money — even when an IPO tanks.
And just to be clear, this has nothing to do with shorting stocks or trading options.
Want to learn how to use this strategy yourself? Read on…
September’s “Hottest” IPO?
Last month, one of the hottest tech companies on the planet finally went public…
Grocery-delivery startup, Instacart.
Instacart brought in $2.5 billion revenue in 2022, a 38% increase from the year prior.
About 70% of those revenues came from its low-margin delivery business. But 30% of them — $740 million — came from higher-margin online advertising. That helps explain why the company earned a $428 million profit, compared with a $73 million loss the year before.
Given its competitive positioning, its scale, and its financials, it was expected to become one of the hottest IPOs of the year.
Indeed, after opening at $30, it quickly spiked to more than $42, which is where most “ordinary” investors like you were finally able to buy shares.
But the stock market can be tricky. Instacart’s momentum soon faded and its shares started to fall. As I’m writing this today, shares are trading for just $26 or $27. In other words, if you’d invested in Instacart on IPO day, you could have lost about 35% of your money.
However, for a different group of investors, Instacart’s price drop wasn’t a problem at all…
In fact, while investors from IPO day were sitting on a 35% loss, these other investors were sitting on a profit of more than 100x their money.
Let me explain…
The Secret to Making Money When Stocks Drop
The investors who made 100x their money on Instacart didn’t do anything “fancy”…
They didn’t short Instacart stock, and they didn’t make any complex options trades.
Instead, they did something simple:
They invested in Instacart before it IPO'd — in fact, they invested several years before it went public. And by doing so, they were able to secure their shares at a far lower price.
You see, startup investors including Sequoia Capital, Canaan Partners, and Y Combinator all invested when Instacart was valued at just $75 million.
And that’s why, even after Instacart’s stock plummeted, these pre-IPO investors were still sitting on a profit of more than 105x their money.
That’s a 10,500% gain, enough to turn $10k into more than $1 million.
The thing is, this isn’t an isolated example…
This phenomenon happens more often than you might think.
Pre-IPO Profits Strike Again
For instance, look at New Relic (NEWR).
Soon after its IPO, New Relic’s shares dropped by more than 20%.
But once again, pre-IPO investors didn’t suffer any losses…
Instead, they made serious profits:
While IPO investors in NEWR lost 20 cents for every dollar they invested, New Relic’s pre-IPO investors earned gains of 528%, turning every dollar they invested into more than $5.
The Early Bird Gets the Returns
And that’s the key to startup investing:
Getting in early.
That’s why, at Crowdability, we focus on showing you early-stage deals. These are the deals that have the most upside potential.
Now, to be clear, deals like this also come with certain risks…
But that’s why we provide you with various tools that can help you weed out the bad companies, and focus on the ones with the most upside, and the least risk.
You can learn more about how we approach early-stage investing here, in the free Resources section of our website »
Happy Investing
Best Regards,
Founder
Crowdability.com
