When Wayne and I first launched Crowdability, we dove into a deep research project.
Our goal? To identify a proven process for picking successful startup investments.
Over the course of a year or so, we sat down with more than three dozen of the most successful startup investors in the country. At the time, these investors had collectively backed more than 1,080 startups, and generated several billion dollars in profits.
And gradually, they taught us dozens of tools and “tricks” to identify winning investments.
But of all their strategies, one has been the most valuable by far:
How to identify the investments that can return 10x your money.
Go with the Odds
Before I dive into the details, let me set the stage here…
Last week, Wayne explained that startup investors earn their profits in two main ways:
- The startup goes public in an Initial Public Offering (IPO); or
- The startup gets acquired.
IPOs can lead startup investors to massive profits, but there’s a “catch”: IPOs happen very infrequently.
The most common way for startup investors to earn their profits is through an acquisition — in other words, when a startup they invested in gets taken over by another company.
To put the numbers here in perspective:
In 2020, there were about 480 IPOs. But during the same time frame, there were about 12,000 takeovers!
That’s why Wayne left you with a question last week:
How do we spot potential takeover targets early — so we can cash out for big gains if and when they get acquired?
“Every Battle is Won Before It’s Ever Fought”
To answer this question, let me tell you about one of the investors we met during our startup research project.
Before this gentleman became a venture capitalist, he was a high-ranking military officer.
As he peppered our conversations with references to “storming the beaches of Normandy” and “the Battle of Little Round Top,” he often mentioned a particular expression:
“Every battle is won before it’s ever fought.”
As these words relate to investing, here’s what he meant:
Certain actions you take before you make an investment can determine your ultimate success…
And one of the most important of these actions is filtering out investments based on their valuation.
The Importance of Valuation
Valuation is another way of saying “market cap.” It’s the total value of a company. For public companies, we say market cap. For startups, we say valuation.
And here’s the thing:
Despite what you read in the press about big-ticket takeovers — like Facebook buying WhatsApp for $19 billion — the sales price for most startups is less than $100 million. In fact, according to PricewaterhouseCoopers and Thomson Reuters, the majority of acquisitions take place under $50 million.
So, if your goal is to earn 10x your money on a startup that might get acquired for $50 million, how do you “win this battle”?
Simple: invest at valuations of $5 million or less!
Make it Fast…
Obviously, there are exceptions to every rule…
But when you’re just getting started in early-stage investing, limiting your investments to startups that are valued at $5 million or less is a smart strategy to stick with:
This strategy will give you the greatest chances of identifying a profitable takeover target — and give you the greatest chance of potentially earning 10x your money.
The thing is, this isn’t the only way to earn big returns…
Tomorrow, Wayne will show you another way you could take a small amount of money and potentially turn it into a fortune — almost overnight.
In fact, as you’ll see, this powerful secret could give you the chance to earn an entire year’s worth of profits in a single day, all from just one investment.
So stay tuned!