Next week, SnapChat is set to IPO.
When it goes public, the popular photo and video sharing start-up is expected to have a market cap of about $18 billion.
At that level, Snap’s private market investors stand to make a fortune.
In fact, even Snap’s investors who got involved late in the game, when it was valued at north of $1 billion, stand to make more than a 1,000% profit.
Actually, this is the exact strategy a certain group of private market investors uses to consistently earn 10x returns:
They wait for a start-up to reach a certain size (that way, the risk has been reduced), then they invest a huge sum—like eight or nine figures.
If the company goes public, they can reap massive returns.
Unfortunately, unless you happen to be sitting on tens of millions of dollars, this strategy won’t work for you. It only works for deep-pocketed institutional investors.
But today I’ll show you a different strategy for consistently earning 10x returns—and this strategy will work for anyone.
How to Make Money in Private Investing
Before I go into the details of this strategy, first let me show you how you actually earn a profit when you invest in a private company.
You see, unlike stocks, you can’t just sell your shares and take your profits off the table whenever you want to. These are private businesses, and generally speaking, they’re very small. So there’s no active market for their stock.
For start-up investments, there are two main ways you’ll earn your profits:
1. The company goes public. When this happens, you can sell your shares on a stock exchange like the NYSE or the Nasdaq.
2. The start-up gets taken over by a larger company. And if the takeover price is higher than the price you paid for your stock, you make a profit.
Where The Money is Made
Generally, an IPO is the most lucrative outcome for investors.
But IPOs aren’t very common...
In fact, in 2016, only 103 companies went public.
The more likely scenario is an acquisition, where the start-up gets taken over.
As a point of comparison, the Institute for Mergers, Acquisitions & Alliance reports that there were 13,142 takeover deals last year.
103 deals versus 13,142 deals. That’s a big difference—and it’s an important difference…
It goes straight to the heart of the 10x profit strategy I’m about to show you.
Follow the Money
You see, now that you know takeovers are where most start-up investors make their profits, you can dramatically increase your chances of making at least 10x your money.
How? Simple:
Follow the money.
To show you what I mean, let’s look at the average price of a start-up acquisition…
In other words, how much are these start-ups worth, on average, at the time of a takeover.
According to PricewaterhouseCoopers and Thomson Reuters, most technology acquisitions take place below $100 million…
And the majority of these acquisitions take place for less than $50 million.
So, to increase your odds of making 10x your money, take one simple step:
Invest in early-stage companies when they’re valued at $5 million or less!
Double Whammy
Obviously, there are exceptions to every rule…
But when you’re just getting started in early-stage investing, limiting your investing to start-ups that are valued at $5 million or less is a smart strategy to stick with.
Not only will it give you a higher probability of hitting a “10-bagger” during a takeover...
But if the start-up turns into the next SnapChat and goes public, you could make a fortune during its IPO.
Happy investing.
Best Regards,
Founder
Crowdability.com
