Warning: Do Not Overpay for this Investment

By Matthew Milner, on Wednesday, March 10, 2021

Greed can blind you.

It can take a wildly profitable investment and turn it into a loser.

So today, I want to show you a simple trick to ensure you stay on your toes.

As you’re about to learn, this one trick could help you make a fortune…

In fact, with a little bit of discipline and some time, it could potentially help you turn a $500 investment into several million dollars.

Inspired by a Story

My column today was inspired by a crazy story I read about over the weekend.

You see, a one-year-old startup called Orum just raised money at a valuation of $100 million.

(In case you didn’t know, a private startup’s valuation is similar to a public stock’s market cap. Both terms refer to the total value of the enterprise.)

A tiny one-year-old startup worth $100 million? That’s crazy.

The thing is, it’s indicative of a larger trend: startup investments have become expensive.

According to research firm PitchBook, the median valuation for an early-stage startup has increased sixfold since 2010 — from about $6 million to $37 million.

Evidently, given the market-beating returns of private startups, many investors are willing to “overpay” to get into a deal.

This is a mistake.

To show you why, let me explain how startup investors make money.

How Private Investors Make Profits

Startup investors make money when a company they invested in has an “exit.” These exits happen in two main ways:

  • When a startup gets acquired by a bigger company in an M&A transaction, or
  • When the startup goes public in an IPO.

Recently, such exits have reached all-time highs. Consider:

  • In 2016, private investors took home just $72 billion in exits.
  • In 2017, there were $97 billion in exits.
  • In 2018, exits soared to $130 billion.
  • In 2019, that figure doubled to $256 billion.
  • And in 2020, it nearly doubled again, to about $480 billion.

These exits can mean huge profits for their early investors. For example, when Facebook IPOd, its earliest investor earned 2,000x his money. When Airbnb IPOd, its earliest investors made about 100,000x their money.

Even when you include the winners and the losers, these exits have returned an average of roughly 55% per year over the past 20 years. And at 55% per year, in 20 years, you could turn a $500 investment into more than $3.2 million.

But many startup investors make a crucial mistake: when they invest, they don’t pay attention to the startup’s valuation.

The thing is, just like with any investment, your profits depend on buying low and selling high — in other words, your entry price and your exit price.

If you pay too high of an entry price (too high of a valuation), you might not make money!

By the Numbers

To put yourself in position to earn those 55% annual returns, you need your successful startup investments to return about 10x your money — a 1,000% gain.

Well, according to PricewaterhouseCoopers and Thomson Reuters, the price tag for most tech acquisitions is below $100 million. In fact, the majority take place under $50 million.

So, to give yourself the highest probability of making 10x your money, here’s what to do:

Invest at valuations of $5 million or less!

Keep in mind: the median valuation for an early-stage startup is now $37 million. That means you need to be very selective about which startups to invest in.

Making the Trick Easy

Because valuation is so important to successful startup investing, we’ve created a free tool you can use to quickly find deals that are valued at $5 million or less.

It’s right here, on our Deals page:

Simply click Valuation on the left, and then filter deals valued at $5 million or less.

This is just one of the many free resources Crowdability offers to make sure you’re educated about private market investing — and can put yourself in position to profit from this market.

Happy Investing.

Best Regards,



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