When Matt and I first launched Crowdability, we conducted an intense research project.
Our goal?
To identify a proven process for picking successful startup investments.
So, 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.
These are the investors you read about in the news. At the time, they’d 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.
Private-Market “Math”
Before I dive into the details, let me set the stage…
Let’s look at one of the key differences between investing in stocks versus startups.
With stocks, most individuals make an investment, hope it goes up 10% or 20%, and then sell.
But when you invest in a startup, it’s a different story:
You need to have a profit target from the outset. And to be a successful startup investor, your target should be at least 1,000% — that’s 10x your investment.
The reason for this is simple: not every startup you invest in will be a winner.
But if you can earn 10x on your winners, even when you take the “losers” into account, your overall startup portfolio can still provide you with enormous gains.
In fact, the average returns for a portfolio of startup investments is 55% per year...
That’s more than 900% higher than the average stock market return of 6% per year!
The “Ten-Bagger” Dilemma
Of course, getting a return of 10x your money isn’t easy.
But during our research, we learned a simple way to dramatically increase your odds of investing in these “ten baggers.”
Before I show you what it is, let’s first make sure you understand how you get your money back with startup investments…
You get your money back in one of two ways:
- When the startup goes public in an Initial Public Offering (IPO), or
- When it’s acquired by a bigger company.
An IPO tends to provide the largest returns. For example, Facebook’s first investor, Peter Thiel, made an estimated 2,000x his money on Facebook’s IPO day.
But the more common outcome is a takeover by a larger company.
And this is where you can increase your chances of making 1,000% returns.
All it takes is a simple “trick”…
“Every Battle is Won Before It’s Ever Fought”
To explain, let me tell you about one of the investors we met with during our research.
Before he become 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.”
And here’s what he meant by it as it relates to investing: certain actions you take before you make an investment can determine your ultimate success…
And one of the most important is filtering out investments based on their valuation.
Valuation is a 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.
You see, despite what you read in the press about big-ticket takeovers (like Facebook buying WhatsApp for $19 billion), the sales price for the vast majority of startup acquisitions is less than $100 million.
So, if your goal is to earn 10x your money on a startup that might get acquired for $100 million, how do you “win this battle”?
Simple: invest at valuations of $10 million or less!
Just One Page in Our Playbook
This concept — screening out companies with high valuations — is simple, but it’s incredibly powerful.
It’s also just one of the many factors we look at before investing in a startup, or recommending one to our readers.
In total, we review more than forty screens and filters to identify the most promising investments. And in the coming weeks, we’ll introduce you to more of them.
Even more importantly, we’ll introduce you to a startup we recently identified…
Because it fits nearly all these criteria perfectly.
Happy investing.
Best Regards,
Founder
Crowdability.com
