Chris’ note: James Wells, who puts together our Friday mailbag editions, is out of action. He took a softball to his eye socket and is resting up a fracture.
So today, instead of our usual dive into The Daily Cut mailbag, I’m sharing with you an insight about one of the most lucrative investing strategies in the world.
It’s something our tech expert, Jeff Brown, has been doing with his own money for years. And by his own calculations, he’s sitting on returns of 936%… 14,000%… and even 25,000%.
As you’ll see below, it’s all to do with a market typically reserved for the ultra-wealthy…
So you want to be an angel investor?
I don’t blame you. Investing in private companies – before they reach the public markets – is one of the most lucrative investment strategies in the world.
I say this from experience. I’m an angel investor myself. I’ve invested in more than 130 private deals. So far, I’m in the money on 93% of them.
I’ve invested in four unicorns – private companies valued at $1 billion each. I’ve also invested in two decacorns – private companies valued at $10 billion each.
By my own calculations, I’m sitting on returns of 936%, 14,000%, and even 25,000%.
And I’m not the only one making these kinds of returns in private markets.
Venture capital (VC) firms make a fortune with early-stage companies, too.
Private investors in Uber, for instance, turned $30,000 into $149 million… $50,000 into $248 million… or even $510,000 into $2.5 billion.
Investing in private deals can be lucrative. But it’s a dark art. It involves high-risk decisions. Angel investors are always dealing with imperfect and incomplete information.
There are no SEC [Securities and Exchange Commission, the main public stock market regulator] filings. Often the product doesn’t even exist yet. Sometimes I don’t even have proof that the market exists for the product or service.
This isn’t for folks who are uncomfortable with taking risks. I have to embrace risk as an angel investor. Because these companies are risky. If they weren’t, there would be no reward for parting with your money and investing in them.
Not everyone is comfortable with this kind of investing. In fact, few are.
But if you’re someone who wants a shot at crypto-like returns in early-stage tech stocks, I’ve developed a set of rules I follow for each deal.
Feel free to print these out and pin them beside your computer for reference.
The first rule seems obvious. Make sure the technology you’re investing in makes sense.
Most people stumble at this hurdle because they don’t understand technology like I do. But the tech has to be viable. And it has to make sense.
Is the company doing something new and unique? Or is it just moderately better than what exists in the market today?
For instance, I’m a private investor in Ripple Labs. It’s a blockchain-based payment services company. [Blockchain is the decentralized technology behind bitcoin and other cryptocurrencies.]
It’s radically transformed how central banks, commercial banks, and multinational corporations make cross-border payments. It’s a brand-new technology, not an upgrade to an existing system. And I understand that technology inside out.
Grasping the core technology and the market opportunity is essential before making an investment. Angel investors who can’t answer the questions I mentioned earlier make bad investment decisions over and over.
Investing in private companies is different from investing in public markets.
You can buy shares in public companies one day and then turn around and sell immediately if you want. That’s because public stocks are widely traded – or “liquid,” in Wall Street-speak.
With private investments, that’s not an option. Private investments, for the most part, are illiquid.
That means you need to wait for what’s known as an “exit” to take money off the table. Typically, an exit means either the private company is bought by another company or it goes public. This allows private investors to sell shares to the public markets.
As an angel investor, you may be sitting on gains as high as 250,000%. But if the company never exits, guess what? All those gains are just on paper.
If you want to be an angel investor, you’re going to have to be patient for these exits. Very patient…
Your first major exit will likely happen within seven to eight years. But private investors have been known to sit on a deal for 10, 15, or even 20 years waiting for an exit.
The longest time I had to wait for an exit was 15 years. The company finally went public. I made a profit on the investment, but it wasn’t large enough to justify the 15-year wait. Some early-stage investments are like that.
Do you have the emotional fortitude to wait that long for a return?
If you want to be an angel investor, you’ll have to cultivate patience and be comfortable with the chance that you’ll lose all your investment in some deals.
This is something I encourage for all investors… even in publicly traded stocks.
You need to build a basket of companies that all have great investment return potential. In other words, you need to let the numbers work for you.
As many as 75% of VC-backed companies never return money to early investors. That means most investments VCs make fail.
An important rule to being successful as a private investor is to cultivate a large basket of private deals and let the statistics work for you.
Many of the investments will fail completely. Some may return your money with modest profits. But a small percentage can go on to deliver life-changing returns. It’s these “jackpot” investments that make up for all your losses and then some.
That’s why the basket is so important.
Although I may have opinions about which companies are going to deliver extraordinary returns, there is really no sure way to tell which ones will.
As I said, I reckon I’m sitting on a return as high as 250x on one private deal. When this company has an exit, my return will more than make up for the small losses I’ve taken on other deals.
Your portfolio should have a minimum of 30 companies. A more robust portfolio would aim for a broader basket of 100 companies. This strategy may not be for everyone. But the more quality private investments you make, the better your chances.
Investing over the long run will always work to your advantage as an angel investor. Don’t make all your early-stage investments at once and then wait for them to mature over the five to 10 years.
Technology is advancing at an exponential pace. So it’s vital to get exposure to new companies that are working with the most advanced technology every year.
We can think of our investments in “cohorts” made each year over a span of years.
Now, here’s the bad news…
Unless you are well-connected and have a large amount of capital to deploy, breaking into the private investing space is difficult… perhaps even impossible… for most folks.
This has been one of the most unfair dynamics in the investment world over the past decade.
Bleeding-edge tech firms with the potential to be the next Amazon.com (AMZN) have been mostly locked away from everyday investors. They are intentionally kept private for extended periods of time.
This allows well-connected venture capitalists and private equity firms to capture the majority of the upside for themselves. Once a company finally goes public, there is very little upside left for everyone else.
That’s not fair.
So I decided to do something about it.
For the past five years, I’ve been quietly crafting a proprietary system that can deliver VC-like returns to everyday investors. And I finally cracked it.
What I uncovered was a small group of technology stocks that – thanks to a government mandate – have a preset “timer” attached to their share prices. Once this “timer” hits zero, each stock can climb hundreds of percent in days… or even hours.
I call them “timed stocks.” And some of my readers recently locked in gains of 432% in just 41 days by investing in just one “timed stock.”
So yes, VC-like returns are very possible for everyday investors.
The best part?
All these investments are publicly traded companies. You can buy them with a few clicks on your brokerage account.
If that sounds too good to be true, I encourage you to catch the replay of my Timed Stocks Summit.
In this training event, I revealed what “timed stocks” are, why they accelerate so quickly, and how you can add them to your portfolio today.
Regards,
Jeff Brown
Editor, Early Stage Trader
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