Playbook #031: Moonshot Edition - Startup Investing (Be a Shark)
Moonshot: an ambitious, exploratory and ground-breaking project undertaken without any expectation of near-term profitability or benefit, with the potential for extremely exciting gains, and also, perhaps, in a speculative arena with equal possibility of big losses. |
This is our third “Moonshot” edition of CAPITALIZE, where we feature an exciting new investment opportunity. These can be outrageously expensive, exclusive, lucrative, high-risk, or just plain fun.
If you were a shark on Shark Tank, these would be your “fliers.” They could 100x in value… or go to zero. They might be inaccessible to you today, but a dream to shoot for tomorrow.
We like to say that once you reach Economic Independence, you have the freedom to swing for the fences, because your day-to-day needs are taken care of and your future is secure. These “moonshot” editions are a tribute to that spirit.
🖼️ The Big Picture
If you’ve ever watched Shark Tank and wished you could be on their side of the table, getting pitched opportunities to invest in exciting startup businesses, then this CAPITALIZE issue is for you. A couple of quick terms to know:
- Angel investors like the Sharks use their own money to fund startups, often as the sole limited partner.
- Venture Capitalists pool money from investors into VC funds and use hired managers to invest in startups.
The game is pretty simple: build a portfolio of companies knowing that many will fail, some will succeed and produce some degree of returns, and 1 in 100 will become a “unicorn” (valued at $1 billion or more…)
So let’s say you pick a winner. You usually won’t receive dividends along the way, as your real moonshot payday comes on exit (acquisition, merger, or IPO). For example, when Facebook acquired WhatsApp for $22 billion in 2014, WhatsApp had a single VC investor that turned a $60 million investment into $3 billion from the acquisition.
If it sounds a bit like gambling, that’s because it kind of is. The good news is, the odds of striking it big with a unicorn are improving. There were more than double the normal number of unicorns born in 2021, and the probability of a startup becoming a unicorn has more than doubled since 2018 as valuations have risen.
Historically, only institutional investors, the ultra-wealthy, investment banks, or individual accredited/qualified investors had an opportunity to dabble in Venture Capital investing. At the individual level, an accredited investor must have a minimum $200,000 annual income, or $300,000 if married, or a net worth exceeding $1 million.
However, in 2015, the revised Jumpstart Our Business Startups Act opened the doors for ordinary investors to participate in equity crowdfunding. Since then, several venture capital platforms for nonaccredited investors have sprung to life and made venture capital investing as easy as clicking a couple of buttons on your smartphone.
In this issue, we'll explore some of the ways you can get involved at the highest level (investing like a shark), as well as ways you can get started now in crowdfunded ventures for as little as $10.
There are tremendous opportunities to explore to fund the next unicorn — including stocks, venture capital funds, debt and equity crowdfunding platforms, or directly investing in a startup. But be aware that most startups fail, and research shows only 2.5% of startups become unicorns.