Be a terrible investor… and still triple your money

By Matthew Milner, on Wednesday, September 4, 2019

September is going to be a BIG month for IPOs.

Peloton, the exercise company, is slated to go public at an $8 billion valuation.

And WeWork, the shared-workspace company, could IPO at a $50 billion valuation. At that level, angels who invested when it was just a tiny startup could make about 5,000x their money.

That’s enough to turn every $250 they invested into $1.2 million.

But if you missed out on those investments, not to worry…

Today I’ll show you how you could earn returns like this…

Even if you’re a terrible investor.

David Tisch is a Loser

David Tisch is an angel investor in New York City.

In the last ten years or so, he’s made about 310 startup investments.

A handful of his investments (including eyeglass company Warby Parker, insurance startup Oscar, and fitness company ClassPass) are doing very well.

A handful of others have been acquired in M&A deals that made him a fortune — like Pillpack, which was bought by Amazon for $1 billion, and Harry’s, which was acquired for $1.37 billion.

But many of his investments — actually, most of them — are losers. In other words, in those deals, Mr. Tisch lost 100% of his initial investment.

Do these losers bother Tisch? Not at all!

Let me explain why…

Startup Math in a Nutshell

Early-stage investors don’t just invest in a startup or two and expect to make a fortune…

To maximize their returns and minimize their risk, they build a portfolio of startups over time.

You see, the vast majority of startup investments will return very little — or sometimes, nothing at all.

For the math to work out so your “winners” return far more than your “losers,” we’ve found you need to invest in 25 to 50 startups. And investing in 100 of them would be even better.

It takes time to build a portfolio of that size. But once it gets built, here’s what the professionals expect the math to end up looking like:

In a portfolio of 100 companies, about 30% will fail, returning zero.

Another 40% might break even or return a small profit.

And the remaining 30% will be winners — investments that can return about 10 times your money, and sometimes far more.

If you calculate the math based on 100 investments of equal size, you’ll see that the returns from the overall portfolio add up to three to four times the initial investment — in other words, you could potentially at least triple your money.

And whether you’re talking about professional investors like Tisch, or angel investors like you and me, this math is exactly the same.

Furthermore, if you end up investing in a startup like Peloton or WeWork, you could earn far more than that — literally tens, or hundreds, or even thousands of times your money.

The Cost of Not Investing

As mentioned earlier, Tisch doesn’t mind when he invests in a “loser.”

You see, as he recently explained to Fortune, the cost of not investing in a startup can be far more expensive than the cost of investing in a “bad” company.

As he said, “So if I funded 100 bad companies, and I funded WeWork, my returns would be perfect.” What’s he mean?

Well, imagine that you invest $250 into 100 different startups — that’s a $25,000 portfolio.

Now imagine that you lost your entire investment on 99% of those deals. In other words, you lost $24,750.

But if your final investment turns out to be in a company like WeWork, you’d still be sitting on an overall profit of $1.2 million!

You Don’t Need to be Right to be Rich

That’s the beauty of early-stage investing:

You can make small bets on dozens of “high-risk” companies...

And even if you’re wrong nearly all the time, you could still earn incredible returns.

This is one of the core reasons why Wayne and I believe that all investors should have at least a portion of their portfolio in early-stage investments.

Happy Investing.

Best Regards,
Matthew Milner
Matthew Milner


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