Take a look at this chart…
It shows the average returns across every major asset class for the past 20 years — everything from bonds, to large-cap stocks, to various private equity investments.
As you can see, the top-performing asset class has been early-stage venture capital.
Which is why today, we’re going to reveal a proven system that anyone can use to build a portfolio of high-quality early-stage deals…
And hopefully, you’ll use this system to start earning 55% annual returns.
A $6.4 Million Nest Egg
As you can see in the chart, most of the “mainstream” asset classes like bonds and stocks have historically provided low single-digit returns.
Returns that low make it difficult — if not impossible — for an average investor to build real wealth.
For example, take a look at the 20-year return for the Dow Jones Industrial Average — it sits at just about 8% per year.
So if you put $1,000 into the Dow 20 years ago, it would be worth just $4,660 today.
But the average return for early-stage venture capital has been far, far higher — it sits at a staggering 55% per year…
Meaning, if you’d invested just $1,000 into this asset class 20 years ago, you’d now be sitting on more than $6.4 million.
That’s the power of successfully investing in this asset class.
Placing the Right Bets
But here’s the thing…
For most investors — especially individual investors like you — investing in start-up companies is a whole new world…
Where should you start?
How much should you invest?
How do you know which start-ups will succeed and which ones will fail?
Well, this is where Crowdability comes in…
The A.S.E Process
We founded Crowdability to help you answer these questions, and to help you succeed at early-stage investing…
Given the historical returns in this market, we knew plenty of investors like you would want to dive in headfirst…
But we also knew that early-stage investing is risky — and if you don’t know what you’re doing, it can lead to serious losses.
So over the course of the past few years, we’ve worked with some of the top venture capitalists in the country…
Our goal was to help uncover their processes for:
- Identifying the most promising early-stage companies…
- Reducing risk.
And what we ultimately developed is a dead simple system — a system anyone can learn and use — to help maximize your upside potential while reducing your risk.
It’s something we call the A.S.E. Process.
Each letter stands for a different step. And I’ll briefly walk you through each one right now.
Step #1 — “A” is for “Allocate”
This first step helps you determine how much of your total investment portfolio to put into early-stage deals, and how much capital to put into each deal.
You see, investing in early-stage private companies is a higher-risk, higher-return opportunity than more traditional investing.
Therefore, you should only be investing a small portion of your overall portfolio into it.
Professionals recommend investing a maximum of 5% to 10% of your investable assets into early-stage companies. And even less than that if you’re retired or living on a fixed income.
For example, let’s say you decide to invest 10% of your assets into early-stage deals. So if you have a portfolio worth $100,000, you’d allocate $10,000 to early-stage investments.
However, to be clear, that doesn’t mean you should invest $10,000 into a single deal.
The professionals we spoke with believe that to be “diversified,” investors should build a portfolio of at least 25 to 50 early-stage deals.
So, continuing the example from above, if you plan to invest $10,000 into your early-stage portfolio, you should invest $200 to $400 into each deal.
This way, even if a handful of them don’t work out, you won’t lose significant capital.
Once you have your asset allocation plan locked in, you’ll be ready to move onto the second step…
Step #2 — “S” is for “Screen”
This step helps you take the hundreds of early-stage deals out there, and quickly filter them down to a small handful that you’ll dive into more deeply in Step 3.
For this step, we look at key criteria to help us quickly eliminate the riskiest investments.
For example, we tend to screen out companies that have high valuations.
“Valuation” is just another word for market cap.
And when it comes to early-stage companies, you should avoid investing at valuations over $10 million.
In fact, we set our sights on companies that are valued at $5 million or less.
You see, the majority of M&A deals in the early-stage market occur at $50 million or less.
Therefore, by investing at valuations of $5 million or less, you’ll give yourself the best possible chances of cashing out for a significant return.
That’s just one of the many screening criteria we use before moving onto our final step…
Step #3 — “E” is for “Evaluate”
This step is where you do a deep dive into each deal, looking for certain attributes that, statistically speaking, winners tend to share.
For example, studies have shown that start-ups that have more than one founder grow 3.6 times faster than start-ups with just one founder.
Other research has proven that start-ups backed by professional venture capitalists are 66% more likely to succeed than companies that are backed only by individual investors.
Those two indicators are just a small sample of the different criteria we analyze.
In total, before we make an investment, we look at 24 different data points and indicators.
This is one of the secrets to successful early-stage investing…
By following a strict quantitative approach to making investment decisions, you’ll put yourself in a far better position to earn higher returns.
Follow the Numbers
To show you what I mean, take a look at Fred Wilson…
Fred is one of the most successful venture investors in the world.
He’s the founder of Union Square Ventures, a firm that’s backed multiple billion-dollar start-up success stories just when they were just getting off the ground.
For example, Fred was an early investor in companies like Twitter, Tumblr and LendingClub. Each one was worth just a few million dollars when Fred got involved — today they’re each worth billions.
Fred recently published a blog post about the merits (and the profits) of taking a quantitative approach to early-stage investing. You can read it here.
This quantitative approach to investing makes sense when evaluating start-ups…
You see, when a company is just getting started, it has almost no operating history.
It generally won’t have any sales or profits…
In fact, many times, the company won’t even have a final product developed yet.
So you can’t use a traditional analysis to evaluate it.
That’s why many of the best early-stage venture investors rely on a quantitative approach like the one we use at Crowdability.
By sticking to the numbers, you can put your money behind companies with the highest probability of working out.
And by properly diversifying your investments, you can also protect your downside.