"Publicly Traded Startups"

By Wayne Mulligan, on Thursday, April 10, 2014

Today, I’m going to show you the simplest way to invest in startups...

...Even if you’re not accredited.

This method is already producing returns for many investors. In fact, some investors have seen 112% gains in less than 12 months using this strategy.

And today, you’ll learn how to do the same.

Private Alpha Part III

This is the third and final essay in a series I began writing 2 weeks ago.

It was inspired by questions from our readers...

They wanted to know how non-accredited investors could benefit from our research.

As U.S. law stands currently, only accredited investors (individuals who make over $200,000 per year, or have a $1 million net worth) can invest in private startups.

The law is expected to change as early as this summer. This will open up the private markets to all. But until that happens, we thought we should show how anyone – non-accredited investors included – can profit from reading Crowdability.

Part 1 and Part 2 looked at two methods for turning private market research into public market profits.  These strategies were powerful, but “advanced.”

Today’s strategy is equally powerful… but so simple you’ll be ready to start using it in the next few minutes.

Publicly-Traded Start-ups

A “publicly-traded start-up” may sound like an oxymoron, but it’s not.

It’s is a simple way for anyone – you included – to invest in some of the most promising early-stage companies on the planet.

You can do it from your brokerage account...

Or through your IRA or 401k.

How?

Simple: Buy a type of stock known as a “Business Development Company.”

Essentially, Business Development Companies (or, “BDCs” for short) are publicly-traded private equity funds.

They invest passively in other businesses. And they distribute 90%+ of their profits to shareholders.

Think of it like a mutual fund or a REIT. Except BDCs don’t invest in public stocks or real estate. Instead, they invest in private businesses.

BDC for Startups

There are three main types of BDCs.

Value Focused:  These BDCs generally invest in mature companies with long-term operating histories. Investments are considered lower-risk, lower-reward.

Income Focused:  Some BDCs invest in companies in order to generate income.  Again, this is generally for more mature businesses that are throwing off cash and profits and can therefore pay special dividends to the BDC.

Growth Focused:  Growth BDCs will invest in more speculative opportunities.

But recently, a new type of Growth BDC has emerged. It invests in high-growth startup companies.

The largest and most widely followed is GSV Capital Corp. (NASDAQ: GSVC).

112% Returns for GSV Investors

GSV was an early shareholder in some of the most profitable startup investments of the last few years.

They were an early backer of dozens of companies, including Facebook and Twitter.

And GSV’s investors benefited handsomely from their foresight.

From November 2012 through October 2013, GSV’s shares rose 112%.

The Secret to Making Money in BDCs

Of course, not everybody who invested in GSV bought at the absolute bottom and sold at the absolute top.

The real secret to making these types of returns from BDCs is knowing when to invest in one.

You’ll want to think about investing in a BDC after its stock price has dropped. This generally happens when one of the BDC’s portfolio companies falls out of favor with the market.

For example, in late 2012, GSV’s stock price dropped by 60%. This was primarily due to Facebook – one of GSV’s holdings – having lackluster post-IPO performance.

Since the majority of companies in a BDC’s portfolio are private, it’s difficult for Wall Street to determine the “real value” of its assets. Therefore, when negative news hits, you tend to see a “baby out with the bathwater” type of situation and the stock drops dramatically.

And this is precisely the time to consider buying.

For instance, even after Facebook’s stock stabilized and Twitter (another GSV holding) was on the verge of filing to go public, the stock still traded at less than half its peak price.

Investors who follow startup companies (i.e. Crowdability readers, like you) had known since June 2013 that Twitter was on the verge of an IPO. They also knew this would give GSV’s stock price a boost.

Those who purchased GSV shares in June and July watched the stock double within three months.

Next Steps...

The jury is still out on whether GSV is currently a good investment. However, it’s worth noting that the stock has pulled back over the last few months, so it’s certainly something I’m keeping an eye on.

In addition to GSV Capital, investors can also look at FirstHand Technology Value Fund (NASDAQ: SVVC). It hasn’t performed as well as GSVC, but it’s less volatile.

I hope you enjoyed this series on how to create public market profits from private market insights.

Please keep your questions and feedback coming, and we’ll do everything we can to help you on your early-stage investing journey.

Happy investing!

Best Regards,
Wayne Mulligan

Founder
Crowdability.com

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Tags: Venture Investing Crowdfunding Early-stage Investing Startup Investing GSVC

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