Editor’s Note: Wayne is traveling abroad this week, doing research on new investment opportunities in the cannabis industry. So today, we’ll be re-publishing a popular article from our archives. This is a natural follow-up to Matt’s article from yesterday — where he explained why the biggest investment profits go to those who “get in early.” Happy Investing!
Our friend Aitio dropped by our office last week.
He wasn’t exactly “in the neighborhood…”
But with his midnight blue Range Rover and a full-time driver, he doesn’t mind traveling a few extra blocks.
Aitio used to be a general contractor in Queens, and he did pretty well.
In 1997, he started investing in bars and clubs.
In 2007, he decided to invest in start-ups, instead.
He’s had his share of small “wins” over the years as an angel investor…
But in 2012, he hit a homerun.
He’ll never have to work again.
Recently, we asked him to describe his investment philosophy.
He paused, stroked his well-groomed goatee, then broke into a smile.
“All it takes is one,” he said.
And that’s where he got his nickname:
A.I.T.I.O: All It Takes Is One.
Average vs. Above Average
To decipher Aitio’s advice, let’s review the basic numbers behind angel investing:
Based on an in-depth study conducted by the Kauffman Foundation, angel investors can earn an average 27% return each year.
Not too shabby…
That’s enough to double your money every three years or so.
But remember, that’s just the average.
There are plenty of folks – people we know and work with – who’ve done far better than average.
Aitio, for example…
Or our friend Howard Lindzon who we’ve told you about before.
Howard’s annual returns have been measured in the “hundreds of percent."
What’s the secret to earning triple-digit annual returns?
Let Aitio give you a hint:
All it takes is one.
You’ve Seen the Evidence
Long-time Crowdability readers will recognize our familiar stories about investors who’ve hit it big on a single investment.
Howard’s investment in Uber, for example…
For every $5,000 he invested, he got back $2 million just a few years later.
That’s 400 times his money.
Then there’s Paul Graham, another early-stage investor:
Paul earned 491 times his money on his investment in a web service called Heroku.
And when he invested in Twitch, a video game company, he earned an estimated 573 times his money.
All It Takes Is One
Angels like Howard and Paul build a well-constructed portfolio by investing in dozens of early-stage companies…
And they get their share of “base hits” over the years.
But here’s the thing:
Even if every single investment they made went bust – literally went to zero…
Every single investment, that is, except for one…
They could still make a fortune.
How can that be?
Because all it takes is one.
Enough To Retire On
Let’s say you invest in 50 start-ups over the next few years.
You put $1,000 into each one, for a total investment of $50,000.
Based on the historical odds, it’s likely that you’ll get a handful of “base hits” – enough hits to get you to the 27% annual returns we mentioned earlier.
But even if 49 of the companies go belly up…
Even if your first 49 investments literally go to zero…
As long as the 50th company turns out to be an Uber – the investment where Howard made 400 times in money – your $1,000 investment would be worth $400,000.
So your $50,000 angel portfolio would turn into $400,000.
That’s a 700% net return.
And what if you’d invested $5,000 into each company?
Your stake would be worth $2 million.
For most folks, that’s enough to retire on.
And that is what’s so exciting about early-stage investing:
All it takes is one investment to completely change your life.