To avoid a bumpy ride when investing in early-stage companies, ask “Why now?”
This “wisdom” is from our free whitepaper, The 10 Commandments of Crowdfund Investing. I’ll link to it below.
For startup investors like you, this is a critically important topic.
In fact, after evaluating a startup’s management team, many professional investors believe timing is the most surefire way to predict a company’s future success.
So today I’m going to show you how it works.
“So There’s a $100 Bill In the Middle of the Street…”
To kick things off, let me tell you a story.
One day, a famous economist was walking to lunch. As he’s crossing the street, he sees a $100 bill on the ground.
Most people would pick it up. But not this guy. He believes markets are efficient. So he knows that, if the $100 bill were real, someone would already have grabbed it.
The thing is, many investors dismiss a startup investment using logic that’s just as faulty. They say, “If this startup has such a good idea, how come no one’s done it before?”
But there are many reasons why the timing for an idea wouldn’t have been right before.
Let’s look at three of them.
It Used To Be Technically Infeasible
Some concepts won’t work until there’s been a technology breakthrough.
YouTube is a great example of this. There were plenty of video sites before YouTube. But because they were too early, they didn’t succeed.
Before such a company could become successful, there needed to be:
- Proliferation of high-speed Internet.
- Advancements in Flash technology.
- Emergence of social media.
But as soon as these innovations emerged, YouTube took advantage of them — and was quickly acquired by Google for $1.6 billion.
Its early investors made a fortune.
Regulations Made It Impossible
Another reason an idea wouldn’t have worked earlier is government regulation.
For example, since the 1930s, federal laws prevented regular people from investing in private startups.
But a few years ago, those laws finally changed.
That’s why you can invest in high-potential startups now — and that’s why so many online “funding portals” have sprung up to host startup deals.
This regulatory change is unleashing a flood of business and investment opportunities.
We’ve seen the same thing happen in industries ranging from wine to banking to cannabis — and every time, the earliest investors in these trends reap the biggest profits.
No One’s Done It Like This Before
Other times, a concept won’t work until there’s been a change in how the idea is presented.
For example, look at Apple’s iPod.
The iPod wasn’t the first MP3 player. Plenty of similar devices had been launched before.
But the iPod was beautifully designed — and that’s why it caught lightning in a bottle.
A more recent example is the Nest Thermostat.
The thermostat is a utility device. All of us have one in our homes. But because Nest made its device beautiful, it became a success — and the company was soon acquired for $3.2 billion.
Timeliness Doesn’t Always Equate to Success
Certainly, timing isn’t the only filter to use when evaluating a startup.
But with so many potential deals to invest in, why not do everything you can to stack the odds in your favor?
Without a compelling reason why RIGHT NOW is the right time for a company to succeed, investors run the risk of being too early to the party — or too late.
To reduce risk, wait until the wind is at your back!
And here’s the link to The 10 Commandments of Crowdfund Investing »
Happy Thanksgiving — and Happy Investing!