The biggest thing my subscribers screw up

By Matthew Milner, on Wednesday, December 2, 2015

Every year, the journal Popular Science releases a special list…

It’s a list of the 100 greatest innovations of the year—from bionic arms and pain-free dentistry, to life-saving remedies that could change our world.

As I was browsing through this year’s honorees, one of them caught my eye:

It was a private aviation company I’d written about in Crowdability earlier this year.

I dug around a bit, and soon realized that the company was about to raise money from all investors, regardless of their net worth or income.

At first blush, this was exciting: a promising private company… the recognition of Popular Science… and a deal that every one of you could invest in.

There’s just one problem here—

And if you ignore it, you could lose your shirt.

Blast Off

Before we take a look at the problem, let’s look at the opportunity.

The aviation company I’m referring to is XTI Aircraft.

XTI is attempting to build the “holy grail” of flying machines:

A long-range jet that would be capable of vertical takeoff and landing, like a helicopter.

Here’s what it looks like:

If successful, it would be the first commercially-certified aircraft of its kind.

To achieve its vision, XTI has assembled an impressive team:

Its founder previously started a helicopter company that’s in the running to build the U.S. Army’s next advanced technology aircraft…

Its Vice Chairman is the former CEO of multi-billion dollar Sikorsky Aircraft, one of the world’s biggest and most renowned aviation companies…

And its corporate board includes the former President of Cessna.

In brief, XTI has put together the “dream team”—and this team is clearly going after a big opportunity…

The Opportunity

With an expected $10 million retail price tag, XTI could achieve $1 billion in revenues with just 100 orders.

What would happen if it hit that goal?

Well, if history is any indication, an acquisition could certainly be a possibility:

NetJets, for example, was acquired by Berkshire Hathaway for $725 million…

Aircraft manufacturer Beechcraft was acquired for $1.4 billion…

And Sikorksy was recently acquired for $9 billion.

This all sounds great…

So now let’s look at the problem.

The Problem

One of the core concepts in private market investing is something known as “valuation.”

We wrote about this concept last week. And since it’s one of the key factors in determining whether you’ll make money in the private markets, we’ll continue to write about it to ensure that you really “get it.”

Simply put, valuation is a private company’s value—its market cap.

The reason it’s so important is that, no matter what you’re investing in—from start-ups to stocks to real estate—to make money as an investor, you need to “buy low and sell high.”

Sure, an opportunity might be a great business, but unless you buy low and sell high, it will never be a great investment.

For example, let’s say XTI is acquired in the future for $1 billion…

On the surface, that sounds like a big number—but if you’d invested at, say, a $2 billion valuation, you’d lose money.

Make Sure You “Buy Low”

XTI expects to start accepting investments early next year, but it hasn’t yet released information about its valuation.

Before you even think about investing in it—in fact, before you think about investing in any transaction—you need to know its valuation, and you need to come to the conclusion that you’d be “buying low.”

We’ll continue to explain this concept in the coming weeks and months, including how to determine whether a valuation should be considered “low.”

In the meantime, if you’re interested in learning more about XTI, check out its campaign on funding platform, StartEngine »

Please note: Crowdability has no relationship with XTI, or with any of the companies or platforms we write about. Crowdability is an independent provider of education, information and research on start-ups and alternative investments.

Best Regards,
Matthew Milner
Matthew Milner


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Tags: Valuation Buy Low Sell High

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