Last Friday was a big day for investors…
It was IPO day for Lyft, the ride-sharing company.
This was one of the most anticipated financial events in recent history. It was expected to make many investors very, very rich.
So today, I’ll show you what happened (spoiler alert: it didn’t work out well)…
And then I’ll reveal how you can start making money on IPOs instead of losing money.
An Investment Mistake
Lyft’s IPO (Nasdaq: LYFT) was priced at $72.
So if you run a big investment fund on Wall Street, you got your shares at $72 each.
But if you’re an ordinary investor, you couldn’t buy shares at $72. You had to wait until they hit $85.
Unfortunately, as I’m writing these words, those same shares trade for about $68.
So if you bought Lyft at the IPO, you made a big mistake:
And it cost you about 20% of your investment!
These “Startups” Are Too Valuable Already
There's been a lot of excitement about this year’s wave of IPOs:
Lyft, Uber, Airbnb, Palantir, Pinterest, and others, too.
These are some of the world’s fastest-growing private companies, and they’re already extremely valuable. For example, Uber is worth $72 billion. That’s as much as Goldman Sachs or CVS Health.
You see, fueled by an endless supply of capital in the private markets, these private “startups” have become enormous — and enormously valuable.
But for investors like you, this creates a big problem:
By the time these companies go public, there’s very little money left to be made!
Let me show you what I mean…
[Chart] Proof That You Should Avoid IPOs
As you can see in the below chart (from venture firm Andreessen Horowitz), there’s been a major shift in the type of investor that captures the largest returns.
The grey part of each bar chart reflects the profits captured by stock market investors. And the orange part shows the profits captured by private investors.
As you can see, for many years, public investors reaped the lion’s share of returns.
For example, look at Microsoft (NASDAQ: MSFT). It’s all grey — meaning that stock market investors captured nearly all of the investment returns. And it’s the same thing for stock market investors in companies like Apple, Oracle, and Amazon.
But look what happened after 2004 — you can see it in the orange bars:
Beginning with Google, early private investors started capturing a big chunk of the gains. And by the time Twitter went public, private investors were capturing nearly all of the gains.
This explains why Jason DeSena Trennert, managing partner at Strategas Research Partners, a markets and economic analysis firm, has a warning for investors like you who might be interested in investing in IPOs:
“Individual investors are going to get in too late. They’re going to be the last investors in…”
Times Have Changed
Trennert is right: if you wait until the IPO, you’re getting in “too late”…
But individual investors like you can also get in early…
You see, for the past 85 years, the U.S. government legally prohibited all but the wealthiest citizens from investing in startups. But recently, because of a new set of laws called The JOBS Act, anyone can invest in these young, private companies — and anyone can put themselves in position to make millions.
As an example of these profits, look no further than Lyft:
Even after Lyft delivered 20% losses to those who invested in its IPO, a different set of investors made a fortune on it:
Those who got into Lyft early — in other words, back when it was just a tiny private startup — made an estimated 3,833x their money at its IPO.
That’s enough to turn a $1,000 investment into nearly $4 million!
Like The New York Times reported: “Lyft’s I.P.O. was a huge success, just not for investors who bought on Friday.”
How To Get in Early
As you learned today, most of a start-up’s value today gets created before it goes public.
To capture that value as an investor, you need to get in early.
Here are three ways to get started:
First, check out our weekly “Deals” email. We send this out every Monday at 11am EST, and it contains a handful of new startup deals for you to explore.
Second, check out our free white papers like “Tips from the Pros.” These easy-to-read reports will teach you how to separate the good deals from the bad.
And third, if you’d like to accelerate your success in startup investing, consider signing up for our online course, The Early-Stage Playbook, or for one of our premium research services like Private Market Profits.