Tom Sawyer was a clever boy:
After skipping school to go swimming, he had to paint a fence as punishment.
But instead of doing the work himself, he got others to do it for him.
Today I’ll show you how to use this same strategy to invest in start-ups:
With this strategy, other people do the hard work—and you collect the profits.
Why You Need the “Tom Sawyer” Strategy
Every year, 60,000 start-ups are founded in the U.S.
But only a small handful of them will deliver big profits to their early investors.
How are you supposed to spot “the winners”?
Simple: Do your research.
You see, there’s a direct relationship between how much time investors spend doing research, and their returns:
As Wayne wrote about last week, investors who put in at least 40 hours researching each start-up opportunity have earned an average profit of 710% on their winners.
Meanwhile, investors who spent less time on research did far worse. In fact, most investors who spent less than 20 hours researching their ideas barely broke even.
So now you know:
When it comes to start-up investing, more research leads to bigger profits.
But how can you find time to do 40 hours of research on dozens and dozens of investment opportunities?
Realistically, you can’t.
Which is why you need to take the Tom Sawyer approach...
The Crowdfunding Platforms
Tom Sawyer figured out how to get other people to do his work.
And now I’ll tell you how to use the same strategy for start-up investing:
To begin with, use the crowdfunding platforms.
Crowdfunding platforms are websites where you can find start-up investments.
Hundreds of these platforms exist. And if you stick to only the very best of them, you can increase your odds of investment success.
You see, the top platforms conduct an enormous amount of research before they accept any start-up. And they accept only a tiny fraction of the start-ups that apply.
For example, a platform called MicroVentures accepts just 1⁄2 of 1% of all start-up applicants. So getting listed on its site is more difficult than getting into Harvard.
And these top platforms have already proven they can pick winners…
The Top Platforms Prove Themselves
One of the hottest start-ups today is a transportation company called Uber.
A few years ago, a business partner of ours invested in it—and to make a long story short, for every $5,000 he invested, he got back $2 million.
And here’s the thing: you could have bought shares of Uber on a funding platform called AngelList.
Another example is a robotics start-up called ReWalk.
ReWalk used a top platform called OurCrowd.com to raise money from investors like you. And when ReWalk went public on the NASDAQ, it delivered those investors first-day gains of 536%.
It’s a similar story for a start-up called TalentBin:
After using a top platform called FundersClub to raise money, it was acquired by Monster Worldwide just 7 months later.
And to be clear, I’m not just “cherry picking” here:
If you look at the overall returns of the top platforms—in other words, if you include every start-up they’ve featured, winners and losers—you’ll see that their returns trounce what you could have earned in the stock market.
AngelList, for example, generated average gains of 46% per year for the past three years. Given the S&P 500’s 11.8% annual returns during this period, those returns beat the stock market by about 400%.
And for the period from July 2012 to June 2016, FundersClub reported an annual return of 37.1%.
Keep Increasing Your Odds
Today you learned two very important things:
First of all, to succeed as an early-stage investor, it’s crucial to do research.
And secondly, the top funding platforms will do much of this research for you.
That’s why, on Crowdability, we only show you deals from the top platforms.
To see these deals aggregated in a single place, just visit our Deals page »
But here’s the thing:
Unless you’re ready to invest in every deal, you still need a strategy to narrow down your opportunities.
So tomorrow, Wayne will show you three powerful ways to make sure you’re investing in only the best deals.