Editor’s Note: Welcome to Week 3 of your Private Market Bootcamp! During the month of July, we’ll be sharing this powerful investing system with you, for free. This system can help you find and fund high-potential startups when they’re just getting off the ground — and could put you in position to pocket huge gains when their value skyrockets.
Over the past few weeks, we’ve shared some incredibly important lessons with you.
For example, we’ve shown you how to identify the best startups…
Make sure they’re solid investments…
And set up your portfolio for maximum profit potential.
But today, I’m going to go even deeper:
First I’ll quickly review what you’ve learned in the “bootcamp” so far…
And then I’ll show you how much you could potentially earn if you follow all of the steps correctly!
Our Powerful Three-Step System
If you’re a student in our Early-Stage Playbook course, you’re familiar with what we call the “A.S.E.” Process.
This is our proprietary three-step system for finding and funding the most promising early-stage startups. This is what we’ve been teaching you during the bootcamp.
Each letter stands for a different step:
“A” is for “Allocate”
This helps you determine how much of your portfolio to put into early-stage deals, and how much capital to put into each deal.
“S” is for “Screen”
This helps you take hundreds of deals, and filter them down to a small handful that you’ll dive into more deeply.
“E” is for “Evaluate”
This is where you do a deep dive into each deal, seeking out the attributes that, statistically speaking, the “winners” share.
In each of the last three weeks, we’ve shared a different part of this system.
And now we’ll show you how to pull it all together — starting with the first step, “Allocate.”
Step #1: “A” — Allocate
Before you make a startup investment, first you need to determine your Asset Allocation.
This helps you figure out how much of your overall portfolio you’ll invest into startups, and how much you’ll invest into each deal.
Yesterday, Matt showed you a quick and easy way to calculate these numbers.
For a reminder about our simple “rule of thumb,” just click here »
Step #2: “S” — Screen
This step helps you weed out “bad” investments.
Specifically, it prevents you from investing in deals where you can’t earn a target return of at least 1,000% — that’s 10x your money.
You see, as we explained last week, when startups get acquired, the acquisition price tends to be $50 million or less.
So to increase your odds of hitting a 10x return, you should screen out any startups that have a valuation of more than $5 million.
Step #3: E — Evaluate
Then comes the final step:
Digging more deeply into the companies that passed your initial screen.
In particular, you need to evaluate them to identify the ones that have the highest probability of staying in business.
You see, as we explained last week, the longer a company can stay in business, the higher its chances of becoming a profitable investment for you.
You’ll need to look for attributes including:
- Companies with multiple founders.
- Companies that are already creating revenue.
- Companies that are capital efficient (e.g., software companies).
- And the list goes on and on…
In total, we evaluate more than two dozen attributes.
I’ll reveal more about these attributes in a moment.
But first let me show you how much you could potentially earn if you follow these steps.
Private Portfolio Returns
When forecasting their future profits, experienced startup investors tend to rely on “The Rule of Thirds.”
You see, over time, here’s what startup portfolios tend to look like:
- One-third of the investments will fail and return zero.
- One-third will break even or return a small amount.
- And one-third will return the 10x target — or occasionally, far more than 10x.
So if you made 10 investments of $1,000 each, here’s what your returns would look like:
- The $3,333 you invested into the failed companies would be worth $0.
- The $3,333 you invested into the “break even” companies would be worth $3,333.
- And the $3,333 you invested into the “10-baggers” would be worth at least $33,333.
So your overall portfolio started at a value of $10,000, and now it’s worth $36,333.
That’s a 363% return!
Want to Learn More?
As you just learned, when you’re investing in startups, you can earn enormous returns — even when just a small number of your investments turn into winners.
But as I mentioned earlier, the key to success here is being able to identify the companies that will stay in business.
That’s why we evaluate those two dozen attributes.
If you’d like to learn more about these crucial attributes, stick around…
Because, next week, Matt will show you how you could learn about all of them…
And then he’ll show you how to access all of our startup investment research, for LIFE!
You won’t want to miss this…