Three Ways to Lock in Windfall Profits

By Wayne Mulligan, on Thursday, November 3, 2016

For the past couple of weeks, we’ve been telling you about a remarkable group of people...

People who’ve gone from being dead broke to multi-millionaires... overnight.

Today we’re going to reveal their secret—and we’ll show you three tricks you could use to try and accomplish the exact same feat.

Overnight Wealth

As you learned yesterday, the key to overnight wealth in start-ups doesn’t come from dividends or big, splashy IPOs...

When it comes to early-stage investing, the only way to make big gains in a short period of time is with “takeovers”—in other words, when a larger company buys out a smaller one.

When this happens, the smaller company’s early stakeholders can become very rich.

From Welfare to Wealthy

For example, in an earlier article, we told you about a man named Jan Koum.

Jan was born and raised in the Ukraine. He immigrated to the U.S. as a teenager and was forced to live off food stamps for his first few years here.

But Jan spent his time learning all he could about technology...

He even relocated to Silicon Valley where he launched his own tech start-up: a messaging service called, WhatsApp.

Eventually, Jan’s tiny app grew into a company with 450 million active users and 55 employees.

Ultimately, Facebook came along and acquired Jan’s company—for a staggering $19 billion.

This sum made Jan an overnight billionaire. And it made all of his 55 employees millionaires.

That’s because Jan gave all his early employees stock in the company. And when Facebook bought it, these employees cashed in their stock.

Walmart Makes Pennsylvania Man an Overnight Millionaire

The same applies to another person we told you about, Eric Martin.

Eric was an IT rep at an insurance company. He earned a good living, but nothing spectacular.

But one day, he read about a new start-up that was hosting a special contest. This start-up, Jet.com, was offering to give people stock in its company if they referred new customers to its website.

As it turns out, Eric knew a little bit about online marketing, and he ended up referring hundreds of customers to Jet.com. In the end, he received 100,000 shares for his efforts.

While those shares weren’t worth all that much when Eric first received them, they eventually changed his life...

That’s because earlier this year, the retail giant, Walmart, came along and acquired Jet.com for $3 billion. Eric’s tiny stake became worth $20 million overnight.

How Do You Get in on Start-up Takeovers?

This begs the question: how does a regular investor like you get in on high-flying start-ups? Start-ups that have the potential to be acquired for billions of dollars?

Well, the good news is you don’t have to move to Silicon Valley to reap the rewards of this asset class. And you don’t need to become an expert at online marketing either.

Thanks to the JOBS Act, now you can invest in high-potential start-ups from your home computer. You can look for these start-ups on funding platforms like AngelList and SeedInvest...

Platforms we regularly write about and feature on the Deals section of our website.

But obviously not every start-up will get taken over. In fact, many start-ups end up going out of business, leaving investors with worthless pieces of equity.

Fortunately, there are ways you can increases your chances of success.

Here Are Three Ways to Find High-Quality Start-ups:

1. Stay Private — While takeovers occasionally occur in the public market, they’re more likely to happen in the private market.

In fact, according to a recent study we conducted, for every one takeover in the public markets there are 43 takeovers in the private market.

In other words, by investing in start-ups, you’re 43 times more likely to have your company bought out than when you invest in stocks.

2. Be in The Right Sector — As the famous hockey player Wayne Gretzky used to say, “Skate to where the puck is going, not where it has been.” It’s the same when it comes to early-stage investing:

If you’re looking to invest in a company that has the potential to get taken over, you should only look at companies in sectors where there’s significant M&A activity.

For example, each year hundreds of biotech companies get bought out.

And it’s the same thing for hundreds of software and technology firms.

But I’ve never seen the front page of The Wall Street Journal announce that a local candy store is being taken over for millions of dollars.

3. Do Your Homework — A few years ago, an organization called The Kauffman Foundation published a breakthrough study.

The Kauffman Foundation is one of the largest, independent think tanks in the U.S. Its mission is to study and foster entrepreneurship in America.

The research it conducted was one of the most comprehensive studies on early-stage investment returns in history. In total, it collected data on 539 investors and 1,137 investments.

Its goal was to identify the factors that made some early-stage investors successful, while others failed. And what they found was fascinating:

The study found that there was a direct relationship between the number of hours an investor spent doing research and their overall returns.

More specifically, the study found that the investors who spent 40 hours researching each of their investments earned, on average, 700% profits.

It also found that investors who spent less time on research did considerably worse: for example, the majority of investors who spent less than 20 hours on research barely broke even on their investments.

“But I Don’t Have 40 Hours”

Now, I know what you might be thinking:

“Wayne, I don’t have 40 hours to research dozens and dozens of investment opportunities. What am I supposed to do?”

Well, next week, Matt and I will show everyone a few simple tricks to dramatically speed up your investment research process—while still giving yourself a shot at earning life-changing returns from early-stage takeovers.

Stay tuned!

Best Regards,
Wayne Mulligan

Founder
Crowdability.com

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Tags: M&A Start-up Investing

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