Getting In Early

Growing up, how many times did you hear your dad or some other family member lament, “If only I had invested in Apple in 1980 or in Amazon in 1997, I’d be rich today?”

At least they recognized the value of getting in on an investment early before the company exploded – even if they didn’t do anything about it.

Today, while retail investors constantly chase the next big thing in the stock market – wanting to get in early before a stock takes off – another class of investors are also looking to get an early in on promising opportunities.

The difference is, while most retail investors are fueled by emotions and by FOMO (the fear of missing out) – not taking one thought about the underlying economic fundamentals – this other class of early movers are all about the analytics – setting aside emotions in their pursuit of the next big thing.

Who is this other class of investors?

Before I answer that question, let me ask you another question: Do you know who’s even better off than the investors that bet on Amazon in 1997?

The angel investors and venture capital firms that invested in Amazon in 1994, 1995, and 1996. For instance, take Bezos’ parents, who were two of the company’s early angel investors. Their $245,573 investment in 1994 is now estimated to be more than $30 billion.

Having seen the value of getting in early on early-stage companies first hand, Amazon is now making waves as a major player in its own right in the VC space – investing in and prospecting start-ups at a breakneck pace. It could end up being a better gig than pushing goods on its shopping site.

Angel investing and venture capital are not for the faint of heart. Early-stage investing can be risky, but with all things, some investors are better at it than others. Early-stage investors of Facebook and Alibaba are two of the best VC bets of all time.

In the case of Facebook, VC funding totaling $2.53B was worth $104.2B at Facebook’s IPO. That’s a 4,000% return on investment. The VC returns from Alibaba were even more mind-boggling. VC funding totaling $1.1B was worth $167.6B at the exit. That’s more than a 15,000% return. In other words, every dollar invested turned to $150.

Successful VCs have a set of skills they all have in common:

  • Dynamic thinkingThey think outside of the box.
  • A high degree of staminaThey’re patient and invest with a long-term window.
  • Networking abilitiesThey’re connected and leverage their connections to attract investors.
  • Calculated risk-takingThey’re masters at evaluating and mitigating risks and only invest when they’ve felt they’ve minimized the potential risks.
  • Open-mindednessThey’re open to new ideas if they advance their investment objectives and fit within their risk profile.
  • Willingness to get involvedThey’re willing to lend their expertise.
  • ConvictionThey believe in the companies in which they invest.
  • Emotional regulationThey don’t let emotion dictate their decisions.

You’re asking yourself, “How do I get in on these early-stage gigs?”

It used to be that angel and VC opportunities were exclusive to ultra-high-net-worth and ultra-connected individuals. That is no longer the case, as early-stage opportunities are now more available to general accredited investors than ever before.

Qualified investors, now more than ever, have the opportunity to join VC firms as limited partners to leverage the expertise, experience, and track record of a team with a history of success.

It is even acceptable for VC firms to accept institutional limited partners who have a pool of qualified investors of their own. This allows limited partners who otherwise don’t have the minimum capital requirements to participate directly to pool their capital with other like-minded investors to take advantage of VC opportunities.

Just as successful VC firms mitigate the risks of their early-stage investments, potential limited partners and limited partners of a pooled fund can maximize the probability of success of their capital participation by conducting their own due diligence and analysis.

The value of getting in early is immeasurable. Just ask the early investors of Amazon, Facebook, and Alibaba. And the opportunities to participate in start-ups either as a limited partner of a VC or an LP (limited partner) of an LP (limited partner) have never been greater.

The saying, “fools rush in where angels fear to tread,” has never been truer than in the current market. While fools chase shiny objects, angels tread elsewhere – seeking early-stage opportunities in private companies poised to explode.