Most investors pay too much for their startup investments. Thatâs a problem. If you overpay, youâll never make the kinds of profits that could potentially change your life. So today, Iâll reveal one of the most important rules for startup investing: Itâs my #1 rule for ensuring that you â and I mean you â donât [â¦] You're receiving this email as part of your subscription to Crowdability. [Unsubscribe here](. [Crowdability Editorial]( [feature] My #1 Rule for Not Overpaying for Investments Today Matthew Milner Most investors pay too much for their startup investments. Thatâs a problem. If you overpay, youâll never make the kinds of profits that could potentially change your life. So today, Iâll reveal one of the most important rules for startup investing: Itâs my #1 rule for ensuring that you â and I mean you â donât overpay. > ADVERTISEMENT < WATCH NOW: 3-minute Video Update Because of the limited nature of this opportunity, weâre urging all readers to watch this video as soon as possible. Itâs 3-minutes long, but what youâll discover on the next page could change the way you view your retirement forever. [Click here to watch now](. Introducing Mike Maples, Jr. To set the stage here, let me introduce you to Mike Maples, Jr. Maples is the co-founder of a wildly successful venture capital firm called Floodgate. Mike has been on Forbesâ âMidas Listâ a whopping eight times for having a golden touch with his startup investments. His deals include mega-hits like Twitter, Clover Health, Okta, ngmoco, Bazaarvoice, and Demandforce. Furthermore, before becoming an investor, Mike was founder of two startups that went public: Tivoli Systems (IPO TIVS, acquired by IBM) and Motive (IPO MOTV, acquired by Alcatel-Lucent). In other words, Maples knows a thing or two about startups and startup investing. And last week, he chimed in on Twitter about a startup-related issue thatâs near and dear to my heart: overpaying for early-stage (seed-stage) startup investments. As he wrote: To explain what his tweet means, let me start at the beginning â with the â10x ruleâ⦠The â10x Your Moneyâ Rule When Wayne and I first launched Crowdability, we conducted a deep research project. Our goal was to identify a proven process for picking successful startup investments. Over the course of a year or so, we sat down with more than three dozen of the most successful startup investors in the country. At the time, these investors had collectively backed more than 1,080 startups, and generated several billion dollars in profits. And gradually, they taught us dozens of tools and âtricksâ to identify winning investments. But of all their strategies, one has been the most valuable to us by far: How to identify the investments that can return 10x your money. Go with the Odds In case you didnât know, startup investors earn their profits in two main ways: 1. The startup goes public in an Initial Public Offering (IPO); or 2. The startup gets acquired. IPOs can lead startup investors to massive profits, but IPOs happen very infrequently. The most common way for startup investors to earn their profits is through an acquisition â in other words, when a startup they invested in is taken over by another company. To put the numbers in perspective: In 2020, there were about 480 IPOs. But during the same time frame, there were about 12,000 takeovers. So, how can we spot potential takeover targets early â so we can cash out for big gains if and when they get acquired? âEvery Battle is Won Before Itâs Ever Foughtâ To answer this question, let me tell you about one of the investors we met during our startup research project. Before this gentleman became a venture capitalist, he was a high-ranking military officer. As he peppered our conversations with references to âstorming the beaches of Normandyâ and âthe Battle of Little Round Top,â he often mentioned a particular expression: âEvery battle is won before itâs ever fought.â As these words relate to investing, hereâs what he meant: Certain actions you take before you make an investment can determine your ultimate success. And one of the most important of these actions is this: Filtering out investments based on their valuation. The Importance of Valuation Valuation is another way of saying âmarket cap.â Itâs the total value of a company. For public companies, we say market cap. For startups, we say valuation. And hereâs the thing: Despite what you read in the press about big-ticket takeovers â like Facebook buying WhatsApp for $19 billion â the sales price for most startups is less than $100 million. In fact, according to PricewaterhouseCoopers and Thomson Reuters, the majority of acquisitions take place under $50 million. So, if your goal is to earn 10x your money on a startup that might get acquired for $50 million, how do you âwin this battleâ? Simple: invest at valuations of $5 million or less! If you invest at valuations that are higher than $5 million, you might very well be overpaying for your investment! Exceptions To Every Rule Obviously, there are exceptions to every rule. For example, if you have an expert to guide you, you can always consider investing in startups that are more highly valued. After all, many investors considered companies like Facebook or Airbnb âwildly overvaluedâ when they were worth $10 million or $100 million or $1 billion. Now theyâre worth hundreds of billions. But when youâre just getting started in early-stage investing, limiting your investments to startups that are valued at $5 million or so is a smart strategy to stick with: This strategy will give you the greatest chances of potentially earning 10x your money. Thatâs what Mike Maplesâ tweet is all about: It’s about not overpaying for your startup investments. And thatâs what weâre here to teach you about every week. Weâre looking out for you! Happy Investing. Best Regards,
[Matthew Milner]
Matthew Milner
Founder
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