When it comes to early stage investing, there is so much to learn and an ever-evolving landscape. And there are some great books out there that can help you establish a solid knowledge base in this asset class.Read More
Most people who talk about angel investing or early stage investing in general often accompany it with a stern warning: “Be ready to lose all of your investment.”
And while this is definitely a possibility, we know that avoiding the companies that implode in a spectacular fashion is half the battle to building a portfolio with a strong IRR. For every company that goes completely bust, you need to generate a 2x return from another investment just to break even.
So here are our top ten warning signs to look out for when you are considering an investment.
One of my clients, Jeff, is a high net worth individual who has worked in finance for years. Although he is very familiar with stock market investing, he was a little stumped when it came to understanding the nuances of startup investing.
He was looking at two different deals. Both had great founders, a great market opportunity and some good initial traction. One was raising $2 million at a $10 million valuation and the other was raising $1 million at a $5 million valuation. He wasn’t sure what to do.
“How do I calculate the PE ratios? How do I know what the market cap is going to be?” In short, he needed to know how to evaluate this very special asset class that is a startup investment. And the tools he learned to evaluate public market investments weren’t going to be very helpful to him in this case.Read More
Calculating your expected return on a startup investment can be a complicated process, or as simple as something you can do on the back of a napkin. The simple rule of thumb is to estimate your potential return based on how much you expect the company to sell for. Most investors expect a liquidity event such as an acquisition or IPO within 5-10 years after investing. We will use our best estimate of a future acquisition to envision this scenario.Read More