Angel investing into startups is not as difficult as you think it is. Consider how there are so many warnings from so many “experts” with fancy degrees and expensive suits telling you not to invest in startups. And yet, at the same time, they allow “accredited investors” aka people who already have a net worth over $1m or net income over $200k, to invest in said risky propositions. If those investments were so risky and dangerous, then why are investments being made to them in the first place, particularly by the people warning they are risky investments?

The lies they tell about restricting deals to protect retail investors, ultimately keep retail investors poor. Yes, it’s true that over 10 years, 75% of non VC backed startups fail. However, there is some more interesting information that could help de-risk investments. For instance, companies that raise Series A have a 60% failure rate, with valuations around 50 million. Companies that raise a Series B have a 35% failure rate, with valuations likely between 40–70 million). Companies that raise a Series C have just a 1% failure rate, with valuation likely between 80–120 million. So if you want the maximum optimal amount of reward for lowest risk when considering both risk and reward together, it seems investing in companies that soon will raise or have raised Series C is the best. With just a 1% failure rate, the odds of getting something back seems pretty good, with odds of getting a positive return more likely than not. Having 1% chance of failing, with decent odds of a multi bagger to get to 5–10x, or even more, seems like a compelling scenario.

Or getting in on Series B startups with still a relatively low failure rate of 35%, and decent odds of hitting a far larger multi bagger. Going to rounds further, series D, E, F, or even G, the risk at that point just seems incredibly low. Particularly with IPOs known to spike on the initial day, and maybe for an extended period depending on where the economy is at in an economic cycle, there seems to be an asymmetric risk/reward proposition for later rounds. If those companies are raising on equity crowdfunding platforms in the future, it seems like a no brainer to allocate some funds towards those companies with future promise.

With that being said, if you wanted to risk it at the seed round prior to Series A, the startups time of highest risk and highest reward, let’s take a look at some recent/semi-recent investments that panned out beyond wildest dreams. With equity crowdfunding opened in 2016, then re-upped in 2021 with new regulations to increase amounts raised permitted as well as investor limits opened up even more, these types of returns are entirely possible for investors who want to trek into the unknowns of startups. Assuming below you invested a mere $1,000 USD and just went to set and forget mode:

Examples:

Susa Ventures invested into Robinhood initially $250k in 2013, and at IPO in 2021, was worth $400m. A 1600x return in just 8 years; $1,000 would be worth $1.6m

Alibaba, 1k investment in 2000 when Masayoshi Son did would have returned 2500 times at IPO in 2014 from valuation of $20m to $50b. That’s $2.5m returned on $1,000.

Tencent is the parent company behind Wechat, the social media app with 1 billion daily active users. A South African company Naspers invested $32m initially in 2001. In 2021, those shares were worth approximately $100 billion, 3125x more. That’s a nice $3.125m on $1,000 invested.

Uber, 1k investment in 2009, average return 5000 times at IPO in 2019. That’s $5m returned.

And lastly, the greatest investment of all time. Facebook, 1k investment in 2004 at the seed round with Peter Thiel would have returned 500,000 into 100 billion at IPO, an outrageous 200,000 times return. $1k would be worth an astronomical $200m.

These are just a few of many examples of companies that have gone IPO that led to private investors who bet on them early striking it rich. For every IPO at a decent valuation over $1 billion, all the early investors got a nice small fortune return. Obviously, it is a pipe dream to return 200,000 times on any investment. But in the unlikely event that even one investment returns in the thousands of times over, well then, you are now approaching, if not at, a financial retirement, or extremely comfortable living.

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.