In the information age, it seems everyday we are bombarded with new ways to get rich, which too commonly, just end up being get rich quick schemes. We find out the hard way that the only people getting rich in these schemes are the people who sold the schemes to us. MLMs, dropshipping, social media influencer, the list goes on and on. Here is a way that was recently opened up to us everyday average joes: angel investing.

Angel investing is essentially putting money towards a startup in hopes that it can become the next big company, the next generation Amazon’s, Tesla’s, Uber’s, Airbnb’s of the world. After ~5–10 years, the small private company you invested in could provide massive returns, via an acquisition from a larger company or IPO to go public. The returns can look like: 10x, 50x, 100x, or in other rarer situations, 1000x! An investment of a mere $1000 could return you $1,000,000 in just 10 years. These types of returns are very possible with a little patience and a small amount of extra funds laying around!

The JOBS act part III in 2017 allowed the average investor to begin making these angel investments in startups via the many equity crowdfunding sites available. Without it, you would not have been able to put investment towards one of the many up and coming companies in the 2010s decade, ones that you were personally using and had experience with (only those who fit the definition of accredited investors, aka rich people, would have had access to these opportunities). For example

if you were a maker of crafts on Etsy, you knew the platform had carved a niche in the ecommerce world. If you were one of the early 10 million adopters in 2011, and had been given the opportunity of investing $1,000 towards the platform, shares then traded at ~0.20 privately. At the end of 2021 at the peak, the share price was $290. In 10 years, that’s a return of 1450x, or 145,000%, turning your $1,000 into $1,450,000, or $1.45m. Or let’s say you were an early driver or rider of Uber, and you admired it’s app and alternative to the traditional cabs. Uber in 2011 was valued at a total of $60 million. It’s IPO in 2019 was valued at $69 billion (what a number). That is approximately 1150x, or 115,000%, which meant your $1,000 would be worth $1,150,000, $1.15m in 8 years. Earlier when I had used Airbnb as an early adopter, in late 2010 the company’s total valuation was $70 million. At IPO on the first day in late 2020, the company was valued at $100 billion. That is a return of 1429x, 142,900%. In 10 years, your $1,000 would have been $1,429,000, $1.42m. I wish had the chance to invest in Airbnb before it went IPO.

To further simplify, I’ve designed you a sophisticated graph to show you the correlation between time and your wealth when angel investing in startups:

Now those results are very atypical and should not be inferred towards every investment. Even hitting 1 of those in a portfolio of 100 companies would be spectacular. In fact, angel investing takes the 80/20 principle to the extreme, where most of your returns will come from just one investment, and most of your secondary returns will come from your 2nd best investment. Angel investing itself is a high risk, high reward endeavor that should be treated with the necessary caution as such. Fortunately, equity crowdfunding websites have limits in place based on a person’s income and assets that prevent the degenerate side of us going crazy. Consider that the gambling instinct in Americans leads to $80 billion lost casinos each year, and $100 billion in lottery tickets per year. If just 10% of that gambling money was put towards high-risk investments in startups, think of the wealth that could be generated for average folks. So yes, save for that home, invest in the stock market, occasionally gamble. But a little bit of savings allocated to startups could yield nonlinear results and go a long way to our lives that our monkey minds cannot comprehend.

Disclaimer

This is not Financial Advice. This article is only for educational purpose.