Friday, April 10, 2020

Hunting Unicorns - Angel Investing vs. Other Investments, Risks vs, Rewards, Ren Carlton

How much volatility did your portfolio experience over the last few weeks?

Now is a great time to evaluate your investment strategy and consider angel investing.When comparing angel investing to other forms of investments, here are a few things to consider:
- Liquidity, Startups are typically not liquid compared to other investments. If you need your cash quickly, this is probably not a good option for you.
- Risk of Loss, When you invest in early-stage businesses, you can lose your entire investment. This is why expereinced angel investors typically have a portfolio of startups.
- Impact of Global Events and Black Swans - This varies wildly, some startups benefit during changing times, others are destroyed.
- Control and Influence - Most founders welcome help from their investors.
- Potential for Extraordinarily High Returns - It is not outside the realm of possibility for a startup investment to produce an ROI of 10X, 100X, or even more.

Potential High Risks, Potential High Rewards

Let's assume a well-balanced portfolio of startup investments is targeted to yield of an IRR (internal rate of return) of 25%. This is a cash-on-cash return of approximately 3X over 5 years, 9X over 10 years. Again, obviously returns are never guaranteed and it is possible to lose all your investment.

Let's also assume you invest $5,000 and let it sit untouched for 30 years. There is a huge difference in your potential ROI:
Bank, 1% = $6,739
CDs, Money Markets, Bonds, 5% = $21,610
S&P 500, Large Cap Stocks, 10% = $87,000
Real Estate, 15% = $331,000
Angel Investments, 25% = $4 million

Here are some examples of unicorns and their returns:

$250,000 invested in Google in 1998, worth $1.6 billion in 2019
$10,000 investment in Uber in 2010, worth $127 million in 2015
$100 investment in Bitcoin in 2010, worth $28 million in 2017

My fear of missing out on these type of return far outweighs my fear of loss.

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Sources and Links

Disclaimer: This does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service. We are not offering any legal, investment, tax, or medical advice. Please consult the appropriate professional before doing anything you learn from the content posted on any of our digital properties. All stories are based on true events, but are altered to protect the identity of the individuals involved. All figures are estimates.

1 comment:

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