Moonshots & Unicorns: Investing in Startups

I’ve invested approximately 15% of our assets into mid-stage and late-stage startups over the past couple of years. If current valuations hold up, these now represent more than half of our current net worth.

I don’t like to count my chickens before they hatch, and only one of these investments has had an additional funding round since I invested (at 21x the initial value), so my spreadsheet hasn’t been updated to show that gain, but the next few years could be exceptionally interesting.

A Series of Fortunate Events

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It was early 2020, and my family and I were enjoying the good life in Spain for a couple of months. A reader named Jawwad Khan reached out, asking me to take a look at some unique real estate investments offered by a real estate startup named Compound where he was working.

I not only looked, but I invested a bit of my own money into an unleveraged condo in Miami. That investment has now gone full circle, giving me an IRR of about 9% annualized. That’s not bad at all for a real estate deal with no debt, but that’s not the kind of return that’s going to make you scream with excitement, either.

Fast forward a few months. We’re all in lockdown, hiding from a virus, and Jawwad has some exciting news. Compound is being acquired by Republic, a multi-faceted fintech startup in its fifth year, and I would have an opportunity to invest in the larger company.

There is an incredible amount of money made between a startup’s seed stage and an IPO or acquisition, if either happens. When you invest exclusively in publicly traded companies, you have zero opportunity to get in on that meteoric rise from one funding round to the next.

My Rationale for Active Management and Pre-IPO Investing

Now, it’s quite possible that any individual company may never be acquired by another or go public. Most startups don’t get that far. This is why it’s wise to invest in multiple startups rather than putting all of your eggs in one Series A basket.

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