The Complete Pre-IPO Investor’s Blueprint
Welcome to The Startup Investor!
We’ve got a lot to accomplish, so I’m going to dive right in.
Angel investing… Startup investing… pre-IPO investing… whatever you want to call it, it’s taken the world by storm.
Everyday people from coast to coast are now backing little-known startups, long before they IPO, and they’re exploding in value, becoming worth billions upon billions of dollars.
It’s making these angel investors wealthier than they ever dreamed possible. And now you can join them.
If you hit the jackpot on one angel deal, it could singlehandedly multiply your net worth many times over!
And you’ve probably read more headlines than you can remember about mega-windfall opportunities like…
✔️ Bird Scooters rising from a $25 million valuation to $2 billion in under a year (7,830%)
✔️ Uber soaring from a $5 million valuation to a $75.5 billion IPO (1,510,000%)
✔️ Airbnb jumping from a valuation of $1.5 million to $31 billion (2,066,567%)
✔️ Slack, Space X, 23andMe… the list goes on and on
But for too long, this was a private club, where only the rich and powerful could access these life-changing deals. But not anymore.
A stunning move by Congress has blown the doors wide open.
Today, there is nothing stopping you from becoming an angel investor. You can get in on the ground floor of the startups that could revolutionize every industry and our way of life.
Excited? Good! You should be.
Consider this report your roadmap to get started – it has every detail you’ll need to bag the next unicorn.
This is going to be a wild ride and the deals are going to flow fast.
I think it’s only a matter of time before you hit your first 1,000X exit.
Meet Your Host!
I’ve been an entrepreneur for 17 years – right now, I run 4 companies that operate globally. I’ve founded several startups that grew into amazingly profitable businesses.
As a startup founder, I was always hustling, trying to find private investors. That’s because every company – including Google, Amazon, and Facebook – starts out small, needing an influx of capital to grow larger.
And that’s where YOU come in.
I watched a lot of my investors in those days get rich just by getting in early. Here’s why: a young startup has almost unlimited growth potential, and its stock value grows with it.
Investing in a company that’s already worth nine figures? Sure, good picks will show some growth… but they can’t match the returns you’d see if you got in back when that business was worth peanuts.
Buying private equity is like hacking the investment world. Everyone out there is chasing the stock market… when in fact, 90 percent of growth happens before a company goes public. Early investing is a no-brainer.
That’s why I spend more time these days on the other side of the table – as an angel investor. That means I get to be one of the first to put capital into young and promising companies. Call it my way of giving back to the entrepreneurial world that allowed me to become so successful.
But make no mistake: it has ended up paying me back, too. I’ve made some unbelievable returns backing early-stage startups. Now, I’m here to teach you to do the same.
All About Pre-IPO Investing
Before we get into the nitty-gritty, let’s cover what angel investing really means – for you AND the founders you’ll be working with.
First off, an angel investor is a person who sees the potential for greatness in an early-stage startup – think Zuckerberg in his garage – and throws in that first real investment, or seed money, to help the business grow.
Now, this is all happening before a company goes public. That means you’re not going to be buying shares on the Nasdaq or the New York Stock Exchange.
Instead, you’re going to be buying directly into the companies we talk about. (We’ll go over the mechanics of that later…)
As an angel, you’ll be getting in way before typical investors.
That means two big things for you…
- You’ll have a chance at way bigger profits than someone who waited to buy stock when the company went public. In fact, when everyone else is flooding in, we’ll be making our exit and cashing out. (More on this in a few days.)
- You will have the opportunity to make real changes and have real impact as a company develops. Imagine buying shares in Tesla right now. Do you think Elon Musk is going to invite you to the board room? No way. But as an angel, you have a direct line to the founder – you have influence.
Now, here’s why this is such a big deal.
Up until 2016, the world of angel investing was reserved for Silicon Valley’s high and mighty… aside from needing all the intimate connections and tight-knit network of CEOs, VCs, and billionaires, you also needed to be an accredited investor. Long story short, you needed a net worth over $1 million to be an angel.
But times have changed. Today, you can get in the game with just a few hundred dollars. Of course, you can invest much more, too – it’s all about what you’re comfortable with.
And the private equity market itself is exploding – there are record levels of capital being exchanged. Last year, investors poured $453 billion into private equity. (And that’s all while the number of public companies has been cut in HALF).
Simply put, private equity is where fortunes will be made in the next few years.
Which is why we’re getting in now…
It All Starts with an Idea…
The Startup Investor will answer all your questions about angel investing, entrepreneurship, explosive business growth, and my secret methods to turn $50 into $50,000… or more.
This isn’t the kind of knowledge you can get by Googling “angel investing.”
My playbook contains more than a decade of hard-earned secrets and lessons.
You see, long before I was an angel investor, I sat on the other side of the table as a startup founder.
I’ve personally founded four successful businesses. And let me tell you – it is seriously grueling work.
It was all worth it, though, and not just because I ended up making money.
More than anything, I’m glad I did it because each business started with an amazing idea. And what’s better than watching an amazing idea come to life?
World-changing ideas are the bedrock upon which the startup world is built. Every successful business starts with one.
But what does a great idea really look like?
You’re going to hear a lot of pitches from a lot of founders.
And every single one of them is going to tell you that their idea is revolutionary.
So how do you tell the difference between a founder with a billion-dollar idea, and one who’s just blowing smoke?
For starters, you should always look for an idea that’s not just good – it’s world-changing. Ideas that disrupt the status quo and redefine the way we live our lives mean way bigger profit potential than an idea that’s just good.
Next, ask yourself: is anyone else doing this already?
Competition may be good for capitalism, but it’s bad for a startup’s bottom line.
On the other hand, if it seems like an obvious idea, you might want to investigate why other, similar business haven’t done it yet. Maybe the big players already thought of I – and decided it wasn’t a moneymaker.
Lastly, get some feedback from the people in your life – family, friends, colleagues, and even strangers. Do most people love the idea? Are they enthusiastic about the business concept? Would they pay for it?
That’s what it really comes down to, after all. There are plenty of great ideas out there that people still won’t pay for at the end of the day.
A truly great idea will check every box and leave you feeling excited. As they say… you’ll know it when you see it.
How to Choose Your First Startup
When I first got started in angel investing, I made a lot of deals based on my gut alone.
Gut instincts are important. Sometimes, they even work.
But angel investing isn’t a craps shoot. The more investments I’ve made, the more I’ve realized that strategy is just as important as intuition.
Some of those early leaps of faith did turn out to be winners – but switching to a more logic-based system has greatly benefited my bottom line.
Now, I only invest in and recommend startups that meet every one of my criteria. I’m not here to throw money away – and neither are you.
I hear pitches from a lot of people. Now that you’ve started, it won’t be long before you know what I’m talking about. There is no shortage of ideas out there – in fact, more than 100 million startups are launched worldwide each year.
That’s about 3 new businesses per second! It can be overwhelming, especially when every founder is maxed out on passion. Here are some of the ways that I narrow down my search:
1) My cardinal rule is probably the simplest: I only invest in startups with a big Total Addressable Market (TAM).
Think about it.
Say you’re looking at a moonshot startup producing Widget ABC. It’s a niche product that only addresses a small market, but it does big things for that market. Maybe it’s the first of its kind and solves a huge problem.
So, a groundbreaking device in, say a, $100 million market.
And because this widget dominates, it takes 100% of that market.
So, $100 million in the bank for this small startup. Not too shabby.
Now consider if the TAM is really big – hundreds of billions of dollars – like the e-commerce market, which is projected to hit $735 billion in just a few years.
Odds are small that a tiny startup will dominate that massive market overnight.
But, say they solve a small problem in that market. Like software that identifies and removes fake product reviews.
In solving that small problem, our startup has now harnessed a tiny 1% of the market.
Well, a small piece of a huge market is still a huge piece.
Because 1% of that massive market means $7,350,000,000 straight into our startup’s bottom line.
2) Another thing I like to see is revenue in the bank.
As I see it, there’s no good reason that companies shouldn’t have some kind of revenue by the time they go seeking investors.
A business that hasn’t made any money yet is basically a shot in the dark. How can you possibly determine the company’s growth rate, valuation, or profitability without a single measurable transaction?
I don’t care if it’s $500 or $50,000 – revenue in the bank tells me that there are customers out there willing to pay for the product. And there is a huge difference between being willing to use a product, and being willing to purchase it.
If a startup hasn’t managed to pull in a single cent, why should I believe that customers will flock to it later?
Here’s the thing about the modern marketplace: it’s pretty crowded. Customers have more options than ever before when it comes to choosing products and services.
These days, it’s not so much about deciding whether you want to spend money – it’s deciding what product to spend it on today. Which means competition for each dollar in the consumer wallet is fierce.
3) That’s why I look for startups that solve a specific problem.
In Silicon Valley, you’ll hear people refer to startups as candy, vitamins, or painkillers.
Candy is just for fun – nobody needs candy, but we all buy it every so often. We get some momentary pleasure out of candy, but it doesn’t make it into the weekly meal plan. Smartphone games are good examples of candy.
Vitamins go one step further. They improve peoples’ lives, but it’s still pretty subtle. Taking your vitamins might make you feel a little better in the long run, but you don’t wake up craving them. Grocery delivery services and instant messengers are a bit like vitamins.
A painkiller, though, is something you suffer without. Uber is a painkiller, because life without it means paying twice as much to ride in a smelly, outdated cab.
Painkillers solve urgent problems… and good ones keep people hooked for life.
When I first started building websites, it drove me crazy that there was no good way to track how visitors interacted with my pages. That was an acute pain for me, and it led me to co-found Crazy Egg.
As it turned out, Crazy Egg was a painkiller for a lot of people, and it’s done very well as a result.
A product that solves a real problem is generally on a path to success. Even better if customers find they can’t live without it. Creating a painkiller is a guarantee of sustained revenue growth.
Speaking of growth, let’s talk about scalability.
4) My ideal investment prospect is a product that can scale without taking on proportionate expenses.
Let me explain.
Say that you run a tutoring company. You’re using a proprietary method that is super successful. Customer referrals are through the roof, and you have the opportunity to expand.
That sounds great… at first. The problem is that, for every new set of customers you take on, you’ll need to hire more tutors. Your profit margin never really grows. Yes, you’re making more money, but not at a faster rate.
Now consider a subscription box service, like BarkBox. For a flat rate, you mail out a monthly box filled with treats and toys to dog owners. This is a highly automated service; most of it takes place in a factory or warehouse.
When you go from 10 to 1,000 subscribers, you won’t need a hundred times the staff to fulfill orders. Sure, some expenses will go up – you’ll be spending more on dog treats and toys – but the factory can handle a higher level of output without needing many upgrades. That’s a business model that scales well.
My last rule is one that I’m a little more lenient about than the others.
Bonus: I like to invest in businesses that I understand. I haven’t always stuck to this rule, but when I do, I tend to get better returns.
That’s because it’s easier for me to spot a good idea in a landscape I recognize. I’m much better equipped to know what will work in the tech world than, say, the food and beverage industry.
As a bonus, I can lend my own experience to the project and help guide founders towards good business decisions. Sure, the founders may not take my advice, but it never hurts to give it.
Remember that this isn’t like investing in the stock market or a mutual fund. You’re not just dumping cash into a machine you have no control over, hoping that more cash comes out at the end. Startup growth is a highly dynamic process that you, as an investor, have some power to influence. Use your standing to steer the ship towards success.
Aside from the big rules, never skimp on due diligence. It’s a good idea to research any regulations, competitors, or industry trends that could help or hurt a startup’s success.
Of course, the entrepreneurial team is key – after all, they’re the ones responsible for executing their vision profitably. Next, we’ll get into the surefire ways to identify founders who have what it takes.
Four Traits of a Star Founder
We angel investors have a saying about choosing winners: “Invest in founders, not in startups.”
That’s because the founders are the only ones with the power to execute their unique vision. That makes them responsible for absolutely everything, from money management to product development to branding and more.
Think of a ridiculously indulgent, 3-Michelin-star restaurant, serving up a $30 salad.
The ingredients, even including one higher-priced ingredient like cheese or meat, come to a whopping $3 or $4 per serving. So what the heck makes it worth $30?
The answer, of course, is the chef, who takes ingredients anyone can buy and turns them into something amazing – an unforgettable experience, rather than just a meal.
So it is with good ideas, which are everywhere, and great founders – which are rare – with the ability to transform those ideas into a product that customers are willing and eager to pay for.
Of course, the business model needs to make sense too. No cooking staff can make something delicious from ingredients that just don’t go together.
But I digress. The point is, if the team isn’t right, the business won’t make it.
That’s why it’s critical that you be able to identify a star founder when you see one…
In fact, studies show that 23% of failed startups cite a bad team dynamic as their reason for collapse. It’s like building a house on a sinkhole – eventually, that sucker’s going to cave in.
You might be thinking that having just a single founder is a good way to avoid those problems. But, actually…
1) Only seriously consider startups with more than one cofounder.
The ideal number is two.
Two cofounders can get more done, using less capital, than one can. A single founder will inevitably need to hire out help.
But more importantly, a team of two or more shows me that the original founder isn’t just a crazy person with a big idea who couldn’t convince a single person to team up with him or her.
Having a partner is just part of the picture, though. The founding team also needs to “click” – personally and professionally.
There are certain vibes you can pick up on between founders when you’re doing your pitch meetings in person.
I can spot a bad connection right away – each one tries to upstage the other; their pitch deck doesn’t have a natural flow; or there’s a mismatch in the level of passion or commitment.
Those are easy “no’s” for me. Any fissure between founders on easy mode will turn into a chasm when things get hard – and they always do.
But for those who haven’t seen the hundreds of pitches it takes to spot these cues, or those who want to start investing through angel groups or online crowdfunding, there are some qualities you can look for that tend to apply to exceptional entrepreneurs.
2) Find a founder with a solid track record
It’s always a good sign when the founders of a business have a history of success building companies in the past.
Most startups won’t have much of a track record at the time they’re seeking angel investments…they are new, after all.
But their founders might.
I have way more confidence in an entrepreneur who has already steered a startup to an exit than I have in a first-timer. Launching a successful business is a tricky channel to navigate, but a founder who already knows the route is less likely to run aground (i.e., crash and burn) or sink (run out of cash and disappear).
How founders navigate this process is important, too. It can be hard to tell what goes on behind the scenes, but…
3) Look for founders who plan ahead and follow through
Agility is key when you’re building a business. Customers change, markets change, and therefore, plans must change sometimes. The question is whether the founders are prepared to roll with the punches.
Are they overly committed to a single version of their plan, or are they willing to adapt if part of their vision isn’t working? Are they effective decision-makers, or do they toil in deliberation much longer than they should?
Keep an eye on their process for getting things done. Quick and effective turnaround times for task lists and short-term goals is a good indicator of an efficient and agile system.
Also look for founders who have intellectual property. Going through the legwork to legally protect an idea is a good sign that the founder has thought ahead.
It also indicates that the founders are passionate enough to stand by their business in the long run, and…
4) Passion is probably the most important thing an entrepreneur needs to have.
Think about it – finding investors is the toughest thing a startup founder has had to do so far, but really, it’s just the tip of the iceberg.
Running the business is going to get a thousand times harder as it grows; there will be books to balance, staff to manage, IT roadblocks, competitors and copycats, good and bad publicity… I could go on.
A founder might go a year – or five – making no salary whatsoever, all while spending 60 to 80 hours a week working on their company.
That’s a grueling workweek, even for those who come out the other side with a generous paycheck.
Founders will take no vacations… will have no real breaks… will live and breathe their business for the first five to ten years, if not for the rest of their lives.
See, when you’re the founder, you are ultimately responsible for every problem, big or small. Think you can shut your phone off for a week-long getaway to Paris?
Think again! What if your staff clashes or quits? What if legal troubles arise? What if there’s a PR scandal that requires your attention?
It’s not just your name on the line – it’s a lot of your money, a lot of other folks’ money, your lifelong reputation as an entrepreneur, and your company’s future.
I see a lot of founders who don’t quite know what they’re getting into. They have a great idea, but they think of it as more of a side hustle.
Generally, those founders don’t have what it takes. It doesn’t matter how good the idea – blood, sweat, and tears build businesses.
In the beginning, the only difference between an idea and a business is the founders. So ask yourself this before you fall in love with just the idea: “Can I count on these people, in this business, in this market, to turn my investment into more money?” Do your homework, vet every member of every project, and don’t settle for anything less than the qualities I’ve laid out here.
Four Traits of a Star Founder
I was in my early 20’s when I started angel investing.
In a way, starting young was a very good thing. I had my “finger on the pulse,” so to speak – and that helped me identify hot trends that could catapult certain startups towards success.
And, by 25, I already knew a thing or two about running businesses… in fact, I had personally launched a few.
Still, angel investing is a little more intricate than just making assumptions about what people will buy.
Great angel investors consider a myriad of factors before signing the dotted line: market trends, legal obstacles, founder history… the list goes on.
It’s a lot to keep track of, especially when you’re still learning how the system works.
Fortunately, a very successful angel gave me a piece of advice that turned my way of thinking on its head.
I won’t name names, but this angel had it all: incredible properties, fancy cars, and a lifestyle to match.
What that seasoned pro taught me is sure to help you just as much as it helped me.
Here’s what that super-successful angel told me:
When you’re first starting out, you’re bound to make mistakes.
New investors are full of optimism and excitement. That is a great thing.
But it can also make people impulsive – and investing on impulse is never a good strategy.
So how can you learn the ropes without losing tens of thousands of dollars to bad investments?
Ride on the coattails of other successful angels.
Investing alongside seasoned pros won’t just keep you from making rookie mistakes…
It’ll also make your life easier.
The paperwork, the due diligence, the pitch meetings, the negotiations… this stuff takes time. If you’re doing it right, it is a lot of work.
Experienced players have an edge: their process for investment selection and follow-through has already been streamlined by their years of practice.
They know how to avoid the common pitfalls that ensnare novice investors: fear of missing out, unfamiliar territories, mediocre deal flow, and so on.
Luckily, it’s not too hard to find an experienced mentor. You’ve already found one!
And, as a Startup Investor, you are now part of a global network of angels and entrepreneurs that are changing the world, one deal at a time – all while making a huge profit.
Sounds like more fun than the stock market, doesn’t it?
Stay tuned – the excitement is just the beginning.