IPOs have been all over the news lately. 2019 has been a massive year for startups going public, including Uber, Lyft, Slack, Chewy, Pinterest, Beyond Meat, Zoom, and many others.
IPOs – or initial public offerings – are exciting events for everyone involved. The companies and their executives typically raise millions (or billions!) in capital; meanwhile, eager investors gobble up shares on the public markets. Even for spectators, there’s much to enjoy in an IPO – who doesn’t like to watch a feeding frenzy?
For angel investors, though, an IPO is especially sweet. That’s because, by the time a startup makes it to the IPO stage, it has usually grown to an astronomical valuation… often in the billions of dollars. Without a doubt, the biggest gains to be had come from angel investments that exit via IPO.
So, with IPOs hitting headlines on a nearly weekly basis, you may be wondering how the most successful angel investors know which startups will make it this big.
The process of sourcing and vetting winners is a little bit different for everyone – but I’ve spent more than a decade perfecting a system that can work for anyone… my 1,000X Formula.
It’s a simple equation that tells me whether a startup has the potential to 1,000X my money. And it’s never once steered me wrong.
I believe it has the power to stack your personal portfolio with heavy-hitters – and filter out all the deals that just don’t cut it. Click here to learn exactly how the formula works.
Now, imagine that you invest in a startup that flawlessly follows the 1,000X Formula. A few years later, it’s grown absolutely massive. You’ve just found out that it’s about to go public… and you’re seeing dollar signs. So, what exactly happens when one of your portfolio companies takes the leap?
Unfortunately, in most cases, you won’t be able to sell your shares right away.
There’s a good reason for this: by the time a startup IPOs, most equity holders have been waiting a long time to see their investments pay off. They’re eager to sell.
And what happens when shareholders sell their stock en masse? The stock price falls, cutting into that company’s valuation and spooking prospective investors away.
That’s why, nine times out of 10, investors are subjected to a six- to 12-month lockout period before they are able to sell shares.
There are exceptions, of course. Some companies decide to sell shares by way of a DPO – a direct public offering – meaning that they bypass the investment banks, broker-dealers, and underwriters who typically act as middlemen in the listing process. A DPO is not usually held to the same lockout constraints as an IPO.
Either way, the company in which you invested will be in touch throughout the process – either by email or regular mail – and will let you know exactly when and how you can sell shares.
Again, most of the time, you’ll have to wait six months to a year before you can liquidate your stake in the company. If that sounds like an irritating prospect, let me assure you: it isn’t. Investing in a startup that makes it to IPO is like striking proverbial gold.
Angel investors regularly make returns of 1,000X at IPO – and many have made more than 5,000X their money. And when you see a pile of cash that big on the horizon… believe me, you’ll be all smiles. My suggestion? Spend your lockout period lining up all the fabulous things you’ll do once that “private island money” is in your coffers.
Until next time,
August 01 2019