That headline comes to us from Wall Street Daily, soliciting subscribers for Robert Williams’ True Alpha, and it’s one of the more attention-getting strategies that newsletter use to pitch ideas: Getting in early.
Sometimes “early” means buying a stock before a catalyst is widely known, sometimes it means just buying before your investing friends have heard of a company — which is exciting enough, because that makes you feel smarter and cooler than other investors (and really, if that wasn’t part of the appeal we’d all just be buying index funds… and most of us would probably be getting better results than we get speculating in individual stocks).
But sometimes it’s even more “early” than that — a pitch that you can buy a stock before it’s even public, joining the billionaire-maker ranks of the venture capitalists who put in ‘seed money’ when the next Mark Zuckerberg or Michael Dell is still skipping classes and working long hours to build a business in his college dorm room.
We see such teases from time to time — sometimes newsletters tease that you can buy exposure to a hidden asset by buying a public company before a catalyst or a spinoff, like buying Yahoo to get exposure to Alibaba well before the IPO, sometimes they hint about some of the real “pre-IPO” investing that is now possible in many companies (though a terrible idea for most investors), but more often, as I suspect is the case today, the spiel is about a publicly traded entity or fund that has venture-like investments in a bunch of different companies.
There are some mutual funds that routinely allocate a small portion of the fund to pre-ipo investments, and even one fund I know of that specifically buys a diversified group of venture-backed companies called the SharesPost 100 Fund (PRIVX… it’s expensive, though — 5.75% front load and high annual fee near 2%). That’s interesting, particularly given the fact that successful companies are staying private for longer these days… but it’s probably not the investment Wall Street Daily is teasing to access a specific “most valuable private company,” so let’s see what they’re teasing:
“A $9 billion IPO payday is in the works…
“Act within the next 87 days to “get in” at the pre-IPO price of $1.15 or miss out completely….
“Companies like Airbnb, Dropbox and Uber (among others) are all expected to go public soon.
“When they do, they’ll hand venture capital backers up to 1,000 times their investment, according to the latest data from CrunchBase.
“That’s not a typo.
“A mere $10,000 investment in each of these companies could be worth $10 million.
“You’d expect that everyday investors like you and me would be completely locked out of this IPO profit bonanza.
“But I’m here today to tell you otherwise…
“Startling Discovery Unlocks Key to Silicon Valley Riches.”
Sexy, right? $10,000 to $10 million? You could finally get that Tesla you’ve been eying, or, you know, actually send the kids to college or retire or something more prosaic. Of course, companies don’t go up in value 1,000 times just by going public — being “pre-IPO” isn’t everything, particularly for firms that get pretty large before they enter the public markets (folks who bought FB a year or so before the IPO are doing OK now, but they were losing money for a while there in that first year of trading), you need to be in pre- pre- pre-IPO, when the venture capital firms are putting in $1 million for a couple seats on the board and 10% ownership of a company that might someday be worth billions.
Of course, those pre- pre- pre-IPO investments usually don’t work. For every Uber, there are (at least) dozens of failures that quietly burn through their seed money, fail to develop a product or make a real business case, and eventually run out of backers and disappear. That’s why the headline numbers are so spectacular when you see someone who got in early on Facebook and made thousoands of times their money… that person may have had ten other investments that year, and probably eight of them went bankrupt. It may be paternalistic to say that investors shouldn’t be involved in venture capital unless they’re “accredited” (meaning, they’re so rich they can afford to lose their investment… and so experienced that they won’t be shocked to lose it), but to some extent it’s true — venture-backed companies are huge risks, and the risk gets bigger (or, at least, harder to quantify) if you’re not in the boardroom or on the phone with the founders every month.
Back to the point, though, what are the rest of our clues? The WSD folks talk about a “secret loophole” in the SEC filings that lets you invest with the “most successful venture capital investors of all time.” Here’s more from the ad:
“Partnering With the Greatest Wealth Creators in History
“I’m talking about a group of venture capitalists that turn practically every company they invest in into gold.
“Their list of winners stretches all the way back to 2002.
“And it includes the most well-known and successful companies in the market today…
“By virtue of their track record, your success is almost guaranteed if you can invest alongside them, right?Are you getting our free Daily Update
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“… the loophole allows you to get a stake in certain companies at the same prices the venture capitalists paid. At pre-IPO prices.”
So what’s that “most valuable private company” they talk about, the one we can get into now at “pre-IPO prices?” Here are their clues on that front…
“Right now, there’s an opportunity to invest in what The Wall Street Journal and The New York Times estimate is one of the most valuable private tech companies in Silicon Valley.
“It’s an internet-based startup, doubling in size every year.
“It counts the most secretive agencies of the U.S. government, as well as the biggest banks in the world – including Morgan Stanley and J.P. Morgan – as customers.
“It’s Silicon Valley’s largest corporate tenant, occupying 250,000 square feet of downtown buildings….
“… the company’s months, possibly weeks aw