Pre-IPO Profits

Patience Pays in Startup Investing

Patience Pays in Startup Investing
By Adam Sharp
Date February 9, 2021

I recently had my first startup investment go public. But don’t get too excited yet. The company, Plurilock Security, just listed on the Toronto Venture Exchange at quite a tiny valuation — around $15 million. I took the opportunity to add to my position.

I really wish more companies would go public early, but that’s not how it works these days. Going public is a huge ordeal in the United States. And companies usually wait until they’re worth $1 billion or more — or in the case of Uber or Facebook, they wait until they hit $80 billion or more. At those amounts, the chance for investors to see their shares increase in value is extremely limited.

I began investing in startups in 2014. And at this point, I have more than 100 companies in my portfolio. I’ve had a number of nice exits through acquisitions — but this is a reminder that it takes a very long time for a company to go public. So if you’re investing in seed and Series A rounds, you should expect to wait at least 10 years — and possibly longer — to see a big exit. Of course, it could happen sooner. But those cases are the exception rather than the rule.

I have a few companies in my portfolio that are rumored to be going public soon. I’m excited to see what happens, but I’m not holding my breath. Investing in private, early-stage startups takes patience. A lot of patience. And even if you invest in later-stage, pre-IPO companies, it often still takes five or more years to see a return. 

But if you’re willing to wait, I think private startup investing offers the highest potential rewards of any asset class available today. And even if your own investment horizon isn’t 10 years, I still think accredited investors should have a portion of their portfolio in private startups. After all, what better asset to pass down to the next generation than a basket of early investments?

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