Dear Startup Investor,
Filling up our startup portfolio with 20 exceptional investment opportunities last year was a blast, but I believe this year will be even better.
I’ll tell you why in a moment. Right now I want to give our new members a heads-up…
We usually talk about our holdings in these communiqués. But today, we’re doing something a little different. We’re reviewing the portfolio at the one-year mark to see what patterns have emerged.
In the next communiqué we’ll get back to giving you the latest news on our individual startups. And no, it’s not all blue skies. I hope you know that by now. If you’re allergic to hearing about setbacks and other bad news, then you’re probably hanging with the wrong investment crowd.
Even the venture capitalist investors with the very best records see startups in their portfolio fail. Other startups fall down, pick themselves back up and pivot only to fail and pivot several more times before finding success (a few of them, a huge success).
That’s the bumpy ride behind angel investing you need to get used to.
It’s pretty much like watching your kids and grandkids take their tumbles and get up again, wincing but the wiser for their missteps.
It’s a big part of what makes investing in startups so interesting.
Around the Corner: Higher Valuations
The bigger part? Tracking our gains, of course.
This is where it gets really exciting. Because as the second year of the Startup Investor gets underway, we should see several of our startup holdings get higher valuations.
I expect several will get bumped up at valuations of two to three times what members paid for their shares. That’s what I love about this corner of the investment world…
Bond investors seeking 2% to 5% inflation-adjusted growth would be aiming high. Small cap investors would be very happy with profits of 20% to 30%.
But in the startup world, gains of two to three times is no big deal!
Why are such jumps even possible? Because at the seed stage you’re buying cheap.
How cheap? Pennies on the dollar cheap. In the span of one to two rounds, those pennies transition into nickels.
And, down the road, into dimes and, for some, dollars.
That’s the math behind angel investing you need to get used to.
A Promise Fulfilled
In 2014, we recommended 20 startups.
They’re listed in the portfolio on the website in chronological order starting with the most recent ones.
We averaged a little more than 1 1/2 recommendations a month.
That’s about what we expected. Our promise was to give Startup Investor members 15 to 20 exceptional startup investment opportunities a year.
Now, let me be clear here. Hitting the top end of our targeted range wasn’t our priority. The most important thing is to give you outstanding startups to invest in. Quality always trumps quantity. If by year’s end the number is closer to 15 than 20, so be it.
Another Promise
We also promised to recommend four startup funds a year, one each quarter, following the close of our first fund.
We did a pre-IPO fund last September with our partner MicroVentures. We’re now in the final stages of accepting investments. The fund should close its doors by the end of January.
So, if you haven’t invested yet, I wouldn’t put it off any longer. By the way, this is my very last reminder to you on this front.
As my Co-Founder Adam Sharp told you right before the Christmas holiday, MicroVentures (with a guiding hand from Adam and me) has already begun acquiring shares of several late-stage startups.
Unfortunately, it’s too soon to name names. If you took advantage of the opportunity, you should have already received an update from MicroVentures listing the specific companies.
But I can share some things with you…
These are companies that every venture capital firm wished it had in its portfolio. All are names I’ve followed and admired for quite a while. And I’m not the only one, because these are truly outstanding companies.
You might have heard of some, others perhaps not. But they’re all stars with proven brands and earmarked to IPO in the near future.
MicroVentures has already put shares of several companies into our pre-IPO funds. Once it has finished investing its remaining capital, it’ll send you an alert on the new acquisitions.
(We think about 10 companies will be needed to fill up the funds.)
After that, you’ll be getting updates from MicroVentures each quarter. Plus, if you ever want to look up your fund to see its current makeup and the latest reports, you’ll be given a password to access the part of the site reserved exclusively for you and your fellow Startup Investor fund investors.
Then, possibly as soon as six months down the road (although it could take longer), you’ll start getting notifications that one of your fund holdings has set a date for an IPO at a given IPO price.
This is when you need to start thinking about whether you want to sell or hold on to your shares. It’s up to you.
But we suggest holding on to your shares past the IPO launch date. You’d be giving your holdings a chance to generate even bigger profits. Uber-successful VC company Sequoia usually does this. It certainly worked out for its pre-IPO Google investment. By holding on to its shares, Sequoia increased its gains by 10 times over what it would have made if it had sold on IPO day.
But if you choose to sell, there’s a mandatory six-month lock-up period before you can actually cash out. If you choose to hold on to your shares, the same six-month lock-up period applies, at which point shares will be sent to the broker of your choice per your instructions.
Your pre-IPO fund will remain open until all the companies have either IPO’d or have been bought out. That should be no more than one or two years (but market conditions can extend that period).
Remember, you cannot reinvest your winnings back into the fund. And any post-IPO shares you hang on to are your responsibility, not MicroVentures’.
Meanwhile, Back at the Ranch…
Here at the Startup Investor, we’ll also be giving you updates, filling you in on major developments as they happen, so you don’t have to wait until the end of the quarter to get the news from MicroVentures.
And, don’t worry, as time passes we’ll keep reminding you of what to expect from the fund. And, whenever there’s a “call to action” from MicroVentures – in all likelihood related to an impending IPO or takeover – we will be adding our own alerts to make sure ALL OF YOU are reached in a timely manner.
I’ve spent a great deal of this communiqué explaining the process as we move forward with our funds. So one last note: Expect the next fund recommendation to come to you in the spring of this year.
As we move closer to that date, we’ll have more details on the fund offer itself.
By the Numbers
Okay, time to break down the portfolio by sector, portal and fundraising round. First up is the rounds we invested in…
Not surprisingly, most of our startups came to us via the seed round. Why’s that? As these young companies move up and into the later rounds, the money they raise becomes bigger and too large for portals to handle. At which point, they become the objects of desire for the VC folks.
Let’s next look at how our recommendations break down according to portal…
The portal that has given us the most startups is AngelList. We’ve talked a great deal about AngelList on our Early Investing site, including a couple of articles my Co-Founder, Adam Sharp, has penned on how to invest in the dozens of syndicates AngelList offers. (Click here and here for more details.)
Besides AngelList, we also like the other portals listed in the above chart. We’ll continue to make use of these sites to explore the best startup opportunities for this coming year.
In our last chart below, we break down our investments according to sectors…
We’ve recommended four startups in the social media space. The sector remains incredibly dynamic both domestically and globally. On its heels are consumer, analytics and advertising, and enterprise startups. We have three holdings in each of these sectors.
Bonus Section: My Favorite Catch Phrase of 2014
Silicon Valley not only has its own dress code, it has its own quirky way of communicating. One of my favorite SV sayings is, “we eat our own dog food.”
I have no idea why this odd conglomeration of words took hold. It sounds like you’re being forced to eat or do something below your calling as a card-carrying member of the homo sapien race. So, let me put it into context in the following (and very true) sentence about our portfolio…
“We also eat our own dog food by recommending two of our favorite startup portals: Wefunder and SeedInvest.”
You see what I did? I made comparing Wefunder and SeedInvest to dog food a compliment!
That’s some of the odd jargon behind angel investing you need to get used to.
In the next communiqué we’ll revert back to talking about our individual startup holdings. Appropriately, as the Oscar season gears up, one of the companies we’ll be highlighting, Social Rewards, is reinventing loyalty programs for moviegoers. It’s doing some very impressive things.
So to all of you from Adam and me, a very happy and prosperous new year.
Invest early and well,
AMG
Startup Investor Portfolio
