Entrepreneurs
VC Funds Expect To Lose On 90% Of Their Deals — And They’re Totally OK With It
The world of investing is complex and unique. What seems like a trend today might soon see its death tomorrow.
In stock market investing, an analyst who is able to predict market movements with a 70% accuracy is considered good. One with a hit rate of 80% and above will be a top candidate for investment banks.
However, in the start-up space, the success rate can be as low as 10%. Start-ups have a whole lot of challenges. They might fail as there is no market need for the product. Some start-ups might run out of cash while some might have an incompatible founding team.
So what is it that attracts investors to the highly volatile and unpredictable start-up industry? Why do they continue to pour in billions of dollars into companies that are most likely to fail?
What’s going to bring in the money?
Venture Capitalists (or VCs) look for three things in a company. The right idea at the right time with the right founding team. While VCs would love for the company to be successful, they are primarily in the business of raising capital.
VCs have a unique business model. They make money in three ways. The first is by charging an annual management fee to cover the cost of daily activities. This generally accounts for 2% of the fund size.
The profit accrued by the VC fund is divided by the Limited Partners and the VC firm typically in an 80:20 ratio. Finally, some VCs invest their own capital (in addition to that of partners) to have real skin in the game.
Most VCs have a hurdle rate, where they need to deliver at least 7% returns to partners. The average life of a VC fund is around 10 years. The management fee and other costs account for 20% of capital leaving 80% for investments.
The thumb rule in VC investing is that 33% of start-ups fail, 33% return capital invested and 33% are successful.
So if we look at a $100M fund size, it has $20M allocated for VC costs and $80M invested in companies. Taking a 33% success ratio suggests that $26.6M will turn into $293M over the next 10 years if we consider a 10x return.
This means a profit of $193M or an internal rate of- return amounting to 20% that will keep the partners very happy.
Early-stage investing is risky
According to this report published on LinkedIn, 45% of companies failed to return 100% of capital while 34% returned less than 50% of capital. The median loss rate was a whopping 39%.
How do VCs pick companies?
With some of the lowest success rates in the business, investing in early-stage start-ups continue to be challenging.
There has been no one way or rule to managing this uncertainty. VCs, like other investors, look to diversify risks by investing across industries and sectors. They are on the look-out for a start-up which will turn into a billion dollar unicorn.
In case the start-up manages to get acquired or become get publicly listed on an exchange, VCs can exit their investments and book mind-boggling profits. Sequoia Capital invested $60M in WhatsApp and the return was a massive $3B.Sinovation Ventures saw a 40x return on investments when Meitu filed for an IPO.
There are several other success stories in the VC world. Uber, WeWork, and Airbnb are now valued at billions of dollars based on venture investments. These do not have an exit strategy in place with Wall Street wary of over-valued IPO’s.
VC investments continue to rise
The investments in start-ups continue to experience an uptrend. According to CB Insights, VCs poured in $21.1B across 12,016 companies in Q1 2018. This was 39% higher than investments of $15.2B in Q1 2017.
Investors keep pumping in capital with the hope of multi-fold returns. The VC space is not for the faint-hearted. It is, however, exhilarating.
Yes, you read that right.
If there’s anything the pandemic taught us, it’s that the paradigm of “office” and “workspace” has been shaken to its CORE.
Universities are teaching via Zoom, court dates are done virtually, FULLY REMOTE businesses are valued at $1B+, and legitimate Inc. 5000 startups are run from…wherever. 📲
This is my office for the day…
I am actually running our business from the beach, typing this from here.
It’s 4:28 pm CET, which means it’s 10:28 am EST and I am CRUSHING my to-do list.
(And the team will continue to crush it while I’m asleep. That’s the 🗝)
So how did we get here?
We launched NYCE and our mission to create 100,000 millionaires in March, 2020…just as the global COVID-19 lockdown happened. 😳
As a result, we shut down our main office and set EVERYTHING up to run remotely…
SMOOTHLY! And a system that allows us to outperform competition by 200%. (You can build this system, too. More on this in a second.)
Here’s what we were able to do since then:
- Gained 6M+ followers across all platforms 📈
- Add 1500+ new apartments to the portfolio 🤑
- Grow to $300M in real estate 🚀
- 105% investor returns 🎉
- 700K+ community members 🤝
And here’s the best part…
Having team members in all the main time zones gives us a 24-hour work cycle vs. 9-5/eight-hour on-the-clock performance.
This means we get 3x the productivity of a similar company. 🔥
Let me repeat that…3x PRODUCTIVITY vs. our competitors.
Meanwhile our project management software grants us 24-hour TEAM-WIDE connectivity that tracks all tasks and lets us know if productivity dips even a little bit.
There is ALWAYS someone senior awake. It could be Martin in Barcelona…Nat in New York…Vineet & Arif in New Delhi.
All the while giving YOU GUYS wealth hacks and daily content. 🔥
OK, so how can you do it?!
Well, the first step is to have an actual side hustle you’re launching. Not just an idea, a validated business.
MAJOR KEY: Do NOT spend money until you’ve made your FIRST DOLLAR! 🗝🗝🗝🗝
(You can catch a replay Business Launch masterclass here and see TRIBE member Nessa launched her business on the spot and got her first $45K client shortly after.)
One of the easiest ways to start is with Airbnb—you can start that in 10 minutes. Literally. (Here’s a guide if you need it.)
Once you have your business, you build a virtual infrastructure (you really just need two softwares, which are FREE), manage the team accordingly and run the business from there.
I’m gonna put together a step-by-step video breakdown this weekend inside the new TRIBE U on the FIVE key things you need to do this for YOURSELF. 💵 💎
From what software to use, how to build a team, how to keep.
In the meantime, drop a comment if you’re ready to build some wealth and any questions if you want more…
Let’s get to work. 🙌
PS: If you can’t be bothered with video and just wanna get to work, we’re hosting a TRIBE U workshop that will help you get this process started on the spot. It’s $479 $49. 🔥
Entrepreneurs
EXCLUSIVE Q&A: This 26-Year Old Made $100K From Her IG In 90 Days. Here’s How She Did It 👀
Yes, it’s a pandemic. Yes, the economy is down. Yet, some entrepreneurs have found opportunity in the “new normal” (whatever that means).
In the public markets, FAANGs are booming: Amazon and Netflix are up dramatically, fueled by the need for home entertainment…and shopping.
One of them is Ariel Adams, a 26-year-old South Virginia-based realtor. In April, at the height of the lockdown, she had exactly 1000 followers on Instagram.
Fast forward to today, she’s attracted over 100K followers, has made $100K in online sales (again, during the pandemic), and is now showing others how to do the same.
We sat down with Ariel to discuss how she made $100K in 90 days, what she sold, how she got her first customer, and how you can, too.
Let’s get right to it. You work in real estate but were able to make $100,000 from your IG in three months. Let’s start with the product. What did you sell?
Yes, that’s correct. I was shocked myself! My sales came from my digital products, mainly my e-book From Instagram to Instant Money. My e-book dives into how you can optimize your Instagram profile to grow a following and sell your own product. I talk to the Instagram algorithm and how to beat it to ultimately monetize the platform. My other digital product is my course How to $ave Like the Wealthy. As a realtor, I would receive a lot of questions in regards to saving up for a down payment on a home. I decided to create a video outlining the best way to save money and accumulate wealth. Both of those products got me to six figures!
How did you secure your first orders? Who were your buyers?
My sales came from my following. I would collaborate with other brands with significant followings and post my product on their page. This drew in a lot of traffic to my products and also pushed me to 100k followers on Instagram. My buyers were typically people looking to earn passive income by selling a product or service through Instagram.
Was the objective of your advertising to gain followers and sell later? Or did that just happen as a byproduct of people buying your courses?
I never was trying to gain followers, I was always trying to sell. I think people would see my ad, go to my page, and then turn into a follower because I always provide valuable content on my page. My Instagram consists of personal finance infographics, real estate tips, and inspirational quotes. I think people naturally gravitated toward that and I was able to retain and gain followers.
How do you consistently market it? Is this a model anyone can use?
I try to set up placements on these bigger Instagram pages 2-3 times a week. I aim for business pages, women-owned business pages, and black business pages. My product resonates well with entrepreneurs looking to scale their business through IG. It is absolutely a model anyone can use. I recommend following the other steps I speak to in my e-book. This will ensure the most success.
Most aren’t aware that partnerships can literally boost your business. How did you come up with the idea of collaboration and what made you target those pages exactly?
Being savvy to Instagram, I was always aware of Influencer Marketing. A lot of people think that’s just girls posting brands to their million or so followers, but it includes placements with ANY brand that has a substantial following. I knew this was a key to success. Collaboration on bigger platforms would be the most helpful for my brand. I targeted people I thought would be interested in my product; women CEOs, entrepreneurs, e-commerce enthusiasts, etc. I made sure to stay within that niche.
How did you come up with this idea?
I was inspired by other online entrepreneurs. I saw them making thousands online and I thought to myself, “Hey, I can do that.” So I decided to do it. I asked myself, “What am I skilled in? What can I teach people?” From my previous life managing artists in the music industry, I became an expert in Instagram. Combining what I studied at the University of Miami (Business) and my knowledge of Instagram, that’s what sparked my e-book on the subject.
What’s the number one advice you’d give someone who’s looking to make money for themselves but isn’t sure where to start?
My advice would be to write down what it is you’re good at. Brainstorm what skills you have. Maybe you have a passion for food? Good, create and sell a cookbook. Maybe you’re good at writing? You can become a freelance resume writer. We all have skills we can capitalize on. And if you need to learn how to market yourself, then Google is your best friend. Read, read, read. Self-educate and you will be on your way, and of course download my e-book to learn how to sell through Instagram!
How to Invest In Real Estate Through Your IRA
How Big Real Estate Moguls Avoid Taxes (And How You Can, Too) 👀
How I run a $300M+ business from the beach…(and how you can TOO!)
Warning: count(): Parameter must be an array or an object that implements Countable in /homepages/28/d742565295/htdocs/clickandbuilds/WealthLab/wp-content/themes/zox-news-child/single.php on line 683
You’ve reached your free article limit.
Continue reading by subscribing.
Already a subsciber? Login >
Go back to Homepage >
You must be logged in to post a comment Login