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Making Profits in Peoria

Making Profits in Peoria
June 07
13:40 2017

(Crowdability) – Have you ever heard the expression, “Will it play in Peoria?”

It’s a figure of speech that dates back to the vaudeville era.

Today, in the business world, if a new product idea “plays in Peoria,” that means it will appeal to the average American consumer.

As it turns out, Peoria is a small town in Illinois. It’s not a place where you’d expect to find celebrities, millionaires, or groundbreaking technology companies.

But if you want to make big returns in early-stage investing, Peoria might be just the place to look.

The Key to Profits in the Private Markets

When most folks start investing in early-stage companies, they’re seduced by the “homeruns.”

They see Facebook buying WhatsApp for $23 billion…

Or Walmart acquiring Jet.com for $3 billion…

And that’s all they can think about.

But billion-dollar deals like WhatsApp and Jet are outliers. They’re very unusual.

Most start-ups that get acquired get purchased for millions of dollars, not billions of dollars.

And as it turns out, understanding this fact is the little-known secret to making big returns.

Your Target: 1,000% Returns

For any start-up deal you invest in, your target return should be 10x, or 1,000%.

The reason is simple: if you can make 10x on your “winners,” your overall start-up portfolio will be extremely successful — even when you take your “losers” into account.

You see, according to multiple studies, the average acquisition value for most successful technology start-ups isn’t billions of dollars…

It’s $30 million to $50 million.

So to increase your chances of earning 10x returns, you should invest in start-ups that are currently valued at $3 million to $5 million!

Bargain Investments

Once you understand this key fact, you’ll understand why we like to “bargain hunt”…

In other words, we look for start-up deals that are valued in the $3 million to $5 million range.

Unfortunately, in places like Silicon Valley or New York where a lot of investors are chasing after deals, start-up valuations get pushed higher.

But as it turns out, there are plenty of bargains outside of New York and Silicon Valley.

In fact, PitchBook, the division of Morningstar that focuses on private equity, recently published a study that highlights some of these geographical areas…

And not only can you find bargain investments there, but you can find big returns there, too.

To show you what I mean, check out this chart. It’s a list of cities ranked by the highest returns on invested capital — or, as PitchBook calls it, “Multiples on Invested Capital” (MOIC).

MOIC_Chart

As you can see, some unexpected places outrank many of the more traditional tech hubs….

For example, cities like Washington D.C., Chicago and the Raleigh/Durham area.

Which explains why some of the most successful venture capitalists — those who’ve traditionally focused their investing on New York and Silicon Valley — are starting to look to these cities for new opportunities.

For example, Fred Wilson of Union Square Ventures (one of the best performing venture funds of the past 15 years) recently wrote that these untraditional cities present “a huge opportunity for VCs who are willing to get on planes or cars and get to these places.”

Invest From Your Living Room

Lucky for you, you don’t need a plane or a car to get access to these deals.

Thanks to equity crowdfunding, you can find and invest in these deals from your computer —you never even need to leave your home or office.

In fact, Crowdability makes it super easy for you to find deals in specific geographic regions:

If you visit our Deals Page, you’ll see a number of filters on the left-hand side.

When you click on the “Location” filter, you’ll see that you can quickly narrow down start-up deals based on their location.

http://www.crowdability.com/article/making-profits-in-peoria#.WTg6Gca1vIV

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