There’s a reason that Shark Tank & Dragon’s Den are some of the most popular reality shows on television. People love the idea of supporting new businesses and investing in ideas (plus, the idea that you could get rich is extremely enticing!). Yet most people can’t actually invest in the deals that they see, regardless of how much they would like to.
The world of Venture Capital is typically reserved for large institutions and high net worth individuals. We constantly hear stories of celebrities such as Ashton Kutcher making 10x their money by investing in brilliant start-ups but don’t have access to these opportunities.
After all, Venture Capital is not something that you can just “get into”…
While inaccessibility to opportunities is frustrating enough on its own, this situation is particularly unfortunate because investing in speculative start-up companies has the opportunity to be incredibly profitable! Imagine buying shares in Uber, Amazon, or Beyond Meat while they were still tiny companies and growing your investment by 1000+%.
As it turns out, there actually is a way that ANYONE can become a Venture Capitalist. All you need is a bank account, tolerance for risk, and a few hundred dollars.
Let us introduce you to a world that took over 10 years in finance to discover:
What is Venture Capital?
Due to its popularity, let’s continue using Shark Tank as an example. Kevin O’Leary (aka Mr. Wonderful) is a venture capitalist. He utilizes his existing wealth to invest in high-growth start-ups that show a lot of potential; however, he also accepts a lot of risk with these investments. The chances of these businesses becoming the next Tesla or Uber are extremely slim – the odds of them failing as a business are much higher.
Venture capital is the world of high risk, high reward investments, and to some, is considered the Wild West of finance. While we typically hear about this world in relation to high net-worth individuals and financial institutions, it’s possible for any investor to get into it (through the right channels).
This being said, it is certainly not the right investing strategy for everyone. Some investors would prefer safe, consistent gains with stable investments – they may have comparatively smaller gains but they also have comparatively smaller losses. For ease of consideration, think about it this way: are you a ferris wheel or rollercoaster type of individual? Do you have the stomach for risk and want to stay on the edge of your seat the whole time, or would you rather sit back with a tea and enjoy the view?
The Rollercoaster of Venture Capital
Just as a rollercoaster has extreme ups and downs, the world of venture capital has myriad stories of the biggest winners and losers from investments. Let’s look at an example of each:
Winner – Lightspeed Venture Partners x Snapchat
In the tech world, there is one word more highly coveted than any car, mansion, or award. That word? Unicorn: a title given to businesses that achieve valuations of over $1B. One of those unicorns from the past decade is the social media platform, Snapchat.
Lightspeed Venture Partners is an American venture capital firm focusing on the software and consumer goods space. In 2012, Lightspeed invested $485,000 in Snapchat and eventually, increased this amount to $8.1M over successive investment rounds (growing to own around 8% of Snapchat). When SNAP went public, this investment was worth just shy of $2B and Lightspeed cashed out on $79M of this, making over 250% on their initial investment through that sale alone.
Loser – SoftBank x WeWork
WeWork is a name that few in finance haven’t heard within the past year. The commercial real estate company offers flexible shared workstations for professionals and, at a time, had a private valuation of around $50B. After a massively underwhelming IPO, the company crashed down to a valuation of around $2.9B and, while this is no valuation to turn your nose up at, it means that early investors lost an aggressive amount of their investment.
Japanese holdings company SoftBank is the owner and operator of Vision Fund, the world’s largest tech-focused venture capital fund. SoftBank invested $2B into WeWork in its early days, when WeWork touted a $47B valuation. After WeWork’s fall from grace, this investment was worth a mere 5% of its initial value. As the story goes: the bigger they are, the harder they fall.