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You don't need to be an expert - or a trader - to see that publicly traded companies are being pummeled right now.
That's one reason right now could be a better time than ever to consider adding private equity to your portfolio of assets.
While private companies aren't completely immune to the impacts of the virus, many of them are built to survive a crisis.
All startups share a certain set of qualities that make them better equipped to weather this storm than many publicly traded goliaths. During uncertain times, a tiny business just starting out has an upper hand because it's better prepared for loss and hardship than the bigger, more established companies. And it also doesn't have a lot on the line (yet) to lose.
So if you've been thinking about getting into startups for a while and didn't know how or when to get in, this could be the perfect chance to set yourself up for a lifetime of wealth.
Let me show you how this works...
COVID-19's Damage So Far
It's only been a few months since coronavirus first spread outside the limits of Wuhan, China. But the economic impacts of the virus have already been felt by billions of people around the world.
Some of the biggest companies out there - like Apple Inc. (NASDAQ: AAPL), Microsoft Corp. (NASDAQ: MSFT), and General Electric Co. (NYSE: GE) - are bracing themselves for the fallout of halted manufacturing, damaged supply chains, and closed storefronts.
Consumers aren't just staying home, either - they're also tightening their purse strings. The Dow is dropping on a near-daily basis; some folks near retirement are watching in horror as their 401(k)s lose value. In other words, buying the new iPhone isn't exactly at the top of people's minds.
I won't sugarcoat things here. Many of these big companies will miss their earnings this quarter. Most will see their share price plummet. It could take months or even years for them to recover.
These same factors can and do affect many startups' bottom lines - especially those that rely on overseas manufacturers. But when it comes to surviving recessions, there are big advantages to being tiny.
Small and Mighty
When a gigantic company's manufacturers in China shut down, that's a big problem.
Take Nike Inc. (NYSE: NKE), for example. It produces somewhere near a billion pairs of shoes each year - accounting for nearly 60% of its annual revenue. If its main manufacturing plants shut down for three months... it's going to have trouble finding another that can support that same output.
Compare that to Allbirds, the startup shoe company that makes stylish, sustainable sneakers from merino wool. Allbirds sells a million pairs of shoes a year, give or take. It's a lot easier to find a factory that can produce a million units than it is to find one to produce a billion.
What this really boils down to is agility. Most startups have pretty small needs in comparison to their publicly traded counterparts - which means they're able to move quickly in times of crisis.
This applies to overhead costs, as well. Nike employs more than 75,000 people; Allbirds has less than 200 on its payroll. When a crisis like COVID-19 forces people to work from home, having a small, nimble staff is a huge relief.
New Types of Commerce Can Withstand Pressure
The vast majority of today's startups fall into at least one of these three categories: B2B (business to business - think enterprise software solutions); D2C (direct to consumer - like Allbirds, HelloFresh SE (OTCMKTS: HLFFF), Rothy's, Bombas, Grove, and more); and software (everything from Airbnb to Slack Technologies Inc. (NYSE: WORK) and beyond).
That means well over 90% of their sales come from the Internet. They don't rely on people showing up to shop at brick-and-mortar locations. Not only does this mean that they have a better shot of maintaining sales during a mass quarantine, but it also reduces overhead costs substantially. And that means they can last longer with the cash they already have on hand.
So many startups already work remotely these days that I imagine a large number of them have been virtually unaffected by this crisis - at least in terms of business. Some companies are even seeing their sales grow right now. Software, meal delivery services, fitness apps, and more are getting a boost as consumers hunker down at home.
Titans Are Born in Times of Strife
It's a bit of a cliché, but it's true: Hard times make us tougher. And an economic crisis like the one we face now will certainly reveal which companies have what it takes to get through.
Think back to the Great Recession of 2008 and 2009. American households lost roughly $19 trillion of net worth in late 2008. The unemployment rate skyrocketed; the real estate market collapsed; and many, many people lost their homes and livelihoods.
Companies of all sizes suffered, too. Businesses shut down every single day. It was truly a dark time, felt not just by Americans, but by people and institutions around the world.
It was also incredibly fertile ground for innovation, disruption, and new hope.
Against all odds, visionaries from all walks of life managed to build businesses that grew into today's biggest companies. Uber Technologies Inc. (NYSE: UBER) and Airbnb, for example, were both founded in 2008.
Github, Cloudera Inc. (NYSE: CLDR), Square Inc. (NYSE: SQ), Slack, Dropbox Inc. (NASDAQ: DBX), Glassdoor... these are all companies that took their first steps during the Great Recession. They were able to do so because angel investors like you and I stepped in with an infusion of capital when they needed it most.
Every single one of those startups ended up with valuations well over $1 billion. Some remain in the tens of billions, even today. Needless to say, they all produced life-changing returns for their earliest investors, as well.
Incredible startup stories like these are exactly why I believe that this is the perfect time to get started as an angel investor. I will still say that doing your due diligence is more important than ever in times like these - but a startup that has what it takes to persevere through a global crisis might just have what it takes to join the "unicorn club," too.
The key is having the right tools to know which deals are worth considering. Personally, I rely on the 1,000x Formula to separate the wheat from the chaff. It's an incredibly simple yet highly refined algorithm built upon my three core angel investing philosophies. It takes just a few minutes to use... and so far, it's never let me down. Every single startup featured on the Angels & Entrepreneurs Network passed the Formula with flying colors. Just click here for more on that.
My advice? Be careful, stay safe, protect yourself... but don't let your life and investment opportunities come to a screeching halt. You might miss out on something amazing.
And in the meantime, be sure to join us in the Dealroom for this latest opportunity…
You see, a world-renowned surgeon has spent years developing a new medical device that could revolutionize one of the most common, but painful, surgeries in America today. He calls this device “the future of medicine,” and I certainly agree.
So today, the Angels research team is bringing the founder to you to share all the details about his startup. Join our Dealroom meeting now to learn about this groundbreaking invention. Click here to get the full story…
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