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If you want to pull down maximum tech-sector profits, nothing – and I mean, nothing – beats the windfall gains you'll get investing in a Silicon Valley startup.
And that's probably why those investments are reserved for the "investment elite" – the so-called "accredited investors" who already have hundreds of thousands of dollars in liquid net worth, and the connections that helped them build it.
It's another case of the Wall Street "old-boys network" wanting to reserve its best profit opportunities for its biggest clients – most of whom are already wealthy. And even if you had the money, without the "connections" you'd never get within 100 miles of Wall Street's best VC funds.
Fortunately, we don't work for Wall Street …
We work for you.
And we've uncovered a way to get around this restrictive and exclusionary rule. We've found a way for you to invest in late-state startups for as little as $2,500 – or roughly what you have to pony up to invest in some of the more-popular mutual funds.
Best of all: This is a brand-new type of investment, run by a legendary VC player. And because it's just been launched, we're giving you access to a true "ground-floor" profit play.
"As a 30-year veteran of Silicon Valley – including time as a senior advisor to a high-tech venture capital (VC) firm – I've had a lot of experience with startup companies and the financing that accompanies it," said Radical Technology Profits Editor Michael Robinson. "I know – just as you said, Bill – that even with the higher associated risks, the payoff can be gargantuan … many, many times what you could ever hope for from even the best publicly traded tech stocks. And I know that when you invest in startups via the specialized funds that VCs run for just this purpose, you have the best possible chance of grabbing the biggest winners – thanks to the expert insights that the well-connected folks who run these funds obviously have."
Today we're putting that expertise at your disposal.
But before we can tell you about the profit play – so you can really understand why this is such a great profit opportunity – we need to give you a quick tutorial on VC investing.
Ringing the Register
We are right now witnessing the best market for initial public offerings (IPOs) in nearly 15 years. In the first three months of this year, noted IPO researcher Renaissance Capital said that 64 IPO deals had debuted in the U.S. market. That's more than double the number of deals we saw in the first quarter of 2013.
And it's not just the number of deals that's stunning: It's also the amount of money those deals are raising – and the cash that they're putting in investors' pockets.
"Through the end of the first quarter, IPO deals raised a total of $10.6 billion, an increase of nearly 40% from the same three months last year," Michael said. "Here's the kicker: The average IPO is up 24.6% from its offering price – more than 10 times the average gain of a Standard & Poor's 500 stock during the same period. Unfortunately, IPO deals are a lot like VC deals: If you're not a big-deal Wall Street client, you're not likely to get a piece of the action."
Michael's right: Once again, if you're not an "accredited investor," you have to buy IPOs afterthe stocks start trading – meaning you're getting in long after the big money's already been made.
And as lucrative as IPO deals can be, the returns from VC investments can be far greater.
The Real (Big Profit) Deal
Venture capitalists invest in companies when they are private – and often hold on for several years as the business ramps up and the company gets more valuable. But the VCs still need an "escape hatch" – a way to "cash out" and reap a payoff, or profit for the time and effort they've put into the company.
And the VCs do this by "taking a company public" – via an IPO.
IPOs, you see, are kind of the "third act" of a three-act investing play.
And before that "final act" VC investments actually come in several flavors.
There are "early-stage" investments, when you're putting money into a brand-new, or fairly new, startup company.
Because you're early, the returns can be substantial. But early-stage investors demand gains of that magnitude, because the risks can be high, too. An early-stage startup has a higher risk of failure. And startups are hungry – they typically demand several "rounds" of financing, which can "dilute" early-stage investors. There's also a time issue: From launch to IPO, you can be looking at a holding period of as long as five to 10 years.
"Late-stage" investors are usually the last folks to invest in the company before it goes public. Because the risks and time-to-market (and time-to-profit) are lower, the returns are lower, too.
But those gains are still much greater than you'll find almost anywhere else.
So if you're going to be a VC investor, you need to find the right folks to invest with.
And we have.
In fact, the VC who will be our "guide" on this journey is a true star in the venture-capital realm.
A True "Player"
"Bill, Sven Weber may not be the most famous venture capitalist in Silicon Valley, but I'm here to tell your readers that he's absolutely one of the sharpest around," Michael said. "And Weber has come up with a novel way for Main Street investors to put their money into lucrative pre- IPO startups. He's created an exciting new fund that truly defines 'ground-floor' profit opportunity. In short, this is a guy we want to invest with."
Weber formerly served as president of SVB Capital. That's the venture capital arm of the highly regarded Silicon Valley Bank, which has done business with some of the nation's top emerging technology firms for more than 30 years. At SVB, Weber ran a $1.5 billion venture fund in the epicenter of the global technology industry.
Prior to SVB Capital, Weber was in charge of secondary investments for the private-equity (PE) firm Cipio Partners. Weber also managed early-stage investments in wireless technology for electronics conglomerate Siemens AG (NYSE AG: SI).
On a recent Saturday, Michael sat down for breakfast with Weber in downtown Palo Alto.
"I have to tell you, Bill: As Weber and I ate and talked, it quickly became clear that we shared several passions," Michael recounted. "We both get really turned on by uncovering 'diamond-in-the-rough' investment plays – the essence of VC investing. And we both are extremely interested in leveling the playing field – and bringing the best profit plays to Main Street investors."
And this is just where a guy like Weber comes in. He serves as president of the recently launched SharesPost 100 Fund (PRIVX). It's an investment pool focused on 100 of the very best late-stage startups – companies capitalizing on such powerful tech trends as wearable technology, the mobile wave, social networking, cybersecurity and e-commerce.
"These are companies that have already developed a strong brand, have received extensive venture funding, and are on a clear path to an IPO," Michael said. "Weber told me the fund is focused on companies that comprise the SharesPost 100. This is a proprietary list of the Top 100 venture-backed private firms, with the rankings based on such attributes as quality of management, sales growth, product development, liquidity in private markets and track record for existing investors."
As Weber explained it, his SharesPost 100 Fund will operate as a "hybrid" investment vehicle. Technically, it's a closed-end fund – once he sells 25 million shares and raises $500 million, it's closed to new investors.
However, unlike most closed-end funds, this one doesn't trade in public markets. Instead, the fund provides investor liquidity by offering to buy back 5% of the shares once a quarter.
Weber says he thinks it will take at least three months for him to close the fund. In the interim, he's moving ahead by investing in target companies. At the time of our recent discussion – he had just finalized the fund's first acquisition by taking a stake in Jumio.com.
The First – With More to Come
Founded in 2010, Jumio offers advanced online and mobile-credit-card payments validation. Based on a proprietary computer optical technology, Jumio products can scan IDs issued by more than 100 nations. Another version scans credit cards using a customers' own smartphone.
Of course, there are plenty more exciting startups for Weber to choose from, including:
- Adaptive Planning: Founded in 2003, the firm provides cloud-based business analytics solutions for companies and nonprofits. Adaptive's software as a service (SaaS) platform enables budgeting, forecasting, and reporting as well as business intelligence.
- Cloudera: Launched in 2008, this is a Big Data play built on the Apache Hadoop open-source software package. Hadoop is a management platform that can consolidate data in a single repository for comprehensive and high-speed analysis.
- Spotify: Created in 2006, the company provides an online music service offering users the ability to stream more than 20 million tracks on demand. Spotify offers a premium monthly subscription service and a free version supported by advertising. It competes directly with Pandora Media Inc. (NYSE: P).
Anatomy of a Profit Play
Over his breakfast with Michael, Weber revealed that he has several offers pending at late-stage startups. But he can't reveal their names until after the deals close. He acknowledged there's no guarantee he'll be able to invest in any specific company on the SharesPost 100 list. These firms are not obligated to accept money from Weber's fund.
On the other hand, he is well known in the technology industry and has solid contacts. And he's highly motivated to succeed: Under the fund's charter, Weber must invest 80% of the money he raises in those target companies.
The remaining 20% gives him the flexibility to remain in startups that might drop off the list or to acquire up-and-comers before they meet revenue requirements or other criteria that would qualify them for the SharesPost 100 list.
"I have to say, Bill, that I enjoyed getting to know Weber," Michael said. "He has a Master's in physics from the University of Heidelberg, where he specialized in information technology and environmental physics. And he's an incredibly sharp guy – someone who inspires confidence."
To participate in Weber's fund, most investors might find it easier to buy directly from SharesPost. But Weber did say he is talking with several major brokerage houses about carrying the SharesPost 100 Fund – so that you can use your existing investment account to get involved.
"As you might imagine, a fund of this nature can be a bit complex," Michael explained. "So, let me simplify. Here's how investors will make money – through increases in the fund's net asset value (NAV). As Weber explained, he has an independent adviser and consults with the fund's trustees to determine when the NAV should be increased. He takes into account such factors as a new round of funding for individual companies or news that may raise their valuations."
A rising NAV is also how investors profit when a company goes public.
Here's an example.
Let's say XYZ Software was valued at $1 billion when it launched its IPO. And let's assume the stock rose 50% from the offering price, giving it a market cap of $1.5 billion.
Here's how Weber walked Michael through the math. If XYZ Software comprised 10% of the fund, it would now have a 15% value, and that would raise the fund's overall NAV by the same 5%.
"This is the kind of investment that should only be tackled by folks who are willing to take the long view," Michael said. "For instance, shares can only be redeemed once per quarter, and redemptions are limited to 5% of the NAV. Though it's unlikely, some investors could get locked in for several quarters in the case of a long-term correction. But as I see it, you really can't function as a de facto venture capitalist unless you're committed for several years. And having knocked around Silicon Valley for more than three decades myself, I know from experience that it can often take much longer than the VCs originally thought for a company to go public."
Let's be clear here: This is definitely a high-risk investment. And that means you'll want to do your own due diligence. We highly recommend that you go to the fund's Website, where you will find background information, a fact sheet and a prospectus. You also can phone the fund at 1.800.834.8707.
And you should also take into account PRIVX's sales fees. They are:
- 0% for investments of $1 million and above.
- 2.5% for investments of $250,000 to $500,000.
- And 5.75% for purchases under $50,000.
There's also an annual management fee of 1.9%, a figure that's actually on the low end of what many mutual funds charge.
And remember, this is truly a unique ground-floor opportunity. For anyone who wants to profit from some of the most exciting late-stage startups in the U.S. beforethey go public, the SharesPost 100 offers a rare – and interesting – way to do so.
[Editor's Note: Buy the SharesPost 100 Fund (PRIVX) at market with no stop loss. Plan on holding your stake for at least two years.]