NBT Week - The Magic Strategy of Public Venture Capital Investing
Toby's Take -The Magic Strategy of Public Venture Capital Investing
For years I have labeled investing in publicly traded growth stage micro-cap companies as “public venture and/or private capital investing.” More recently I’ve begun to call this asset class “DIY Adventure Capital” to recognize that early stage investing can be both in public and private companies—the latter now recognized as “angel” investing.
But no matter WHAT you label early stage investing, there is ONE constant truth to success: you HAVE to spread your bets on at least 8-10 different plays that ALL have to potential to return 10-to1 or more returns.
Why? It’s the MATH, baby.
Well known venture capitalist, Fred Wilson, makes this point well on his blog avc.com. The short version? “Investing in startups is risky. If you make just one investment, you are likely going to lose everything. If you make two, you are still likely to lose money. If you make five, you might get all your money back across all five investments. If you make ten, you might start making money on the aggregate set of investments.
The math behind this is pretty simple. If you assume that the average startup has a 33% chance of making money for the investors, a 33% chance of returning capital, and a 33% chance of losing everything and that only 10% will make a big return (>10x), then you can model this out.
The point? ALL of the profit in that ten investment portfolio comes from the big winner. If you don't make that investment, you would have made nine investments for a total of $450,000 and you would have gotten back $450,000. You would have been better keeping the money in the bank.
This is why at NBT Equities Research we are looking for a portfolio of 12-14 leading emerging growth companies in 20%+ secular growth industries. We try to apply 30 years of stock picking and equities research to find the very best opportunities we can and pass on anything less.
But the MAGIC of a diversified portfolio of 8-10 emerging growth leaders in a DIY Adventure capital portfolio is that it takes just ONE 10x+ winner to make the thrills and chills of the chase worthwhile.
- Toby
And now for our top stories of the week…
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As LuxeYard keeps breaking records for new members, it is now pushing further in its expansion. Recently, LuxeYard has announced two new ventures, one in India, and the other with a new Business to Business website.
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After the passing of Chairman and CEO, John R. Signorello, the IceWEB team has been working hard to keep his legacy going. They have now helped secure that legacy by hiring 24 year technology veteran, Rob Howe as the new CEO of IceWEB. This is just in time as they are now pushing sales for the second half of 2012.
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Very recently, we caught up with the VERY busy CEO Bob Yates and Exec VP Paddy Shea of The Pulse Beverage Company to discuss the amazing national expansion success of Pulse’s Cabana 100% Natural Lemonades. In an extensive interview, we discuss various things going on for Pulse, from the basic market strategy to distribution growth. In fact, this interview is so extensive we had to break it up into three parts. Definitely a must read.
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This Week in the Cloud…
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Learn what Dell is doing for startups in the data storage space. The Dell Fluid Data Storage Fund expects to invest in five to ten early stage startups. Dell says, "Dell is fueling the next big thing in innovation."
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Investor Presentation Deck of the Week
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Plandaí Biotechnology, Inc. intends to transform the world of nutraceuticals by making available extracts from live plant material that deliver the highest levels of bioavailability currently in the market.
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Quick Survey of the Week
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Recent reports are claiming that the economy has slowed down in the 2nd quarter. Is it possible that we will be in a GDP recession by year end?
Click here to take survey
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LAST WEEK'S SURVEY RESULTS
With former Google executive, Marissa Mayer becomming the latest Yahoo! CEO (the fifth in five years). Do you think it is possible for her to save Yahoo!?
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About the Author
Founder and Editor-in-Chief NBTEquitiesResearch.com. Contributor and Anchor Fox News Channel and Fox Business Network. Chairman & CEO NBT Group,Inc., a boutique private capital investment bank and investor relations organization.
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