Did you know there are value segments in venture capital? The same public stock market principles of buying low and selling high can certainly apply here too. The Boomerang Ventures fund managers are experienced entrepreneurs who can spot great value and opportunities. This week’s article points to the Midwest as a great place to do just that.
Tom Kilcoyne, General Partner
Source: Financial Poise | Re-Post Boomerang Blog Team 8/14/19
Midwest Is Best When It Comes to Venture Capital Value
Readers of my earlier Financial Poise articles may remember this: I am a rare breed, a value investor who also loves to talk venture capital value. Seems strange? I’ll explain.
Consider these venture capital stats: Only about 20% of venture capital deals make money. The other 80% lose usually their entire investments.
On average, though, venture capital returns beat traditional stocks and bonds by a lot. That is because some deals generate huge returns. If you diversify your venture capital investment dollars sufficiently, you have a reasonable chance at enjoying rich returns.
Focus on Venture Capital Value Segments
Let’s go a step further. Your odds should be even better if you focus on the value segment of the venture capital market. There is a value segment in venture capital like in the public stock market. The same value principle — buy low, then sell high — works in venture capital value too.
Of course, you’ll miss out on today’s hot unicorns (ventures valued at $1 billion or more) that convey the greatest bragging rights. Yes, it is fun to tell friends that you’re invested in ventures like Uber, Airbnb, SpaceX, WeWork, and Credit Karma. But, do they have much opportunity for share price growth beyond where they are today?
Avoid Over-Valued Unicorns
Take Uber as an example. According to CBInsights, Uber’s valuation is $68 billion. Yet, most of Softbank’s publicized recent investment in Uber consisted of purchasing shares from existing shareholders at a discounted valuation of $48 billion. I suspect those existing shareholders were VERY happy. But I’ll bet that investors in late Uber rounds at higher valuations were not.