IPOs vs Startup Investments for Middle-Class Folks

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2022-01-13 12:30:05

Everyone wants to have a chance to invest in the next Google, Facebook, or Coinbase. The success stories of these billion-dollar companies that we see in the media are driving more and more personal investors (I am talking about working middle-class folks – not professional fund managers) to place bets (startups investments) via various crowdsourcing platforms.

I wonder how many people understand the term sheet and risk involved with their startup investment? Do they know that even in the case of a successful exit they will probably have to wait for about 10 years for their cash-out? Do they know that the average IRR of a VC fund is about 25% per year? Do they know what an IRR is? Do they know that a fund needs to invest in hundreds of startups to make that math (25% IRR) work?

But let’s say you do know about all of the above and you do realize that your chances of hitting gold with crowdfunding are practically zero. Would you still do it or would you prefer to invest a part of your money in recent IPOs (in their first year on the public markets)?