October 18, 2024
How to Spot the Next Superstar Startup
Dear Subscriber,
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| By Chris Graebe |
As a startup investor, I look for companies that have what it takes to go public.
Now, for many startups, getting listed on the NYSE or Nasdaq isn’t the real finish line. Going from a privately held entity to a publicly traded one is a challenging process.
It’s not just more paperwork, though there is that angle. There’s also a whole shift in mindset, going from your own timeline to suddenly having to perform — and outperform — every quarter.
That said, I have over two dozen startup deals under my belt so far. The common thread among these investments is that I seek companies that can go the distance.
Whether that road includes an IPO, a buyout from a bigger firm or simply building a business that lasts for generations, I look for longevity potential.
Was Sky’s IPO the Limit?
For some startup investors, they believed they found that in Sky Quarry (SKYQ).
This Utah-based oil producer and refiner and environmental-remediation company “turns waste into value,” according to the company.
To help them do that, they raised money from retail investors like us.
Last week, Sky Quarry closed its $6.7 million public offering and made its Nasdaq debut on Oct. 10.
It launched at a target price of $6, which is up nicely from the $1.80 where investors could have jumped a little over a year ago on Equifund.
Not a bad return in a short period of time!
But just a few days in, the stock’s price dipped to $3.15 a share.
Clearly, success before the IPO doesn’t always guarantee a blockbuster debut.
Does this mean that SKYQ is sunk or that investors won’t see a bigger return?
Not at all!
It simply means that, rather than a company’s hard work being over once it launches on a large publicly traded exchange, a different kind of work begins.
Skipping All the Way to the Bank
One day after Sky Quarry’s uplisting, CeriBell (CBLL) debuted on the Nasdaq.
It also began trading higher — from a projected high stock price of $17 to $25.
CeriBell operates in the medical tech space.
Its hardware uses AI to diagnose and monitor patients with neurological conditions, including those with risk of seizures.
This startup raised some $183 million with this IPO.
It also has some big-name backers like Bank of America and JPMorgan.
Again, a week’s worth of trading data does not necessarily make for a trend. But you can see that, just because a stock goes public, doesn’t mean its first move is necessarily higher.
But again, you don’t have to see your favorite startups IPO to have an idea about how they will perform as one.
Here are three steps I follow when I go to look for the next superstar startup.
1. Picking the Right Startup
It starts with finding a company with strong fundamentals, including …
- A proven product-market fit, and
A solid startup also needs stamina.
The journey from raising seed funds to eventually filing for an IPO takes years. Only companies with strong leadership and resilience make it to this point.
2. The IPO Process
Even when a company decides to go public, the IPO process itself can be full of hurdles.
One of the most critical elements — a strong IR team.
A startup’s Investor Relations team serves as the bridge between the company and potential investors. They shape how the market perceives the company and help to build momentum among prospective and current investors.
Without the right communication strategy, even the most promising startup can flop when its stock hits the crowdfunding or even the public markets.
Timing Is Just as Important
The market needs to be right — investor sentiment needs to be positive, and the company must have a solid story to tell.
AI technology is red-hot in general, and CeriBell is using it to prevent seizures in high-risk patients. Now, that’s a good story.
An IPO at the wrong time or with lackluster preparation could lead to a disappointing debut … just like Sky Quarry’s rocky start.
3. The Long Game
Finally, remember that an IPO is just the beginning of a company’s life as a public entity.
For retail investors, it’s important to look for companies with the momentum and the vision to keep innovating after they go public.
Anytime you’re considering investing in pre-IPO startups, stay informed, do your research and learn how to spot the strongest startups long before they hit Wall Street.
I don’t know about you, but I’ll be keeping an eye on SKYQ and CBLL to see whether they gain … and keep … their momentum.
I hope their public investors can get the sort of return that they were hopeful for when they invested not that long ago.
But what I’m really watching is a private company that I just introduced into my Deal Hunters Alliance.
It’s just launched its first-ever crowdfunding raise. And I can tell you, not only does it have big plans for those funds, but I have every reason to believe we’re going to see an IPO in the not-too-distant future.
And this company does have all three elements I just told you about. In fact, it just expanded its territory and is set to really start rolling.
Fortunately, there’s still a little space to get involved before others, including anyone waiting for its IPO.
All you have to do is watch this video today. We’ll be forced to take it down soon. So, check it out while you can.
Happy hunting,
Chris Graebe
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