Dear Reader,
Happy Friday!
Woo! TGIF.
I am very excited to report some good news…
One of the companies featured in our webinar on Wednesday just announced they’ve been selected to join the U.S. Air Force’s $46 billion Enterprise-Wide Acquisition Contract Program.
This is a serious gateway into major defense programs.
Guys, this robotic arm is a big deal.
Robots are the thing – this is happening.
I’m excited there’s still time to get involved in this at such an early stage as investors.
As I mentioned, I am a huge fan and already personally invested in this private company.
Of course I am a big fan of the Nvidia-backed company as well – companies like these with serious science and backing from Nvidia, Google and all the big guys – I mean, these are both no-brainers for me.
But you know I am so crazy about the military and everything defense-related so I just sink my teeth into this robotics company.
I can really perceive how this is going to play out.
Now, I’ve gotten a lot of questions about these companies since the webinar, so I wanted to address these for you here.
Q: How hard is it to invest in private deals?
Now, these don’t trade in your brokerage account.
We will send you a link to the website where you can invest.
I am far from a tech genius but even I can do it.
It’s like going to Amazon. You put in your address. You put in the amount you want to invest – it could be $250, $500, etc.
You press “invest” and go through a few steps. It’s literally like placing an order on Amazon. A lot easier than you think.
My friend Aisa wrote in:
Q: I’ve not yet invested in private companies, mostly because I don’t understand the tax implications or specific rules associated with investing.
Do you know a good source I can trust to figure that out?
I am not an accountant.
I recommended ChatGPT.
She responded and told me that worked very well for her.
I will tell you something – you’re buying a stock. It happens to be private. You are buying shares in a private stock instead of a public stock.
So generally speaking, the same rules are going to apply, but talk to your accountant.
Q: Is there a mandatory waiting time before I can sell the investment after IPO?
There usually is a lockup period.
I’ve seen six months to a year.
It’s not written in stone – there’s not always a lockup period.
It’s not a legal thing, but it is often part of the deal.
Lockup periods apply mostly to insiders, but sometimes apply to people who invest at this stage.
Jeffrey wrote in:
Q: If these pre-IPO companies are so great and have such great backing, why do they need to go public?
That’s a great question, Jeffrey.
And the reality is, they don’t.
A lot of companies have been staying private for much longer periods of time.
It’s an interesting phenomenon.
A lot of people don’t want the Sarbanes-Oxley and all the regulation.
I’ve been asked about taking Behind the Markets public and I don’t want to deal with that.
It’s crazy. You have to have 50 accountants. There’s so much drama, the juice ain’t worth the squeeze.
A lot of pre-IPO companies have come to the same conclusion.
They’re generating positive cash flow – why go public?
The only reason, in my view, is because you’re planning an expansion that really needs the kind of cash you can raise in the public markets.
But for the most part, these days private venture capital funds have gotten so big, they’ll fund these things for years.
Need a billion dollars to fund expansion?
Pretty much 10 VC firms will write that check for you.
And there’s a whole private market that’s grown up here like on Forge where private shares trade like stocks.
So, bottom line, there’s no need to go public. And early-stage investors can do really well without an IPO.
Takeovers are the most likely scenario – i.e. a company like Nvidia or Google decides to buy the smaller private company.
Douglas wrote in:
In my early days, circa 1970s, an IPO was not able to be sold on issue by buyer other than management for pre-IPO owners today.
The world has changed a lot since then in some ways, and it hasn’t in others.
When a company is selling stock to the public, there’s two ways to go about it.
One is to sell shares existing management has.
So if the company has a million shares outstanding, and Bob owns half a million and Tom owns the other half a million, they could each sell 100,000 shares and keep 400,000.
More commonly, they’ll issue more stock.
So if there’s a million shares outstanding they may issue 200,000 or 300,000 new shares.
So the total shares outstanding rises to 1.2 million or 1.3 million, etc.
Annette asks:
Q: Can the investment come from a traditional IRA?
Yes. 100%.
Q: On average, about how much time passes from pre-IPO funding to an IPO release announcement?
So, as I mentioned, there’s no guarantee these companies go public.
Others may never tell you that but we’re all adults here and I gotta level with you.
Investing in private companies like these, you can imagine the risk/reward looks something like this:
Say you invest in 10 private deals…
Three of them go bankrupt.
Three of them either get taken over or keep generating cash flow so they don’t have to go public to raise funds, and so they keep increasing in value without going public.
Three of them go public and are nice winners.
One of them goes public and is a blockbuster winner – a “millionaire maker” we call them.
What I really like about my favorite private deal right now is that it has all those little ingredients…
Like when you were a kid and your mom or dad would make a good soup or Italian sauce…
You know, it had the right amount of garlic, onion, etc.
Well, my favorite robotics deal just has all the makings of a “good sauce”…
To be one of those really big winners.
And the truth is these things tend to take about a year, to answer your question.
I wanted to answer as many of your questions as I had time for today. Hope this helps!
If you haven’t gotten to see our webinar yet, please take a look.
I promise, at the very least you’ll learn something.
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