Dear Startup Investor,
Neil here. As you’ve probably heard by now, we’re celebrating something big at the Angels & Entrepreneurs Network: our model portfolio just had its first IPO!
It’s been almost a year since I first sat down with the founding team of Winc – the data-driven winery that uses more than 5 million customer ratings to create new wines.
And when the Research Team recommended it to our readers, it landed at a post-money valuation of $182.5 million.
On IPO day, Winc made its debut with a market cap of about $214 million – only about a 17.3% gain overall.
In the weeks that followed, I’ve gotten lots of questions and comments from our readers about Winc, ranging from elation all the way to disappointment.
And while I can certainly understand that 17.3% is a far cry from the 1,000X returns we hope to find as angel investors, there are a few reasons I’m still calling this one a (big) winner.
1. An IPO is a big deal, no matter how small it is
Look, whether we’re talking about a $100 million company or a trillion-dollar behemoth, all companies that go public have certain things in common.
That’s because traditional IPOs are underwritten by huge financial institutions that act as intermediaries between companies and their investors. It’s a critical part of the market’s risk management systems.
But those underwriters aren’t going to vouch for just any company. Before they’ll even consider an opportunity, they need to see things like:
- Predictable, consistent revenue
- Massive growth potential in a large market
- Extra cash on hand (IPOs aren’t cheap!)
- Audited financials
- And a long-term business plan, complete with financial projections.
It makes sense if you think about it – these underwriters are taking on hundreds of millions of dollars in risk. Naturally, they go the extra mile to cover their, well, you know.
In short, making it to that bell-ringing at all is a massive accomplishment – and it’s one that speaks to a company’s long-term promise.
2. An IPO isn’t always the end – it may be just the beginning
Just because Winc went public at a market cap of $214 million doesn’t mean the company’s doomed to hover near that price for eternity.
If you’ve ever invested in a company on IPO day, you probably know that a great many of those new stocks close out their first day at a loss.
Some of them take months to rev back up. Just look at Apple (AAPL).
Now one of the world’s largest companies, Apple made its public debut on December 12, 1980. And it steadily lost value for the next two years.
But by May 1983, a share of AAPL cost double what it had on Day 1. (And even then, it was only worth 20 cents!)
The rest is history. Today, AAPL is $164 per share – a 160,000% gain since its first wobbly steps on the market.
What I mean is: if you still believe in a company’s fundamentals, and you still believe in its founding team… you shouldn’t let its IPO price scare you off. Keep holding – stocks 10X in value all the time.
3. Angel investing is a hits game – it’s all about the big picture
I talk about this all the time: to succeed as an angel investor, you want to have at least 10 companies in your overall portfolio. That’s because, in a “hits game,” you need to spread out your risk across several attempts in order to “hit” a home run.
So, for a typical 10-company portfolio, you might expect to see five go out of business, two break even, two return double your money, and one explode in value (returning insane multiples like 10X, 50X, 100X or more).
So while Winc hasn’t quite made it to that massive growth point yet… we’re still looking at one of the more positive outcomes one should expect, even with an incredible batting average.
Did you invest in Winc? What’s your take on their IPO? Tell us in the comments below – and I’ll be back soon.