Why it is better to invest in private start ups.
December 6, 2010 8:18am CST
There are many risk-shy people who will rather invest in a titanic company like Wallmart or Microsoft rather then risking their money in that new online company that has been founded by a bunch of college dropouts who aspire to become the next Bill gates or Mark Zuckerberg.While it definitely guarantees more security on your investment and who will get much more approval from other if you are investing 'borrowed' money, this is all that will happen.The reason behind this is that these giant titans can guarantee much more security is because of their credibility and spending power which smaller newer firms lack. But the truth is stranger than fiction and invest more in newer start-ups and private companies if you are the double returns type investor because- 1)Take Wallmart for example as the company has a market capitalization of $200 billion and the market cap of a company and the time taken for the company to double that investment are more or less directly related. This means that even if you invest $100,000 dollars, it will require to raise another $200 billion to double your investment!!..and as the old saying goes-"Money does not grow on trees" and what are the chances that it will raise that much to double its gigantic market cap in a reasonable amount of time? but instead take a new startup that is worth around $1million and invest the same, as a result your money will be doubled much faster as it relatively more easy to raise that one million rather than 200 billion as money new start-ups raise millions from venture capitalists relatively easily 2)Now as for public companies it is advisable to avoid investing too much as a bull market may have temporary rise in the stock price but you need really strong good news for that to happen but a small misunderstanding or mishap by sometimes just one person can bring the stock price plunging down like water in a flush for the rest of the other stakeholders like the most infamous case in 2008 when a random teenager, just as prank posted on a forum and his blog that APPLE CEO Steve jobs is having a heart attack. This harmless prank cost the company shares to lose 10% of the value and the company lost $4.8bn in just one day!!!!. That is too much to overlook and it was a small prank that did it. But as for a private company the shares are exclusively held by a few people and any negative news will not produce catastrophes like the example above and in fact you can even possibly make a fortune if the company goes public or gets acquired as you already own a sizeable stake P.S- I am not insinuating that you should never invest in large companies as it all depends on what type of investor are you. If you want a guaranteed income for your retirement or otherwise, invest in these big public companies, but if you dream of making a fortune as an investor and willing to take the risk and remain patient than i recommend you to invest in newer smaller private companies
7 Dec 10
Thanks for sharing this helpful information. I guess I need to bookmark this topic. I want to learn more about investing, because I am planning to invest some excess cash soon. This is one of the valuable information I am looking for.
6 Dec 10
start-ups make money a lot faster and their shares go up faster too... giant companies like Wal Mart or other companies' shares don't go up that fast... if you look at promising start-ups, especially those that require little investment and that have a lot of earning potential, your share will go up very quickly... and keeps rising steadily all the time^^