In last Sunday’s Digest, we begin an exciting, new series from Matt McCall, editor of Early Stage Investor.
In short, we’re sitting on the verge of a transformation very similar to what we saw in the 1990s. Last week, Matt walked us through what’s behind the extraordinary opportunity in front of us.
Today, let’s pick back up in the series. After years of relatively modest advancement, computing power is now entering the “lift off” stage. It’s taking less and less time to generate incredible wealth.
In this essay, Matt will begin to dig into the details, and tell us why a “venture capital” mindset is the best way to go when looking for home run investments.
An Incredible Story of Progress
We left off last week discussing how computing power is advancing at incredible — and accelerating — rates. At the same time, the cost of computing power is plummeting.
Let’s pick back up with a great example of how fast our world is changing — the story of “ASCI Red.”
In 1996, the ASCI Red Supercomputer was the world’s first computer to reach the speed of 1 teraflop. It cost $55 million to build. It occupied a footprint about the size of a tennis court.
In 2014, Sony released its PlayStation 4 video game console. The PlayStation 4 had almost twice the computational power as ASCI Red. It could fit in a backpack. And its price tag was less than one thousandth of ASCI Red’s.
This simple story shows you how computers are getting much more powerful, much faster, much smaller, and much cheaper.
This has huge implications for our world.
Although computers and telecommunications gear have changed our world over the past 30 years, they are set to change it a lot more.
Remember, our “new economy” — our software, our smartphones, our apps, our websites, our email — rests on a foundation of computing power.
Computing power makes all these things possible:
• “Face Time” video calls with loved ones
• Managing the high-tech factories that make our cars
• Smartphones that can take pictures
• Electronic medical implants
• Electric cars
• YouTube videos
• Systems that keep our power grid up • and running
• Useful spreadsheets at work
• Advanced record keeping
• Making travel plans with Uber and Airbnb
• And thousands of other things.
After years of relatively modest advancement, computing power is now entering the “lift off” stage.
This key ingredient of our modern world is exploding in power and speed. This will change the world at ever increasing rates.
This rapid increase in the rate at which the world is changing has stunning business and investment ramifications.
The world around is changing at never-seen before speeds … and catching many people off guard.
Over the last few decades, it took on average about 20 years for the typical Fortune 500 company to reach a market capitalization of $1 billion.
In 1998, Google reached $1 billion in market cap in just eight years, which was considered incredible.
By 2004, Facebook had done it in just five years.
By 2009, Uber had done it in under three years.
In 2012, virtual reality firm Oculus did it in under two years.
The chart below displays the amount of time it took for companies to hit a billion-dollar market cap.
As you can see, it’s taking less and less time to generate incredible wealth.
Investors are enjoying the benefits.
Facebook shareholders who bought at the IPO enjoyed a 200% return on their investment in just four years.
Early Tesla investors made over 2,000% gain. Early Google investors made over 2,400% gains.
By now, you can see how the time it takes for massive change is getting “compressed.”
Industries are being transformed in a short time.
New industries are springing up at a rapid and ever-increasing pace … while old industries are being demolished at a rapid and ever-increasing pace.
As Uber soared to a billion-dollar valuation, the old taxi industry was devastated. It lost hundreds of millions in revenue.
As Apple’s iPhone dominated the smartphone market, the losing competitor, Blackberry, saw its share price plummet more than 90%.
These incredible industry shifts used to take 20-plus years to play out.
Now, they are playing out in less than 5 years.
And it’s all thanks to the Law of Accelerating Returns … all thanks to exponential progress.
***It Only Takes One: How to Make Millions with the “VC” Approach
What would you do with an extra million dollars in cash?
Retire tomorrow? Buy a new house? Buy a Ferrari? Put it in the bank and massively increase your financial freedom?
Sure, it’s nice to daydream about having an extra million dollars in the bank. But I’m asking you this question because it’s a real-life situation the financial bankers of early-stage companies — venture capitalists — often find themselves in.
When it comes to extreme wealth creation, few endeavors can compare to being an owner of a small company that grows large.
As I mentioned in the start of this handbook, an early investor in Microsoft could have made over 9,000% during the 1990s. That type of gain turns every $5,000 invested into $450,000.
It only takes one of these big hits to make a huge amount of money in early-stage companies.
And that is why it is critical that you approach the companies we recommend in this service with a “venture capitalist” mindset.
What are venture capitalists? And how do they earn such massive returns?
Venture capitalists are the early backers of startup companies. They are the grand slam home run hitters of the investment world. They don’t look to make 300% on their investments. They look to make 3,000% … even 30,000%. Make just one great venture-capital investment and you’ll probably never have to worry about money.
Venture capitalists have funded nearly every mega-hit technology company you know today:
Google (now Alphabet), Facebook, Twitter, Uber, Airbnb, Pintrest, and the list goes on and on.
Before the public learned about these innovative businesses, venture capitalists were there, performing due diligence and making early investments. By the time regular stock market investors hear about your average technology winner like Google, venture capitalists have made more than 2,000% on their original investments.
And while I don’t recommend non-public companies in my Early Stage Investor service, we still very much employ a venture capital mindset. We are looking to hit grand slam home runs. We are looking to make hundreds, even thousands of percent returns in the world’s best early-stage public companies.
So, the question becomes “how do you find tomorrow’s winning tech investments which you’ll approach with this venture capital mindset?
That’s where we’ll pick back up next week. In the meantime, if you’d like to learn more about my Early Stage Investor service where I follow the big money created by these tech advances, click here.
See you next week,