It’s no secret that the venture capital investing world comes with high risk. Most of the best private investors only have a 20% success rate… meaning that 80% of their investments either make a flat return or are a complete loss.
A complete loss of capital should terrify any investor. It’s the worst thing that could happen when it comes to investing.
But I’m here to tell you not to sweat it.
When it comes to private investing, those losses are nothing compared to the big wins.
DoorDash Takes Europe
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“The past two years have seen an enormous increase in demand for these food delivery services. Americans have spent more than $30 billion on food delivery services so far in 2021 — that’s already a nearly 14% increase from 2020, and the year is far from over… And the industry is projected to grow 10% per year for at least the next five years.”
I also mentioned that Uber Eats, GrubHub, and DoorDash are entangled in multiple lawsuits throughout the U.S. and a variety of other countries. Although this may sound like bad news for meal delivery, it’s actually a good thing.
It means that these companies are fighting for a foothold in major markets around the world.
Just like Uber and Lyft (NASDAQ:LYFT) are still fighting many major cities for the right to do business as ridesharing companies, food delivery companies (including Uber) are fighting to secure their market position.
“These big “pubcos” have the money and legal resources to fight government regulations. Once these companies start to win these cases (and they will), they will start to “own” certain regions… Of course, winning these cases is not the only way that these big companies can expand their footprint… They also can start to buy up their competitors.“
And that’s exactly what DoorDash announced last week.
Wolt, a Helsinki, Finland-based food delivery company, is set to be acquired by DoorDash for seven billion euros (about $8 billion USD). With more than 4,000 employees and a presence in 23 different markets, Wolt will make a significant footprint across Europe for San Francisco-based DoorDash.
Early investors in Wolt include Mark Zuckerberg’s ICONIQ Capital, Tiger Global, and EQT Ventures. This last investor is the one that really hit a home run.
At the time of the acquisition, EQT Ventures is reported to own approximately 10% equity in Wolt. And as impressive as EQT’s take-home lump sum will be (just shy of $800 million), the most amazing part is the multiple on its return…
Here’s what EQT partner Lars Jörnow had to say in a recent blog post:
“The exit valuation at time of this announcement represents an approximate 200x uplift compared to EQT Ventures’ initial investment in 2016, which we are pretty excited about.”
Yeah… I’d be “pretty excited,” too!
While a 200X return might sound insane (keep in mind, that’s a 20,000% return), that is how the venture capital world works. Outsized returns make up for those big losses we discussed up top.
Say you have a $100,000 “VC” portfolio and you plan to make 10 private investments of $10,000 each. So, after you’ve invested all the $100,000, you should own equity in 10 separate companies. Let’s assume that nine of those investments go to zero — as in, a complete loss of $90,000.
But with that last investment, let’s say your $10,000 had a 200x return, just like the investors in Wolt.
Your initial $10,000 investment would now be worth $2 million.
With private investing, you must take multiple shots on goal. While you know that you’ll miss some, the shots you do make will be so big that they make up for all your losses… and then some.
Speaking of Huge Exits for Early Investors…
However, billionaires like Jeff Bezos, Bill Gates, and Zuckerberg are all prolific private investors. (Remember, Zuckerberg was an actual investor in the Wolt deal I just shared above.)
Last week here, I shared what early investors in Rivian Automotive (NASDAQ:RIVN) stood to make when the company hit the public markets.
Well, I was dead wrong.
Early estimates were putting the electric truck developer’s initial public offering share price at around $80 per share.
However, last Wednesday, Nov. 10, its first day of trading on the Nasdaq, Rivian shares shot up and closed the day at about $100 per share. Then, the stock closed out the week at just under $130 per share.
Rivian’s current market cap sits just under $130 billion… and they haven’t sold a single electric truck yet.
As Bloomberg reported:
“Add another milestone to Rivian Automotive Inc.’s blistering and surprising run as a new stock: It’s now the biggest U.S. company by market value with no revenue.”
Early private investors made an enormous amount of money through Rivian’s public listing. As I said here last week, “Rivian’s seed investors would be eligible for up to 1,000 times their initial investment.”
Based on Rivian’s most recent share price… those early investors are probably now closer to a 200,000% return.
As private investors, our best strategy is to invest in a basket of private companies. Go into these investments knowing many are going to lose. But also know that when we win big… we win really big.
And that’s how you create lasting wealth.
Editor, Venture Capital Digest
P.S. For some ideas on how to start that basket of private companies, be sure to check out my free special report: Top 3 Private Company Investments for 2022.
On the date of publication, Cody Shirk did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
By focusing on megatrends that will shape the future, Cody Shirk uncovers generational wealth in the private investing space. To make sure you never miss Venture Capital Digest, click here to subscribe.