Reason #2 of 52 to invest in Venture

A common pushback against investing in startups is the perceived high risk of loss. It's an understandable concern; startup investing indeed represents a high-risk/high-return asset class. However, as Fred Wilson, a renowned Venture Capitalist, eloquently puts it, "There is no other business where you can turn pennies into dollars." This statement holds particular significance in the dawn of AI, Machine Learning, Robotics, and Energy Storage—not to mention the myriad of new businesses emerging to redefine humanity over the coming decades.

I believe that in the next 30 years, we'll need tens of thousands of new ideas, products, and solutions to navigate the massive transition from a work-based economy to an undefined new economy. Crucially, anyone aiming to build wealth during this transition must own a piece of the companies leading this change.

So, how and where should we invest? Here's the key: allocate an annual budget for startup investments, not exceeding 8% of your net worth, and spread it across multiple startups. The reason is simple - it's impossible to predict which companies will succeed. Owning a diversified set of assets is one of the key principles of long-term wealth creation.

Here’s how diversified startup investing can work: Suppose you have $5000 to invest in the venture asset class in 2024. Instead of placing all your funds into a single deal, consider dividing your $5000 into ten separate investments. For instance, you might review 25 deals in 2024 and select the 10 most promising. The criteria for choosing these companies - team credibility, market growth potential, problem size, solution viability, defensible position, valuation, and deal structure - will be detailed in a future post.

Once you've made your investments, it's time to let nature take its course. Historically, 6-7 of these companies might fail, but the 2-3 that succeed could provide enough return to yield a 20% investment return over a 10-year period. And, with the right investment choices and early entry, achieving a 100-250x return is possible.

By repeating this process annually, you will own stock in dozens of high-growth companies that are not correlated to the stock market, gaining ownership in the future economy. While a “buy and hold” strategy may lack excitement, it remains a proven pathway to long-term wealth building. And in today’s world, where AI is poised to revolutionize nearly every industry, owning a stake in the companies leading this revolution is not just smart—it's essential.

For those interesting in beginning your startup investment journey, sign up for Doriot Venture Club, our free Venture 3.0 newsletter. We assist savvy investors in diversifying their portfolios by making strategic, small-scale investments in promising ventures.