Invest in Startups vs. Other Assets

As entrepreneurs we tend to focus on things like traction / metrics and funding rounds, etc., but how well does our venture business do as a whole? Let’s find out.

Wielding the Lightsaber

I spent whole morning looking for data from major markets, and then annualized them with IRR (internal rate of return) so we can take a good look at how our ecosystem stacks up.

As shown, investing in startups (private capital) can yield A LOT. For a 5–10 year investment set, your annual ROI minus inflation and interests can go from 15% to 50%+. And we haven’t talked about real big exits like IPO and major buyouts.

Admit it, we’re the Jedi.

The Dark Side

On the other hand, venture business is also very, very risky. The sense of an inevitable fall is always there in our head.

80%+ of startups may fail in the long run, and there’s not much we can do, even when we’re living in a startup boom full of expertise and talents.

It’s just the nature of venture. It’s not us, but the will of the force.

The Force — Market Trend

It’s widely known that the age of ultra-low interest rate may come to an end, and that may not be good for later stage (post-seed / series-A) startups.

Simplified trend of Fed rate

As interest rate rises, banks will be paying out more for deposit again, and cost of borrowing would rise, so some investors may withdraw their money back from startups to other fixed securities and assets.

Especially when the cost of over-valued rounds adds up, the grand army of unicorn hunters as we know it may eventually collapse into guerrillas and rebels like micro VC and angel syndicate / funds.

In our universe, this is called market adjustment, so don’t take it as a defeat!

For early stage startups, it could be a new opportunity for us to emerge, so be positive!

We’re still the Jedi!