Being a business owner is the path to true wealth … the easy way to be an owner … the mindboggling returns of private equity … how AI will create a new wave of billionaires
What’s the best way to become obscenely wealthy?
I’m not talking about enough money to buy a new luxury car, or even, say, a mansion.
I’m talking dynastic wealth. The kind that changes not only your life, but that of your kids, and their kids, and their kids…
If you’re thinking something along the lines of “invest in a company like Amazon right at its IPO,” that’s certainly powerful, but it’s not what I have in mind.
Sure, you could make boatloads of money that way, but the best way to amass extraordinary wealth is by being the person behind that successful business. Think Bezos, Musk, Gates, Buffett, Ellison, Zuckerberg, Page, Koch…
The richest individuals in the world aren’t movie stars, athletes, or world-famous musicians – they’re business owners.
Take the rapper, Jay-Z…
He’s one of the most famous, successful artists of all time. But it wasn’t until he created a business empire including a music streaming service, liquor, art, real estate, and stakes in other companies, that his net worth topped $1 billion.
Or take Michael Jordan, arguably the greatest basketball player of all time. He earned $93.7 million in total salary during his NBA career. But when he became the owner of the Charlotte Hornets, and then eventually sold the team, he pocketed a cool $3 billion.
Bottom-line, when it comes to generating life-changing walk-away money, being an entrepreneur trumps everything else.
“Yeah, Jeff, I know. But I don’t have the idea, time, or finances to launch the next billion-dollar company. So, what now?”
Fair enough. We can’t all be the person who starts the next billion-dollar tech company.
But it turns out, the second-best way to become obscenely wealthy is by investing alongside the founder of the next billion-dollar tech company when it’s a tiny, private company.
I’m talking about stepping outside the world of publicly traded stocks and entering the realm of private equity.
***The private investment world offers returns that can dwarf anything you’d ever see in the public stock market
Instead of investing in something traded on, say, the Nasdaq, and hoping for 50%, 75%, or even 100% gains, private investing can return multiple thousands of percent. This isn’t hyperbole.
Accel partners invested $12.7M in Facebook when it was a tiny private company long before its IPO. By 2012, that investment was worth nearly $9 billion. That’s a 700X return multiple.
Then there’s Kleiner Perkins who invested early in Google. Its $12.5 million seed turned into $4.3 billion. That’s a 300X return.
Back in 1997, Benchmark fund put $6.7 million into eBay. Two years later, that investment was worth more than $5 billion. That’s a 750X multiple.
Even the “public” way to invest in private companies has been a monster winner.
To illustrate, look at Blackstone Group (BX). It’s a massive private equity company that handles money for pensions, institutions, and high-net-worth individuals.
Below, we look at its return over the past 15 years. We’ll compare it to the return of the S&P 500, as well as that of XLK, which is the SPDR Technology Select Sector ETF.
I’m including XLK to show how private investing has dominated even high-flying tech stocks, which most investors would assume would win this head-to-head easily.
It’s not even close.
Over the last 15 years, Blackstone has returned 3,883%, which almost triples XLK’s 1,400% return, and destroys the S&P’s 412% gain.
This is the power of private investing. This asset class is where the real wealth is made.
And so, it’s no surprise to learn that the wealthiest Americans put far more of their net worth into private equity than do regular investors.
A 2022 report by Bank of America (BOA) on wealthy Americans with more than $3 million in investible assets found that they only have 30% of their wealth in publicly-traded stocks. Instead, a full 50% of their wealth is tied up in alternative investments, of which “private equity” is a huge component.
***On Tuesday night, our own private equity expert Luke Lango held a live event to discuss why this corner of the market is offering one of the best set-ups in years today
It boils down to one thing…
Artificial intelligence.
From Luke:
Private equity investing it is one of the very best ways to make fortunes in a hurry.
While it is always available, it only becomes exceptionally compelling about once every few decades, during a major new technological boom.
The last time this happened? The Internet Boom. That’s when Elon Musk, Mark Cuban, and others made their fortunes.
Right now, we’re watching the AI Boom unfold. And this private equity is emerging once again, with mouth-watering profit potential, the likes of which is even bigger than what we saw in the Internet Boom.
I occasionally invest in private companies. Over the last 12 months, I’ve seen an explosion of small start-ups focused on leveraging artificial intelligence to disrupt established companies and traditional ways of doing business.
The potential for life-changing returns is very real here. Here’s Crunchbase with recent statistics:
One in five of the new billion-dollar startups to join The Crunchbase Unicorn Board this year were artificial intelligence companies, an analysis of the board shows.
The 15 AI companies that joined as of Q3 2023 collectively added $21 billion in value to the board and were dominated by generative AI companies in text, translation, video, coding and human computer interaction…
The board’s top three most valuable private companies in the AI sector are: AI cloud data company Databricks, valued at $43 billion in its 2023 funding, an increase of $5 billion from its value in 2021; autonomous driving startup Cruise, last valued at $30 billion; and generative AI firm OpenAI, with a $29 billion valuation.
All these companies began as unproven start-up companies seeking investor dollars just to keep the lights on.
If you had been one of the investors who put money into these companies a handful of years ago, and then you watch them go public or get bought out at these multi-billion-dollar valuations, I think it’s safe to say your days of financial stress would be behind you.
***On Tuesday, Luke pulled back the curtain on private investing
He explained more about the sector, the investment process, and how AI is changing the landscape today.
Back to Luke:
AI is on track to rapidly progress from mere research concept to a series of powerful tools, products, and services.
As such, now is the time that investors start making money off of artificial intelligence. But the biggest returns next year won’t be had in AI stocks.
Rather, the AI Boom’s biggest gains will come private equity investments outside of the stock market – the same investment vehicle that folks like Elon Musk and Mark Cuban used to become billionaires in the dot-com boom.
To me, the most exciting part of private equity investing is how it only takes one homerun to change everything. Now – let’s be 100% clear – these homeruns are rare. That’s why you typically want to invest small amounts of money across a wide basket of private companies. This is not the place to go “all in” on just one investment.
But consider what even a small amount of money can do if you hit that winner. Let’s return to Accel partners’ 700X return in Facebook.
If you invest just $5K in a private company with that same return, you’re walking away with $3.5 million.
For perspective, compare that to what would be considered a fantastic stock market return – let’s say 250%. In that case, your $5K investment makes you $12,500.
There’s no comparison.
***We’re in a window of time where more of these small, private AI upstarts are launching – and potentially, becoming tomorrow’s billion-dollar unicorns
To learn more about how to take advantage, you can watch a free replay of Tuesday’s event with Luke right here. By the way, the replay includes a private equity recommendation, totally free.
And to learn more yourself, sign up for some of the private equity platforms (Angel List, Republic, Fundable, Wefunder, StartEngine) and just look around at some of the deals. Get a sense for what’s out there.
This is a fascinating world – and potentially, a lifechanging world.
Have a good evening,
Jeff Remsburg
