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IPO Hopeful? 2 – 180 so quickly đ
The startup I mentioned before that completed its Series A funding came in town after their shareholder meeting so I ended up joining them for dinner with a few other folks and the conversation got lively. Honestly, I made a small investment in this company at first mainly because of a few friends who hit the jackpot with startups and retired in one go. They always said it was pure luck, that it was only because of their connections and access to deal flow which made them so lucky back then. But to be honest, I think luck is part of a skill that can be trained and cultivated. Itâs about consistently recognizing opportunities, acting on them, having high integrity, and creating value for others over time, which eventually gives you the opportunity to benefit from luck. Thatâs why I like to associate with people who seem to be luckyâI believe itâs the result of certain qualities to an extent, not the cause.
Like my friends, they did some grunt work for the founders years ago on other projects. Only later, when the timing was right, did the founders return the favor by giving them access to good projects within their circles, helping each other succeed. My friends always say that although they retired in one shot, they didnât hold onto their sharesâthey exited at 20x, but the stock price later went up another 20x. If they had held on, they could have bought planes and yachts by now đ.
As for this startup, my lucky friends have been supporting them for six whole years. Every time we meet, theyâre always talking about this company, and they keep saying that their early retirement was pure luckâthe whole thing could have crashed at any time, and they were lucky to exit in time. But this time, they say this company has a high value. Theyâve already signed contracts with one of the top two global players in the industry, a name that everyone knows. Also, their scaling costs are practically negligible. After experiencing early retirement, they know what a winner looks and feels like, and theyâre sure this oneâs a winner. Theyâve held heavy positions for years and kept talking about it. Even though I couldnât quite grasp what made this company so special, their enthusiasm wore me down. In the end, I made a small investment in this company and became an early investor.Â
However, after dinner, I finally understood the companyâs business model and I hadnât even finished my food before deciding to increase my position before this round closed đ.
To be honest, I didnât understand earlier because Iâm not familiar with the industry and had no foundational knowledge about it. And the operational logic of this industry isnât something an outsider can grasp just by listening to a few conversations. Many key operational details are what determine profitability, and without a thorough, systematic breakdown by someone in this industry, itâs impossible to understand. So, once I got hold of these details and data, I couldnât wait to start writing this series. Whether you decide to do something with the information I will be sharing or not, itâll definitely open the door to a new world for you.
Those whoâve followed me for a while know that my track record with startups is 0% success rate so far. Not a single one of the startups Iâve invested in back in the good old days has returned anything, so in recent years, whenever I attend startup events, I go with a party mindset. I just enjoy chatting with a group of smart people to satisfy my intellectual curiosity. But when it comes to writing a cheque, I either donât invest, or I write checks so small that some startups even declined them lolÂ
This is especially true for industries I know nothing aboutâlike this oneâI never quite understood what industry this startup even belonged to. Their model involves installing tablets in hotel rooms and running ads on them, with ad revenue being their main source of income. So is it high-tech? Hardware? It wasnât until after this conversation that I realizedâitâs the tourism industry. Tech and tourismâneither of these are industries I understand, and this startup team doesnât feel the least bit tech-related. Their average age looks to be around 60, and theyâre all gray-haired old men. Theyâre nothing like the youthful tech teams Iâve seen before, filled with young programmers with fresh faces. Plus, hardware and tourismâneither of these fields sound particularly appealing to me. Boring! So I never understood why my very smart friends were sticking around with them for six years and continually increasing their position with them year over year. Strange right?Â
For someone like me, who likes to think with common sense, a string of questions immediately came to mind:
- Is there really demand for this in hotels?
- Do hotel guests actually need this?
- Do advertisersâthe ones with the moneyâreally need this?
- What do the actual operating numbers look like?
- How big is this market? What services can this company provide that others canât?
- What are the costs, revenues, and profit margins for providing these services?
- What clients do they have now? How did they land them?
- How do they plan to continue scaling?
- What does their competitive edge look like? How good is it? How long will it last?
- What do their financial statements look like? How much have they burned through, and how much more will they burn? When will they break even? When will they become profitable?
- Have any institutional investors come in? Whatâs the status of future funding rounds?
- Whatâs the current share price? How long will I likely need to hold? What are the exit paths? Whatâs the estimated exit return?
I will start explaining all this next time!