February 12, 2014
Santiago, Chile
Three million percent.
That’s the investment return that Andy Bechtolsheim has made on his Google investment.
If you had parked $100,000 in Google stock when it IPO’d ten years ago, your investment would be worth $1.4 million today. Not bad.
But Andy was one of the first major investors in Google before it went public. He wrote Larry and Sergey a $100,000 check back in 1998 for an investment in Google that is worth $3 billion today.
Granted, this is the exception and not the rule. But in the world of private investments, the potential for outsized returns is very real.
Most investors stick to the mind-numbing mantra of stocks and bonds; the size of the global bond market alone is estimated to be well north of $100 trillion (roughly 140% of world GDP).
And owing to this sheer size and liquidity, big institutional investors have no choice but to own stocks and bonds.
But as we have pointed out before, world stock and bond markets are heavily manipulated, if not rigged, by central bankers who control the money supply.
Fundamentals no longer matter. If one single person (now Fed Chair Janet Yellen) says she will print, stocks go up. If she says she will taper, stocks go down.
This isn’t investing. It’s gambling. Financial analysis has been replaced by soothsaying and tasseography (reading the tea leaves), hoping to detect some hint in the direction that central bankers are leaning.
This is the chief reason why I seldom participate in public markets anymore; it seems ludicrous to pile on a giant tidal wave of paper currency and entrust central bankers with my investment returns.
Not to mention, it’s uncertain how long they can keep this party going as the following (rather scary) chart shows. There’s an eerie parallel between the market’s performance today and the runup to the crash of 1929.
It certainly begs the question, though: if you don’t have the appetite to play this rigged game, where can you invest?
This is where the little guy has a HUGE advantage. Because while institutions are chained to the bond market, individual investors literally have a world of options… like investing in private businesses.
Think about it– nearly every successful company out there, like Google, first started out as a private venture looking to raise money from investors.
And now that the rules for crowdfunding have become much less strict, there’s an inspiring amount of opportunity out there, even for small investors.
I come across these sorts of deals all the time. And there are a number of places in the world that are completely overlooked.
Everyone knows about Silicon Valley. There’s no shortage of deals to invest in there, but the region is crawling with angel investors and VC funds.
Chile presents an intriguing opportunity in this sense.
Santiago is becoming a thriving hub of entrepreneurship and has actually been named among the top 20 global startup ecosystems.
The Start-Up Chile incubator program has proved incredibly successful since its launch in 2010, and numerous energetic entrepreneurs are flocking here from all over the world to take part.
Yet Santiago’s startup scene has one major shortcoming: it lacks any significant funding outlet for entrepreneurs that want to scale their businesses.
As the Startup Ecosystem Report says: “There is an overall funding gap in Santiago. In total, Santiago startups raise 97% less capital in stage 2, 94% less in stage 3, and 90% less in stage 4 than [Silicon Valley] startups.”
For such a promising and rapidly developing startup scene, this is a major anomaly… and a big opportunity.
If you’re like me and invest in private businesses, this place is an investment paradise: plenty of great deals, and very little competition from other investors.
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