On this week’s episode of Forward Guidance, Andy Gordon, Co-Founder of Early Investing and First Stage Investor, joins us to discuss the future of tech investing.
I start by asking Andy about the recent pullback in the NASDAQ 100. In Andy’s view, the index isn’t necessarily about to crash, but its valuation multiples have grown unusually high. Andy sees the recent tech blue chip sell-offs as defensive profit-taking. But he also thinks that they may be signs of an under-discussed problem with the NASDAQ.
In Andy’s words, “the NASDAQ is losing its feeder system.” The market has experienced a large slowdown in IPO activity over the last two decades. He points out that 626 companies joined the NASDAQ in 1996... and only 111 joined it in 2016.
I then ask Andy whether he thinks NASDAQ stocks are still the best tech investments available today. He feels that the downside risk is growing - and that eventually, this 8-year-old bull market will experience a correction.
As a result, Andy recommends trying the startup market instead. This is possible through equity crowdfunding - a Kickstarter-esque process that was legalized last year through the implementation of the JOBS Act.
As Andy explains, equity crowdfunding works through online investing portals. On these websites, investors can make small payments (as little as $100) in exchange for preferred shares in the company or convertible notes.
Andy explains that this kind of investing takes patience. A seed-stage investor can’t really take their profits until the company IPOs or is bought out (the latter being the more common outcome).
This waiting period can be several years long - but it can eventually lead to gains that are far bigger than any on the NASDAQ. Andy points out that pre-IPO investors in Alphabet (NASDAQ:GOOGL) (NASDAQ: GOOG) made up to 150,000% in profits. Early investors in Facebook (NASDAQ: NASDAQ:FB) made up to 200,000%.
Finally, I ask Andy for an example of a startup that is just starting its hypergrowth phase. He mentions DSTLD, an online seller of jeans and other fashions that is currently raising funds on SeedInvest. The company’s sales are growing at a rate of almost 200% per year.
Andy isn’t a fan of DSTLD as only an investor - he also likes them as a consumer. In fact, he’s bought DSTLD products as gifts for his own family.