Chris’ note: Today, we’re turning back to tech expert Jeff Brown. He recently discovered a group of stocks he calls “Penny IPOs.” And they can completely change the IPO game for everyday investors…
Read on below to hear from Jeff on the big problem with today’s IPO market… and why you’ve been missing out on up to six-digit gains. Then, be sure to catch his special event tomorrow at 8 p.m. ET. There, he’ll reveal how “Penny IPOs” are giving you back the chance at these incredible gains. Reserve your free spot here.
I recently returned from a three-day trip to Silicon Valley.
It was part of the boots-on-the-ground research I do for my subscribers.
My team of analysts and I stayed at the Fairmont Hotel in downtown San Francisco.
It’s where parts of the United Nations Charter were drafted in 1945. It’s also where President Truman signed the charter the same year.
The view from the penthouse veranda was breathtaking. I was happy to enjoy it, after a day of research, with a glass of Kentucky bourbon.
Jeff on the penthouse veranda at the Fairmont San Francisco
But I wasn’t in San Francisco for fun and games. I was on a mission for my readers. I was there to compile what I call “the list.”
What is the list?
I’ll show you today. I’ll also show you how it exposes the greatest flaw in today’s IPO market… one that’s causing too many regular investors to lose money.
For more than half a century, many of the most disruptive companies in the world have been born in the same place – Silicon Valley, California.
“The Valley” is known for its high technology and its rapid pace of innovation. It’s also known for minting millionaires and billionaires.
Some of the world’s most iconic tech companies – including Apple (AAPL), Facebook (FB), and Google (GOOG) – call it home.
They’ve changed our lives in profound ways. They also delivered life-changing gains to early investors.
It went public in December 1980. It was valued at about $1 billion at the time. Today, it’s worth $2.2 trillion.
Folks who bought Apple stock at its IPO (initial public offering)… and held on to their shares… are now up 103,763%. That’s enough to turn an initial $1,000 stake into more than $1 million.
To be fair, few of the folks who bought Apple shares at IPO have held the past 40 years. But even a fraction of that return would have radically transformed your financial life.
The beauty of this story is that anybody could have taken part in the Apple wealth-creation.
You didn’t need special connections inside the Valley to buy shares… You didn’t need to be a venture capitalist (VC)… You didn’t even need to be an accredited investor. [Accredited investors are folks who’ve made at least $200,000 a year for the past two years… or have $1 million in liquid net worth.]
And Apple’s massive gain isn’t an isolated phenomenon. Look at the lifetime returns from some other famous Silicon Valley companies:
eBay (EBAY): 8,567% since IPO in September 1998
Nvidia (NVDA): 75,092% since IPO in January 1999
Oracle (ORCL): 169,936% since IPO in March 1986
All potentially life-changing returns from disruptive tech companies. All available to everyday investors.
But sadly, these lucrative opportunities are now harder to find.
Over the past 15 years or so, there’s been a profound shift in the IPO market. Few investors have been aware of what’s going on… and its implications.
Instead of going public early on, tech companies now experience most of their growth in the private markets, where they’re off limits to regular investors.
In the 1990s, it was common for a tech company to go public once it had reached a valuation of $1 billion… even less.
As I mentioned, Apple was valued at about $1 billion for its IPO.
Ebay had a valuation of $690 million.
Nvidia went public at a valuation of $504 million, and Oracle at $266 million.
These companies were still in their very early stages of growth, in other words. They had nearly limitless upside potential ahead of them. And they gave regular investors the chance to enjoy that growth over the years.
But these early stage IPOs are now rare as tech companies stay in VCs’ private hands for longer and longer. And that’s a problem if you’re looking for the kind of returns that were available on the IPOs of old.
Consider three of the most hyped IPOs in recent years.
Rideshare company Lyft (LYFT) went public with an enterprise value of $20 billion in March 2019.
A few months later, its main rival, Uber (UBER), got out of the gate at a $71 billion valuation.
And vacation rental firm Airbnb (ABNB) went public just last year with a valuation of more than $80 billion.
At the right valuations, these companies could still be good investments. But will they deliver life-changing returns like Apple did?
Absolutely not. The lion’s share of their growth has come and gone. Everyday investors never had a chance.
How did this happen?
Well, for the past decade or so the world has been awash with private capital. Have a look at the chart below.
In 2010, VC activity in the U.S. stood at “just” $31 billion. In 2018 and 2020, that number soared to over $150 billion.
With so much private capital available, companies haven’t needed to access the public markets to continue their growth. They can simply raise round after round of private funding.
Managing a public company is more complicated. For instance, public companies must comply with regular Securities and Exchange Commission (SEC) filings.
So very often, companies will stay private years longer than was typical in the early 2000s and before. Uber, for instance, was 10 years old when it finally held its IPO.
That’s 10 years of growth. Ten years of returns that regular investor never had a chance to take part in. They were left with the scraps.
Fortunately, there is a reason to be optimistic…
The key to building incredible wealth is to invest in great companies during their earliest stages of growth. And while IPOs like Uber and Lyft get most of the attention, there are still a handful of tech companies that go public early.
Very often, these companies access the public markets when they’re valued for less than $1 billion. Sometimes they’re valued at just a few hundred million dollars.
In other words, they go public at levels similar to where Apple, Oracle, eBay, and NVIDIA did. That means their best growth is still ahead of them.
I call these companies “Penny IPOs.” There aren’t many of them. In fact, the names of my favorites can fit on a single piece of paper.
This is “the list” I compiled when I was in Silicon Valley. It’s the best way I’ve found to turn back the clock and invest like it’s still the early 2000s.
And thanks to a little-known market phenomenon, many of these companies are trading at levels cheaper than what many of the VCs paid.
I knew this was a story I had to share with my readers – and Daily Cut readers, too.
So on Wednesday, June 23 at 8 p.m. ET, I’m hosting a special event. We’re calling it Silicon Valley “Unlocked.” I’ll reveal exactly what “Penny IPOs” are, why they still go public early, and my seven favorite companies today.
I’ll also share – for free – the name of one of my favorite “Penny IPOs.” It’s a company I expect to go public in the months ahead. And when it does, you’ll want to pay attention.
I hope you’ll join me. To reserve your spot, simply go right here.
Editor, The Bleeding Edge