One of the things that I have noticed in the past few years is that in the early-stage investments, there is a phenomenon I call – The “Iceberg” effect. Many new investors become fascinated by companies that get in the spotlight and press and are considered to be a good investment. Although some of them are, yet it can be an optical illusion. One of the first things that I have learned about investing in the stock market is to look for undervalued companies with growth potential that have significant cash on their balance sheet. I see that there are some similarities with early-stage investing.
Like the Iceberg, there is a larger mass below the water surface that is hiding from the investor’s view. Finding those hidden opportunities can be very rewarding in their terms and much more reasonable deals with valuations and higher multiples of potential returns – in other words, finding the undervalue startups with high growth potential. Some called them camels vs. unicorns, they are less sexy, at least visually, yet camels can go to distance with very little water in their system, they are much more sturdy, durable, and indestructible – those the ones I am seeking.
The game in early-stage investments is to stretch your capital in terms of investing a smaller amount to get a larger position. With Camels, you can do it, unicorns come with much higher price tags. Camels are the type of startups that are focusing on building their business and building their customer base, doing the right things and taking the right action without even knowing they are doing so, just spending their time, energy, and capital building a solid business foundation. Instead of spending time chasing funding, they are building their business and the capital will find them.