Guide How to Make Every $1 Investment Turn Into $10 Profit

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In her 19th through 23rd years, she doesn't have to add another penny as she funds an IRA and watches her money grow.

This is probably considerably more than the majority of her contemporaries have, and for this she can thank her parents. Now let's assume that Charlotte goes about living an interesting, busy life for the next 42 years until she is 66 which is rapidly becoming the new "official" retirement age for Social Security purposes. Just for fun, as you think about the following numbers consider that they could all be twice as big if her grandparents had matched her parents' contributions dollar for dollar.

When Charlotte is 66 she can begin enjoying the payoff from this very long-term investment and all the patience it took to let it grow. All this required was a modest initial commitment by someone who cared about this baby girl, an inexpensive investment vehicle, and a lot of faith and patience.

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Obviously the numbers won't be exactly what I've calculated, because the future is always unknown. But based on plus years of history, I believe this scenario is very possible. It's a testament to the power of long-term compounding coupled with lots of patience. Here's another catch: Inflation will make these very impressive numbers much more modest far into the future.

However, Charlotte probably will be able to add to her investments through her adult life. This made a difference, but not as much as you probably think.

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That's because those very early parental investments had so many more years to grow. Like all industries, business has its own set of terms.

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Since learning about and understanding how businesses work is crucial to success, even as a small one-person run business, it's important to know these terms. Return on investment represents the financial benefit received from an investment. Basically, it's a measure of what you get back compared to what you put in.

It's used in many areas of finance, as well as in business. In business, it's most often used to determine the effectiveness of marking, although that's not the only area you can measure ROI.

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Other business investments, such as equipment and services should have a favorable ROI. When it comes to ROI, your goal is to have maximum return for minimal investment. You want to get more back than what you put in. The goal is to have a high ROI. It is usually represented as a ratio and obtained by dividing the gain earned from the investment by the investment amount.

However, you should consider ROI or benefits of any expense you have. How much will a new, faster computer contribute to your business? Does the money you spend on a virtual assistant lead to your ability to earn more than if you didn't have her? Further, while ROI is generally attached to financial investment, it doesn't hurt to consider time as an investment.

GP responsibilities include: - Raising funds from LPs - Sourcing top startups - Performing due diligence - Investing fund capital in high-promise startups - Delivering returns back to investors in the fund LPs - Providing value-add to fund portfolio companies beyond just capital, including introductions, advice, introductions to follow-on investors, etc.

Investing in larger VC funds comes with advantages and disadvantages. Cons: - Huge funds frequently fail to deliver market-beating returns , as there is sometimes more capital to deploy than high-promise startups to invest in - Large funds are less likely to invest in early-stage startups, which are a riskier investment than later-stage startups, but have a greater potential for outsized returns.

Like individual startup investors, fund managers tend to diversify each VC fund by investing in multiple startups within different industries, in order to maximize their chances of landing on a startup that generates returns which more than compensate for all failed investments. VC funds are structured under the assumption that fund managers will invest in new companies over a period of years, deploy all or nearly all of the capital in a fund within 5 years, and return all capital to investors within 10 years.

Funds have a long lifetime because it usually takes years for the startups they invest into mature and grow in value. For example, many GPs will hold off on closing out a fund by liquidating the investments within it if a liquidity event has not yet occurred for promising startups within the fund. In exchange for investing your money and managing the fund, VC firms typically charge management fees and carried interest carry , on a percentage of the profits made on fund investments.

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Top VC funds sometimes employ a 3-and model, and are able to justify these higher fees because their track record still leaves investors with greater net returns. Investors in a VC fund profit if the returns from successful startups outweigh the losses from failed startups. This does not mean that the majority of the startups within the fund have to be successful — often, one big winner within a fund can make up for a portfolio full of losses. Fund managers can choose to liquidate all or part of a fund in order to pull the capital out and distribute profits to investors.

This can happen when a company within the fund IPOs, is acquired, etc. This is an example of power law distribution.

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In venture capital, power law distribution dictates that the most successful fund will generate a higher rate of return than all the other funds combined, the second best fund will generate a higher return than the third best fund and all the other funds combined, and so on. Startup performance also follows this trend, as discussed in Chapter 1 of this guide. Unfortunately, top VC firms are nearly impossible to invest in as a newcomer, as the original LPs often become repeat investors, and space in these funds is extremely limited.

Venture capital is an ideal financing structure for startups that need capital to scale and will likely spend a significant amount of time in the red to build their business into an extraordinarily profitable company. Big name companies like Apple, Amazon, Facebook, and Google were once venture-backed startups. Unlike car dealerships and airlines — companies with valuable physical assets and more predictable cash flows — startups typically have little collateral to offer against a traditional loan. By raising venture capital rather than taking out a loan, startups can raise money that they are under no obligation to repay.

However, the potential cost of accepting that money is higher — while traditional loans have fixed interest rates, startup equity investors are buying a percentage of the company from the founders. This means that the founders are giving investors rights to a percentage of the company profits in perpetuity, which could amount to a lot of money if they are successful.

A lender will typically charge 7.