Readers are always emailing me, asking me to explain exactly how I maintain such an enviable track record. So here’s a step-by-step case example of how to make money on a startup.
Step 1: Find a hot sector
Investors often talk about the “rising tide” law of investing: better to own a mediocre company in a great sector than a great company in a terrible industry. When a sector gets hot, the crap often rises as fast (or faster) than the cream.
No sector is hotter right now than “CleanTech.” How hot? Big name venture capitalists are now raising cleantech-only funds. Bush discusses clean energy in every address he makes. And solar power — solar! have I gone back to the future? — stocks like Evergreen Solar (ESLR) and SunPower (SPWR) are doubles coming out of their IPOs.
Step 2: Create a pure play
Investors love pure plays. When a sector is hot, they want as much exposure as possible. Take online advertising. Sure, News Corp (NWS-A) owns MySpace — the fastest growing web site and community — but you have to buy a whole bunch of newspaper, cable, and satellite TV assets too. The performance of those assets will drown out any positive developments at MySpace. Instead, investors clamor for stocks like Yahoo (YHOO) and Google (GOOG) …they’re pure plays.
So for cleantech, I will start a company from scratch to ensure it’s a pure play.
Step 3: Find a great name
Now that we’ve found a hot sector and, we need to find a name that will inspire the masses. SunPower works well, conveying a sense of action and virility. Fortunately, the stars have truly aligned in this case as Pure Play connotes both a provider of cleanliness as well as a streamlined stock. Perfect!
A star is born: CleanTechPurePlay.com
Step 4: Find a strong management team
I, Mr Juggles will run this company. Done and done.
Step 5: Profit