- Chris Sacca highlighted the risks to amateur investors of backing startups.
- The billionaire venture capitalist pointed out that professionals often lose money.
- Sacca advised casual investors to spread their bets, avoid debt, and expect to fail.
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Investor Chris Sacca praised new rules allowing more people to bet on startups in a Twitter thread this week. However, he told amateur investors to exercise caution given the significant risks.
“Mom & Pop shouldn’t be shut out anymore,” Sacca said, after regulators expanded the definition of “accredited investor” and loosened restrictions on how much people can invest in crowdfunding rounds.
Yet early-stage companies rarely succeed, the Lowercase Capital founder and former “Shark Tank” star warned.
“Most startups shit the bed,” he said. “Don’t invest money that you can’t afford to lose.”
Sacca – an early investor in Uber, Twitter, and Instagram – pointed out professional investors back dozens of businesses to boost their chances of finding a winner.
“The real danger is when everyday folks put money into one of these companies, but can’t afford to place multiple bets,” he said. “Letting it all ride on one venture stacks the odds against you.”
Amateurs shouldn’t get cocky and expect to outsmart the pros either, Sacca cautioned.
“I’ve shattered the market, put up silly numbers, and have an insanely high hit-rate,” he said. “Yet I’m here to tell you that we still have companies go to zero.”
Angel investors and venture capitalists stomach losses even though they can help their portfolio companies find a buyer, execute a turnaround, or raise more money, Sacca continued.
“We have the paddles and can yell ‘Clear!” he said. “And yet, we still have patients flatline on the table.”
Sacca dismissed the idea that betting on startups should be “reserved for the rich.” Yet he felt compelled to offer some tips to help casual investors avoid being the “inevitable horror story.”
“Only invest what you can lose. Don’t borrow,” he said. “Spread it around multiple investments. And, overall, assume you are going to lose your money and be pleasantly surprised if you get back more than you put in. Good luck.”
Sacca offered similar advice to day traders earlier this year. He warned them not to borrow money to make trades, highlighting his experience of turning his student loans into $12 million, only to wake up $4 million in debt after his debts soured.
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