Personal Finance

I invested in a biotech startup and it has epically failed and I'm looking at a 95% loss

Joey Frenette

Published: December 1, 2024 8:47 am

Sometimes, our more speculative moonshot bets blow up in ways we never envisioned them to. Undoubtedly, the startup investing game can be incredibly unforgiving, even for those who’ve put in more than their fair share of research and analysis. At the end of the day, those venture capital-esque types of plays can boom, but more often than not, they go bust. And when it does happen, investors need to know how to proceed forward, perhaps treating their investment blunder as a learning opportunity.

While the allure of significant gains may be worth the towering level of risk for some, it’s vital to have a backup plan in case things don’t work out in your favor. That means not allocating too large of a position of your portfolio to such a name that could realistically shed more than 90% of its value or even head to zero.

In this piece, we’ll check in on a Redditor who posted on r/fatFIRE in search of advice for recovering from a particularly devastating loss. The poster invested in a biotech startup that “effectively failed” and is projected to result in a 95% loss. To make matters worse, there’s no liquid market for the poster to offload their position. At this juncture, they’re wondering if they should reset their basis or wait as much as seven years before realizing the big loss.

Key Points About This Article

• Sometimes, it’s tougher to exit an investment that’s sourced in spectacular fashion.
• For those weighing a wide range of exit plans, consulting a financial pro is a must.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Startup investing blunders can happen. Taking one’s losses could prove tricky.

Undoubtedly, this is a tough situation to be in, but there are options as the poster looks to progress after the nasty setback. As always, anyone in a similar situation should consult the services of a financial adviser and tax professional, given the intricacies of the investment. Undoubtedly, this isn’t your run-of-the-mill case of investing in a speculative publicly traded stock that crashed.

If the poster is eager to claim their investment losses on their taxes sooner rather than later, simply abandoning their shares is always a possibility. I have no idea how much the poster invested in the startup or how much they made in the calendar year. But it’s worth bringing up with a financial planning pro before deciding on a course of action.

On the flip side, if the poster is in no rush to realize losses, perhaps because their income isn’t incredibly high for the year, perhaps alternative options can be explored. Perhaps negotiating with the startup to repurchase its shares at a discount could make sense if they’re open to it. Additionally, exchanging shares to an interested third party at a similarly hefty discount may make more sense than waiting things out.

The bottom line

I couldn’t recommend consulting a tax and financial adviser strong enough in this unfortunate and very complicated case. When it comes to making the right move, an adviser needs the full picture. That means getting a hold of the financials as well as the individual’s desires so they can proceed forward.

Readers considering making similar investments are aware of the financial consequences and headaches that could follow should a startup end up falling flat on its face. Indeed, startup and venture capital investing can be seen as exciting and the potential returns exhilarating, but the odds of a startup failure are incredibly high. Indeed, it won’t be everyone’s cup of tea, but for those who do decide to take the plunge, it’s wise to have an exit plan in mind in case things don’t pan out.