#5 - Strategy #2: Venture Investment [Trading]

 In the previous article, we talked about the most basic investment strategy in the cryptocurrency market, which is “Buy and Hodl”. Choosing which strategies to apply depends on the time limit, resources, qualifications, skills and personal preferences of each person. In this article, I will introduce to everyone the second strategy.

In the previous article, we talked about the most basic investment strategy in the cryptocurrency market, which is “Buy and Hodl”. Choosing which strategies to apply depends on the time limit, resources, qualifications, skills and personal preferences of each person.

Although the strategy I wrote in the previous article, let's call it strategy #1, is the easiest and takes the least time, it has many disadvantages. One of the biggest limitations of that strategy is its limited growth potential. It will be very difficult to see a 10-20x increase.

This is why my personal preference is to “play like a VC” in this strategy. In this article, I will dive deeper into the basics.

How VCs Make Money

You should know that VCs are some of the wealthiest investment managers in the world. You may be familiar with big names like Ben Horowitz from Andreessen Horowitz, Peter Thiel from Founders Fund, and of course Fred Wilson from Union Square Ventures.

VCs invest in early-stage startups when they are still in their infancy before they are known to the public as viable investments. They are VCs who invest in the team, the proposed vision of the startup, and hope that they can successfully execute on their vision.

Often, the company has some early traction and signs of product-market fit. But sometimes the team is completely new, and the VCs are betting on the experience, track record, agility, and overall execution ability of the team.

VCs invest with the understanding that not everything will go according to plan, but the startup teams will be smart enough to build their products and overcome the various challenges they may face now and in the future.

These VCs make money when a company goes public or is acquired. This would be considered a homerun. They are looking for 10-20X returns. However, they know that there will not always be results to take home. They will get some base hits, some doubles, and of course they will also let their investment go to zero.

But all of that is fine, because if you play the game right, it doesn’t matter. Let’s say you size your investments appropriately (read #3) and you make a total of 10 investments of the same size in any given year. Then all you have to do is wait and get all the money you put in plus some other profit — even if all your other investments are zero.

Using the VC Playbook for Crypto

In crypto, we can apply the same thing. We look for hidden gems with very low valuations. We call these gems “small caps”. Generally, we look to get into coins with a market cap of less than $10 million that have explosive growth potential before anyone else notices they’re available.

There are many advantages when you apply the VC playbook to crypto. One of the main advantages of crypto is that unlike VC investing, you can invest very small amounts, $100 to $500, and take risks with that amount.

Another benefit is that crypto is publicly traded and offered. So you don’t have to be a famous VC to get access to a deal. You just go to the exchange where the coin is traded, buy it, and keep it in your wallet. There is no choice and no negotiation involved.

Finally, and in my opinion, the most interesting aspect of using the VC playbook to invest in crypto is the liquidity of the investment you put your money into. Venture capitalists often have to wait 5 to 10 years for an investment to mature and be acquired or taken public.

With crypto, if an investment increases 10x overnight, you can sell it immediately and profit from it.

How to Find Winners

One of the main differences between crypto investment strategy #1 (investing in large coins) and strategy #2 (playing VC) is the amount of time required and the level of work involved.

It takes more time and resources to find winners when using strategy #2. You have to constantly monitor exchanges for new listings. Then you have to research each new coin to see if it is a viable candidate.

Typically, the coin or project will be relatively new and unproven, so many of the metrics we need to use to evaluate it are not yet available.

You will want to talk to the founders and management team and ask questions like:

• Does the team have a track record of working with blockchain technologies?
• What is the makeup of the team like and is there a good mix of leaders, technologists, business developers, and marketers?
• Is the team trustworthy and has a solid reputation that they need to protect what they are creating?

Typically, crypto teams are quite public and relatively accessible. So it is not impossible to join their telegram community and get a pre-set call with a senior team member.

And finally, and perhaps most importantly, you need to look for a short-term catalyst. A short-term catalyst is any event that could cause the price of a coin to increase in a short period of time.

Catalysts can include upcoming listings on a major exchange, mainnet releases, product launches, unlocking new features (like staking), and upcoming major partnerships for the project.

As you can see, strategy number 2 requires more time and resources than strategy number 1. (This strategy is only effective when you invest enough resources and bet and allocate capital in the most beneficial way for yourself). However, the benefits of strategy number 2 are MUCH greater and have the potential to change your life.

This concludes the sharing about crypto investment strategy number 2 “Play like a venture capitalist”.

In the next article, I will share with you, investment strategy number 3: “Trader”.

Hope this information will help you and wish you good luck and safe investing!

Editor: TonyCapital Team

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