#002: Invest Like Venture Capitalists (Part 2/4): Why Crypto Should Be Part of Your Portfolio — Even If You Are Not a Fan of it.
How I invest alongside the top-tier venture capitalists to increase my chance to hit a big win.
In this post, I show you why Crypto is a central part of my strategy to hit a life-changing (= minimum 1000X) return even though I don’t consider myself to be a “Crypto fanboy”.
If you understand how to look at Crypto objectively as an unemotional investment, you can invest in it as part of a clear strategy with the goal to hit a financial home run.
Unfortunately, most people think emotionally about Crypto by being either “pro Crypto“ or thinking they don’t “believe in Crypto“.
You can download the full content of this article as a PDF-presentation at the bottom of this post.
Financial home runs don’t happen by accident. They are part of a rigorously executed strategy.
In the previous post (part 1/4) I explained my investment thesis to hit a 1000X return.
Thereby, I actively control my risk by investing a maximum of 5% of my net worth in such “high-risk / high-return“ investments. If you missed part 1, you can read it here.
I also explained why following the venture capitalists’ (a.k.a. VCs) power law increases your chances to hit a massive win.
Now, let’s focus on why I execute the VC approach to invest in Crypto.
Why I invest in Crypto?
Here, I am using the terms “Crypto“ and “Web3“ interchangeably referring to blockchain token-based technologies or economies.
(When going into details, mixing those terms clearly might not be appropriate but for this article it serves the purpose.)
Three objective reasons to invest in Crypto
Venture capitalists generally assess three fundamental criteria to evaluate if they can gain conviction about a company or project to invest in.
Those criteria essentially are
- Market
- Team
- Product
Reason 1: Massive market potential
Let’s first focus on market (team and product will be discussed later). By “market” I mean market potential.
While for traditional investors the current market size might be decisive, for VC investments the future market size is relevant and thus, the market growth potential.
You rather invest in a product that today is very successful in a tiny niche market — but where the market might grow 1000X over the next decade — than investing in a mildly successful product that already operates in a massive market:
The growth potential of the product in its — hopefully massively growing — market is a critical component to assess when investing.
A market for an existing product can be very small today. But if it can be projected that this market might be huge in 10 years, it can be very attractive to invest in such a product.
Think about the market for mobile apps: The iPhone was launched 2007 and the Apple App Store launched 2008 with 500 apps available to download.
Compared to today only few people were using the iPhone and iPhone apps.
But if you invested in apps back then when the market was tiny you might have very well made a fortune by today where entire billion-dollar businesses are built “on top of an app” such as Uber, Whatsapp or Instagram.
As Sam Altman (former president of “Y Combinator” and today’s CEO of OpenAI) says, the big question to answer here is which markets are tiny today that will be trillion(!!)-dollar industries tomorrow?
An indicator for such a trend is if today (when the market is still tiny) the users who already use a product or technology use it obsessively.
This was the case for the iPhone in its early days around 2008, it was the case for the internet in its early days around 1997 and it is the case for the Crypto industry today.
In 1997 around 70 million people were using the internet while today it is used by around 5 billion (these estimates vary depending on the source) while the global population is around 8 billion.
Regarding Web3 adoption, it is estimated that there are about 250–300 million users today.
(Note that it is not straight-forward to estimate this number as, for instance, users can have multiple Crypto-Wallets).
Therefore, we are at a current user adoption of 3% — 4% compared to the overall human population or about 5% — 6% relative to the current number of global internet users.
Moreover, adoption is accelerated as cryptocurrencies are being regulated by politics and governments around the globe, which will enable corporations and regulated institutions to invest in Crypto.
Therefore, individuals and retail investors like you and me have the chance to invest in a fast growing industry that is being boosted by consumers, governments, investors and corporations at the same time.
The previous time a nascent trend was pushed on so many levels to become a gigantic industry was “Web2 ”, i.e. the “read-write“ interactive and mobile internet.
And the time before Web2 was “Web1”, i.e. the static ready-only internet.
Today, we are still in the very early days of “Web3“, i.e. the “read-write-trust-verifiable“ internet and if history repeats a third time, this might be the investment opportunity that you don’t want to miss.
Reason 2: Accessibility to investments
It might never have been easier and simpler to invest in a trend, technology, company or project with such massive upside potential like Crypto.
Literally, all you need is an internet connection.
Obviously, there are different ways to invest in Crypto; some might be more user-friendly than others.
However, the main challenge is not how to make an investment itself, but rather the knowledge or recipe to follow when investing, which is exactly what I am demystifying here.
If you have a clear and focused approach to Crypto-investing then the aspect of which tool or platform to use often becomes straight-forward;
For example, because there might only be one way to buy a specific token or because a token might be offered on a platform you are already using.
Reason 3: Co-investing with top-tier VCs
Before the era of Web3 normal people were prevented from investing in transformative technologies; we could only invest in incremental technologies.
For example, as a retail investor in 1999 you could buy shares from IBM or Microsoft but not from Google.
In 2005 you could buy shares from Google but not yet from Facebook until they IPO’ed in 2012.
Yet, shares from Airbnb were not publicly traded until 2020.
Until a company does an IPO (i.e. initial public offering) only privileged investors such as some early angel investors, VCs or institutional investors can access those shares through the private-equity market.
Once those shares are publicly traded the risk but also the potential return are much smaller.
Moreover, publicly listed companies execute on incremental roadmaps and have to publish quarterly results.
However many startups, as all of the today’s publicly traded companies were at the beginning, typically execute against bold transformative roadmaps.
They aim at fundamentally changing how an industry operates or they even re-invent how things are done in a more effective, cheaper or faster way.
In the Crypto-era, finally, retail investors are able to invest alongside any other investor regardless if you are high-net-worth, accredited or not.
Thus, you are able to invest in exactly the same companies, startups or projects as top-tier VCs do, provided that the team behind a Crypto-project issues a token that can be traded publicly (which many project-teams do).
However,
Why would or should you care about investing along top-tier VCs?
Because those investors shape the future over and over again and have the experience in assessing project, teams and markets that can become gigantic a decade later.
You might think that you can search for anything today because of “Google“ but another way to look at it is that it is because some (top-tier) VCs chose to back Google when it was still a very fragile and risky venture.
And guess what?
Literally, the same (Silicon Valley) top-tier VCs are the ones who backed Amazon, Facebook, Airbnb, Whatsapp, Coinbase, Instagram, Twitter, Uber, Tesla, SpaceX and many more mutli-billion-dollar companies of today.
And one of the top-tier firms of that illustrated group of future-shaping VCs (Sequoia Capital) was already instrumental in backing Apple in 1978 when Steve Jobs was starting out.
In short, if you could invest alongside these top-tier VCs, then you probably should, especially if you are free to choose your “ticket-size“, i.e. the amount you want to invest.
With Crypto you are not exactly able to invest in every company of their portfolio but at least in some.
This does not mean you are guaranteed to win the lottery but you massively increase your chances to win.
Consider the following analogy: If between 1995 and 2015 you had the opportunity to invest in any company (private or public), which ones should you have chosen to invest in?
Obviously the billion-dollar companies listed above. How, could you have spotted them at a time where they were just starting out?
Well, by investing alongside the top-tier investors at that time.
Unless you knew the founders, this would have been pretty much the only way to identify those companies and have faith and conviction in their team, product and future market potential since VC-investors have dedicated people who are experts in assessing exactly those characteristics of a startup.
In the following posts, you will learn,
- Part 3/4: the framework I apply in practice while quantifying 3 scenarios: worst-case, modest-case and best-case with numbers, percentages of potential gains and losses per individual investment and how to minimize regrets;
- Part 4/4: How to assess and select individual investments in practice, how and where to buy them.
Key takeaways
- Don’t be “pro“ or “con“ Crypto. Instead consider it unemotionally as a central part of a strategy to hit a financial home run.
- Venture capitalists apply 3 main criteria when they invest: Market potential, team and product. They have professionals to assess those criteria. You can recycle their know-how.
- Crypto is the first time in history, where you and me can invest alongside the most successful VCs, i.e. the ones that have previously invested in Apple, Google, Uber and Airbnb. Think carefully if you want to miss this opportunity.
Don’t miss the next post: Follow me on Medium or subscribe to this news letter here. Learn the details of my strategy and how I maximize my chances to hit a life-changing return.
PDF / Slides
Download the entire content (parts 1 to 4) as a PDF-presentation here (feel free to share it).
If you’d like to learn more, there are 3 ways I can help you:
Disclaimer
The views expressed here are those of the author. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, the author has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest. Any investments or companies mentioned, referred to, or described should not be considered as investment recommendation, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
