Vincent A Saulys' Blog
Why Crypto Allows Anybody to be a VC
Tags: business crypto
October 18, 2021

Venture Capital is the business of making 20 small bets in the hopes that one does 100x.

That fundamental fact explains a lot of why VC firms act so weird and invest in so many "moonshots."

The problem with such a mindset is that you lose 19 out of 20 bets and often in short order. It's tough to loose 95% of your capital in the first five years for one super bet ten years in the future.

It also requires a lot of capital. Most businesses will not consider it worth taking outside investment under $50 k. That means you need twenty times $50 k or $1 million dollars -- coincidentally the amount you need to be an accredited investor and legally make these investments. But if all works out, that $50 k becomes $5 million.

Crypto offers an interesting avenue to making a similar bet. You can invest any fractional amount into a traded token with the hopes of it going up 100x or a similar amount.

But still, you need a lot of money to make the math work. $100 is simply too small. Even at 100x, it's "just" $10k. Is that worth the $1900 in losses and effort required to find that one home run? I'd wager its not and that you're better off selling your labor as a wage.

Better is to put up $1k so that you can try and make $100k. But that requires putting in $20k with $19k expected to go to zero. That's a more reasonable amount of capital to have for investing but damn if its not unnerving to possibly lose.

It's for this reason that Dollar Cost Averaging (DCA) makes a lot more sense. For crypto, that would be regularly investing in blue chip crypto such as Bitcoin or Ethereum. For stocks, that would be index funds.

In short, taking wide risky bets does not make sense unless you already have a lot of capital to risk.

Share On:
EmailTwitterHackerNewsRedditLinkedIn