Venture Capital (VC) has been a popular target of derision in the cryptocurrency space, especially since Jack Dorsey’s infamous re-tweet on 21st December showing Silicone Valley VCs getting fat off of web 3.0 while retail investors suffer. Add to that the falling out between Cardstarter, a VC-type launchpad for crypto projects, and Sundae Swap and the atmosphere has become a little heated.
It’s a very complicated area, as are most areas involving significant profit margins, but my take on it is that VCs have a definite role to play in both helping to fund the space as well as helping retail investors.
Typically VC funds enter projects very early on, way before they have a live product and usually when their communities are very small.
Some offer real support to the projects they invest in, whereas others promise them practically useless connections with Key Opinion Leaders (KOLs) and exposure on their Twitter and Discord feeds. If you filter out the VCs that offer KOL access and focus on those that are more serious they can help cut through a lot of the dead-end projects for you.
Every day there’s an avalanche of new projects that are fighting for market share and exposure. Some are incredibly well thought out, whereas others are cashing in on the metaverse/NFT/IDO hype. So how do you find the ones that are worth backing?
You can follow Crypto-Twitter influencers, watch YouTube channels, learn technical analysis, and still, you’re unsure of the validity of the information you’re basing your decisions on. Everyone offering advice simultaneously has a caveat that it’s for ‘entertainment purposes’ only and not financial advice. Also, how do you know if they’re being paid to promote a project?
DYOR – Do Your Own Research, but how?
Research the team? What if they’re using pseudonyms and avatars? Does that mean the project is going to be a rug pull? No. Rug pulls hide behind anonymity, but then so do many project members in crypto. It’s hard to navigate the space with much certainty, that’s where you need help from the professionals.
Retail investors can’t do due diligence on a project very effectively, but it’s the bread and butter of VCs. They’re not going to hand over significant amounts of money to a faceless project with no fundamentals. They’ll have spoken with team members, ascertained their ability to deliver on their aims, and conducted an investment risk assessment, or at least the serious ones will have.
Yes, they’ll get in at a much lower price than you will. Yes, they’ll look to get the project pumping as soon as they can, but their time horizon is far further out than an influencer who’s looking to pump and dump. VCs are interested in making money and the more they can make the better.
Why would they invest in a project only to sell off their share in the early 10x stages? They’ll take some profit for sure, but most VCs are looking to increase their portfolios and if they believe strongly enough in the project they’ll hold for a lot longer than most retail investors.
No one, not even Mr. Dorsey is going to change the dynamics of the way VCs invest in crypto projects. They deserve their gains as they take significant risks and help to make some projects sustainable that would otherwise have failed. Sure they’re greedy as hell, but then so are retail investors.
Rather than viewing VCs as inherently bad, it’s better to look for which ones are serious and follow their investments. That will help retail investors avoid rug pulls and learn to follow research-based approaches rather than their friends down at the pub.