Five Simple Rules to Becoming an Early-Stage Investing God
Sup, everyone!
If you’re anything like me (probably better if not), you’ll nearly gag whenever you read FIVE SIMPLE RULES TO ACHIEVE XYZ guides. Honestly, I can’t stand them and fail to see how these guides add any value to anyone. People are different, function differently, and quite often perceive different things to be true — I don’t see how it could be possible for simple sets of rules to help you easily achieve things that are difficult to achieve. Should you ever come across Ten Simple Rules To or Five Key Hacks to Help You, your brain should snap and think: what are they trying to sell? Sometimes they’ll attempt to sell a product, sometimes some idiotic conviction, but most often they try to clickbait you because apparently it turns them on (???) With that said, I hope my title click baited you into reading this article. More seriously tho, I hope to have annoyed you a bit and set the proper tone for my however-many considerations to early-stage investing.
Early
The Cambridge Dictionary defines early as near the beginning of a period of time, or before the usual, expected, or planned time. In terms of investing, I personally prefer early defined as of or belonging to an initial stage of development. Many of us seem to fail to realise that early-stage investments are exactly that: investments into the very early stages of a development. Give your (early-stage) investments time to develop. Don’t expect them to 100x tomorrow, things take time. If however you’re looking for get-rich-quick-schemes, there’s plenty out there, good luck :)
Investment
Many of you likely have heard of Benjamin Graham’s The Intelligent Investor, a book that we all purchased in hopes of unlocking the Ten Simple Keys to becoming the next Wolf of Wall Street (OK, maybe just me). In all fairness, The Intelligent Investor is one of the most sensible and sobering books for novice and experienced investors alike to have at their disposal. One of Graham’s quotations that stuck with me is: […] investing is a unique kind of casino — one where you cannot lose in the end, so long as you play only by the rules that put the odds squarely in your favour. I find this quotation quite intriguing, for I agree that investing sometimes resemble a casino, i.e. a playground for people with money — which could be what Graham is trying to get at. Now, putting the odds squarely in your favour is not easy — but can be achieved, unlike at a regular casino. Do your research, stick with your early-stage projects, have a tad of luck, and in the end you’ll probably win. However, throw your money at every single early-stage opportunity, pull your money immediately after it starts falling, let stress and irritation boil up, and you’ll probably lose in the long-term.
First of all, yes you can make fun of me because I draw like a five-year-old. This sketch will do for the sake of my argument. Don’t be the following person:
Step 1: Notices a project has gathered enough hype → throws bags of money at it (green arrow)
Step 2: Project doesn’t 100x right away & may lose some momentum → frantically tries to cut losses and withdraws money from project (red arrow)
Step 3: Notices a different project that has gathered some hype and again throws money at it (green arrow)
Step 4: Rinse and Repeat.
This person neither has any reason to enter nor exit their investments, besides whatever shilling they might have read on some forum from a 12 year old kid. Especially during recent times (think: pandemic and war), markets have been shaky, and a whole sector might just not do well for some time; even when a specific project itself is fantastic, it may get dragged down by the entire market. THIS DOES NOT INDICATE THAT THE PROJECT ITSELF IS BAD. Once again, time is your best friend—do not get discouraged by short-term price movements.
Risk versus Reward
Early-stage opportunities are extremely risky by nature. There’s still many things for early-stage projects to figure out and many things that could potentially go wrong. Did you know that around 20% of all startups fail within their first year and around 60% within their first three years? This means that for any early-stage investor, a large portion of their portfolio has high chances of going to zero. However, the few ones that do survive, are quite likely to yield returns greater than anything you’d get anywhere else. Jake, one of our co-founders, put it this way: As we’ve seen in the past, the VC style of investing means that 80% of your gains are made up from 20% of your positions. Thank you, Jake!
Public versus Private Sale
If you’ve been around for some of Lithium’s launches, you’ve noticed that we started accommodating both private and public rounds for some projects. I’ve seen a lot of confusion from investors that worries me.
As a rule of thumb in fundraising: private round comes before public round, private token price is lower than public token price, but public round has favourable vesting terms to private round.
Whether you value paying less for a token and having it locked up longer or vice versa is essentially up to each investor’s personal preferences. Something I however really need to clarify is the following: Token prices are often in the $0.00s, so you might be tempted to think about prices in a completely wrong way.
Assume the token in the private round costs $0.10 and $0.14 in the public round. Please, please, don’t think in terms of cents. Think in terms of percent. Sure, a difference of four cents might not be much, but a 40% difference is quite hefty. Say you invest $1000 — do you think the public round will be 4 cents or 40% more expensive than the private round? I’m sure you can do the maths. Think about the numbers, don’t just glance over them.
Research
Google has pretty much everything you need. Search. Read. Think.
I am certain that you will find enough information on any project and its space to form a new opinion or persuade/dissuade yourself of an existing opinion. Call me old-fashioned, but I simply won’t advise anyone to throw their money at a project without doing any prior research. Although Lithium diligently selects the projects to launch on our pad, we select these projects based on long-term compatibility. Do your own research to check if the projects aligns with your preferences as well. If you’re an extremely short-term investor that APEs into absolutely everything, our ideals and motivations for being in the crypto space might not align.
I hope you enjoyed my however-many rules on how to become an early-stage investing god and triple your inheritance by tomorrow afternoon. In spite of me being extra salty today, I hope to have at least provoked you to think about your strategy and this crazy early-stage space that we are part of. Ultimately, I really only want to help you achieve your financials goals — this probably won’t happen tomorrow, but better late than never.
WAGMI
Team Lithium x Seb
