Early Investing

Mailbag: Bitcoin’s Surge; Finding Startup Potential

Mailbag: Bitcoin’s Surge; Finding Startup Potential

Editor’s Note: Welcome to the Early Investing Mailbag. Each week, we answer questions we think will help you learn about investing in pre-IPO startups and cryptocurrencies. If you have any questions for us, please email us at mailbag@earlyinvesting.com. Just remember, we can only answer your general questions for information and strategy. We can’t offer personal advice.

Q: Hi, Andy. First off, I like the fact that you’re not a crypto cheerleader. That said, what do you think of bitcoin’s latest run from the low 6’s to the high 7’s? Is it a fake-out or do you think this rally has legs? I’m in it for the long haul, so if you don’t think the recent price increases can be sustained, I’m not going to panic. Thanks a lot.

A: I find it interesting that bitcoin has been separating from the pack recently. It’s going up a lot faster than most other cryptocurrencies.

Today is no exception. As I write, bitcoin is up 3%. A quick glance at the other top cryptos on CoinMarketCap shows roughly 80% of them are down.

Bitcoin’s coattails are not quite strong enough to pull up the entire crypto market. That’s not a great sign. It means that crypto isn’t roaring back.

But that’s not a terrible thing either. And it does make sense.

Investors who sat out or sold these past few months are cautiously sticking their big toes back into the crypto waters. And they’re doing it by investing in the biggest, oldest and most well-known coin: bitcoin.

The next phase will be the crypto rally migrating to the smaller coins, which have seen less dramatic increases to date.

But that’s only if the crypto ecosystem continues to advance… if the regulators continue to make positive comments…

And if no one gets hacked – an X-factor that’s hard to predict. (Unfortunately, hacks still occur, although exchanges are steadily upgrading their security protocols – a very welcome trend.)

Bitcoin is still available at a great price point. But the real bargains are in the legit altcoins. I don’t think these low prices will be sticking around for much longer.

+ Early Investing Co-Founder Andy Gordon

Q: There are so many places to look for pre-IPO startups to invest in. What is your process like? How do you keep track of everything? And what catches your eye?

A: This won’t come as a shock to anyone who knows me, but my general process involves food and technology. Thanks to my new Google Home Mini, I begin each morning by asking Google to turn on my TV (usually Golic and Wingo) and to give me the price of bitcoin and other cryptocurrencies.

Sometimes Google gives me the prices. Sometimes Google hands me over to Mr. Satoshi for the crypto prices. Then I grab breakfast – peanut butter oatmeal (don’t knock it until you try it!), a banana and orange juice – and sit down at my computer so I can visit a crowdfunding platform and click through the site.

Adam Sharp suggested several crowdfunding platforms that Early Investing likes in a previous mailbag, so I won’t list them all again. But I try to do one crowdfunding portal a day. I use Google Docs to take notes. Evernote is handy for notes as well if you want to go that route. I like note-taking platforms that follow me from device to device (phone, computer, tablet etc.). I also like knowing I can access my notes from anywhere in the world. And my handwriting is terrible, so I can’t rely on old-fashioned pen and paper.

I don’t take notes on every company I see, however. In order for me to even consider taking notes on a company, there has to be something unique about it – something that differentiates it from the other companies seeking funding.

Sometimes, that unique thing is technology (as we’ve already established, I love technology). But often it has nothing to do with technology. Maybe the startup is targeting an interesting market or sector. Maybe it’s addressing a business or consumer need that I’ve already identified in the marketplace. Maybe it’s pitching a product or service I’ve never even heard of. Or maybe the founders are so exceptional, I’m interested in learning more. But I need that hook. And I need it before my oatmeal is done.

When I find a startup I’m interested in, I start taking my notes (this is the banana phase of breakfast). I start by trying to understand the product or service that’s being delivered. I note the market size and competition the company has identified. And then I do my own search to verify that information. I delve into the financials that have been presented and I look for comparables in the industry.

As I’m drinking my orange juice, I look at the founders closely. How well do they know the industry? Have they run startups before? Are they good at raising money? How have they executed their plan so far? Do they have a good team in place to help them execute their vision? What’s their track record?

That’s the start of my process for identifying good pre-IPO investments. I go on to do much more research, before sharing it with Andy and Adam. Sometimes, it turns into a recommendation!

That’s my process. Each person develops their own. Hopefully my breakfast routine gives you a good starting point.

+ Early Investing Senior Managing Editor Vin Narayanan

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