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 firstname.lastname@example.org. Just remember, we can only answer your general questions for information and strategy. We can’t offer personal advice.
Q: What’s the worst mistake a startup investor could make? What’s the worst mistake a crypto investor could make?
A: The No. 1 mistake I see startup investors make is falling in love with a single deal and betting too much on that one company.
No matter how promising it seems at the time, there is always a risk of that startup failing.
You want to build a portfolio of at least 10 to 20 quality startups to give yourself a good chance of getting a big exit event. When you’re investing in startups worth $5 million to $10 million each, it takes only one big win for the overall portfolio to pay off. I’ve invested in more than 80 early-stage deals. And I expect around only 12 of them to pay off significantly.
You have to become comfortable with the fact that many startups will fail – no matter how promising they may seem. It takes a little while for most people to get used to this.
You also have to go into startup investments knowing that you’ll be holding for years. For the most part, these investments are not liquid, meaning you can’t sell them easily.
In terms of cryptocurrency, the big mistakes are all emotional. Human instincts often lead us to buy high and sell low. You have to go in with a very disciplined approach. Here are my tips for success.
- Invest only a small portion of your overall portfolio in crypto
- Buy when sentiment is low
- Use tools like the relative strength index to buy when markets are oversold
- Expect to hold for years
- Don’t invest money you can’t afford to lose
+ Early Investing Co-Founder Adam Sharp
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