Buyer Beware

I am grateful for the luxury of being able to ‘piss it all away’ as an investor and trader in the United States.

One of my favorite lines in a great movie ‘Let it Ride‘ happens right after Richard Dreyfuss has a gut feeling for a horse and bets it all:

There is one investing rule to rule them all when people ask me about risky assets – buyer beware.

Since 1997, we have watched wave after wave of the digital boom and bust. Today that digital fever has centered on crypto assets and now tokens.

It seems like Fred Wilson is getting the questions as well and wrote a good piece about ‘buyer beware‘. These two paragraphs specifically about the crypto boom:

Avoid scams and things that feel like scams. Scams are not limited to the crypto sector. They exist in all forms of investing (and many other sectors too). As VCs we often get pitched an opportunity that has red flags all over it. You learn quickly to delete those emails and not return those calls. But an emerging sector, like crypto, where there is less regulation, scrutiny, due diligence, and knowledge, scams are going to be more common. There have already been a bunch of well publicized scams in the crypto sector and I would bet that one or more successfully funded ICOs that have already been done will turn out to have been a scam in some measure. There is a difference between a intentional scam and an accidental scam, but if you are the investor, you were scammed in both instances. Be on the lookout for scams and avoid them. The best red flag for a scam is lack of detail on the technology, how it will work, and a lack of credibility of the people behind the project. Do you homework on these investments and make sure the technology and the people are credible before you part with your money.

Look for projects where the technology is well specified and is working in the wild. It is much easier as a VC to invest in companies where the product has been shipped and you can use it. I would venture to guess that more than 80% of USV’s investments over the years have been into companies where that was the case. You can use Bitcoin, you can use Ethereum, you can use Steem, you can use Zcash. These are fully functioning crypto assets that have been “shipped” and are widely used. That does not mean they will be successful, but it sure gives you more confidence that they might be successful. Investing on a white paper is way more risky than investing in a working technology that you can use yourself.

In the stock market, the marketers have taken over the SEC and things have been silly for a decade.

Take a look at oil versus the oil ETF and the leveraged oil ETF’s:

Returns over last 18 months…Crude Oil: +24%Crude ETF: -14%3x Crude ETN: -63%Know what u own & why u own it.

— Charlie Bilello, CMT (@charliebilello) Jun. 15 at 01:45 PM

Anyone with a brokerage account with an opinion or ‘feeling’ about oil could have been right and still ‘pissed it all away’.

While the bad behavior will never leave the system when money is on the line, everyone can build a ‘peloton’ of mentors to help them avoid silly investments, find the right asset to capitalize on a trend and hold their greed in check.

Also published on Medium.