In both financial and crypto investing there are investors with all kinds of risk appetite, investment philosophies and strategies. In 1934, Benjamin Graham and David Dodd defined in their book the difference between speculation and investing: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” Under this definition, almost all ICOs or cryptocurrencies fall under speculative investments.
With the ICO boom tuning down a bit from it’s peak, the speculative investors with high risk appetite have pretty much left the market, or at least are not actively investing anymore. Arranging an ICO might not necessarily the best vehicle for raising funds as a blockchain start-up, if the founders are willing to give up equity or both tokens and equity in return for money from private investors, crypto funds or VC’s. How should you approach these investors who are mainly value-oriented investors, even though the might have a relatively high risk appetite? Let’s take a look at the main differences between value-oriented investors and speculators as target investor segments in crypto and blockchain:
Intrinsic value vs. selling to a ‘greater fool’ later
The first thing value-oriented investors want to understand about an investment, is whether the intrinsic value of it is greater than the price it’s being sold for. In some asset types this can be estimated with DCF valuation method, but in early-stage ventures several methods might need to be used as there might not be any hard facts or revenue figures to base the value of the business on. Speculators on the other hand, are generally looking for great fluctuations in the price no matter what the intrinsic value of the investment is, to be able to sell to a ‘greater fool’ later with a higher price.
Evidence of growth vs. hype
Value-oriented investors would like to see some evidence of growth usually in the form of customers or users. For many crypto platforms and ecosystems this is the first criteria that start-ups fail to fill, as there is often no MVP or testnet in place and therefore no users during the fundraising. Speculators don’t place that much value on the evidence of growth - they are more interested in things like hype around the technology that is being built. This has lead to many ICOs buying users to their social media communities, primarily Telegram, during their token sales to build the picture of hype and great community support, to attract investors.
Long-term vs. short-term
For value-oriented investors, the timeframe of their investments range from anywhere between a few years to decades. Typically regarding start-up investments, they want to see the value being realized with a potential exit as a target in a few years. Speculators rely more on the price fluctuation than the intrinsic value of the investment, and hence they are more interested in short-term profits.
Do they have anything in common then?
Absolutely: both value-oriented investors and speculators in the ICO and crypto space want to see great marketing materials that cover all the aspects of project. If you need help with assessing how good your blockchain start-up or ICO marketing materials are, feel free to add me on LinkedIn or schedule a free consultation to discuss further!