Article contributed by Joe Robert.
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There are two main approaches when investing in crypto assets: investing in individual tokens and investing in crypto funds. A fund is a portfolio of assets carefully chosen and managed by the strategy team according to its strategy.
There are a few situations for investing in a crypto fund rather than in individual cryptocurrencies, or at least including a fund in your portfolio. First of all, it is managed by a group of investors that follow the market direction and are abreast of the latest news and factors that drive the token prices. Secondly, funds are more tax-efficient and cost-effective than trading tokens in exchanges. Finally, they also offer diversification, reducing the risks and limiting your exposure to the sector.
There are hundreds of funds managed by different companies, and with different objectives, so you need to do your own due diligence when choosing which one to invest in. Our approach consists in analyzing four different sections of a fund:
Step 1: Operations & Thesis
- What is the allocation of capital? (Growth, Angel, Seed, A-round, Public Markets, Fund of funds)
- What sector/industry do they invest in? Thesis?
- What is the average length of their investments?
- What are their exit strategy and end goals?
Each fund has a different strategy. For example, if you allocate your funds in a yield fund, you should expect predictable returns and a 6% to 10% APY as of today’s rates. Meanwhile, if you invest in a leveraged fund, you should expect higher volatility. So there are funds with diverse objectives, and you should define what you’re looking for before investing.
After this, you should check the investment thesis behind what the fund is allocating money to, the length of the investments (i.e., swing trades, long-term), and their exit strategies to see if they fit with your investor profile.
Step 2: Team (Background, Management & Experience)
- How long have they been actively engaged in venture investing?
- How well do they know the sector they are currently investing in?
- What is their track record?
- Have they been through any recession or bear market?
- What were their worst deals? How did they overcome them?
It is vital to understand who are the people managing your assets. Ideally, you should look for a fund where the team has been engaged in venture capital and has a blockchain or crypto-related background. Of course, a long-term successful track record is also a plus, but since this is an emerging market, it might be hard to find a fund that meets this requirement.
Another essential aspect to consider is whether the team has overcome recession periods. The best funds are those that can deal with your funds during the worst scenarios.
Step 3: The Fund & Terms
- What is the minimum application?
- How do they structure their deals?
- Based on the fund size, how will that achieve target returns? Diminishing returns on greater capital
- What is the operator’s fee structure?
Have a quick understanding of how much you need to invest in the fund and their deals’ structure. Also, if the fund has a greater capital, you should expect diminishing returns. Also, always check for the fees involved in the process: asset management, performance, refinance, and disposition.
Step 4: General aspects
Assess all the fund documents. Check that all documents look professional and were prepared by a reputable syndication attorney. When reviewing the Investment Memorandum, ensure it is professionally written. Ask yourself whether the fund is giving you enough time and attention. Are they answering all your questions?
Also, don’t forget to evaluate the competitors and sectors that the VC fund is investing in. Does the fund has a competitive edge? And does the overall deal make sense in terms of returns, durations, the fund’s integrity, background, and the proposed investment thesis?
Before investing in a crypto fund, you should gain enough trust to invest with them, so perform your due diligence carefully. After all, it’s your money.
Check out my site here – https://robertventures.com/
Joe Robert is currently the Chief Executive Officer of Robert Ventures, with over 20 years of asset management experience. Since he has started Joe has created predictable double-digit returns for investors & Partners. Joe has invested in seed rounds with equity and tokens, along with a portfolio of Bitcoin, Ethereum, and other top cryptocurrencies.
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