Exclusive Video: Bitcoin and the Crypto Market

Bitcoin cracked the $18,000 mark last week. And it’s primed to hit new all-time highs in the near future. So Andy Gordon and Vin Narayanan dusted off their crypto crystal ball for this special video. They let you know (among other things):

  • How long the bull run might last
  • What’s driving the market
  • Is it still safe to invest
  • And much, much more!


Thanks for watching!

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Bitcoin: This Bull Run Is Going to be Epic

The crypto bull market is heating up. Bitcoin is leading the way — it reached more than $18,000 this week. That’s approaching the all-time high of nearly $20,000.

The last time bitcoin was near this price was December of 2017. Bitcoin’s price had risen from $434 on January 1st 2016, to a peak of almost $20k in December of ‘17. It hasn’t really come close to that level since.

This is what bitcoin has done since 2009. It breaks out to a crazy new price, goes down, consolidates… then goes on another run to greater highs in a few years. But that cycle of rise, fall, consolidate has been part of why many investors dismissed it as too volatile — until this year.

2017 was bitcoin’s introduction to the broader investment world. Now everyone is getting comfortable with it. And all the necessary infrastructure to support big buyers is in place now. Fidelity and other huge players have serious operations ready to handle institutional money.

For this reason — and others discussed below — I think we’re going to see radical new highs for bitcoin in the next six months.

Ridiculously Bullish Environment

Right now we’ve got the most bullish environment for bitcoin I’ve ever seen. We have institutional investors gobbling up bitcoin, as I detailed in “Bitcoin is Looking Better Than Ever” on Oct 16th. 

These institutional investors are far more likely to buy and hold crypto long term. This is very different from the retail traders who were driving the bull market back in 2017. Retail traders are often willing to buy quick and sell quick — driving market instability. Having these institutional investors involved brings bitcoin newfound stability.

This time we’re seeing big money get involved. And if everybody decides they want a tiny slice of bitcoin in their portfolio, there’s going to be overwhelming demand. And that leads me to one of the most interesting — and underappreciated — factors at play. For a long time, bitcoin was too small for big players to even get involved. They would have moved the price too much (some still would). But as price and liquidity rise, it actually makes it possible for more institutions to get involved. Which then drives up the price again. It’s a virtuous cycle that bodes very well for bitcoin.

On top of the incredibly bullish institutional developments, we also have some great fundamental factors working for us.

  • The Federal Reserve running the printing machines at a fevered pace
  • Savings accounts yielding nothing
  • $17 trillion of government bonds with negative yields
  • An increasingly digital economy

Bitcoin has a LOT going for it right now. This is going to be a powerful adoption cycle. Every cycle creates more long-term adopters, which is what truly supports the price of bitcoin. 

I think this cycle is going to be epic. And I think a lot of these new buyers are going to hold on for the long run. 

We’ve been patient during the bear market, and there’s a very good chance we’re about to be rewarded.

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What to Do When a Startup Goes Public

Every investor would love to have my dilemma. One of my First Stage Investor portfolio companies will be listing on a public stock market (also known as going public or IPO’ing) in a couple of months. 

I first recommended this company back in 2016 — and I recommended follow-up investments two more times in the following years. Investors who acted on my first recommendation have seen the company’s valuation go higher and higher. And if they’re anything like me, that produced equal amounts of joy and anxiety. 

Paper profits are nice. But you can’t buy a house or car with them!

So what advice will I provide First Stage Investor members (click here to sign up) when I inform them one of their startups is planning for an initial public offering (IPO)? Should they cash out or hold onto their stock? Let’s look at the case for each option.

Cashing out makes some sense. Their return should be in the vicinity of 10x-to-15x. That’s pretty good. It’s also the safest course. Because there’s always the possibility that the company’s shares will go down at some point in the future. 

So why hold and take the chance? 

I have two words for you. Amazon and Apple. Amazon has gone up 2,500x since it first went public. Apple — more than 1,200x. And I think the startup company I recommended is just starting to scratch its long-term upside. 

There’s no consensus on holding versus cashing out early. Venture capital firm Union Square Ventures, for example, tends to cash out early to get as much of its principal back as possible. It’s not only the safest course, it gives fund investors peace of mind.

But is Union Square Ventures leaving money on the table? Possibly. The firm’s co-founder, Fred Wilson, is okay with that. “What’s the difference between a fund that returns 6x and 8x? Other than incremental dollars, not much else. Both are huge successes,” he says.

And while Wilson has a point, he’s a venture capitalist. His funds mostly invest in late-stage startups. When you invest at a $500 million valuation and the company goes public at $3 billion, you’ve made your 6x. If you wait for the company to hit a valuation of $4 billion, you’ve made 8x. Investors that hold in that situation do better — but not life-changing better. 

I understand wanting to sell in that case. It’s not worth taking the risk that $3 billion might shrink to $1 billion.

But early investors like us invest in startups at a much earlier stage — and at a much lower price. When you invest at a $20 million valuation, the difference in profits between a $300 million and a $500 million valuation is huge! A $300 million valuation gives you a return of 15x. A $500 million investment gives you a 25x return. And if the company really takes off and reaches a $1 billion valuation, you’ve made 50x! 

These returns are life-changing. And only early stage investors can make them. It’s why they invest early. But they can only make them if they hold on.  

There’s no right or wrong here. And context is everything. It’s one thing to hold on to shares in a bull market — especially a young bull market that has several more years to go. I sleep pretty well during bull markets, knowing the down days will be more than offset by the up days. 

But investors should be more risk sensitive these days. We’re in a very old bull market that’s about to peter out. Many people think — myself included — that it’s on its last legs. 

All the more reason to cash out before the proverbial junk hits the fan, right? It’s the safe and sensible move. But it flies in the face of what early investing is all about: THE BIG SCORE. And again, context is everything.

This startup is proven. It has a great growth model. Superb leadership. And it’s oozing with upside. Its IPO is not the end of its share growth but very likely the beginning. It plans to quadruple the pace of its acquisitions — which means quadrupling its revenues and quadrupling its valuation (if its price to sales multiple stays stable). 

This is the type of startup investors should embrace. Startups that can potentially give investors life-changing returns are few and far-between. But the risk here is real. 

I haven’t made up my mind yet exactly what I’ll tell these investors. But I can tell you right now, I’m not going to dismiss the value of getting your money back. It’s a big deal. Nor will I turn my back on the enormous upside which is possible by waiting a little longer to cash out. 

Trying to decide just how much money to try and make is a good problem to have. And the last thing I want to do is turn lemonade into lemons. 

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The Trick to Evaluating Market Size

One of the most important (and trickiest) factors to evaluate in startup investing is the size of the opportunity. How big can a startup  become? How big is the market it sells into — and how fast is it growing?

Before investing in any startup, you need to be sure that it has the potential to return 50x-to-100x. So if you invest when a startup is worth around $10 million, there needs to be a viable path for the company to be worth at least $500 million or $1 billion in the future. And that doesn’t take dilution into account. Most startups raise multiple rounds of funding, which will lower the overall return multiple for early investors. 

So the opportunity needs to be substantial in order for a company to make sense as a startup investment. Fortunately, scaling a business is easier than ever today. Between powerful software tools, low-cost cloud infrastructure, targeted digital advertising and free open source software, there is an incredible array of tools that can help businesses grow their operations today.

Those tools are a double-edged sword for investors though. They make it so easy for companies to scale that a large number of companies have the potential to grow into a $1 billion opportunity. There are hundreds (and possibly thousands) of billion-dollar industries and niches today. Which means that the question of opportunity size becomes less about the market for a company — and more about the team running it.

When you’re trying to figure out how big a startup could become or looking at the market growth, you can’t consider that data in isolation. How those factors pair with a team’s skill sets and abilities is also key. A startup could have all the market potential in the world — but without the right team to make it happen, it doesn’t have a chance. Of course, you also need to look at a company’s traction. Its rate of improvement and change. It’s the combination of all these factors that will ultimately determine the company’s fate.

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Big Changes for Non-Accredited Investors

Last week the SEC announced that it was increasing the limit on Regulation Crowdfunding (Reg CF) deals from $1.07 million to $5 million. 

In case you weren’t aware, anyone can invest in Reg CF deals. You don’t have to be an accredited investor like you do on AngelList. The new limit is great news for non-accredited investors. 

The new $5 million limit is a giant bump from $1 million. I think Reg CF rounds are going to start attracting a more serious type of startup as a result. And that means everyone will be able to invest in bigger, more established startups raising substantial amounts of money. 

I don’t think this is going to change anything on the accredited side immediately. But I do see it having an impact further down the road. With the ability to raise $5M, Reg CF will legitimately begin to compete with Regulation D (how most startup deals are structured right now). And if the new higher limit performs well, I believe it’s likely that we’ll see the limit raised yet again in another few years — maybe to $10 million or even $20 million.

Regulation D will still have some important advantages — such as privacy, unlimited raises, lower cost, and an appeal to wealthy investors. But Reg CF will have its advantages too. The publicity that comes with a public round and having thousands of investor champions are both major assets for startups.

For now, Reg CF isn’t an immediate threat to accredited investing on sites like AngelList. But over a longer period, I believe it will be. And that’s something to start planning for now.

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Startup Investing Just Got 5x Better

Something monumental happened for startup investors this week. The SEC increased the limit for public startup fundraising rounds from $1.07 million to $5 million (per year, per company). 

This is a very big deal. Startups can now raise almost five times what they previously could using “Regulation Crowdfunding” (aka Reg CF, equity crowdfunding, or just startup investing). This new limit will bring larger, more mature startups, to the crowdfunding space. 

These changes should go into effect in early 2021. There are some other important changes in the SEC rules — but let’s focus on the increased $5 million limit today. This is the really big news.

Improved Deal Flow

Most of the deals crowdfunders have access to today are “pre-seed” or “seed” rounds. These early rounds of funding carry  a very high risk factor — but the reward is also very high.

When the $5M limit goes into effect, we’re going to see a much bigger and more mature startups seeking crowdfunding. We’ll see startups with significant traction, revenue and proven product-market-fit — companies that have had more time to develop their product/service and business model. 

Funding rounds by these more mature startups are often labeled seed, Series A and occasionally Series B rounds (depending on how old the startup is and how much money it’s raising). These types of deals tend to have lower risk profiles but slightly higher valuations. 

Series A and “growth” rounds tend to be a sweet spot where venture capitalists like to invest. A serious amount of the company has been “de-risked” by this stage — and that means it’s a lot less likely to fail.

As an investor with access to many deals, I like investing at both the seed and Series A stage. A mix of the two has worked quite well for me over the past six years. And now every American investor will have the ability to create their own portfolios with a mix of “growth stage” and seed companies. This is a huge boon for startup investors.

5x The Capital

Broadly speaking, $5 million is simply a huge improvement over $1 million. And that’s because $5 million is growth capital. That’s enough to hire a serious team, build something and get a high-potential business going. 

The previous $1 million limit was a serious bottleneck. For many startups, the work required to raise that amount wasn’t worth it. But $5 million will be enough — for many — to make it very worthwhile.

It also means that instead of just 1,000 investors — which is around what the typical 1 million campaign brings on — companies will be able to reach 5,000 or more investors. That is a serious number of supporters for a young business to have. 

For fast-growing companies looking to raise money from their own customers and others, Reg CF just got a lot more attractive.

Great for Cities Without Venture Capital

It’s also going to provide much needed growth capital to regions that don’t have a large number of venture capital firms and angel investors. Until now, companies have basically had to choose between these three options:

  1. Raise from VCs and angels (not an option in most of the country)
  2. Raise up to $1 million with Reg CF (which is a relatively easy process)
  3. Raise up to $50 million with Reg A+ (which is a VERY involved process)

The VC/angel route isn’t a real option for companies outside of big cities like San Fran and New York. Reg A+ is great — but only for late-stage companies looking to raise larger sums of money. 

Soon every startup will be able to raise up to $5 million using Reg CF — which isn’t too bad in terms of cost and paperwork.

This is going to change startup investing forever. I can’t wait until it’s live, which should be early next year. 

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Brick-and-Mortar Retail Isn’t Dying

Thank goodness this isn’t the 80’s. If COVID-19 happened back then, we’d be in a full-blown depression by now. The rolling shutdown of non-essential stores and restaurants across the country would have maimed and crippled the economy. The 80’s had great music but no internet — and no way to shop or pay for things online. 

The economic devastation would have been incomparably more damaging than today. 

But things have changed much since the 80’s. Well before COVID-19 hit, online shopping was gaining massive popularity. Last Christmas, it surpassed traditional shopping for the first time. It was the future. Then COVID-19 arrived. As a founder of an online wine company we recommended so colorfully put it, the pandemic “dumped rocket fuel on digital shopping” as both buyers and sellers rushed online. 

Many pundits have subsequently declared brick-and-mortar (B&M) companies to be either dead or dying. It’s easy to see why. Lord & Taylors, Brooks Bros, JCPenney, Neiman Marcus, J Crew, Pier One, Diesel, Payless, Nine West and dozens of other retailers have declared bankruptcy. Many more have closed the majority of their stores in order to survive the pandemic. 

But the D2C (direct to consumer) online model didn’t need the pandemic to grow and prosper. D2C had a lot going for it prior to the pandemic — and it will continue to do well when the pandemic is behind us. It offers a superior business model in terms of lower costs, better user experience and the ability to gather massive amounts of data. You can shop on your lunch break. There’s no waiting in the long lines like I saw during my trip to the mall last weekend.

And, besides, what else are you going to do while stuck at home?

I’m bullish on D2C companies. But I’m also keeping an open mind brick-and-mortar shops. Visiting stores in person isn’t dead (or about to die). Another one of our First Stage Investor holdings is a tequila maker. Tequila has been one of the most popular spirits during the pandemic. But this company had to get its bottles into chain stores before October in order to grow. Tequila sales are seasonal. And the best months are October through December. Getting into brick-and-mortar was its prime directive — and it was mostly successful.

Other retail markets also offer more of a mixed picture than you’d think. One of our First Stage Investor portfolio’s fastest growing D2C retailers pre-COVID admits that the pandemic has slowed down growth and represents a “mix of challenges and opportunities.” Smallish retailers — including ones that are D2C — are in survival mode.   “Money is tight, loans tough to get, sales will take a while to fully recover and raising funds can be especially hard for them,” says the founder of our FSI retailer.

So I wouldn’t be so anxious to climb aboard the e-commerce bandwagon, if I were you. In-person shopping isn’t disappearing anytime soon. It’s evolving… adapting… recalibrating. Brian Cornell, the CEO of Target, made the point that stores still represent over 80% of where the dollars are being spent. “Even during the pandemic,” he said, “our store comps grew 11%.”

The D2C model gives companies a superior way to service customers and run a business. But we need to remember that it’s not infallible. In many sectors, D2C companies vie against each other in a vicious competition for scraps of market share. And many of those deep-pocketed brick-and-mortar companies are adopting effective hybrid models — part B&M and part online selling. And there’s Amazon’s to deal with. 

Online shopping can be a winning formula for founders and investors. But both groups still need to do their diligence. Physical stores and their online counterparts are destined to be with us for a long time. 

What is going away is the pure online and pure brick-and-mortar models. The best retailers will be  the ones who can most effectively integrate brick-and-mortar and e-commerce sales. Investors who prioritize execution, nimbleness and adaptability in their startups will have the best shot at picking future successful retailers. 

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Big Tech’s Growing Vulnerability

Today we’re going to talk about big tech censorship — and how it makes the established social media platforms vulnerable to disruption. I’m going to try my best to avoid the political side of things and focus solely on the investing implications.

YouTube, Twitter, Facebook, Apple, and other big tech companies have been increasingly banning users for expressing certain views — largely conspiracy theories. 

Alex Jones — a conspiracy theorist with millions of followers — was one of the first to be “de-platformed” in 2018. Within a few weeks, Jones was banned on Youtube, Apple podcasts, Facebook, Spotify, and Twitter. 

Alex Jones has done some bad stuff. So most people didn’t seem to mind that he was banned. However, many of us believed this set a dangerous precedent. Banning people for expressing unpopular opinions is a slippery slope.

Fast forward to today. These platforms are using bans and other disciplinary actions to remove certain content and users. Last week Twitter suspended the New York Post for a controversial story they posted. And then didn’t allow retweets of it for over a week. Facebook also “limited the reach” of the story and restricted the posting of it.

Many smaller independent creators are also being “de-platformed.” YouTube recently deleted The Last American Vagabond — a channel with 2,000 videos and 5 million views. They didn’t really explain why, except to say the channel violated their “community guidelines.” 

A lot of these people who get banned express unusual or controversial views — like intricate conspiracies about COVID-19. If you disagree and think the content is hogwash, that’s fine. But censorship isn’t the answer. And I think censoring voices will  hurt these big tech platforms in the end.

There is certainly an argument to be made that these big tech companies are private and free to police their platforms however they like. However, that doesn’t mean censorship is the “right” thing to do”. And I don’t think most people want social media platforms to be the arbiters of “right” information.

The Opportunity

No matter how you view the big tech controversy, I think most of us can agree that these platforms are angering a portion of their audiences — and likely some of their employees too. 

According to Pew Research, 73% of Americans believe it’s likely that social platforms censor political views based on what they find objectionable.

Three-quarters of U.S. adults say it is very (37%) or somewhat (36%) likely that social media sites intentionally censor political viewpoints that they find objectionable.

The 2019 poll by Pew showed that 90% of Republicans believe it’s likely that social companies censor based on personal views, while 59% of Democrats believe so. Rightly or wrongly, the big tech companies are upsetting a significant part of their audiences. 

I think the public backlash is just beginning. This week, Congress hauled Facebook and Twitter into a hearing to discuss the “speech moderation” issue.

Importantly, people are fed up with social media companies for reasons beyond alleged censorship. They’re also mad about creepy advertisements, privacy rights, content ownership and more. 

Many people are looking for alternative social platforms. And this environment gives social startups a chance to attract users who are done with the established platforms. 

There are dozens of promising new social competitors popping up. They’re going after YouTube, Twitter, Facebook, Tik Tok, Reddit and new categories like audio chat (which is very hot). I stumbled across an interesting startup the other day called Rokfin. It’s a content/social platform that helps select content creators distribute their product and make money off of it. Rokfin seems to have decent traction. I haven’t done a deep dive yet on this one, but I’m watching it — and others.

I’m certainly not alone. Many of the best venture capitalists in the world are actively scouting for the next big social platform. There’s a reason for that. Social media platforms can scale up really, really quickly. They benefit from the “network effect,” where each user brings additional users with them. TikTok, which launched in September of 2016, already has 50 million daily active users in the U.S. 

With the established players looking a little wobbly, I think it’s time to start looking for deals in the social space. The big guys are vulnerable right now. They have a lot of customers who are switching or considering it. And that means disruption is just around the corner.

Note: In the social category, almost everything’s going to be a long shot. But each deal is worth investigating — because when social platforms hit, they tend to hit very big. Some of them will likely be worth taking a shot on.

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SEC Limits on Startups Raising Money Will Be Eased in 2021

The slow-moving, overly cautious SEC is finally doing the right thing. It’s reportedly raising the limit on Reg CF funding from $1 million to $5 million. 

That means when a startup raises money through crowdfunding, they can raise up to $5 million. And that’s a big break for investors (like you and me) and founders alike.

Founders will be able to raise enough money to give their startups substantially more room to operate and breathe before raising money again.

And for investors, a $5 million round reduces funding risk (the possibility the startup won’t be able to raise capital in the future).

Nothing is official quite yet. The SEC just announced that it’s meeting next Monday morning to “consider whether to adopt rule amendments to facilitate capital formation.” That’s our SEC — opaque and bureaucratic  Washington-speak at its finest. 

The $1 million limit was never considered a sufficient amount. Ryan Feit — founder and CEO of startup-raising portal SeedInvest — was an early participant in the discussions that lead to the 2012 JOBS Act. He says the $1 million limit was considered merely a starting point. 

And rightly so. While startups can do a lot with $1 million, it’s nowhere near enough the amount they need to grow and become sustainable. Venture capital firms typically write much bigger checks to their seed stage companies — it’s just good business sense. The last thing VC companies want to hear is “we didn’t succeed because our funding was too small.” 

It’s taken eight years since the passage of the JOBS Act and five years since the issuance of Reg CF rules for the SEC to do something about this. I thought for sure it was going to raise the cap last year. Initial reports now say the raise is expected to go live on January 1st 2021. 

In its announcement for next week’s meeting, the SEC stated that “the [Reg CF] exemption has been viewed as a success even with excessive constraints.” But it also said that it’s acting now because “to date, Reg CF has experienced no fraud” and “has long been deemed anemic due to strict rules that hamper its utilization.” 

I can only conclude that the SEC is saying that Reg CF has been an “anemic success.” And that we should feel good about the success part and bad about the anemia part. 

The SEC has a point. Reg CF has generated hundreds of millions of dollars for small companies that probably weren’t going to access that money any other way. The new raise limits will be a boon to early stage companies. Starting next year, it’ll be faster and cheaper to crowdfund much more money than before. 

But how about investors? How will the higher raise limit benefit them? Here are my three takeaways on it.

Less funding risk. I mentioned this earlier. But it’s worth repeating. With more money, startups will have a bigger budget to reach the milestones needed to successfully raise again. The difference between having 10 months to do this as opposed to 20-30 months can’t be overstated. Given the longer runway, the milestones themselves will likely be raised a notch or two. But the trade-off in having more time and money more than makes up for it. Put another way, startups will be given plenty of rope to do well or hang themselves. 

Greater diversification. The current $1 million suited pre-seed and seed-stage companies at best. With a $5 million cap, more mature startups will be drawn to CF fundraises. Up to now post-seed and Series A companies have only occasionally utilized Reg CF. I think we’ll see their numbers go up significantly next year. Investors will have the opportunity to construct a portfolio with companies showing a wider range of risk/reward profiles.

Better deal flow. More worthy companies will go the Reg CF route. Even without the new $5 million limit, Reg CF was gaining in popularity and luring/drawing high-quality startups away from the VCs. Raising the cap will accelerate the process immensely. At the age of five, Reg CF is about to experience a growth spurt.

Crowdfunding is taking a big step forward. The resulting regulatory framework represents a big improvement. It’ll be harder than ever for investors to ignore the crowdfunding option. 

Thank you, SEC. Better late than never.

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Don’t Miss Out on Startup Deals Like I Did

A few years back, I was invited to invest in — a meditation app. “Meditation app?!” I thought. And then I quickly dismissed the deal.

It’s gone on to be an absolutely massive winner. The company has grown incredibly — it’s now reportedly raising at a $2.2 billion valuation. 

Missing out on an opportunity like that is a bummer. But the best thing we can do is try to learn from these mistakes. My lesson here was that no matter how weird a deal seems, always at least take a look. If I had, I’d have seen impressive growth and potential. 

The other lesson here is that big ideas often seem odd at first glance. Looking back at my own history, I can see some of my biggest successes probably did look very odd to some people. FabFitFun — for example — is a subscription service that delivers quarterly packages with beauty, fitness and wellness goodies. That seems… unconventional. But it’s been a huge success. It’s probably my biggest winner to date. 

Every big VC has a dozen stories about the one that got away. But the best ones still manage to make money. There are always good deals to be found in startup-land — even if you don’t recognize them at first glance. You just have to dig in a bit to find them.

So if you have time, at least take a quick look at every deal you’re invited to participate in. It doesn’t take long to get a read on whether a startup is worth taking a chance on. And you never know when you’ll find something big.

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