What is Venture Capital?
Venture Capital (or VC) describes an investment firm or fund. VC offers “asset management” to wealthy investors and possibly other funds or companies. By asset management we mean large-scale investing into startups, companies, stocks, cryptocurrencies, commodities, projects, etc.
Due to their control of large assets and experience, VC companies are willing to negotiate investments in exchange for a stake in a given company or favorable purchases of cryptocurrencies, virtual land or other NFTs. Their investments in the market tend to be profitable and often involve large amounts of money. They usually invest in the early stages of development or purchase tokens in private transactions, before it becomes possible to buy them on an exchange. That is one of the main advantages of VCs: they can invest early compared to retail.
Retail are small investors, in the crypto world often referred to as plankton, shrimp, etc. In contrast, VCs are called whales. They just open their mouths at feeding time and start gulping down cubic meters of water full of food – plankton. That’s one way people can imagine how VCs make money.
An example from practice
You must have heard about the project Illuvium.
For this project, it was possible to buy tokens in the pre-sale (pre-seed phase) for exactly USD $1. For these purchases, of course, other conditions apply, such as a gradual release of tokens and a lock-in period of usually at least 12 months, where VCs will gradually receive the purchased tokens in their wallets. The highest price an ILV token has sold for so far is $1,911.
As of June 1, 2022, when VCs had all tokens unlocked for trading, it was possible to sell 1 token on the exchange for $300, which is 300 times more or a 30,000% increase in price compared to the pre-seed phase. And since Illuvium hasn’t even launched yet, the token price can be expected to rise in the future.
How do they actually do it?
VCs have investment strategies that lead them to profit. Novice investors often buy at the top and sell when the price is down. VCs do the opposite. They buy when the price is down and the market is scared. They sell when the price is up and most people buy in euphoria.
One can also see an opportunity in this. If you learn to go along with the big players, you will reduce the risks in your trading or your NFT investment strategy. It takes energy, time and some research to determine where and when VCs invest. For some, even more important is knowing when VCs are exiting their investments and collecting profits. This information can be very useful. Read more in premium section: Venture Capital – Practical Examples and Inspiration.