What Is Angel Investing and How to Be a Profitable Angel Investor?

More than ever, angel investing is redefining how cash-strapped startups are able to secure funds to help scale their operations.

But the ins and outs of angel investing aren’t so clear cut.

By comparison, there’s a lot of “common wisdom” being dished out regarding what it takes to succeed in investing.

Most of this “common wisdom”, however,  doesn’t apply when it comes to angel investing.

Angel InvestingInvesting in startups and picking profitable stocks to buy, for example, are two very different ball games.

It’s my hope that by the end of this piece, you’ll be able to understand these four things:

  • What to expect when you’re starting out as an investor in startups.
  • If you’re really cut out to be an angel investor.
  • How profitable angels do it and how you can emulate a proven model that works.
  • The not-so-rosy side of being an angel investor.

With that in mind, let’s dive right in.

Who Is an Angel Investor?

Angel investors come from all sides of the economic spectrum.

They can be professionals such as lawyers or engineers and business associates.

Better yet, an angel can be a serial entrepreneur with a keen interest in cultivating the best investing and entrepreneurial culture for the next generation.

Generally, angels are wealthy individuals willing to sink thousands of dollars in a startup in return for a piece of the action (read: equity).

According to the Securities Exchange Commission (SEC), angels are categorized as accredited investors.

An accredited investor is an individual with a net worth of at least $1 million and earns $200,000 annually.

Angel Investors Vs. Venture Capitalists?

A popular public misconception is that angel investors and venture capitalists are one and the same.

Although they share a common goal – providing capital to business ventures for start-up or expansion – they have some important differences to note:

  •  Angel investors are individuals. Venture Capital usually represents a professionally-managed company or business rather than an individual.
  •  Venture capital usually comes on board at a later stage after proof of concept. Angel investment comes in during the early stages of a start-up
  • Compared to angel investing, the invested amounts are higher in Venture Capital because their business is to pool funds from different investors. Investment amounts are upwards of $1 million. An Angel investment is usually less than $300,000 per deal.
  • A seat on the board is required for Venture Capital. On the flip side, angel investors can choose to either be “hands-on” or “hands-off” in the active management of their angel investment.

Will It Thrive or Crash? The Art of Valuing an Early-Stage Startup

Before committing to an investment, any angel who’s worth their salt will always be quick to ask these two questions:

All hype aside, what is the startup really worth?

Will it get to a good exit point and return a profit?

But valuing a company before it has any financial statements to refer to or revenues is pretty difficult.

That’s why establishing the pre-money valuation of a pre-revenue startup is often the first point of deliberation between an angel and the entrepreneur.

Entrepreneurs are always gunning for the highest possible valuation they can get for their companies.

But the lower it is, the better it is for you as an angel investor.

You want the value to be low enough so that the amount you invest translates to a reasonable portion of the company’s equity.

Valuation Methodologies

There are many valuation methodologies that can be applied to value pre-revenue startups.

But these three take a holistic approach and offer an excellent starting point for angels and entrepreneurs:

Discounted Cash Flow (DCF). Calculates cash generated by future projects and discounts this capital using the weighted average cost of capital (WACC) to derive a present value.

If the DCF value is higher than the initial investment, this points to a potentially profitable investment that should be considered.

Venture Capital Valuation Method. Valuation is based on expected ROI at the point of exit. It usually applies where investors are looking to exit their angel investment in 3 -7 years.

The Berkus Method.  Attributes dollar values to the headway startups have made in their commercialization efforts.

Instead of focusing on a single method, it’s advisable to use a combination of these methods to get an average figure.

This way you’ll be in a better position to identify and negotiate a better deal.

Unfortunately, most early-stage companies have a little-to-no history of past revenue and earnings which can negatively affect the final valuation.

Evaluating Different Business Models

To bridge this gap, angel investing calls for an in-depth evaluation of a start-up’s business model as well.

Instead of focusing on the popular Business Model Canvas to evaluate a start-up’s overall strategy, an economic approach is more sensible owing to the complicated nature of these business models.

When using the economic approach to review a company’s business plan, the first step is to sort out all the information provided into four economic sets:

  • Unit economics. The direct selling price and costs associated with a product or service.
  • Buyer economics. This is how the company plans to acquire, retain, and support its customer base.
  • Market dynamics. What the entrepreneur has to do to actually create a buzz about the product or service.
  • Business economics. Any overhead costs, handling of finances, and general running of the company all fall into this category.

These economic sets give you a clear picture of how much money an entrepreneur needs before their company can become self-sustaining.

According to Baumann, the final and most crucial step in valuing an angel investment is analyzing the scalability and break-even-point of the business model.

Scalability and Break Even Point

In business terms, scalability is the relative ease with which a company expands its operations while incurring minimal incremental costs.

This is a key pointer to whether the company you want to invest in will be a winner in the long run.

It’s advisable that when angels meet with entrepreneurs they understand the scalability plans of the company.

Are they planning for 5X, 10X or 200X growth from where they are currently?

Knowing these metrics comes in handy when you’re calculating how much money the start-up needs and how many rounds of funding it will require.

A company with a planned 100X growth, for example, is likely further along in their expansion plans.

Such a company will offer a better exit and return on investment than a company that’s just starting to scale its operations.

In view of this, it’s important to note that some business models are great for scaling while others – companies which require considerable personnel involvement, a lot of customization, and consulting – are not easily scalable.

Key giveaway: Business models that focus on scalability at the expense of customer experience are not sustainable and should be approached with caution.

It’s advisable to pursue a business model which tries to strike a balance.

Ideally, it should be highly scalable and at the same time focusing on addressing consumer pain points.

That’s how big brands are able to stay in business and dominate huge market segments (they identify these pain points and come up with effective solutions).

Mistakes and Pitfalls to Avoid as a First-time Angel Investor

I must admit, it’s tempting to go out guns blazing as a new investor in the current start up scene.

Picture this scenario: the entrepreneur is a young, charismatic, and intelligent lad.

The product? Cool and trendy with ground breaking technology behind it to boot.

Investing in such a company might seem like an easy and sure win.

But looking at the bigger picture before making that all-important decision can make the difference between making a profit or suffering an avoidable loss.

You shouldn’t only be evaluating angel opportunities at face value.

Every investment you make as an angel should blend into your overall angel investing strategy and wealth building strategy.

Experienced angel investors like Bill Payne – a long-time angel and a member of the Frontier Angel Fund in Montana – share a lot of good advice for those just starting out.

“Most of us who’ve been doing this for a while encourage new angels to do what we say and not what we did,” offers Payne, who has made over 60 angel investments in a span of three decades.

“Most of us started off by writing checks then later asked – what’s my real strategy? ”

To avoid learning the hard way, it’s critical to understand these 5 factors:

  • The risks of being an angel investor.
  • Why it’s important to diversify your portfolio.
  • Your risk tolerance – are you able to stomach large swings in the value of your assets?
  • The total sum to invest as an angel and how much to apportion each deal.
  • What you’re passionate about and how it applies to your overall angel strategy.

Angel Investing Key Risks

One thing to always remember is the level of risk associated with investing in early-stage companies in general.

In fact, most of these investments and companies won’t work out.

For example, for every 10 angel investments, investors encounter 5 failures and 3 or 4 investments which will only bring a modest ROI (Return on Investment).

To sum it up, how well your angel investment portfolio performs will be hinged on the success of just one or two companies (out of the 10).

From these few successes, you can expect an ROI of 10-30X.

With these numbers painting such a grim reality, angels have no choice but to diversify their investments.

This helps to minimize risk and optimize the returns they make.

Based on expert opinion and best practices developed by some of the most profitable angels, the guidelines below show you how aspiring angels can leverage risk and diversify their angel investments.

Achieving a Diversified Angel Investing Portfolio

We’ve heard too many disheartening stories about angels who wrote a single big check and lost all their investment cash after the company they’d invested in failed.

Which begs the question: how much of my entire investment portfolio should I  allocate to angel deals?

Well, there’s really no right or wrong answer to this – it’s what you feel comfortable with.

Designating 3-10% of your investment portfolio to angel investments is ideal for a start.

Also, to avoid losing a huge sum of money on a single investment, you should initially plan on investing in at least 10 start ups over a pre-defined period.

It makes sense to invest in one or two companies annually and waiting for at least 6 months before making your first investment.

This way you get to learn from more experienced angels as you carry out your own due diligence on the company.

But keep in mind that investing in multiple companies will probably require multiple rounds of funding as well.

Therefore, it’s wise to split up your angel investment pot into equal shares.

Figuring out how much of your investment portfolio you’ll commit to angel deals and the total number of companies you’d like to invest in will guide you on how to size up each investment.

The sweet spot for most angels is allocating $5,000 – $60,000 per round for each investment.

Picking Which Companies to Invest In

Another important piece of the puzzle is knowing beforehand the kind of companies you want to put your money into.

Here you’ll require some level of introspection to determine what matters most to you and the driving force behind it.

Although no two angels are alike when it comes to passion and drive, many choose their investments based on a combination of these factors:

  • Past experience or affinity with a specific industry – which has also been linked to greater returns.
  • Participation. Angel investors have a higher chance of success when they’re able to interact with the companies in their portfolio a couple of times a month by coaching or mentoring, for example.
  • Do you want to support a company that you have a kinship for? An example is a business owner and angel investor who graduated from the same university.
  • If you’re a retired investor, you’ll probably prefer an angel investment which gives you the opportunity to practice the business skills you already have.

Taking all this into consideration will open up your eyes to the broader implications of angel investing.

Hunting for Deals: Angel Investing Like a Pro

Some of the most sought after angels like Paige Craig and Chris Sacca have some advantages over most angels just starting out.

They have solid online reputations spanning decades and vibrant networks in their relevant fields.

Every day it’s getting more and more difficult to develop the kind of skills and business networks which can help you gain a competitive edge.

What’s even more discouraging in today’s angel investment scene is how boatloads of money keep chasing the diminishing number of capable entrepreneurs.

Well, there’s a solution to at least some of the above issues if you’re still determined to become a profitable angel.

Enter: AngelList Syndicates

This is one of the safest and most reputable avenues which small-time investors with little to no connections can take to land a profitable angel investment.

Through AngelList syndicates – started by a revolutionary company called AngelList – wealthy individuals can pool their money with an already established angel.

This system gives investors (or Leads) a platform where they can meet other accredited individuals (known as Backers) who want to share in their deals.

Generally, Leads are responsible for sourcing and supporting the angel investment for a share of the proceeds.

AngelList collects 5% of the profits you make from your investment while the angel investor (Lead) gets 15% – the remaining portion goes to you as the backer.

Most renowned angel investors – including Paige and Chris mentioned above – have a syndicate on AngelList.

Other promising syndicates you can consider joining are owned by Tim Ferriss and Jason Calacanis.

Related Read: The Good, Bad, and Ugly of AngelList Syndicates

Conclusion: Angel Investing Generates Wealth, But Also Helps Companies Grow

Granted, angel investing looks quite lucrative on paper, but you’ll still need to put in the work to get the kind of results which make investing in start-ups worthwhile.

If you’re seriously considering angel investment, it’s important to remember that this journey is all about growth and uncertainty.

In my opinion, when you choose to invest in an early-stage venture, helping the company grow should take center stage – not how much you stand to make from the deal.

Eventually, the money will start trickling in when the company is on a more stable trajectory.

I’d like to keep the conversation going – so if you have any questions/thoughts about the tips shared here or more ideas on how to become  profitable with angel investing, feel free to leave a message in the comment box below.

Learn How to Stop Procrastinating to Have a Great Life

We all struggle with ways to stop procrastinating from time to time.

Joseph Ferrari, a renowned psychology professor in Chicago, aptly puts it:

“Everyone procrastinates, but not everyone is a procrastinator.”

Sometimes it’s the unexciting things that get most affected.

Like cleaning out the garage, reconciling accounts, or finally unclogging the gutters.

But generally, it’s the bigger, more serious, stuff that calls for more of your time and commitment.

And it’s the serious stuff that will put you at risk of looking thoughtless or getting drained emotionally.

Looking back, my “aha” moment with procrastinating was during my final year in college.

I had this huge project that was due before the Christmas holiday and my subsequent graduation in January.

“Easy peasy”, I thought when it first got assigned, “the deadline is months away!”

Initially, it was all smooth sailing.

I quickly settled on a topic and completed my research early enough – well before November rolled in.

Then along came procrastination.

Boy, that was one of my longest and most taxing holiday seasons ever. Period.

Rather than spend quality time with family, I had to commit all my time and energy to polishing up my project.

I’m sure many of you have a similar story, where if it wasn’t for procrastination you wouldn’t have ended up facing a big problem.

Before we cover some of the actual remedies to stop procrastinating, knowing its root cause is winning half the battle.

So, Why Do You Procrastinate?

It’s easy to get hung up on slaying this procrastination “monster” and averting your focus from why you actually do it in the first place.

But having an idea of why you procrastinate, will help in defining the approach you’ll use to overcome procrastination.

I’ve analyzed some of the common reasons people give for procrastinating below:

  1. It’s Too Overwhelming for Me
  2. I Procrastinate Because of the Task at Hand
  3. The Fear of Failure

1. It’s Too Overwhelming for Me

One sure way of stifling your productivity is taking on too many demanding tasks at a time.

When there’s too much going on, prioritizing becomes a nightmare.

Sometimes we find ourselves with a lot of pressing things to do, that it feels impossible to handle them all.

So instead of rolling up our sleeves and getting to work, which would seem more logical, we go off on a tangent and put off these urgent tasks hoping for clarity to appear down the road.

For example, you might have an urgent report to write with a tight deadline.

Additionally, you have a presentation that needs to be finalized, and a backpacking trip to prepare for.

Then, you unexpectedly receive an email from someone asking for advice on a non-urgent matter.

Responding to it will take a good amount of your time (say, 15 minutes), but it’s a straightforward task and you won’t have to think too hard about it.

So instead of a courteous “no” or “not now”, you reply to the email – because it’s easier- at the expense of your overwhelming and urgent mountain of tasks.

When you’re done here, check out this piece on Top 10 ways to say no and save time – it’s also a goldmine of information on how to stop procrastinating.

Feeling overwhelmed can be a sign that you’re uncertain about where to begin on a task.

This usually results from:

  • Sub-par directions from a superior, for example.
  • Trying out something that disrupts your comfort zone.
  • Working on a task that needs to be well organized at every stage of the process.

Whatever the cause, being unable to find a starting point often leads to you procrastinating more and compounds the feeling of being swamped.

2. I Procrastinate Because of the Task at Hand

We rarely need any form of encouragement when doing something we find exciting or enjoyable.

It’s no surprise then that a sure trigger for procrastinating is coming face-to-face with a job you have zero interest in.

If you find yourself putting something off repeatedly, ask yourself whether you’re really up for it at all.

When faced with an unappealing task, the majority will come up with enough excuses and ways to put it off – sometimes indefinitely.

What if it’s too difficult? Or too boring and easy?

If a task is too easy, it can negatively affect our productivity the same way a difficult task can.

You might be surprised to discover that your procrastination stems from being bored by super-easy tasks.

If that’s the case, it might be time to move on to more challenging tasks with bigger responsibilities.

On the flip side, if a job is too difficult, we tend to procrastinate because our brains are naturally wired to “abandon ship” at the first sign of distress.

This is particularly true because difficult tasks demand more of our input – like learning new skills, brainstorming, and asking tough questions.

3. The Fear of Failure

To stop procrastinating, we have to overcome our fear of failure as scary as it may sound.

This fear usually manifests itself as countless revisions, endless tweaking of your work, and the urge to present a “perfect” sample of your work.

While it’s okay to want to give your very best on an assigned task, obsessing over the outcome is counterproductive.

In reality, an incomplete task will not get reviewed and criticized by others – which is a good avenue for personal growth.

A missed deadline is bad for business and a late project submission will not go down well with a client.

What’s even scarier sometimes is our fear of success.

What if everything goes according to plan?

What if I get propelled to new heights? will I be ready for that?

In all these instances, we need to acknowledge and boldly face our fears.

Only then can you stop procrastinating and live a more productive life.

Now, a lot has been analyzed and written about how to stop procrastinating.

But my main focus today is on three proven techniques that, when used together, will help you get things done without procrastination creeping in.

How to Stop Procrastinating

How to Stop ProcrastinatingIn this section, I’ll cover these 3 techniques in more detail so try to stick around to the very end.

  1. Distinguishing between what’s urgent and what’s important
  2. How to better manage your time
  3. Leveraging your energy levels

Let’s get down to it!

1. Distinguishing Between What’s Urgent and What’s Important

Procrastinating is often misinterpreted as being in a perpetual state of laziness.

But nothing could be further from the truth.

When you procrastinate, you still manage to get things done but at the expense of your “important” list of things.

Keep in mind that it’s very easy to find an urgent task to do when procrastination is lingering – but remember, being urgent doesn’t necessarily make it important.

Which begs the question: what’s your definition of important?

And does the time you spend on a task honor its importance to you?

If these two don’t align, then you need to make a few small changes to keep your productivity levels in check.

One way you can do this is to always ask, “how does doing this serve my future purpose?”

And try to answer it as honestly as you can every time.

Asking this simple question when you’re about to do (or put off a task) is more powerful than it appears on the surface.

For example, before starting on any project, I always find myself asking this ‘why ‘ question.

If my answer positively serves my future self, I’ll keep going.

Sometimes it means not committing too much time on a task, and other times it means closing it down because it’s just not worth the time and effort.

Food for Thought: When asking this question, try to be as honest with your future self as possible.

And remember, there’s no right or wrong answer here.

The ultimate goal is not perfection but moving forward and becoming a better version of yourself.

2. How to Better Manage Your Time

Okay, now that we have a framework for defining what’s really important to us; how can this information be useful and help you to stop procrastinating?

I’ve found that concentrating your efforts on time management makes one feel more in control of a project and reduces any urge to procrastinate.

There’s an endless list of time management systems out there with varying degrees of success to the problem of procrastinating.

But these 2 are sure winners if applied consistently.

a) The GTD Approach

The GTD or Getting Things Done system is well suited for people with busy lifestyles and you can definitely find a way to make it work for your own unique situation.

It helps you get and stay organized while boosting your productivity using these 5 “pillars”:

  • First, Identify everything that’ll require your attention and pen it down somewhere.

And don’t leave out anything on your to-do list, even the smallest task.

  • Be clear on what needs to get done on each task.

Don’t just write it down, plan a course of action.

If you need to delegate, for example, this is the time to do it.

This way, there won’t be any barriers or surprises when you get down to do the actual work.

  • Organize and prioritize to stop procrastinating.

This is the stage where you assign due dates, set reminders, and prioritize all your tasks beforehand.

You’re not getting anything done just yet but creating a workable plan for your to-do list.

  • Review your progress from time to time and adjust your list accordingly.
  • Engage and take action.

This system is designed in a way that makes this final step easy to figure out since we already have a ready-made list to follow. (refer to “pillar” #1).

At its core, the GTD methodology allows your thoughts and ideas on upcoming tasks to flow freely without interrupting what you’re working on at the time.

b) Stop Procrastinating Using the Pomodoro Technique

While GTD is great for setting up a framework to get things done, the Pomodoro technique is all about taking action.

The idea behind this technique is to break down your tasks into smaller 25-minute intervals called Pomodoros.

Each Pomodoro is a chance to work on a specified task for at least 25 minutes without any interruptions and without admitting defeat.

After the 25 minutes are up, you break for a while before starting on the next Pomodoro.

Then, after you’ve completed four Pomodoros, it’s standard practice to take a longer break this time.

This gives your brain time to process what you’ve been working on and readies you for the next task.

Depending on the kind of work you’re doing, you can adjust the 25-minute interval accordingly for a better fit.

When I’m writing for, example, I’ve found that 1-hour intervals with slightly longer rest in between Pomodoros makes me more productive.

3. Leveraging Your Energy Levels

Sometimes, how enthusiastic we are about a task largely depends on how high our energy levels are.

I’ve observed that energy levels tend to vary depending on the time of day you pick to complete a task.

Certain times have a more energetic kick to them and other times it just feels draining trying to get anything done.

With that in mind, it’s advisable to schedule tasks that require less energy (both physical and mental) for low-energy time.

Save your more demanding projects for those times your energy level is at its peak.

For example, I respond to emails, do some light research, and analyze charts when I’m feeling less energetic.

Day trading and other high-focus projects come when I’m sure I’ll be more energetic.

First Things First

Another technique that will help you leverage how energetic you’re feeling is doing the most important thing, first thing.

Sounds simple enough, right?

But not many people actually apply it to their routine.

Productive people understand that productivity is not all about getting many things done each day.

It’s about maintaining a steady speed on a couple of things, not going full throttle on everything at once.

Productivity is nurtured and involves consistently getting the most important things on your “to-do” list done first.

If you start applying this strategy, it’ll gradually develop into a habit and you’ll always get an important task done every day.

Two of the reasons this technique works so well:

  • When you wake up, your mind isn’t cluttered by the trivial details of the day: the first email you open, that first story on your news feed, or that first conversation you have.

All these can make your thoughts spiral in a different direction instead of putting in some work.

Instead, take advantage of this ‘clean’ state we usually wake up in and set the agenda for that first hour.

I’ve often found that after doing this, the rest of my day normally goes smoothly.

  • Secondly, being close to a sleeping state is good for creativity.

When we’ve just woken up, our conscious minds tend to be a bit sluggish for a while.

But our subconscious mind – which is responsible for creativity – is more strongly activated at this time.

Sometimes when I can’t get myself to focus at all, a relaxed outdoor stroll is enough to clear my mind and restore my energy.

Other times, I’ll go check on my garden for a couple of minutes in between my pomodoro breaks.

Final Thoughts

We’re about to wrap it up guys…just a few more pointers…if you didn’t put off reading this article that is! (:

Well, I can’t guarantee you’ll stop procrastinating cold turkey.

But once you’re able to pin point why you do it, you’ll be able to better manage this energy-draining behavior.

Procrastination slows us down and frustrates us once it starts creeping in.

And the irony of procrastinating is its ability to feed on itself.

When you’re procrastinating, new tasks coming in also tend to suffer.

The end result?

A compounded feeling of being overwhelmed which results in more procrastination.

While some of us procrastinate more frequently than others, becoming more productive is a matter of consistently implementing the right tactics in your daily routine.

You’ll probably need to experiment a bit to find what works best for you and your own unique situation.

So don’t be surprised if some of these ideas don’t work as well for you.

Overcoming procrastination is an effective time management technique that can help you live a healthy, wealthy, and prosperous life.

And because I learn just as much from you as you do from me, please share in the comment section below your favorite strategies on how to stop procrastinating.

Cryptocurrency Investment Strategies Every Investor Should Learn

Cryptocurrency investment is quickly becoming one of the most sought after ventures of our time.

Much like the rise of global internet, experts are foreseeing a world that will rely on blockchain technology to solve various organizational and security issues that have been plaguing our society for centuries.

Investing in the crypto market is also extremely profitable if Bitcoin’s success is anything to go by.

But you can also lose a lot of green in a flash if you take the wrong approach.

That’s why nothing beats having an investment plan and sticking to it in this highly volatile market.

Let’s check out a few basics first for the sake of new investors in the cryptocurrency space.

What Is a Cryptocurrency?

Cryptocurrencies or alt coins are a form of virtual currency with many applications that use cryptography – an advanced encrypting technique –  to keep transactions secure on the blockchain network.

Bitcoin, which has increased in value by over 1500% in the last couple of months, is a good example of a cryptocurrency.

Following the mass adoption of Bitcoin as an investment, more people are starting to shift focus to other coins as well.

This is a great way to diversify your cryptocurrency investment portfolio and minimize risk.

As the blockchain starts to heat up, here are some alternatives to Bitcoin which have had impressive runs as well:

  • Litecoin

2017 was a big year for Litecoin as it skyrocketed alongside many of its crypto peers.

This coin was introduced back in 2013 as a silver bullet to many of Bitcoin’s problems.

What makes Litecoin so unique is its ability to use the blockchain technology more efficiently than Bitcoin.

This makes transactions using the coin lightning fast and super secure.

  • Ethereum

A relatively new coin but one that’s poised for even more dynamic growth in the coming months.

Since being launched in 2015, Ethereum has surged over 1000% and is now listed on coinmarketcap as the second most valuable alt coin.

Here are 3 reasons why this cryptocurrency investment is worth closer scrutiny.

  • Compared to Bitcoin and other coins, Ethereum has more applications and unrivaled precision in solving complex problems.
  • Dozens of Fortune 500 companies are backing Ethereum and collaborating to further its technology. Some of these blue-chip companies – known for only taking calculated risks – include Microsoft, Intel, and BP. Their ultimate goal? to incorporate the Ethereum network technology into their businesses.
  • Financial institutions are also starting to incorporate Ethereum into their business models.
  • Stratis

This one seems undervalued because there hasn’t been much awareness surrounding it.

But it’s backed by strong infrastructure, many future applications we can rely on, and an interesting business model that’s rivaling Ethereum.

  • Ripple

Ripple and its technology network, XRP, is a revolutionary way of sending and receiving money regardless of your location or where you bank.

It’s a real game changer in how we conduct business across borders.

Disclaimer: The listed coins above are for informational purposes only and shouldn’t be taken as financial advice.

It’s advisable to carry out your own thorough research before settling on a particular coin as an investment.

Cryptocurrency Investment Step by Step:

Now that we’re done covering the basics, let’s get down to the nitty-gritty of cryptocurrency investment.

Step 1: Before Pulling the Trigger, Have a Solid Plan in Place

The easiest way to lose money on your cryptocurrency investment is to randomly expose yourself to the market and buying when the price is at an all-time high.

It may sound like a cliche but always aim to buy low and sell high.

Some of the most profitable investment strategies are based on this simple principle.

But you’ll be surprised that over 90% of investors in the financial markets do the exact opposite.

The logic behind it? No one wants to buy into a cheap market.

It’s only when a market is hot and rising that it grabs everyone’s attention.

I think it all comes down to how well tuned your trading psychology and emotional intelligence is.

And, more importantly, which living strategy you choose to follow.

Take the case of Bitcoin for example.

Back in 2013 when Bitcoin was ranging below $1000, many investors didn’t consider it a worthwhile investment.

Fast forward 4 years later, and everyone now wants to board a train that’s already left the station.

Forget about Bitcoin for a second.

Right now your aim should be owning a low-risk cryptocurrency investment which earns you consistent profits in the long run.

So it’s more prudent to pick a smaller coin.

Choose something that’s dirt cheap right now – like Bitcoin was back in 2010 – and you should expect a good ROI.

Here’s a checklist you can use if you’re having trouble getting your crypto investment plan off the ground.

a. Risk vs. Reward

Proper risk management is one of the most important yet least understood elements to profitable cryptocurrency investment.

Sometimes you might think that you’ve found a kick-ass buy set up but history reminds us nothing is ever guaranteed when investing in risky digital assets.

Every trader, even the more experienced ones, can’t completely avoid taking a hit from time to time.

The only effective solution that guarantees you won’t blow up your investment is to strictly follow your risk management strategy.

This is, especially, true if you’re using margin to buy dips. (I’ll cover more about buying dips in the next section)

The beauty of margin trading is using the leverage advanced to you to help boost your earnings.

But margin trading – which is basically using borrowed funds – should be approached with caution.

It’s a good example of a double-edged sword.

Because if you’re not careful with how you leverage your investment, it can all go horribly wrong.

And nothing is as horrifying as waking up to a margin call when price crashes against you.

A risk: reward ratio of 1:3 is a good place to start.

This simply means that you make $3 every time you’re right and you lose $1 when you get it wrong.

b. Identifying Entry Points

Successful investing in crypto has many things in common with most other financial markets.

It’s a waiting game most of the time.

If you sit back and watch any of the coin charts, volatility is certainly a good sign and might present an even better buying opportunity.

A good entry point will help you squeeze in some more profit from your investment and limit its drawdown.

An unwritten rule that most experienced traders are using to profitably manage cryptocurrency investments is only buying the dip and working their way into a portfolio over time.

When prices go down, they buy more and are usually fully invested in a coin within a couple of months.

Take the case of Bitcoin, for example.

On its way up, Bitcoin had to endure hit after hit in the wake of negative publicity from governments, banks, and the effects of technology updates.

But every time it rode right through the punches before hitting new highs.

In hindsight, all these dips were perfect buying opportunities.

The most notable Bitcoin crash was after the massive 2013 China bubble.

Price fell from a record high of $1242 to $480 in the US when China’s largest exchange ordered a block on new deposits.

But after consolidating for a couple of months at those levels, Bitcoin has been on a bull run ever since.

To sum it up, never sell the dip as counter-intuitive as it may sound.

And for a less risky buy entry, it’s advisable to stay out of the market for at least 48 hours after price tanks.

c. Mapping Out Your Profit Targets

Anyone who’s ever lived through a “bubble” knows why taking profits consistently as an investment grows is important.

Though the crypto train is nowhere near being considered a “bubble”, the principle still applies.

A conservative recommendation is to liquidate a slice of your cryptocurrency investment with every 100% gain it makes.

Eventually, you’ll have to scale out of your cryptocurrency investment completely.

When in a bull market, your game play is to hold your coins until you feel the bulls are now exhausted.

One of the most liberating things you can do as an investor in crypto is learning to give up the chase for that last or first eighth change in price in a quest for more gains.

Step 2: Stop Overtrading Your Cryptocurrency Investment

One mistake to avoid as a new investor in crypto is the allure of chasing and trying to profit from every move.

In reality, you only need 1 or 2 big trades a year to make a significant amount of money.

A good example of this is STRAT/BTC which has been on a strong uptrend for a couple of months now.

In October 2016, STRAT/BTC was accumulating at 6 cents per coin.

At the time, this was only a $3 million valuation.

Within 6-9 months price had soared to $10 per coin which was an incredible gain of over 1000%.

A prior investment of $1000 would now be worth over $100000.

As a percentage gain, this is very impressive and shows you don’t have to day trade your investment to make a career’s worth of money.

Why Overtrading is Risky for your Cryptocurrency Investment

If you try to trade every move the market makes, you’ll only end up burning money on commissions and fees and slippage – which is the bid/ask spread.

That’s one of the reasons why I never day trade my cryptocurrency investment or advise anyone to do so.

Typically, swing trading the market yields more consistent profits.

These are bigger moves that can offer at least 15-30% ROI.

Step 3: Trying to Pick Tops in a Market is a Bad Idea

This applies to both sides of the spectrum.

Some investors/traders often try to short (sell) against a strong trend anticipating a reversal.

Others get out too early and leave money on the table after a slight pullback even when they’re on the right side of the trend.

The main problem with trying to pick a top in any market is how easy it is to get run over and lose money if the market moves against you.

This is, especially, true if you’re actively trading your crpyptocurrency investment as opposed to buying and holding your coins in an online wallet.

The best approach for cashing out a crypto investment is to scale out of your long positions gradually at pre-defined price points.

Step 4: Managing Your Cryptocurrency Investment

Just like we can’t pick tops in any market, you never know for certain when the market will roll over or if you short when it will bounce.

Let’s say you buy Ethereum or any other alt coin and you’re trying to find an exit point and lock in some profit.

You want to manage your investment in such a way that you’re going to be okay with any kind of price action.

Because let’s face it, we can’t control the outcome of any market.

And if you try to force your will on a market, you’ll only get more out of sync with it.

I’ll use the STRAT/BTC example from earlier to illustrate how managing your cryptocurrency investment well can translate to more profit for you.

When STRAT/BTC finally started exploding upwards in March 2017, I decided to close out a big chunk of my position with a 900-1000% gain.

Because if the market had crashed before I’d taken some profit, I’d still be kicking myself in the foot for letting all those gains fizzle out.

Step 5: Don’t Chase the Hype

If you’re not very green in the financial markets, you’ve probably heard the phrase “the trend is your friend” before.

Having such a sentiment before getting into any market is a subtle sign of herd mentality.

Herd mentality or mass-generated hype creates an environment where participants in a market simply follow the buying pattern of the majority.

Sometimes you’ll even find there’s no sensible reason behind such moves.

Herd mentality in cryptocurrency investment is currently being driven by the fear of missing out (FOMO), greed, and a bit of excitement.

Investors who missed out on Bitcoin are now busy looking for the next alt coin that will replicate Bitcoin’s success.

And that’s why you should treat ICOs with extra caution.

New alt coins are flooding the market every other week in an effort to raise funds and attract new investors.

Some of the cryptocurrency projects behind these new coins actually look promising and profitable in the long haul.

But most of them are a bad buy and won’t be worth much once the market starts to correct.

Quick Give Away

As you navigate through the cryptocurrency space applying the above strategies and learning the ropes, these key lessons will also come in handy:

a. Nothing Beats Doing Your Own Research.

Like any other investment, it’s best to start your cryptocurrency investment with a fact-finding mission.

This will help you to form an unbiased sentiment about the alt coin you’d like to invest in.

In summary, here’s what you’re looking to discover from your research:

  • Are people mining the coin?

If techies behind the coin are willing to invest in mining hardware, this is a good sign that’s it’s generating interest and a vote of confidence to its growth.

  • If more businesses are willing to use the coin in their operations, the better it is for its future potential growth.
  • Look at how much effort the development team is putting in in terms of innovation and improvements and that their track record is squeaky clean.

We look at this metric because some coins are no longer being maintained by the pre-launch development team.

This is a bit retrogressive to the coin’s future growth plans.

  • Make sure there are no loopholes which hackers or scammers can manipulate.

Once investors start losing trust in an alt coin, it will quickly become worthless.

b. Get Familiar with the Different Cryptocurrency Exchanges or Wallets

How frequently you plan to trade your crypto investment and how much money you’re willing to invest will often dictate which exchange or online wallet you end up settling on.

As the blockchain technology becomes more mainstream, chances are we’ll also start seeing new and more advanced platforms popping up.

c. Create Rapport with Peers

Cryptocurrencies have a tendency to experience exponential growth when there’s a strong community backing them.

Find a strong online community like cryptocompare where you can discuss recent developments in the crypto space and how to make the most out of your investment.

You might be surprised by the number of crypto-enthusiasts out there sharing your views and looking for like-minded investors to connect with.

Conclusion

Hopefully, the strategies we’ve covered here will help you navigate through all the “noise” and promise surrounding cryptocurrency investment.

Also, be on the lookout for those self-proclaimed experts in crypto and pesky scammers as well.

These are just guys trying to leverage the excitement we’re seeing in an attempt to profit.

That pretty much sums it up.

Feel free to share with us your thoughts, future predictions, and questions about cryptocurrency investment in the comment box below.