Lots of deserving frens who laboured through the bear market getting seed rounds for good projects with stacked cap tables.
From someone who has previously lit precious capital on fire enthusiastically writing cheques for seed rounds,
Here's how to play the primary market 🧵:
1) Know thy fellow investor
On the cap table, $500k from a $250m fund is the same as someone with $250k NW clipping 0.2 ETH into a memecoin. Don't let it inform your investment decision or cause fomo.
2) Terms = quality
The more painful the vesting schedule is for you, the more likely the team is legit. Anything with less than 3-6mo cliff with a 12mo+ vest is likely p&d garbage or an insider enriching scheme. You might make money but do you want to do it that way?
3) Catch 22
Anything with shorter vesting is probably a bad investment, while longer vests have huge opportunity cost.
If it 50x's but you're still cliffed, your ROI is ZERO. And by the time you're liquid, the cycle could be done and that 50x could turn into barely a 5x. That capital could've been better deployed playing the liquid market.
Maybe even picking up the same token on secondary at a slightly higher val but with the ability to sell 100% of your stack whenever you want.
STUDY the following VERY IMPORTANT table. Months vested vs. LIQUID roi for a 24 month vesting period.
If your investment does a 10x but you have only been vesting for 6/24 months after a 6 months cliff (i.e. you waited a year), congratulations on your 250% gain. Ouch.
What is liquid is what is real.
4) Despite crypto being crypto, primary markets are still a crapshoot
It might seem like every new project is absolutely sending, but that's simply not true. You might notice certain S tier projects absolutely sending but that's selection bias.
There might even be weeks where every new coin is mooning. But for the seed investors, assuming they didn't unlock on tge and the project isn't a p&d scam, what matters is what the price is 6-12mo+ from now.
Primary markets are actually really hard lol, even at the highest levels with 9-10 figs of paper gains on the books of all the big name VCs, how much of that do you think will actually be realised before it's too late?
5) Seeds affect your behavior
Being up massively on a seed round but illiquid may make you feel like you have money to burn, but don't go around punting your liquid capital into garbage.
More commonly, the very opportunity of absolutely sending a fat stack into a seed round feels like a big deal, a golden ticket, a big return waiting to happen — but the odds are literally 1 in 100.
Have a reasonable allocation to seeds in mind vs. your portfolio. For me, that's 10%. For most people that's very high. However, I have conviction in my deal flow and I'm very very selective about what I invest in. But most importantly, I am not participating in seed rounds right now (with some exceptions depending on quality)!
6) Timing and exit
The best time to be a seed investor was 6 months ago. The second best time is probably 2 years from now.
All of the hot tokens launching rn and giving you FOMO to ape into seeds actually raised in the depths of the bear market. Now, seed vals will be higher and it will be very difficult to get a decent exit in things you ape now.
Again, refer to the table attached earlier and ascertain where your prospective seed round stands.
7) Be a small ape
Don't let any of this stop you from missing the next 100x seed round. If something seems cool but the market dynamics are not in your favour, maybe worth it to still ape a little bit just to keep that stream of deal flow open (maybe the next thing they send you is a 1000x) and to have exposure in case it moons.
tagging fellow apes for visibility:
@crypto_linn @LouisCooper_ @cryptowhail @CryptoWithNick @lazyvillager1 @0xGeeGee @0xJezza @veH0rny @shreddydefi @jojo17568 @Nach_211 @0x_ultra @Gammameshs @TraderMercury @chutoro_au @cryptoezu @21blacky @TaikiMaeda2 @Glug69420
Sector:
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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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