Cameron Chell here again.
A little over a month ago, we talked about the five crucial steps every investor should take to finetune their deal flow. If you missed it, you can check it out here.
Today, I want to dive in a little deeper by talking about one of the biggest investing strategies out there: momentum investing.
Momentum investing is the strategy of buying into securities that are trending up and selling those that are trending down.
It’s often used by investors in the public markets to capitalize on stocks, futures, or ETFs that are performing well. It also requires a pretty good sense of which market trends are likely to last, and which ones are likely to fall.
In the past, momentum investing as an angel investor has been very tricky, especially considering that it normally takes around five years for an investment to mature.
Predicting what’s going to happen in five years is difficult for anyone. On top of that, angel investors need to bet on the right management team to execute the company’s vision, the tactics required to manage financing, and the personnel.
Ultimately, getting to a spot where both market opportunity and corporate readiness meet is one of the main reasons that angel investing can be so tricky.
Of course, in today’s market, we have the rise of secondary markets. These private trading markets for angel investments can shorten the liquidity horizon for investors and provide a scenario where momentum investing into small, private companies is a bit more viable.
But if you’re solely looking at the trend, you’re just trying to get a return on timing. To really work toward a potential return on investment, you need to dig deeper.
You need to assess whether a company is in a growing market. Is there a trend that will have this market grow substantially that this angel investment is working for?
You also need to look at the technology. Is it solid? What is their customer base? What is been the experience of the team at hand? Do they have financing in place? Will they continue to have financing in place?
And of course, you need to assess what the trend will look like in the future. Is it only going to grow? Sometimes, when a trend grows, it actually gets harder to raise money because the space is more competitive.
From an investing standpoint, we pulled back quite hard because it just got too noisy. From a pitching standpoint on some of the projects we were bringing to larger funds, it became very difficult for them to discern quality projects from not quality projects.
This was a result of the whole industry moving so quickly, and these are things you really need to watch closely.
Then, I re-evaluate the performance, rinse, and repeat.
If they’re in a space where they’ve missed the opportunity for momentum, or the momentum has died, or it’s gotten too noisy, or whatever the case is… they need to be able to pivot within that industry or pivot their technology to somewhere else where they’re going to hit that momentum curve.
When you’re thinking about momentum investing, you need to think about the momentum curve and how the startup’s fundamentals can meet the timing of what we think is going to happen in the market.
There’s a notion that when a whole sector does well, all companies do well. But as an angel investor, you’re generally looking for the companies that are really special. Even in a buoyant market, where everyone in the sector is doing well, it’s still really only the top 3 to 5% of companies that will get taken out for significant gains.
Ultimately, when you’re thinking about momentum investing, you need to think about timing and hitting that momentum curve. To do that, you need to focus on the fundamentals… and especially the management team and its ability to pivot.
That’s all from me for today. I’ll be in touch again soon to talk about even more of the latest tips and tricks for navigating the angel investing world.
Talk shortly,
Cameron Chell
A little over a month ago, we talked about the five crucial steps every investor should take to finetune their deal flow. If you missed it, you can check it out here.
Today, I want to dive in a little deeper by talking about one of the biggest investing strategies out there: momentum investing.
Momentum investing is the strategy of buying into securities that are trending up and selling those that are trending down.
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It’s often used by investors in the public markets to capitalize on stocks, futures, or ETFs that are performing well. It also requires a pretty good sense of which market trends are likely to last, and which ones are likely to fall.
In the past, momentum investing as an angel investor has been very tricky, especially considering that it normally takes around five years for an investment to mature.
Predicting what’s going to happen in five years is difficult for anyone. On top of that, angel investors need to bet on the right management team to execute the company’s vision, the tactics required to manage financing, and the personnel.
Ultimately, getting to a spot where both market opportunity and corporate readiness meet is one of the main reasons that angel investing can be so tricky.
Of course, in today’s market, we have the rise of secondary markets. These private trading markets for angel investments can shorten the liquidity horizon for investors and provide a scenario where momentum investing into small, private companies is a bit more viable.
But underneath all of that, I still maintain that investors really need to build toward solid fundamentals.
It’s important to go beyond simply the timing of a trend. For example… distance learning, drones, and other macro trends are great to build toward and can eventually give you an opportunity to participate in a large total addressable market (TAM).But if you’re solely looking at the trend, you’re just trying to get a return on timing. To really work toward a potential return on investment, you need to dig deeper.
You need to assess whether a company is in a growing market. Is there a trend that will have this market grow substantially that this angel investment is working for?
You also need to look at the technology. Is it solid? What is their customer base? What is been the experience of the team at hand? Do they have financing in place? Will they continue to have financing in place?
And of course, you need to assess what the trend will look like in the future. Is it only going to grow? Sometimes, when a trend grows, it actually gets harder to raise money because the space is more competitive.
I remember through the blockchain craze a few years back, it was actually harder to raise money because so many people were getting into the space.
Many of them didn’t have a lot of experience, but many of them did have fantastic stories, which made it very tough to discern quality.From an investing standpoint, we pulled back quite hard because it just got too noisy. From a pitching standpoint on some of the projects we were bringing to larger funds, it became very difficult for them to discern quality projects from not quality projects.
This was a result of the whole industry moving so quickly, and these are things you really need to watch closely.
Personally, I like to invest in themes, try to match those themes with some momentum, and really focus on fundamentals.
The underlying fundamental I like to work with most is the management team. I probably spend most of my angel investment time thinking about and working with the management, determining what is most important, and then specifically how to get it done.Then, I re-evaluate the performance, rinse, and repeat.
It all comes back to one core philosophy… PIVOT, PIVOT, PIVOT.
The thing about this type of methodology is that a startup needs to be able to pivot accordingly.If they’re in a space where they’ve missed the opportunity for momentum, or the momentum has died, or it’s gotten too noisy, or whatever the case is… they need to be able to pivot within that industry or pivot their technology to somewhere else where they’re going to hit that momentum curve.
When you’re thinking about momentum investing, you need to think about the momentum curve and how the startup’s fundamentals can meet the timing of what we think is going to happen in the market.
There’s a notion that when a whole sector does well, all companies do well. But as an angel investor, you’re generally looking for the companies that are really special. Even in a buoyant market, where everyone in the sector is doing well, it’s still really only the top 3 to 5% of companies that will get taken out for significant gains.
Ultimately, when you’re thinking about momentum investing, you need to think about timing and hitting that momentum curve. To do that, you need to focus on the fundamentals… and especially the management team and its ability to pivot.
That’s all from me for today. I’ll be in touch again soon to talk about even more of the latest tips and tricks for navigating the angel investing world.
Talk shortly,
Cameron Chell
Follow @angelsandentrepreneurs
Right now Facebook has cut back on Australia their news flow, our treasurer is trying to fix the dilemma. Climate change is our biggest concern, instead of all the focus on governing the people! The ASX was down Fri, very volatile anyway I think you nailed it good reading🙏