Timing the Startup

According to the Chinese calendar, the year of the pig is upon us. Many of us wonder whether the year of the pig would bring better times ahead. However your guess is as good as mine in forecasting whether the year would bring good fortune or not.

Like stock market investments, it would be ideal if one is able to time their investment in a startup just before a major upward trend. Intuitively, this sounds logical since a growth trend would result in an increase in revenue over time. Unfortunately, as investors would tell you, timing an investment to predict a rising trend like in the stock market would be an almost impossible task. Many investors have stories of how the market turned immediately after they had made a large investment.

Actually the time when most investors put money in the stock market is when major indexes have risen considerably and appear to continue to rise. At this stage, the fear of losing out prevails and investors jump in with all eagerness. The same is true for many other investments including cryptocurrencies like Bitcoin. When Bitcoin price approached almost $20,000 in Dec 2017, many investors started investing in cryptocurrencies themselves or computer hardware for mining Bitcoin or other cryptocurrencies. At the same time, the savvy ones were taking huge profits in unloading their stakes in Bitcoin and other cryptocurrencies. Today with Bitcoin price at less than 20% of the peak, demand for cryptomining hardware has plummeted.  Cryptocurrencies investors too seemed to have vanished.

On the other hand, in a down market, very few investors make investments for fear of losing money. However as experts would tell you, the pros make the bulk of their purchases in a down market and sell a substantial portion of their stakes when the market is high.

There is, however, a difference in investing in a startup.  For a start, entrepreneurs would tell you that the decision to invest in a startup could happen anytime. The passion could be fired up in the midst of a recession or when the economy is booming. There is no question of  waiting for the right time to invest in a startup. However entrepreneurs could use the approach of professional fund managers in underinvesting in stocks when the market is booming and overinvesting during a downturn. They could do this by scaling down the investment in the startup when things appear to be doing too well. Similarly, the entrepreneur could scale up the investment during the middle of a recession. This counter intuitive move may seem illogical but parallels the contrarian approach used by some successful fund managers. The logic is that when things are doing too well, the next move is likely to be downwards and vice versa. This way, entrepreneurs need not try to time the market in launching the startup and risk missing out on a good business idea.

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