My Venture Fund Update: BitCoins, Outsourcing and O&G

My Venture Fund is now fully invested . I’ve made a few new investments into the fund across several diverse areas. I’m hoping to now just sit back, monitor and see how things progress. My newest investments are probably as diverse and unrelated as they come. 

 

I’d previously written about my interest in starting up and establishing my own venture fund to get access to some early stage disruptive companies. Steady growth dividend payers have served me well over the years, but the opportunity to participate in growth that comes with early stage, disruptive innovation has a lure that was too strong to pass up.

Of course, making such investments is not without risk. It’s for that reason that my venture fund is capped to 3-4% of my overall portfolio size.

I’ve already made several investments in my Venture Fund a couple months ago which have experienced positive appreciation due in large part to the strength of the markets in recent times.

IProperty Group and ICar Asia were my two prior investments. IProperty group was a property portal with a presence in key Asian markets such as Indonesia, Malaysia, Singapore and Hong Kong, with properties listed and featured for sale. I think of it as an Asian version of Zillow, which has a $3B market capitalization.

ICar Asia was my other core holding. This investment has a number of similar parallels with IProperty Group, albeit that it’s focus is on establishing a portal for the listing and sale of vehicles in major Asian markets including  Thailand and Malaysia amongst others.

I’ve made a few new investments in my Venture Fund since then.

Freelancer.com

Freelancer is one of the world’s largest destination portals for contracting and outsourcing positions. Think of all those tasks that are outsourced in the economy….app development, website development, article writing, website design. Freelancer.com is one the key destination points that connects those with a task to be performed with those who are looking for work.

Freelancing is supposed to experience huge growth going forward. It’s currently a $1B revenue market for those businesses that serve it today. That is projected to expand to close to $5B in 2017. Companies that are positioned as hubs in this area have a good chance of making money hand over fist. I made a $9k investment in Freelancer when it listed on the ASX, At $700m, it carries a pretty pricey valuation (up very strongly on it’s list price), but it’s a business I am happy to leave alone and monitor every now and then.

Austin Exploration

This is an intriguing business that is focussed on the exploration of oil and gas in the United States and Australia. Ordinarily, I stay well clear of oil & gas explorers, because generally it’s the folks who sell the picks and the shovels that tend to benefit, rather than the explorers themselves. Austin is intriguing to me for a couple of reasons.

Austin is focussed on mining shale oil and has several positive site prospects in the US. It was a fairly early entrant into shale extraction, and as such has a few key tenements in some areas that have proved very promising in terms of reserve capacity.

Austin is also chaired by a individual that has a history of turning at least 2 other early stage oil and gas ventures into multi billion businesses before they were eventually sold. Oil exploration is a risky venture at the best of times. Having someone with a track record of successfully getting full value from such businesses is a critical element and the Chairman believes Austin has the potential to be another $Bn business, which is a big call given the valuation of the company sits at $17M today.

I invested $5k into this business. Unlike my other venture fund investments, this is not one that I plan on increasing my exposure to further, no matter how it performs.

BitCoin

Finally, as planned, I purchased a small stake in Bitcoin several weeks ago, approximately $3k worth. I unfortunately realized that it’s not so easy to actually buy Bitcoin as one would think.

BitCoin are traded through exchanges. MtGox used to be one of the largest, but given the influence of Chinese BitCoin investors (or speculators as some think), MtGox has been surpassed in volume traded by some other exchanges.

I initially attempted to open an account with MtGox to start buying some BitCoin. While they claim on their website that the verification process ordinarily only take 2 days, Mt Gox took close to 8 days to get me verified! In that time period, I watched the price of BitCoin rise from some $200, to close to $450.

I was able to eventually open an account with another exchange and buy about 6 Bitcoin (actually slightly more than 6, because you can buy Bitcoin fractions as well) for close to a $2800, or about $460 each. Certainly more than I had initially set out to pay per BitCoin, but not more than my planned total outlay.

Much like Austin Exploration, BitCoin will have a fairly binary outcome. There is every possibility that it will amount to nothing and just fizzle out. At best it may just have a niche role to play in some downtrodden economies where there is no trust in banks and the value of conventional money supply (universities in Cyprus are accepting tuition payments with BitCoin now apparently). The chance of this scenario playing out is likely as high as 75%.

There is also a small chance that BitCoin could emerge to play a lasting role in commerce or as a store of value similar to gold. I doubt it will be anywhere as enduring and as valuable as gold, but even if it approaches anything similar to gold in status and as a store of value, it’s ascendancy will have long way to go. BitCoin happened to survive the most recent senate hearings that were held on it’s future. I think there was a lot of concern that it would be shut down or banned. While I don’t think that’s a likely scenario, it’s nevertheless one not to ruled out.

One of the fascinating things lately with BitCoin has been the extraordinary volatility in price. As I write this, BitCoin has been traded up near $830 per BitCoin. It’s difficult to read too much into these daily gyrations, which will likely occur until BitCoin finds some kind of equilibrium between underlying demand and supply, which is likely years away.

In this period, BitCoin could just fizzle out, or it could continue to gain increasing acceptance. If this more broad based acceptance plays itself out, what I expect to happen is gradual upward pressure in price from underlying demand (speculation or otherwise), met with a steady increase in supply as “BitCoin miners” invest more in hardware to mine BitCoin at an ever increasing cost and difficulty, but higher price.

Eventually, when demand response has stabilized and supply response is unable to mine more BitCoin (when likely close to the 21M possible BitCoin’s are all in market), then BitCoin’s price will finally stabilize. This may likely take years to occur.

In the meantime, BitCoin’s price will probably go up and down, based on increasing consumer awareness and the ability to spend BitCoin from things diverse as university education to trips to outerspace!. Personally, I don’t intend buying or investing any more of my money into bitCoin than what I am prepared to completely lose, and that limit for me is $3k.

There was a very interesting article in the Wall Street Journal over the weekend about the thesis behind investing in BitCoin. I tend to also share these sentiments.

I’ll be providing periodic updates on investments around my Venture Fund activity and performance over time.

Comments

  1. Fascinating additional investments, with Freelancer.com really being one that I’d be interested in seeing the upcoming performance.All in all, really looking forward to seeing how these turn out for you. What is your plan for disclosing the performance of your VC portfolio?

  2. Integrator says:

    W2R, I’ll likely be giving updates every 3-6 mths. While these are investments that wil likely take 5+ years to germinate, I’ll try and give some short term operating updates.

  3. Integrator,
    This is an interesting series of posts. Good luck with these investments, sounds like you have had some successes already. Any thoughts on where you would consider selling Bitcoin, if it really spikes a lot more?
    -RBD

    • Integrator says:

      RBD, 6X from present levels (if it ever gets there!) would probably see me cash out 1BTC to return me double my outlay. I’ll let the rest ride for an extended period of time. 100x these levels would likely see me cash out everything…..not that I realistically expect to see that payday….though that would be nice! :)

  4. Must be happy to see BTC hit $1,000 the other day. Still like the concept, but don’t have the money to put into it now.

    Will just stick to planning out stocks for my Roth IRA and my regular account.

    • Integrator says:

      DG,

      I’d love for BitCoin to just be ignored and disappear under the radar for a bit to be honest (though little chance of that happening now). These sharp swings upward are more likely to lead to booms and busts and actually detract from BitCoins true long term value and potential. I think it’s real potential is significantly higher than the levels we are currently at, but that will take years to play out.

  5. Resman says:

    Have you considerd light coin ?
    I recently wrote a post you could find interesting ideas for your venture fund :)
    http://resilientman.com/passive-income/
    Keep the updates comin’
    Resman

    • Integrator says:

      Hi Resmen,

      Thanks for the link to your passive income asset list. Some interesting possibilities there. I’m not planning to expand the list of cryptocurrencies in my venture fund at this point. My Bitcoin holdings are more than sufficient for me :)

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