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Inga Knyazeva, an investment expert discusses investing and venture projects

07/30/2020

Every beginner investor is clustered with numerous questions: how to choose the right direction for investing, what investment tools are best to use, how to evaluate the effectiveness of investments? Let’s try and answer these questions with the help of Inga Knyazeva — an investor, mathematician and economist, PhD in economics, associate professor of Financial University under the Government of Russian Federation, and an investment expert.  

Goals and investment tools 

The goal of investing  is to secure and increase one’s capital. Securing capital  means protecting it from inflation, devaluation, volatility of the stock market, and losses, for instance, caused by investments in rather obvious financial pyramids. Increasing capital — means not only growing the absolute value of savings, but also increasing the buying ability of one’s assets against a local currency, but also against some of the world’s strongest currencies. 

An investor “gathers” a portfolio of investment tools for realizing one's goals of “saving and increasing” the funds. 

Practically speaking, an investment tool  is a form of investing. Investment tools vary greatly and are also classified differently: by correlation of “risk to return”, time frames, materiality (for instance, real estate is material, while an investment account is a non-material asset), the purpose of investment and etc. .

In a broader spectrum, the following notions can be highlighted as well-known investment tools: bank deposits, investment saving insurance, stocks, shares of investment funds, various types of real estate, precious metals and luxury items.

Making the right choice isn’t easy, as even the classic correlation of “risk to return” does not work for most types of investments, discussed in further detail in this article.

Are there universal types of investments?

In an ideal scenario, everyone would love to find a particular perfect scheme allowing to not have any risks and receive major returns. However, we live in a real world in which a perfect investment tool does not exist. Every investor chooses an optimal correlation of “risk to return” for themselves. 

Although, even in this scenario not everything is this simple — for instance, low risks can become high risks the next day. Let’s assume that you are accumulating funds in a ruble deposit account of a “well-known” bank. In this case, you can rest assured in security of your funds, yet you are still taking risks of currency devaluation towards the dollar, inflation, decrease in buying power and etc. .  These aspects establish one major risk: you will not be able to provide yourself with a lifestyle that would allow for you to live happily and worry-free once retired. So what would the verdict be? Should this investment tool be disregarded? Not at all, you simply should not over use it, but rather search for other rational alternatives.  

There are no ideal parameters of investment effectiveness. For instance, the notion of “return” itself is very versatile. Profitability is calculated in various ways  — in absolute and relative indicators, with and without time frames, market sectors, risks associated with investing, inflation and etc. . Let’s assume that you became a happy owner of a new apartment and are renting it in return of monthly profits that are great to account towards the monthly budget. On the other hand, if you were to also account discounted rates of return on your acquisition you would see over what period of time the apartment would pay off. It is also rather possible that you would simply deny such an investment opportunity.   

Conclusion is rather simple: there are no ideal investment tools. Only a portfolio of effective, balanced and smart investments allows to secure and increase one’s capital. 

What are venture projects?

A venture project  is an innovative business project with a high degree of innovation, risk and potential profitability. This is one of the most precise definitions of a venture project. 

The biggest challenge when investing in a venture project — is choosing the particular project that will be successfully finished to invest in (i.e. sold, given the modern understanding of the subject) and will generate its owners super-high returns. 

It is quite a challenge to find such a project. Most venture projects cease to exist prior to their capitalization reaching $500 thousand. There are many reasons for such outcomes: unviable ideas, non-effective management, lack of funds, imperfection of the innovative infrastructure, deception of investors and so on.

How to insure oneself? It is rather simple: gather the most amount of information about each of the projects you are considering to invest in and apply logic. For example, if you are told about an astonishing success of a company on the stock market, ask whether there is a license for managing financial assets,  what financial regulator issued the license and when. If you are told: “We only provide consulting services”, ask for a license of the partners who are organizing such astonishing investments. In general, you might be shown a license, despite the fact the license can be completely falsified (I was shown a dentist's license in my personal experience), and not for the right to manage financial assets. It is best not to invest in such a project. 

Keep in mind that even the utmost professionalism of those managing assets on the swings of fantastic volatility (price fluctuations on the stock market)  can not offer profitability margins of 45% per month. 

Are you told that the particular application has already spread over several continents? Ask to see the statistics of downloads and how the turnover of the application is evaluated. Pay close attention to the company’s website, in case information about a legal entity, its location and partners is missing — it is a direct way to lose your funds.  

Investors are guided by many parameters when choosing a venture project to invest in, below are some of the most frequent ones:

  1. The project’s idea, sector of operation. According to statistics, most of the successful venture projects are realized in the IT sector, particularly in the B2B segment of it (business to business).

  2. Stages of the project’s realization. There are several development stages of a venture project. Capitalization is low and risks of the project not being finished are high during the Seed stage. Next stage, Expansion, is characterized by confident integration of the project to the target market, participation of institutional investors in financing the project and global risk decrease. Capitalization is already quite high during this stage and “entrance” for potential investors is much more expensive.  

  3. Transparency and legal purity. Only the most legally transparent projects can plan to either sell or release an IPO on a stock exchange nowadays, it is best to search for other options in case there are any donuts of any kind. 

  4. The team and partners. The more respected partners and the projects “key” entities are, the more willingly investors will participate in financing the project.

Gem4me-MarketSpace — a venture project at the “Expansion” stage 

Gem4me-MarketSpace — is an example of a project that achieved the expansion stage, during which capitalization is quite high and risks are lower. The IT sector – is a clear favorite of the market of venture projects, while the coronavirus pandemic made this market even more attractive for investing in.

The project placing its bonds on NASDAQ (American stock exchange platform specializing in shares of high-tech companies) increases the quality and legitimacy of the project from an investor’s point of view (including institutional investors). 

Effectiveness of costs associated with realizing the project does not raise any concerns – valuation of the Gem4me messenger surpasses the amount of investments raised for development practically by 8 times.  

The project’s legal structure is optimally adapted for its goals, while partners are respected in their fields of operation. 

Furthermore, Gem4me-MarketSpace is a crowd-investing project, which assumes two crucial aspects:  

  • First. Financing of the project did not stop during the time of crisis, as it happened to dozens of other venture projects.

  • Second. The entry threshold for investors is quite moderate even during the project’s current stage. That is the exact reason for why a large amount of experienced and beginner investors are participating in the project. 

In conclusion: when choosing an investment tool, be attentive and always remember that luck in this regard is always the consequence of quality analysis and a well-thought choice. 

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