Apr 11, 2022 · 57m · 20vc
20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital
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In this episode of 20VC, host Harry Stebbings interviews Avichal Garg, co-founder and managing partner of Electric Capital, about how crypto and Web3 protocols are transforming venture capital and global financial markets. Garg shares deep insights on technical crypto VC operations, tokenomics, DAO governance models, exponential market thinking, and macro crypto futures.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 25.1% of the talking time here. How this is scored →
Harry as informed peer 2.8 Guest teaching 5.5 Guest disagreement 1.2 Harry pushing back 1.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 34:46 Rejection of host's DAO dismissal
Avichal counters Harry's claim that DAOs are unoriginal governance by explaining that on-chain DAOs enable real-money parallel empirical experimentation at global scale.
Hardest push from Harry ▶ 34:46 Direct challenge on DAO innovationHarry explicitly rejects web3 DAO hype, asserting that restricted group governance is an old concept with nothing innovative about it.
Biggest teaching moment ▶ 17:45 Code as autonomous financial entityAvichal delivers a foundational breakdown of how smart contract code creates non-human entities that hold billions outside state jurisdiction, fundamentally disrupting legal and financial norms.
Harry holds his own ▶ 14:49 Analysis of GP organizational frictionHarry demonstrates strong VC operational insight by pointing out why traditional VC partnerships cannot easily bolt on web3 investing without distinct fund structures.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Avichal Garg's Journey to Founding Electric Capital | 1 | 3 | 0 | 0 | Harry asks open background questions about Avichal's trajectory from angel investor to founding Electric Capital. Avichal explains how early VC peers pushed them to manage outside capital, creating a steep learning curve in fund administration and international tax law. | |
| Crypto VC Landscape & Collaborative Ownership Models | 3 | 5 | 1 | 2 | Harry asks how crypto VC differs from traditional VC landscape dynamics. Avichal reframes ownership dynamics, explaining that crypto protocols require low individual VC ownership (under 5%) to avoid community organ rejection and preserve network decentralization. | |
| "Software Eating Money" & The Technical Crypto VC Operating Model | 1 | 6 | 1 | 0 | Avichal details the technical operating model of a crypto fund, noting that half of Electric Capital's team are software engineers. He walks Harry through the complex technical requirements of running nodes, writing code for DEX transactions, and handling on-chain staking custody. | |
| Can Traditional VC Firms Adapt to Web3? | 3 | 7 | 1 | 1 | Harry probes whether traditional VC firms can adapt by simply adding a web3 partner, suggesting standalone structures are necessary. Avichal agrees and expands into a deep thesis on how code-owned non-human entities and smart contracts are replacing traditional legal and financial infrastructure. | |
| The Impact of On-Chain Capital on Venture Capitalists | 2 | 6 | 2 | 1 | Harry humorously asks if traditional VCs will lose their jobs. Avichal re-educates him on the global nature of on-chain capital, explaining that top-decile VCs will thrive while mid-tier regional VCs face severe global disruption. | |
| Crypto VC Services Layer, Fund Structures, and Token Liquidity | 3 | 6 | 1 | 1 | Harry asks about the VC services layer and fund structures in web3. Avichal explains that web3 services require Discord governance and block validation rather than VP hiring, and notes that 10-year lockups protect investors against human cognitive failure in underestimating exponential growth. | |
| Equity vs. Tokens & Pricing Tokenomics | 3 | 6 | 1 | 1 | Harry shares a dilemma about a company offering 1-for-1 equity to tokens. Avichal educates him on how to evaluate whether value accrues to the company or the token network, and outlines the operational friction of buying tokens at scale. | |
| Token Alignment, DAOs, and Value Creation | 3 | 5 | 1 | 1 | Avichal offers a litmus test for token validity: if shutting down the operating company leaves value intact, the token network is primary. Harry asks if a Y Combinator DAO token is the obvious next move. | |
| DAOs & On-Chain Governance Experiments | 4 | 7 | 3 | 5 | Harry directly challenges the hype around DAOs, asserting that representative governance is nothing new. Avichal accepts the baseline historical premise but reframes DAOs as parallel empirical laboratories for real-money economic and governance experiments. | |
| Crypto Market Cycles, Tourists, and VC Pricing Discipline | 4 | 5 | 2 | 4 | Harry candidly vents his frustration with web3 crypto tourists and performative social media posture. Avichal validates the frustration but re-educates Harry that speculative noise is an inevitable tax on high-growth market innovation cycles. | |
| Valuation & Underwriting Crypto Assets | 3 | 6 | 1 | 2 | Harry asks how crypto assets are priced compared to traditional startups. Avichal explains outcome underwriting and unpacks the psychological tendency of investors to extrapolate linearly instead of exponentially. | |
| Macroeconomic Futures: Bitcoin & Ethereum as Global Digital Spheres | 4 | 6 | 2 | 5 | Avichal presents a macro vision of Ethereum acting as a third credibly neutral digital nation alongside US and Chinese spheres of influence. Harry pushes back on the logical extreme of this theory, asking if it implies VCs should just invest in everything. | |
| Strategic Advice for LPs Allocating to Crypto | 2 | 4 | 0 | 0 | The interview concludes with advice for LPs and a quickfire round covering foundational texts, changing geopolitical assumptions, Elad Gill's mentorship, and evaluating the Magic Eden founding team. |
Statements from this episode (32)
Electric Capital raised $1B for its new crypto fund
“Last month, Electric announced that they had raised one billion dollars for their new fund, making them one of the largest independent and crypto-native VC firms in the world.”
Electric Capital grew fund sizes from $16M to $1B in three years
“Raised our first fund. It was a small fund, sixteen million, and then raised our sort of first proper institutional fund in 2020 at 110, and then just closed a billion.”
Garg: A 20% ownership stake compromises crypto network resilience
“In a distributed system, in a distributed network, if you own 20% of the network, you're a liability to the resilience of the network.”
Garg: Electric Capital limits network ownership cap to 5%
“And so you actually, like in our case, we try to not own more than five percent.”
Garg: Crypto will eat capital markets and venture capital
“Crypto is also going to eat capital markets, right, which is the deployment of money and the deployment of capital. And if crypto is going to eat capital markets, it's going to eat venture capital.”
Garg: Electric Capital compensates software engineers as investment professionals
“And we comp them as investment professionals. We don't comp them as like back office.”
Stebbings: VC Firms Integrating Web3 Into Existing Structures Will Fail
“Actually, the firms trying to integrate and mesh into existings won't work, and it has to be a defined, isolated structure in its own right.”
Garg: Andreessen and Sequoia Will Likely Successfully Transition to Web3
“Now, some absolutely can, and I think some will. Like, I think Andreessen and Sequoia will likely make that transition, but it's going to be extremely challenging.”
Garg: Much of Electric Capital's activity will move on-chain in 10-15 years
“I don't think it's so crazy that 10 or 15 years from now, a lot of electric activity actually just happens on-chain.”
Electric Capital executes about 25% of its investments in USDC
“We probably do about a fourth of our investments in USDC, because it's just faster.”
Garg: Mid-tier venture firms face severe disruption from on-chain capital competition
“The people I think should be worried are if you're like VC firm, 15 through 1000, right? Like I think you get disrupted because capital, as it becomes a commodity, if you're a venture firm, 25 and you're like not breaking the top decile in terms of returns, An…”
Garg: Software eliminates middle markets by converting regional monopolies into power-law global markets
“It like destroys these local and regional monopolies and turns them into global markets. And once you're competing at a global scale, it tends to have this sort of concentration effect. It creates a power law and it creates concentration in the head and it unl…”
Garg: Crypto startups need Discord governance and validators, not sales recruiting
“So I think crypto protocols and businesses need an entirely different kind of services layer. And so you don't need a board member that helps you figure out how to interview a VP of sales. You need people sitting in your discord helping you do distributed gove…”
Garg: Electric Capital uses traditional VC fund structures to attract institutional capital
“Yeah, we actually look pretty vanilla on that stuff. And the reason is, I think, from a product perspective, it's much easier to tap into institutional capital at scale if you're not trying to invent something new there.”
Garg: Ten-year fund lockups benefit crypto LPs despite token liquidity
“And actually, I think the lockup periods, ten-year lockups, despite the liquidity, I think is actually better for LPs because it is a venture asset class. The returns are extremely asymmetric. And you can generate many multiples on your fund if you're patient.”
Avichal Garg: Token value creation often requires writing off founding equity
“We see cases where actually, yes, today there's a company, but the real value clearly will be in the token. And actually you want the company to dissolve and not exist. So effectively you're going to invest in some equity over time. You'll get some tokens, whi…”
Garg: Late-stage crypto infrastructure can be evaluated as traditional SaaS
“By the time you're in a series C or series D, they look like you can evaluate them as traditional businesses. But in the early days, like getting your products right, you're going to go to market, right? So it requires some pretty significant understanding of …”
Garg: Most company tokens act as loyalty points, not true networks
“But a lot of the time, what you're really doing is not building a sustainable token network. It's often going to be the case that it's sort of a customer acquisition channel, and it behaves a little bit more like loyalty points than it does a true distributed …”
Garg: A valid token network survives shutting down its corporate creator
“Generally, a limit test we're using is like, does the company just go away? And if you shut down the company, Would you still have a significant amount of value capture and creation that happens on the token side? And if the answer to that is yes, then really …”
Garg: DAOs will recreate traditional structures like representative government
“Is I absolutely think we will recreate a lot of the known governance structures in society. We will recreate representative government, for example, where there are experts and you sort of delegate your votes to them and then they go off and make decisions tha…”
Garg: 10% of DAOs will wildly break expectations of governance
“You'll have millions and millions of doubts created. Many of them will fail. Many of them will look very similar to what we would expect just reasoning through it. And some small percent, 10% of them will wildly break our expectations about what's possible.”
Garg: Determining durable DAO governance models will take 7 to 10 years
“And I think for us to really know which of these experiments from governance or economic game theory perspective are durable, I think it's going to take seven to 10 years.”
Garg: Global economy has tapped less than 10% of highly gifted talent
“I suspect we've tapped no more than 10% of those people. 90% of the highly gifted people in the world we have just not been able to find yet.”
Garg: Exponential market growth requires accepting short-term speculative noise
“You can't have exponential growth and experimentation and exploration without a bunch of this sort of speculative, cringey kind of activity, and so I think you just sort of have to swallow it as part of the process of figuring out what's really valuable, and s…”
Garg: Latecomer VCs overpay for crypto logos to win future deal flow
“Like, if a VC firm that feels like, They missed out on the last wave of crypto for the last four years comes in and is starting to buy logos. Then they're going to overpay because their motivations are not just that they want to do the investment at a fair pri…”
Avichal Garg: Technology market growth should always be extrapolated exponentially
“Our instinct is to extrapolate linearly rather than extrapolate exponentially because the conclusions that you reach to seem ludicrous in the moment. But it's turned out that every moment in time on that curve, whether you were in 1980 or 1985 or 1990 or 1995 …”
Garg: Bitcoin could become a central bank reserve larger than the yuan
“Could Bitcoin actually be a Reserve currency that central banks are purchasing that could be bigger than the yuan or the euro in central banks. I don't think that's crazy, actually.”
Garg: Ethereum could become a neutral $1T GDP digital settlement layer
“Creates this opportunity for a third system, right? An incredibly neutral third system, which might be Ethereum, which effectively starts to behave like a digital economy and a digital settlement layer for all the transactions that need to exist in a third pla…”
Garg: LPs should dollar-cost average into crypto over multiple market cycles
“There's a lot of nuance here, and I think we're still very early. So I wouldn't FOMO in. I wouldn't worry about missing it. I would be very deliberate about sort of cost averaging in over a couple of cycles. I don't think people need to freak out about it beca…”
Garg: Global economy will revert to 1950s-1980s geopolitical fragmentation over 20-30 years
“I think I've recently changed my mind on the uniqueness of the period of time that we lived in from roughly 1990 to 2020. Like, I thought we were trending towards that was basically the state of the world, where we would have this sort of, like, globally stabl…”
Garg: Elad Gil seeded Electric Capital with $1M and raised first $10M
“He was the catalyst. He was the person who came to us and said, you guys are really good at this, and there's a real market opportunity here for a thing that's not a traditional VC firm, and that's not a hedge fund, that's built differently, and you guys have …”