The Exchanges

Q Yeah, no, this is totally true. I do want to want to say, because when we chatted before on the token side, you said in terms of scale of cash, investing in tokens at the institutional scale, especially say that you have, is Hard. Why is it actually hard doing that token buying at scale, and what makes it so hard?

A Yeah, absolutely. The entire life cycle of from identifying an opportunity, to doing the diligence, to accruing into the asset, to holding the asset, to generating yield on it, to paying your taxes on it, and marking your books, to doing your audit, to divesting, there is not a lot of third-party infrastructure for that. You actually have to be able to figure out how to actually build some of that infrastructure, so that involves potentially writing code, that potentially involves Let's say if you're going to acquire it, and maybe it's only available overseas, so then you have to have processes to get KYC'd on a bunch of overseas OTC desks. You might need to have some, like, legal infrastructure. You might need to have some subsidiaries overseas that you create to be able to execute on these things, or maybe it's only on a decentralized exchange, so then you have to, like, run your own custody. You might have to write your own software to do taxes. Like, at every step of what is traditionally a venture process, end-to-end, you have to do something slightly different, and so the infrastructure that you need, both legally and operationally and organizationally and from a software perspective, There aren't third party tools that you can just turn to. And often you're sort of having to build these things and figure them out from first principles. I mean, even something as simple as…

AI assessment note: “there is not a lot of third-party infrastructure for that”

Q Well, talk to me about that, actually, because I'm going off schedule completely. But like, you know, venture is less collaborative than ever, I think now, actually. So why and what is it about crypto that allows it to be much more collaborative from that ownership standpoint? I don't get it. Sorry.

A Yeah. So if you look at what is crypto and what is crypto investing, often what you're doing is you're building crypto networks that are token powered and token incentivized. And they're effectively markets that are trying to replace corporations, right? He's trying to take the corporation and replace it with some sort of marketplace in that sort of a distributed system. You can't have concentration of ownership. So like in a traditional business, you want to buy at least 15% of it, maybe 20% and double down over subsequent rounds. And by the time the thing IPOs, hopefully you own 20 or 25 or more of it. Right. And the traditional VCs have really perfected this. 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. The entire value proposition is that distributed ownership makes the network resilient. And so you actually, like in our case, we try to not own more than five percent. And often we're talking about like low single digit percentages of ownership in these networks, because that's actually the right way to have resiliency in these systems and to incentivize the community to come in and actually adopt them. And so if you have too much VC ownership, the community will just reject you, right? It's sort of like organ rejection or like it's an immune response. And so what that means is the proj…

AI assessment note: “if you own 20% of the network, you're a liability to the resilience”

Q Well, talk to me about that, actually, because I'm going off schedule completely. But like, you know, venture is less collaborative than ever, I think now, actually. So why and what is it about crypto that allows it to be much more collaborative from that ownership standpoint? I don't get it. Sorry.

A Yeah. So if you look at what is crypto and what is crypto investing, often what you're doing is you're building crypto networks that are token powered and token incentivized. And they're effectively markets that are trying to replace corporations, right? He's trying to take the corporation and replace it with some sort of marketplace in that sort of a distributed system. You can't have concentration of ownership. So like in a traditional business, you want to buy at least 15% of it, maybe 20% and double down over subsequent rounds. And by the time the thing IPOs, hopefully you own 20 or 25 or more of it. Right. And the traditional VCs have really perfected this. 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. The entire value proposition is that distributed ownership makes the network resilient. And so you actually, like in our case, we try to not own more than five percent. And often we're talking about like low single digit percentages of ownership in these networks, because that's actually the right way to have resiliency in these systems and to incentivize the community to come in and actually adopt them. And so if you have too much VC ownership, the community will just reject you, right? It's sort of like organ rejection or like it's an immune response. And so what that means is the proj…

AI assessment note: “who else do I want at the table?”

Q Do crypto networks and crypto opportunities, do they need the services layer that venture provides for you? Like, do you think about building out a massive services arm over time? And do crypto networks really need that? Or because of the decentralization, do they not need that? And it's a fundamentally different services model required.

A Yeah, not a dumb question at all. That's an excellent question. 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 governance. You don't need somebody doing intros to other companies in their portfolio to set up partnerships. You need somebody to go run a validator in some data center to help decentralize the network and produce blocks. Or you need somebody to bring liquidity into your marketplace and help bootstrap Be the first couple million dollars of Ethereum or Solana or whatever into your marketplace. So I think there is absolutely a place for people who are value add. And I think that's always the case. Like if you create real value for people, you will be able to accrue value back to yourself in some way. But I think the forms of value that are necessary are very, very different. I mean, so the way that you end up then building your firm is very different. And to your question around kind of like, what does that mean in terms of an army of people? At least the way we think about it is twofold. One, that army of people is unlikely to be Accountants and finance people and recruiters, because much of this stuff just gets standardized and operates in a very transparent way…

AI assessment note: “crypto protocols and businesses need an entirely different kind of services layer.”

Q I think one of the reasons the show has been successful is because I'm not afraid to ask the dumb questions when I don't know the answers. Does it mean that I'm going to be out of a job in 10 years? Like, for me as a traditional venture manager, what does this mean for me?

A Great question. I don't think you're out of a job. I think it's equivalent to Microsoft still had a fantastic business despite Google breaking through, and Google still has a fantastic business despite Facebook breaking through. So I think we just invent a new thing, and I think a lot of these traditional businesses coexist alongside, and then they slowly decay, and some of them can evolve. And it depends a lot on which part of the markets you're talking about. I think in venture, there are real human network effects. I think there are at the top people who create real differentiated value and those people will not be replaced. So I think you'll be okay. Sequoia will be okay. Andreessen will be okay. 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, And I'm an LP and there's somebody who's on chain and is generating better returns than you. I think the capital markets tend to be pretty rational about this. The money will find its way to those people. And so your competition set just went through the roof, right? I think it's the equivalent of what's happened in a lot of markets, which is there used to be essentially local and regional monopolies. Like newspapers used to wor…

AI assessment note: “I don't think you're out of a job.”

Q Absolutely. Starting from blockchain one-on-one for dummies here. Blockchain's always hailed as this holy grail of anonymity. How does that compare, then, to that radical transparency of being able to drill down into each individual transaction and identity?

A Yeah, so in practice, there are some chains that are more private. Even those are probabilistically private, but they're pretty secure. Products like Monero or Zcash are pretty secure. Coins like Bitcoin, let's say, are not. They're pseudonymous. Given enough data, let's say, if you're an exchange that's done KYC, You can start to analyze the chain and see who's transacting with whom and how those money flows are going, and so, in effect, you're transacting in public. And so, in most cases, these chains are actually not as private as people think they are, which is why I think there's that risk, is that disconnect between how private or anonymous people think these things are versus how much they actually are, and potentially a nefarious actor's ability to sort of arbitrage that difference where people think that they have a lot of privacy, and in fact, they don't.

AI assessment note: “in effect, you're transacting in public. And so, in most cases, these chains are actually”

Q before we dive into the quick fire round, I do have to touch on the people behind the projects themselves. They're often suggested and noted as being decentralized teams, so setting you up incredibly nicely here. In a world where acceptance and adoption of these decentralized teams really is becoming mainstream, even with services providing them, How do you think about decentralized teams from an effectiveness and a meta perspective?

A Yeah, I generally think decentralized teams won't work. I think in the very, very early days of any platform, they can work, and it's because there is not that much competition, and a lot of what you need to build out is infrastructure, and you have a small number of engineers that can communicate with each other to get those things done. Over time, what happens is you get more and more sophisticated operators, you have more and more complex projects that require more and more integration and communication, And so I think you see a recentralization of teams, and so there's no substitute for 15 or 20 or 30 people physically being in the same space all the time. If I sort of play that forward a little bit even more, I think potentially a contrarian view here even more is that I think this will actually recentralize back in Silicon Valley. And the reason is that at a certain scale, let's say going from three people to 25 people to a hundred people to 500 people, once you start hitting real global scale on these things, How you go about building a company, and how you go about building an organization, let's say organization, because some of these things may not even be companies, how you think about building organizations that are effective and can scale and have global impact is tribal knowledge, and that tribal knowledge really sits in the heads of the people who have done it be…

AI assessment note: “Yeah, I generally think decentralized teams won't work.”

Q Absolutely. Starting from blockchain one-on-one for dummies here. Blockchain's always hailed as this holy grail of anonymity. How does that compare, then, to that radical transparency of being able to drill down into each individual transaction and identity?

A Yeah, so in practice, there are some chains that are more private. Even those are probabilistically private, but they're pretty secure. Products like Monero or Zcash are pretty secure. Coins like Bitcoin, let's say, are not. They're pseudonymous. Given enough data, let's say, if you're an exchange that's done KYC, You can start to analyze the chain and see who's transacting with whom and how those money flows are going, and so, in effect, you're transacting in public. And so, in most cases, these chains are actually not as private as people think they are, which is why I think there's that risk, is that disconnect between how private or anonymous people think these things are versus how much they actually are, and potentially a nefarious actor's ability to sort of arbitrage that difference where people think that they have a lot of privacy, and in fact, they don't.

AI assessment note: “Coins like Bitcoin, let's say, are not. They're pseudonymous.”

Q There was an amazing company I met the other day, and they were like, you have to do one-for-one equity to tokens. And I was like, ah, okay, what does that mean? And like, should I be more excited about one than the other? How would you actually advise me on this? And how do you think through that?

A Yeah, it depends a lot on the company. We see a lot of companies where there shouldn't be a token. Actually, it just doesn't make sense for there to be a token. We see some really interesting opportunities where you could potentially have a token. And so as an investor, you sort of have to structure the investment such that you might be able to participate in a token network if one emerges and makes sense. And 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, which then you'll have to sort of, you know, mark on your books and then you sort of write off the equity, the equity investment, essentially the company shuts down. And so it depends a lot on what the protocol is and what you're trying to build and what the needs are of that particular user set. One of the reasons that investing in this space is challenging. It's part of the reason we have a business is there's a lot of tribal knowledge here around What is the instrument that you're investing in, and where will the value capture be, and what are your intuitions around where that will be, and how do you structure that in the right way to do the right thing for the company and do the right thing for the users, ultimately…

AI assessment note: “depends a lot on the company. We see a lot of companies where there shouldn't be a token”

Q What's the most recent publicly announced investment? And why did you get so excited?

A I think the last one that we just announced was a company called Magic Eden. It's an NFT marketplace. They're the number one NFT marketplace on Solana. And the reason we got excited was the founding team. It's just very rare. There's, there's four of them and the founders are just really exceptional. We knew one of them from, um, he was the COO at protocol called DYDX and, and has an early investor there and sort of met him there. But it's one of these meetings where I'm sure you've had this and other investors have had this. 10 minutes into the conversation, you have burned through the questions that normally take an hour because the person and the team just has such intellectual throughput that you've gotten through. And then all of a sudden, and all of the answers are deeply insightful and thoughtful. And then you spend the next 50 minutes like going so much farther and so much deeper than you do in any typical conversation that by about 10 or 15 minutes you're in, you're like, I just need to give this person all my money. We just had that conversation. We're like, I just can't believe this team is so stacked. And so deeply insightful about all of these things, and we're only 10 minutes into this conversation, and literally, I remember I was having this conversation with Maria Shen, one of my partners. I messaged Maria, and I said, we need to give these guys so much money, l…

AI assessment note: “the last one that we just announced was a company called Magic Eden”

Q granular. But when we look top down and discuss the landscape today, kind of the crypto venture landscape really looks like three to four key big funds. Andreessen, Paradigm, now Electric, and then a bunch of the smaller 20, 3040, fifty million dollar funds. So landscapes bifurcating. Do you agree with this summary in terms of That current state of play, and is there anything that you'd add or change?

A I think that's generally true. I mean, I think general venture, there's sort of this barbelling effect, and there are people that have small teams, and you're sort of constrained in the amount of capital you can deploy, and kind of what your model is, and how you work with founders, and then there are these platforms that emerge that can take in a lot of scaled capital, and from the LP side, those relationships, and then the ability to deploy scaled capital is really valuable, and from the founder side, being able to have all these services that the Differentiated services are extremely value-added, and that lends itself to scale. So I think a similar thing is happening in crypto, Andreessen and Paradigm and Electric, and I think Katie Hahn's new fund is going to be sort of in this billion-dollar-plus kind of tier. So, but the number of people in that tier today, I think, is relatively small, and I think you'll continue to see that. You know, what's nice, though, is the dynamics in terms of how we cooperate in this industry are a little bit different. You know, people always say it, but it is actually legitimately true that I think because the crypto side of things has grown so quickly, and as an offshoot, I think, of The fact that these are distributed systems at their core when you're investing in a crypto network. The dynamics around round construction end up being very, ver…

AI assessment note: “I think that's generally true. I mean, I think general venture, there's sort of this barbelling effect”

Q all web three. Wonderful. It's where I kind of drift off. But I said to her, like, DAOs, this idea that you have this restricted group of people that have governance for a certain limited number of time, and everyone gets incredibly excited about this revolutionary new leadership structure. It's called governance. We've had it for many years. There's nothing innovative here at all. Am I wrong? Is she right?

A Yes and no. I think what to me is interesting about a lot of these things is 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 that need to be made. But to me, what's really interesting about really a lot of these L ones or these DAOs or these blockchains is that you can now run economic and governance experiments in parallel at a scale that was not previously possible because there's real money involved, right? So rather than some economist writing a paper or some political scientist writing a paper about Theoretically, how might some form of governance in some country or some economy work? Or if you pulled the lever in this way in a central bank, here's what would happen. Or if you change the economy in this way, wouldn't it be great if we can actually empirically run these studies now, right? So to me, the interesting thing here is at the market level, all of these doubts will be created. 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. And that, to me, is a really i…

AI assessment note: “Yes and no. I think what to me is interesting about a lot of these”

Q When you look back now, what do you think that you didn't know that you now know that would have changed your perspective quite a lot?

A That's a great question. I think the biggest is that in order to really run this kind of a business, When you're an angel investor, you're really thinking about deploying capital and working with the founders. And like, that's really what pulls you in when you're running a venture business. So much of it in the early days, until you build out the staff and the infrastructure is like fund formation, accounting, legal docs, taxes. And so I feel like I've gotten a master, I've gotten a CPA and a master's in like international law and like tax accounting. And there's so many nuances there to, to get right in terms of running the business. I think it's very similar to when a founder starts a business and you're, you're sort of a product centric CEO. And then the thing starts working, and all of a sudden you realize that you get really good at customer support and ops, and you have to be the CFO until you have a CFO, and you have to understand, like, the business levers, and you have to understand all these other things that really make the business work, and it's painful. And so I feel like over the last three years, we've actually become accounting and tax and law experts as much as we are sort of investors, especially with crypto, right? I mean, I think crypto sort of sits at the nexus of pushing the boundaries on a lot of these things, and so a lot of it is even nobody knows the …

AI assessment note: “So much of it in the early days... is like fund formation, accounting, legal docs”

Q There was an amazing company I met the other day, and they were like, you have to do one-for-one equity to tokens. And I was like, ah, okay, what does that mean? And like, should I be more excited about one than the other? How would you actually advise me on this? And how do you think through that?

A Yeah, it depends a lot on the company. We see a lot of companies where there shouldn't be a token. Actually, it just doesn't make sense for there to be a token. We see some really interesting opportunities where you could potentially have a token. And so as an investor, you sort of have to structure the investment such that you might be able to participate in a token network if one emerges and makes sense. And 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, which then you'll have to sort of, you know, mark on your books and then you sort of write off the equity, the equity investment, essentially the company shuts down. And so it depends a lot on what the protocol is and what you're trying to build and what the needs are of that particular user set. One of the reasons that investing in this space is challenging. It's part of the reason we have a business is there's a lot of tribal knowledge here around What is the instrument that you're investing in, and where will the value capture be, and what are your intuitions around where that will be, and how do you structure that in the right way to do the right thing for the company and do the right thing for the users, ultimately…

AI assessment note: “it depends a lot on what the protocol is and what you're trying to build”

Q Sorry, I just want to make sure that I've actually got this on the token versus the equity. When does it make sense to have a token versus not have one? You said a lot of the time it doesn't actually make sense. When does it make sense? When does it not make sense?

A Yeah, generally speaking, if you think that the company could go away and just shut down and everybody leaves, and the value creation to the end users will persist, there might be some opportunity for tokens. If you think the company is going to be around, it needs to be around. In order for the thing to work, I get a little bit more skeptical. That's not to say it can't exist, but I get a little bit more skeptical. And in those cases, often the fundamental question you're really asking is, are the tokens in pursuit of supporting the equity and the cashflow that gets captured by the company? Or is the company exist in pursuit of making the token network valuable? And if you sort of like can answer that question, then you can figure out where the value capture will be and why. And a lot of the times we see, especially in this part of the market cycle, you see companies that are Etherk can have it too. They have a core business, and they think that by adding a token network, they'll basically get non-dilutive financing, or they'll get a new business line that will be added to the core business. 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 system, where like the value c…

AI assessment note: “if you think that the company could go away... the value creation... will persist”

Q Does it make your job harder? Like, tourist and venture make my job harder paying stupid prices that shouldn't be the way. Does it make your job harder having tourists?

A Yeah, absolutely, it does, because you have a bunch of people that are, in some sense, irrational actors. 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 price and make a good return. But the motivation may be we need to make sure we have the right logos so that the next to the deal flow that comes in comes to us and we're not left out of this. We're not boxed out of this new and growing market. So yeah, it does create some kind of market distortions. And then you sort of have to just be patient, right? As an investor, I think you have to be willing to say you have to be disciplined, you have to be patient, and you have to sort of bet that the market is going to grow differently. In such a way that there will be an abundance of opportunities, and the people who are really long-term minded, the founders who are really long-term minded, and the projects that are really long-term minded, will want to take capital from the people who are actually creating a lot of value, and creating the most value, and not just going to the highest bidder. And so you sort of have to bank on that a little bit.

AI assessment note: “Yeah, absolutely, it does, because you have a bunch of people that are”

Q You mentioned that kind of feasibly seeing maybe 30, 40, 50 engineers. From a financing perspective on the team side, are the structures the same as venture in terms of the business model? Is it the two and 20? Is it the lockup periods? How does that look, given especially also the liquidity that you have available?

A Yeah, also an excellent question. 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. 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. The liquidity is a double-edged sword, right? In a couple of, a few different ways. So one, a lot of it is actually not real liquidity. Like, can you actually get hundreds of millions of dollars out of some of these protocols? Unclear. You might shoot yourself in the foot on the way out. So it's a little bit of a misnomer. Two, I think the ability to sell early is as much a curse as it is a gift, right? Because too often, I think the mistake that people make is they sell too early rather than too late. This is why Sequoia is doing this new fund structure is actually, if you just held onto these things, you would have gotten another five to 10 X. And it's because there's a fundamental human cognitive bias, which is we don't really understand large numbers. We don't really understand exponential growth because we're just primates. Primates can understand five. Primates cann…

AI assessment note: “Yeah, we actually look pretty vanilla on that stuff.”

Q Does that not just mean you invest in everything? I could extrapolate out to be the nice Amazon. And do you know what I mean? Where does the barriers or limits incur?

A Well, it's a great question because actually the answer might be yes. The lesson from the last 10 years of investing, you look at it and you say, well, who played that right? Who really got that right? And maybe it was actually Tiger and Andreessen, right? And in the moment, 10 years ago, it was like, what is Tiger doing? And it turns out they were totally right. Right. And so, yeah, that might actually be the right conclusion that really should be doing is putting money into everything credible because our intuitions about how big the things that are really going to work are off by an order of magnitude. I actually think that is probably one of the lessons from the last 15 years, 20 years of venture investing. Now, there's a whole backdrop there. We've existed in like a very unique bull market with specific sort of monetary policies, and we exist in this amazing window post-World War II, post-Cold War, where you had certain properties. I don't think it's an unreasonable conclusion to say, actually, like, you should be investing a lot more money And you being a GP or an LP or an individual human, you should be investing a lot more in technology as a percentage of your total assets, because your intuitions about how big these markets are going to be are totally off.

AI assessment note: “actually the answer might be yes. The lesson from the last 10 years”

Q I mean, two subsequent questions from that that I can't not dive into. One I have to give Elad credit for, but you mentioned the 50 angel investments there. I'm intrigued, and so is Elad. How did tech investing in the angel perspectives that you've done compare to crypto investing today?

A Yeah, I think they're actually very similar. I think there's kind of a high level two categories of crypto companies. There's the stuff that's already liquid, so there's the bitcoins and ethereums of the world, and then there are a number of early stage projects, and they may be liquid or they may be illiquid, but In practice, if you look at kind of where they are in their development cycle, they're very, very early. And I think crypto companies or protocols are going to have the same challenges that any other company has. I think you're going to have, you know, everything from how do I hire my first product manager, to what does a great designer look like, to what is my go-to-market, what is my brand positioning, I have 15 people on my team now, how do I actually structure this team. I think a lot of the human problems are going to be the same. And so when, when we're thinking about which projects are interesting and why, We look at basically the same things that you would look at in non-crypto companies. You look at the team, you look at the technology, you look at the market, you look at the traction, and so you evaluate them really on the same dimensions. Now, the way that you measure them is different, though. The way that you think about where the value will accrue might be different. The way you think about the business model might be different, but actually, the core of…

AI assessment note: “Yeah, I think they're actually very similar.”

Q Can I ask, you did say though to me before that fundamentally, it doesn't make sense from an investment perspective from an ROI case in terms of the dApps and the distributed computation. Why is that?

A Yeah, that's a really good point. So, just to clarify that previous statement, that doesn't mean that there isn't great technical work happening in those last As a technologist, I look at that, and I say, wow, this is fantastic. There are a lot of very, very smart people working on these important problems, and over time, that infrastructure will emerge, and it'll be really interesting to see what happens there. The challenge from an investment perspective or an ROI perspective is really the way that those things are priced. So if today those things are raising hundreds of millions of dollars, or in some cases, billions of dollars, how do you actually expect those tokens to appreciate, or how do you expect To generate ROI on those, and it's, I think, extremely challenging. I think if you look back in every previous wave of technology, really the value that gets created for investors happens either from things where there are very predictable businesses going forward at large scale, and you're able to move a lot of money into those businesses, or it happens at the very, very early stage where the valuations of these companies are such that you can expect on a risk-adjusted basis to potentially make a return. And right now, what you have at the late stage is a lot of money and a lot of risk. And so you haven't really de-risked it, but there's a lot of money going in. And so as an…

AI assessment note: “The challenge from an investment perspective or an ROI perspective is really the way that those things are priced.”

Q Can I ask, you did say though to me before that fundamentally, it doesn't make sense from an investment perspective from an ROI case in terms of the dApps and the distributed computation. Why is that?

A Yeah, that's a really good point. So, just to clarify that previous statement, that doesn't mean that there isn't great technical work happening in those last As a technologist, I look at that, and I say, wow, this is fantastic. There are a lot of very, very smart people working on these important problems, and over time, that infrastructure will emerge, and it'll be really interesting to see what happens there. The challenge from an investment perspective or an ROI perspective is really the way that those things are priced. So if today those things are raising hundreds of millions of dollars, or in some cases, billions of dollars, how do you actually expect those tokens to appreciate, or how do you expect To generate ROI on those, and it's, I think, extremely challenging. I think if you look back in every previous wave of technology, really the value that gets created for investors happens either from things where there are very predictable businesses going forward at large scale, and you're able to move a lot of money into those businesses, or it happens at the very, very early stage where the valuations of these companies are such that you can expect on a risk-adjusted basis to potentially make a return. And right now, what you have at the late stage is a lot of money and a lot of risk. And so you haven't really de-risked it, but there's a lot of money going in. And so as an…

AI assessment note: “The challenge from an investment perspective or an ROI perspective is really the way that those things are priced.”

Q So now you've covered my concerns, I'd love to touch on a concern that I always say positive in market, and it's kind of the impact and control imposed by regulation and government, but you've said to me before that it's the opposite of the real risk. So I love a contrarian thought. Why do you think that it's not a risk then? Let's start with that.

A Yeah, so if you look at what does the government actually care about, I think the government cares about basically three things. One, they don't want retail investors to get defrauded. You know, they want people to pay their taxes, and they don't want you to give money to terrorists. So those are pretty reasonable things, right? Each of those is actually very reasonable. And I think people should not get defrauded. I think people should pay their taxes, and I think people shouldn't give money to terrorists. So that's all very reasonable. And if you look at the way that the U S government in particular, I think has handled crypto. I think they've been very nuanced and sophisticated in their handling of this. I've been very impressed from everything from how to think about when to approve an ETF to public messaging around how to think about some of these things as potentially securities. They've been very measured in the way that they've done this communication and how they've been thinking about it. And I think it's fundamentally because they realize that there's real innovation and real value here. And so as they're thinking about how to regulate this, I think they're realizing that if they're too heavy handed, They'll actually kill off the innovation that's happening here, which is real, and there's real value in letting that continue. Of course, you don't want people to get f…

AI assessment note: “I think it's fundamentally because they realize that there's real innovation and real value here”

Q I mean, two subsequent questions from that that I can't not dive into. One I have to give Elad credit for, but you mentioned the 50 angel investments there. I'm intrigued, and so is Elad. How did tech investing in the angel perspectives that you've done compare to crypto investing today?

A Yeah, I think they're actually very similar. I think there's kind of a high level two categories of crypto companies. There's the stuff that's already liquid, so there's the bitcoins and ethereums of the world, and then there are a number of early stage projects, and they may be liquid or they may be illiquid, but In practice, if you look at kind of where they are in their development cycle, they're very, very early. And I think crypto companies or protocols are going to have the same challenges that any other company has. I think you're going to have, you know, everything from how do I hire my first product manager, to what does a great designer look like, to what is my go-to-market, what is my brand positioning, I have 15 people on my team now, how do I actually structure this team. I think a lot of the human problems are going to be the same. And so when, when we're thinking about which projects are interesting and why, We look at basically the same things that you would look at in non-crypto companies. You look at the team, you look at the technology, you look at the market, you look at the traction, and so you evaluate them really on the same dimensions. Now, the way that you measure them is different, though. The way that you think about where the value will accrue might be different. The way you think about the business model might be different, but actually, the core of…

AI assessment note: “Yeah, I think they're actually very similar.”

Q You mentioned that there's structures that prohibit maybe in traditional venture funds. What is it about traditional structures that prohibit the token buying and the tokenomics to be a large part of the portfolio construction?

A Oh, there are a couple things. So I think there are some regulatory constraints. So for example, in a traditional VC fund, at least in the United States, most of these funds are, you can't go above a certain percentage of liquid assets. You have a venture exemption at the SEC that allows you to sort of deploy capital without having to register as an investment advisor. Whereas we're an RIA with the SEC as are the major crypto funds. And so that really constrains how much capital you can deploy into the sector. Secondarily, it's less about the structure and it's more about the organization. So if you look at a traditional VC firm, the way that the firm is set up is really optimized for a certain kind of workflow, right? You're You're employing equity investments. You have a Series A. You do a partner meeting on Mondays. You go to happy hour to go source a deal through your associates. Like there's a pattern there, right, of how the organization works. Now, what's happening with crypto is that at a 100,000 foot view, it's software eating money, right, to borrow an Andreessen phrase. It's software is eating everything, and crypto is software eating money. And if you believe that crypto is software eating money, then 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…

AI assessment note: “in a traditional VC fund... you can't go above a certain percentage of liquid assets.”

Q This is so great. I'm learning so much about asking the Thomas impressions. Why do some DAOs fail and some succeed? I don't understand.

A That's a great question. I don't think anybody really knows the answers to that. And I think we'll only be able to know that in retrospect. And I think it's still so early that we don't even know What the successful DAOs are exactly. I mean, we have some inkling that some of these DeFi DAOs, for example, are trending towards more success and are healthier than others, but we're only like two years into this. 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. So we're in the very early innings of even figuring out which of these things are successful.

AI assessment note: “I don't think anybody really knows the answers to that.”

Q I get you, but then my question is, how do you deliver venture-sized outcomes with much more constrained percentages on ownership?

A Yeah, so there are a couple things there. So one, today at least, the size of opportunities and the growth rate in these things is so phenomenal that the multiples that you're talking about over compressed periods of time are still excellent. If you just think about token networks, for example, the infrastructure that you need to participate in anything, let's say beyond Bitcoin or Ethereum, which you could buy on Coinbase, is How do you do diligence on that thing? How do you actually go and buy it if it's not on a US exchange? How do you custody that asset if it's not supported to custodians? How do you take that asset and generate yield on it if you want to be able to do that? So like the infrastructure required to do these things basically means that the landscape of people who can participate either from the institutional LP side or the sort of VC side is very, very limited, which actually means that given the growth rates you're talking about, the return profiles are very, very dramatic in a way that I think venture used to be. 25 years ago, when you're talking about the birth of the internet, the multiples and those early funds through the nineties were They're just so phenomenal. I mean, I think that's kind of where we are right now, and so you have the ability to generate returns that I think were the venture returns of 25, 30 years ago, just because the industry itself…

AI assessment note: “the size of opportunities and the growth rate in these things is so phenomenal”

Q I mean, why fucking stop now on asking stupid questions? I mean, what does it mean to extrapolate exponentially? It really, in reality.

A I think what that means is like, you can end up in really crazy places. So for example, 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. You know, just look at the growth curve of these things. Is it possible that Ethereum is not just some sort of commodity like silver that's worth a trillion dollars one day? It's actually a third digital government, right? Like you have the U.S. sphere of influence, the supply chains, and the money system, and the U.S. dollar, and all those things that will happen. And as we're seeing kind of with the Russia situation in Ukraine right now, there's going to be a Chinese sphere of influence.

AI assessment note: “what that means is like, you can end up in really crazy places.”

Q But I do have to ask, in terms of practicalities, obviously, a lot of these, the decentralization engineering-wise is due to cost And just an inability to scale at cost and numbers wise. How do you think about the practical side of affordably scaling engineering teams and how that kind of looks in other markets?

A Yeah, it's, it's a great question. I think in general, the Bay Area is much more expensive than most of the rest of the world, but your best engineers are order of magnitude more effective than your average engineer. And so a very small number of people who can start these things off and then build teams around them will still aggregate that value. And I I think a lot of those engineers are still here. And so as long as you can get five to 10 of those really, really good people in one place, even if you have to pay them 25% or 50% more, let's say, often it's worth the cost. And so I think that pattern will play out until the cost of having those engineers is commensurate with the value that they create. And so if engineers in the Bay Area cost literally five to 10 X more than they do in Berlin, let's say, I think you'll continue to see that happen. Hopefully it doesn't get to that point. Hopefully we're able to address some of these issues. But I think we actually have some runway to go. Put another way, I think there are these network effects in Silicon Valley that will keep people here and will make them significantly more effective, and network effects take a long, long time to degrade. I mean, you look at companies like eBay or PayPal, I mean, they actually just get stronger and stronger over time. It's pretty amazing to look at how network effects work, and there are real …

AI assessment note: “even if you have to pay them 25% or 50% more, let's say, often it's worth the cost.”

Q What would you like to change? If mine is, like, the attachment to it as some sexy accessory for people, what would you like to change?

A You know, it's a good question. I don't love that stuff either. There's a lot of, sort of, tourists, there's, like, a lot of conferences that happen when the market goes up, and a bunch of people start coming out of the woodwork that are not long-term minded, they're not builder-oriented, they're not fundamental value- Creators. They're sort of extractors, and I personally, I recoil a little bit. I sort of cringe a little bit at a lot of those things, too, but the reality is, I think it's just a natural property of markets and innovation. 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 so you kind of have to take the good with the bad. It's kind of like, in order for us to find that 10% of stuff that's truly revolutionary and breakthrough, we kind of have to deal with a bunch of stuff that's just kind of cringy and, like, short-term and speculative and all that stuff, and so, I don't know, I don't love it either, but I think you kind of have to accept that it's sort of a natural property of high-growth markets.

AI assessment note: “you kind of have to accept that it's sort of a natural property”