The Exchanges

Q I'm sure, but I would love to kick off today, Joel, with a little of a history lesson, as many attribute the rise of crypto stay due to maybe the consumer hype and excitement around it. But when we chatted before, you said that it might actually fit within the history History of information technology. So starting with the process, what's the history that we continue to see being recycled?

A So, what we see over and over through the history of information technology, if you take it from, say, the 19 fifties with the rise of the mainframe, the computer, what we see is that we see an the Standard emerge. What that standard does is it collapses the cost of production for the particular technology that it addresses, then it allows for value to be created on top. And so just taking it from the beginning to make it a little bit more practical, what kickstarted the computer industry was the invention of the transistor, which was a much cheaper alternative to the vacuum tubes that were used in early computers in the forties. And the transistor came along and was commercialized and it was For the price of electronics to collapse, and we got the whole consumer electronics revolution that happened, and computers came as part of that. So the commoditization of electronics, the open sourcing of electronics as a platform led to the creation of computers and allowed for companies like IBM and so many others to emerge. Then the computer market, the mainframe market, got consolidated around IBM as that market matured, and about 25 years later, we get the introduction of another openly available platform. Form architecture, which was now based around the microprocessor, and what the microprocessor did was commoditize computers, because whereas before, companies like IBM would design…

AI assessment note: “what we see over and over through the history of information technology”

Q I'm sure, but I would love to kick off today, Joel, with a little of a history lesson, as many attribute the rise of crypto stay due to maybe the consumer hype and excitement around it. But when we chatted before, you said that it might actually fit within the history History of information technology. So starting with the process, what's the history that we continue to see being recycled?

A So, what we see over and over through the history of information technology, if you take it from, say, the 19 fifties with the rise of the mainframe, the computer, what we see is that we see an the Standard emerge. What that standard does is it collapses the cost of production for the particular technology that it addresses, then it allows for value to be created on top. And so just taking it from the beginning to make it a little bit more practical, what kickstarted the computer industry was the invention of the transistor, which was a much cheaper alternative to the vacuum tubes that were used in early computers in the forties. And the transistor came along and was commercialized and it was For the price of electronics to collapse, and we got the whole consumer electronics revolution that happened, and computers came as part of that. So the commoditization of electronics, the open sourcing of electronics as a platform led to the creation of computers and allowed for companies like IBM and so many others to emerge. Then the computer market, the mainframe market, got consolidated around IBM as that market matured, and about 25 years later, we get the introduction of another openly available platform. Form architecture, which was now based around the microprocessor, and what the microprocessor did was commoditize computers, because whereas before, companies like IBM would design…

AI assessment note: “what we see is that we see an the Standard emerge. What that standard does”

Q Can I ask, why the move with Placeholder? USB kind of one of the central figures in crypto. Why the move with Placeholder and what was the inspiration behind that?

A Well, a lot of it is actually, it has a lot to do with my relationship with Chris, my partner, Chris Berniske. We met in 2016, in early 2016, and we bonded over our shared belief that the most interesting place to invest in was in the assets themselves and the crypto assets that were being created with blockchains as opposed to companies. It was interesting as he was coming at it from different perspective, having worked at a public asset manager called ARK. That deals with public equities, and I was coming from early stage venture capital, and we figured out that crypto was an interesting intersection of both. You had early stage, seed stage companies launching these networks, but they have these assets that operate very much like public assets. They trade on exchanges and so on, and so our viewpoints and our skills were quite complementary, and after developing a close friendship, we realized that we really wanted to work with each other, and so in early 2017, we decided to start placeholder.

AI assessment note: “bonded over our shared belief that the most interesting place to invest in was in the assets”

Q I am intrigued, before we dive into the quick On one final element, we had Carl Samani on the show from Multicoin, and he said, in crypto, features can be copied, so it's a case of betting on fundamental trade-offs. I'm intrigued. How do you think about, kind of, the trade-off long and short-term, and the fundamental trade-offs that we experience in crypto, and how you address them with placeholder?

A Well, I think the first part is absolutely correct. Features can be copied, and you can't win in this market solely on the basis of features. And, We've seen this, even though it's so early, we've seen a number of iterations of this, both in the way networks fork and get copied, and, you know, everything's open source, and so you can grab the code and start a competitor immediately, or fork an existing network, and also when we've seen new innovations and new technologies come to market, like, for example, the technologies that allow for private transactions with networks like Ccash, et cetera, we're starting to see them being ported to existing chains. So you can't really win on the basis of having better features. It does force us to think about what are the things that we should be looking for, if not functionality. And to us, it comes down to crypto economics and governance, which is the two areas that we focus our practice on that placeholder. Crypto economics are basically the economic model and the incentive model that allows for, that enables a network to run and operate a network with properly constructed. Crypto economics will be more successful than a network that doesn't have properly constructed crypto economics. And we've seen different kinds of services struggle with this in different ways. For example, the debates around whether Bitcoin's supply schedule will sc…

AI assessment note: “To us, it comes down to crypto economics and governance”

Q You mentioned kind of the incumbent heavy market that we have today. I'm really intrigued being the market of consolidation that we're in. You said to me before that there's maybe two ways to play a consolidating market. What are they, Joel?

A So the two ways to play a consolidating market is, one, to invest very heavily into the consolidators, so the big winners, because they still have quite a bit of runway left in terms of their growth. So the companies that I mentioned, Google, Apple, Facebook, Amazon, they're incredible. And will continue to be for quite some time. It's not like they're going to be affected by the rise of crypto in the short term. It's kind of like, if you look at Microsoft through the nineties and through the 2000, it continued to grow massively. That's because what comes after consolidation, the next wave takes a while to develop, and that's a strategy that I am using personally, actually, through ARK Investments Funds, which is where Chris used to work, where they manage publicly traded ETFs that are largely technology-based, and so it's one way to Because they will continue to grow, and then the other way is to invest in the technologies and the platforms that are going to eventually usurp them, and that's what we're doing with Placeholder investing in crypto.

AI assessment note: “the two ways to play a consolidating market is, one, to invest very heavily”

Q Can I ask, why the move with Placeholder? USB kind of one of the central figures in crypto. Why the move with Placeholder and what was the inspiration behind that?

A Well, a lot of it is actually, it has a lot to do with my relationship with Chris, my partner, Chris Berniske. We met in 2016, in early 2016, and we bonded over our shared belief that the most interesting place to invest in was in the assets themselves and the crypto assets that were being created with blockchains as opposed to companies. It was interesting as he was coming at it from different perspective, having worked at a public asset manager called ARK. That deals with public equities, and I was coming from early stage venture capital, and we figured out that crypto was an interesting intersection of both. You had early stage, seed stage companies launching these networks, but they have these assets that operate very much like public assets. They trade on exchanges and so on, and so our viewpoints and our skills were quite complementary, and after developing a close friendship, we realized that we really wanted to work with each other, and so in early 2017, we decided to start placeholder.

AI assessment note: “we bonded over our shared belief that the most interesting place to invest”

Q Can I ask, are there any other glaring differences that you really see having come from the world of VC with USV?

A Glaring differences. Well, there's the one that I just mentioned in terms of how you build it up. There's another one that comes on the other side of that, which is in traditional VC, the decision of when to sell is kind of made for you, where you invest in a company and you continue to support that company over time. And at some point, it's either going to shut down or it's going to Get bought or sold, or it's going to go public. And what's interesting about all of those is that very rarely are any of those outcomes, the decision of the VC. Once you're dealing with a public asset that that's appreciated, you have to decide what is the right time to sell. And we're not going to encounter that problem for quite some time because we, given the structure of our funds and our investment style, we're really long-term investors. So our fund is a ten-year fund. So we have a really long time horizon, but at some point we're going to have to figure out When to start disposing of positions and returning capital, and that will require more thought than it, than it typically requires in traditional VC.

AI assessment note: “in traditional VC, the decision of when to sell is kind of made for you”

Q No, absolutely, and I mean, what exciting times ahead for Placeholder, but I did chat to Albert, your former colleague at USV, before the show, and he asked two questions. He asked first, do you think that institutional capital will really enter the space this year in a meaningful way? Let's start with that.

A I think institutional capital is coming into the space, largely through funds, If you've spent as much time as I have talking to institutionals as we did while we were fundraising and we continue to do today as more financial institutions are interested in the space, you get a sense that the people who work at these places are becoming more and more enamored with the technology and the promise and the idea. So I think the interest is definitely there. The challenge for institutionals calls more on the regulatory side than anything else. There's very little investment infrastructure With things like custody or insurance, and also the space is very nascent, and there isn't a lot of clarity for conservative institutions in terms of how these things are going to play out, and so it's going to be some time before they really, truly come into the space with force, and I think some of the things that will enable them to do that is, first, the emergence of more institutional-grade custody solutions is going to allow more institutional capital to come to the space. I think we're going to see more of those this year, but ultimately, I think that before Before institutional capital can really rush in, we're going to need more clarity from the regulatory side.

AI assessment note: “it's going to be some time before they really, truly come into the space with force”

Q Now, absolutely. Can I ask you a question? Is it not kind of paradoxical to implement a crypto thesis in a traditional venture fund with ten-year life cycles in that? Does that not go against kind of traditional LP's desire and interest in this new financial product being crypto funds for their kind of more immediate liquidity?

A That is a very common question. We were fundraising. The thing that we kept coming back to was reminding people that behind these multi-hundred million dollar, multi-billion dollar valuations of some of these networks, there's still early stage teams with all of the problems that face early stage teams, and if you spend any time in So what we've seen and what we think we'll continue to see is quite a lot of volatility in the space, and that was one of the most important factors in our decision to structure this fund as a venture capital fund with a ten-year committed capital structure where our investors can't get out and pull out their capital the way that they can with a hedge fund. The reason is that when you have a highly volatile market, especially an early new market like crypto that's barely 10 years old, there will be a lot of volatility. We are in a period of A frenzy where there will be massive rises and massive falls, and when you have a more liquid fund structure, that can end up screwing you in interesting ways. If you're now bound by the whips of the market, if your investors can pull out of the fund because it is liquid and so on, when the market goes down, which is a moment when you should really be buying, you may be struggling to deal with investors who want to pull their money out, and so we wanted to go for the structure to insulate ourselves from the variou…

AI assessment note: “we wanted to go for the structure to insulate ourselves from the various market fluctuations”

Q Yeah, no, I agree with you. I no longer see them on YouTube video adverts. What's the most challenging element of your role with placeholder?

A Well, one of the things that is difficult to fight is the urge to check coin market cap every day, which is different from traditional VC or the world that I grew up in, and Chris is a lot more used to this than I am, so there's where the balance is pretty interesting, but in VC, you're stuck in this very long feedback loop in terms of finding out how you're doing, because companies raise money every 12 to 24 months, and, you know, you kind of make an investment, then you wait a while, and then When they go out to race again is when you get a measure for whether the company is increasing in value or decreasing in value, and whether that matches your expectations or not. Here, the portfolio is marked to market every minute, and in crypto, and specifically, markets never shut down. It's twenty-four-seven, and so there is an urge to always check how you're doing that is difficult to fight, and, you know, it's challenging because I try to remove myself from that behavior as much as possible to focus on the thesis and not on the market. But it is tough.

AI assessment note: “one of the things that is difficult to fight is the urge to check coin market cap”

Q spoke about kind of the existing VCs there. I want to touch on the comparison between traditional VCs and investing as Many of us have been. And then also now the new world of crypto investing and the exciting times for you as placeholder. Starting on my passion point, which is portfolio construction. How does one approach it in the world of crypto, Joel? You can clearly tell I'm single.

A Well, you know, the short answer is we don't know. Part of the reason is it's such a new space. We're trying a lot of new things here, and a lot of what we know in VC, in traditional VC, we learned after decades and decades and decades of investing in a kind of similar model. You invest in equity in a company, and it produces cash flows in some ways. The business models have changed, but generally the investment style hasn't changed all that much. The way we look at it, we are a venture capital firm, and Even when we take positions and networks that are out there whose tokens are trading and are launched, we still work as venture capitalists. We select deals and diligence deals as we would an early stage private company. We spend a lot of time with the founding teams. We spend a lot of time diligencing the service and the market and the network, and that's how we build a portfolio. We focus on our thesis, so we believe that we're at a stage now where infrastructure is particularly important because there's a lot of building blocks for Crypto applications that don't exist yet, and so things like file storage and networking and things like Lifepeer or Filecoin or other pieces of application developer infrastructure are the things that we're focusing on a little bit more now. So we take the approach of just developing an investment thesis and following it very much in the same way…

AI assessment note: “We select deals and diligence deals as we would an early stage private company.”

Q No, absolutely, and I mean, what exciting times ahead for Placeholder, but I did chat to Albert, your former colleague at USV, before the show, and he asked two questions. He asked first, do you think that institutional capital will really enter the space this year in a meaningful way? Let's start with that.

A I think institutional capital is coming into the space, largely through funds, If you've spent as much time as I have talking to institutionals as we did while we were fundraising and we continue to do today as more financial institutions are interested in the space, you get a sense that the people who work at these places are becoming more and more enamored with the technology and the promise and the idea. So I think the interest is definitely there. The challenge for institutionals calls more on the regulatory side than anything else. There's very little investment infrastructure With things like custody or insurance, and also the space is very nascent, and there isn't a lot of clarity for conservative institutions in terms of how these things are going to play out, and so it's going to be some time before they really, truly come into the space with force, and I think some of the things that will enable them to do that is, first, the emergence of more institutional-grade custody solutions is going to allow more institutional capital to come to the space. I think we're going to see more of those this year, but ultimately, I think that before Before institutional capital can really rush in, we're going to need more clarity from the regulatory side.

AI assessment note: “I think institutional capital is coming into the space, largely through funds”

Q No, I couldn't agree more in terms of the clarity there. I am interested, though, because one place that institutional capital still continues to flow is the existing VC market. We've seen every VC under the sun move into the segment. So for you as a specialist in the space, what do you think of traditional tech VCs investing in the segment?

A Well, I think the more investment goes into the segment, the better. So I'm always Happy to hear when you and when investors are, are become newly interested in the space. I think the more people looking at it, the more competitive the investment side of things becomes the better the outcome for everyone. And so I think everyone's interest is aligned there. I do think that there's a challenge for traditional VCs with regards to working with this new kind of company, because a lot of the challenges that young The website with regards to the various fires that are things that come up for early stage companies, but a lot of the problems are new. And so in our view, it takes really, It takes real focus and it takes specializing in order to address those problems. For one, you're not building a company per se, you're building out a network, and that poses a different set of challenges, and for example, how do you recruit people? How do you retain people? How do you compensate them? How do you engage with a community? To more product-oriented questions like, how do you design a network? How do you design a cryptoeconomic policy that works? How do you create a governance mechanism that empowers a community, and so on? The thing is, it's not like these are impossible problems, but it takes a lot of Time to really learn the new skills in order to help these companies effectively or thes…

AI assessment note: “I think the more investment goes into the segment, the better.”

Q Can I ask, are there any other glaring differences that you really see having come from the world of VC with USV?

A Glaring differences. Well, there's the one that I just mentioned in terms of how you build it up. There's another one that comes on the other side of that, which is in traditional VC, the decision of when to sell is kind of made for you, where you invest in a company and you continue to support that company over time. And at some point, it's either going to shut down or it's going to Get bought or sold, or it's going to go public. And what's interesting about all of those is that very rarely are any of those outcomes, the decision of the VC. Once you're dealing with a public asset that that's appreciated, you have to decide what is the right time to sell. And we're not going to encounter that problem for quite some time because we, given the structure of our funds and our investment style, we're really long-term investors. So our fund is a ten-year fund. So we have a really long time horizon, but at some point we're going to have to figure out When to start disposing of positions and returning capital, and that will require more thought than it, than it typically requires in traditional VC.

AI assessment note: “in traditional VC, the decision of when to sell is kind of made for you”

Q I am intrigued, before we dive into the quick On one final element, we had Carl Samani on the show from Multicoin, and he said, in crypto, features can be copied, so it's a case of betting on fundamental trade-offs. I'm intrigued. How do you think about, kind of, the trade-off long and short-term, and the fundamental trade-offs that we experience in crypto, and how you address them with placeholder?

A Well, I think the first part is absolutely correct. Features can be copied, and you can't win in this market solely on the basis of features. And, We've seen this, even though it's so early, we've seen a number of iterations of this, both in the way networks fork and get copied, and, you know, everything's open source, and so you can grab the code and start a competitor immediately, or fork an existing network, and also when we've seen new innovations and new technologies come to market, like, for example, the technologies that allow for private transactions with networks like Ccash, et cetera, we're starting to see them being ported to existing chains. So you can't really win on the basis of having better features. It does force us to think about what are the things that we should be looking for, if not functionality. And to us, it comes down to crypto economics and governance, which is the two areas that we focus our practice on that placeholder. Crypto economics are basically the economic model and the incentive model that allows for, that enables a network to run and operate a network with properly constructed. Crypto economics will be more successful than a network that doesn't have properly constructed crypto economics. And we've seen different kinds of services struggle with this in different ways. For example, the debates around whether Bitcoin's supply schedule will sc…

AI assessment note: “to us, it comes down to crypto economics and governance, which is the two areas”

Q You mentioned kind of the incumbent heavy market that we have today. I'm really intrigued being the market of consolidation that we're in. You said to me before that there's maybe two ways to play a consolidating market. What are they, Joel?

A So the two ways to play a consolidating market is, one, to invest very heavily into the consolidators, so the big winners, because they still have quite a bit of runway left in terms of their growth. So the companies that I mentioned, Google, Apple, Facebook, Amazon, they're incredible. And will continue to be for quite some time. It's not like they're going to be affected by the rise of crypto in the short term. It's kind of like, if you look at Microsoft through the nineties and through the 2000, it continued to grow massively. That's because what comes after consolidation, the next wave takes a while to develop, and that's a strategy that I am using personally, actually, through ARK Investments Funds, which is where Chris used to work, where they manage publicly traded ETFs that are largely technology-based, and so it's one way to Because they will continue to grow, and then the other way is to invest in the technologies and the platforms that are going to eventually usurp them, and that's what we're doing with Placeholder investing in crypto.

AI assessment note: “one, to invest very heavily into the consolidators... the other way is to invest”

Q No, I couldn't agree more in terms of the clarity there. I am interested, though, because one place that institutional capital still continues to flow is the existing VC market. We've seen every VC under the sun move into the segment. So for you as a specialist in the space, what do you think of traditional tech VCs investing in the segment?

A Well, I think the more investment goes into the segment, the better. So I'm always Happy to hear when you and when investors are, are become newly interested in the space. I think the more people looking at it, the more competitive the investment side of things becomes the better the outcome for everyone. And so I think everyone's interest is aligned there. I do think that there's a challenge for traditional VCs with regards to working with this new kind of company, because a lot of the challenges that young The website with regards to the various fires that are things that come up for early stage companies, but a lot of the problems are new. And so in our view, it takes really, It takes real focus and it takes specializing in order to address those problems. For one, you're not building a company per se, you're building out a network, and that poses a different set of challenges, and for example, how do you recruit people? How do you retain people? How do you compensate them? How do you engage with a community? To more product-oriented questions like, how do you design a network? How do you design a cryptoeconomic policy that works? How do you create a governance mechanism that empowers a community, and so on? The thing is, it's not like these are impossible problems, but it takes a lot of Time to really learn the new skills in order to help these companies effectively or thes…

AI assessment note: “I do think that there's a challenge for traditional VCs with regards to working”

Q Yeah, no, I'm sure that live checking nature is very tough to handle. I do want to finish, though, on your most recent publicly announced investment, Joel, and why did you say yes?

A Well, here's the funny thing. We didn't say yes because they didn't ask for the investment. The publicly announced investment that we made was in Decred, which is a network. It's kind of like Bitcoin with governance, and that was one where Chris and I had followed the progress for some time, and even before Placeholder, we were individually invested in the network, and Once we closed placeholder, we started building a position in the service, and as we were doing that, we became more and more involved with the Decret community and the Decret core developers and got to a point where we feel quite good about our relationship with them, but it is an interesting feature of this market, you know, not every time. It's not like in BC where entrepreneurs are coming to you. You often have to go out and do the work and find them, and now you don't have to ask for permission.

AI assessment note: “We didn't say yes because they didn't ask for the investment.”

Q spoke about kind of the existing VCs there. I want to touch on the comparison between traditional VCs and investing as Many of us have been. And then also now the new world of crypto investing and the exciting times for you as placeholder. Starting on my passion point, which is portfolio construction. How does one approach it in the world of crypto, Joel? You can clearly tell I'm single.

A Well, you know, the short answer is we don't know. Part of the reason is it's such a new space. We're trying a lot of new things here, and a lot of what we know in VC, in traditional VC, we learned after decades and decades and decades of investing in a kind of similar model. You invest in equity in a company, and it produces cash flows in some ways. The business models have changed, but generally the investment style hasn't changed all that much. The way we look at it, we are a venture capital firm, and Even when we take positions and networks that are out there whose tokens are trading and are launched, we still work as venture capitalists. We select deals and diligence deals as we would an early stage private company. We spend a lot of time with the founding teams. We spend a lot of time diligencing the service and the market and the network, and that's how we build a portfolio. We focus on our thesis, so we believe that we're at a stage now where infrastructure is particularly important because there's a lot of building blocks for Crypto applications that don't exist yet, and so things like file storage and networking and things like Lifepeer or Filecoin or other pieces of application developer infrastructure are the things that we're focusing on a little bit more now. So we take the approach of just developing an investment thesis and following it very much in the same way…

AI assessment note: “we take the approach of just developing an investment thesis and following it”