The Exchanges

Q What about the relative value to more real-world applications, so Filecoin comparison to a real-world storage device?

A So I think that that absolutely can help guide valuations. So for example, with Filecoin, you could look at Amazon Web Services, Microsoft Azure, and Dropbox, say, and add that all up and see what's kind of the current addressable market for Filecoin. I think, though, what that loses is that what's most interesting for me about Filecoin and the IPFS distributed file storage system that Filecoin is built on top of is the applications that it will enable that cannot be supported by Amazon web services. The main thing here is that when you have a decentralized application or a peer to peer application, you need to use a peer to peer file storage system. So what's interesting to me about Filecoin is the applications it unlocks that aren't possible to build on top of Amazon web services.

AI assessment note: “with Filecoin, you could look at Amazon Web Services, Microsoft Azure, and Dropbox”

Q with traditional VCs going through the process and Structure of investing. Not once though with a fund like yours and Polychain. So I want to walk through the process today in real time. So if we start with the sourcing of, as you said there, the transformative companies. A common dislike of ventures, old boy networks, and access driving much returns. What does the sourcing look like for digital assets?

A It's very different, in part because this is extremely global. So the teams that we've backed are based all around the world. It's not Y Combinator, Stanford network around Silicon Valley that has traditionally powered a lot of venture backing, at least in the Valley. We are looking very globally. The profile of people that make new technologies in this space is often someone who looks a bit more like an outsider. So for example, if you look at Vitalik Buterin, the creator of Ethereum, he was 19 and a Russian Canadian who really didn't have ties to traditional venture networks. And Created what is pretty much inarguably the most important protocol since Bitcoin. So I, I think we're often looking at a very, very different profile person who is not necessarily part of that old boys club, as you put it.

AI assessment note: “It's very different, in part because this is extremely global.”

Q with traditional VCs going through the process and Structure of investing. Not once though with a fund like yours and Polychain. So I want to walk through the process today in real time. So if we start with the sourcing of, as you said there, the transformative companies. A common dislike of ventures, old boy networks, and access driving much returns. What does the sourcing look like for digital assets?

A It's very different, in part because this is extremely global. So the teams that we've backed are based all around the world. It's not Y Combinator, Stanford network around Silicon Valley that has traditionally powered a lot of venture backing, at least in the Valley. We are looking very globally. The profile of people that make new technologies in this space is often someone who looks a bit more like an outsider. So for example, if you look at Vitalik Buterin, the creator of Ethereum, he was 19 and a Russian Canadian who really didn't have ties to traditional venture networks. And Created what is pretty much inarguably the most important protocol since Bitcoin. So I, I think we're often looking at a very, very different profile person who is not necessarily part of that old boys club, as you put it.

AI assessment note: “It's very different, in part because this is extremely global.”

Q In terms of the investment process itself, what does that look like, and how does the traditional DD change compared to traditional venture when you do find those Vitaliks of the world?

A Yeah, so a big difference here is instead of reading a businessman Plan. We're reading a technical protocol specification. So these protocol specs or white papers, as they're often called in this space, should, if it's a good paper that actually makes sense, describe how a system works, not just what it does. And so a business plan can be changed pretty readily. Businesses often get funded to do one thing and then pivot to do another thing, like say Slack was a video game company. But in the cryptocurrency space, these protocol specifications really have to make sense. And the way I think about that is that if your protocol is broken fundamentally, it doesn't matter how great the team is. It just simply won't work. So we read those protocol specifications very, very carefully, and it's a very big part of our investment process. And I think that that is a really different type of material. Then venture folks are looking at when they're assessing an early stage, you know, seed or series A business.

AI assessment note: “instead of reading a businessman Plan. We're reading a technical protocol specification.”

Q What about the relative value to more real-world applications, so Filecoin comparison to a real-world storage device?

A So I think that that absolutely can help guide valuations. So for example, with Filecoin, you could look at Amazon Web Services, Microsoft Azure, and Dropbox, say, and add that all up and see what's kind of the current addressable market for Filecoin. I think, though, what that loses is that what's most interesting for me about Filecoin and the IPFS distributed file storage system that Filecoin is built on top of is the applications that it will enable that cannot be supported by Amazon web services. The main thing here is that when you have a decentralized application or a peer to peer application, you need to use a peer to peer file storage system. So what's interesting to me about Filecoin is the applications it unlocks that aren't possible to build on top of Amazon web services.

AI assessment note: “So I think that that absolutely can help guide valuations.”

Q In terms of the investment process itself, what does that look like, and how does the traditional DD change compared to traditional venture when you do find those Vitaliks of the world?

A Yeah, so a big difference here is instead of reading a businessman Plan. We're reading a technical protocol specification. So these protocol specs or white papers, as they're often called in this space, should, if it's a good paper that actually makes sense, describe how a system works, not just what it does. And so a business plan can be changed pretty readily. Businesses often get funded to do one thing and then pivot to do another thing, like say Slack was a video game company. But in the cryptocurrency space, these protocol specifications really have to make sense. And the way I think about that is that if your protocol is broken fundamentally, it doesn't matter how great the team is. It just simply won't work. So we read those protocol specifications very, very carefully, and it's a very big part of our investment process. And I think that that is a really different type of material. Then venture folks are looking at when they're assessing an early stage, you know, seed or series A business.

AI assessment note: “instead of reading a businessman Plan. We're reading a technical protocol specification.”

Q What do you believe that most around you disbelieve?

A I believe that cognition enhancing technologies are massively underinvested and underdeveloped right now. What I mean by that is basically designer pharmacology and the study of creating drugs that could actually enhance human cognition, as well as machines that could actually interact directly with the brain to enhance human cognition. Because to me, the limit on everything that humans are working on Is really the limits of the human brain and the human hardware, right? And so, I think this is an area that a lot of people don't really think about. There's a lot of ethical concerns here that need to be thought through very carefully, but in general, I think that the only means to solve the deepest problems that humanity faces is actually to alter the human brain itself.

AI assessment note: “I believe that cognition enhancing technologies are massively underinvested and underdeveloped right now.”

Q I mean, I'm interested, though, particularly progressing through funding rounds, a lot of VCs always suggest a value add in follow-on funding. How do you look to ascertain whether a VCs portfolio company, which they commonly push today to issue tokens, whether they really need a token, or they just can't raise any more VC money? What's the determinant around that?

A So, I think it's very complicated, and we have yet to see if it's even feasible for a company to launch a token to incentivize the network effects That already existed on the platform with a native cryptocurrency token. So this experiment has yet to be done in a really successful way. So I think it's still unclear if it's possible. Now that said, I think it's very interesting because a lot of these businesses have already solved these kind of network effect problem. They already have product market fit, and now they're just adding a cryptographic token, which in a sense should supercharge those network effects. By adding financial incentives to something that already is working. So I think that a good rule of thumb, though, is that these companies must have network effects, period. If your business is not based on building network effects, then it doesn't make sense for you to create a token. I think this rule is the one I see broken most often. The second thing is that if you are launching a token and you're a private company, you should be ready to stop extracting any revenue from your network. So however you were extracting revenue from the network, whether this was advertising or paid subscriptions, particularly advertising in these traditional network effect companies like Twitter and Facebook, the other option is kind of a charging of fees. So this is like Uber or Airbnb.…

AI assessment note: “a good rule of thumb, though, is that these companies must have network effects, period.”

Q I do want to kind of step away from the investment process itself, though, and I want to ask, have tokens created a paradigm shift in the method through which companies raise funding, or is it another funding mechanism to add to the toolbox?

A So tokens, to me, enable a completely new mechanism of fundraising that You need to use cryptocurrency technology in order to invest in these new cryptocurrency technologies. So I do think that this is an inflection point for the entire ecosystem, and that this concept of a crowd sale or so-called ICO is really a case of the genie being out of the bottle, and it will irreversibly change the pace of software development in this ecosystem. I think that things will be faster from now on, period, because Capital coordination globally, and this funding model is basically accelerating the development of this technology by aggressively funding it. And while I do think that there are a lot of these kind of ICO projects that, you know, there's often a critique that many of these don't look like good projects or good investments, and I would agree with that. I think there's a big difference here, though, where seed funding usually happens behind closed doors, right? And you don't really hear about a lot of seed deals or angel-style investments that happen globally. Right. However, token sales all happen in a kind of public domain. So imagine if you opened up the doors and saw every terrible seed deal that happened globally, I think it would be sort of astounding how many bad deals are being struck. Again, bad deal here being a subjective term, right? Like one person might think this is a…

AI assessment note: “tokens, to me, enable a completely new mechanism of fundraising”

Q I mean, I'm interested, though, particularly progressing through funding rounds, a lot of VCs always suggest a value add in follow-on funding. How do you look to ascertain whether a VCs portfolio company, which they commonly push today to issue tokens, whether they really need a token, or they just can't raise any more VC money? What's the determinant around that?

A So, I think it's very complicated, and we have yet to see if it's even feasible for a company to launch a token to incentivize the network effects That already existed on the platform with a native cryptocurrency token. So this experiment has yet to be done in a really successful way. So I think it's still unclear if it's possible. Now that said, I think it's very interesting because a lot of these businesses have already solved these kind of network effect problem. They already have product market fit, and now they're just adding a cryptographic token, which in a sense should supercharge those network effects. By adding financial incentives to something that already is working. So I think that a good rule of thumb, though, is that these companies must have network effects, period. If your business is not based on building network effects, then it doesn't make sense for you to create a token. I think this rule is the one I see broken most often. The second thing is that if you are launching a token and you're a private company, you should be ready to stop extracting any revenue from your network. So however you were extracting revenue from the network, whether this was advertising or paid subscriptions, particularly advertising in these traditional network effect companies like Twitter and Facebook, the other option is kind of a charging of fees. So this is like Uber or Airbnb.…

AI assessment note: “a good rule of thumb, though, is that these companies must have network effects, period.”

Q Can I ask you a question? You had a blank sheet of paper when starting Polychain. How did you decide to structure the firm internally? Is it the old school Silicon Valley style associate principal partners? What's your thinking around the structuring of Polychains?

A Yeah, so this is actually a really interesting question. I set out from the beginning to structure something that would be capable of making early stage venture style investments, but instead of those investments being in private companies, those investments would be in new cryptocurrency protocols. So I was stuck with a tricky problem because these cryptocurrency protocols at the early stage have the sort of risk profile of early stage venture investing, but Contrary to early stage equity, they're actually liquid. So we ended up making what looks sort of like a hedge fund, even though the way we think about the world and what we do every day looks a bit more like what a venture investor does.

AI assessment note: “we ended up making what looks sort of like a hedge fund”

Q Can I ask you a question? You had a blank sheet of paper when starting Polychain. How did you decide to structure the firm internally? Is it the old school Silicon Valley style associate principal partners? What's your thinking around the structuring of Polychains?

A Yeah, so this is actually a really interesting question. I set out from the beginning to structure something that would be capable of making early stage venture style investments, but instead of those investments being in private companies, those investments would be in new cryptocurrency protocols. So I was stuck with a tricky problem because these cryptocurrency protocols at the early stage have the sort of risk profile of early stage venture investing, but Contrary to early stage equity, they're actually liquid. So we ended up making what looks sort of like a hedge fund, even though the way we think about the world and what we do every day looks a bit more like what a venture investor does.

AI assessment note: “So we ended up making what looks sort of like a hedge fund”

Q Speaking of accruing value, VCs make returns for their LPs when their companies exit either IPO or acquisition. How do you think about the lack of education on behalf of maybe traditional acquirers with regards to the structure of token sales? And do you think this will prevent further acquisitions if they have engaged in token sales before?

A You know, I don't want to really comment on M&A of companies that have launched tokens. I do think that we will see M&As of token networks. So this gets a little bit sci-fi, but you can imagine a world where one blockchain would actually incentivize holders of tokens on another blockchain to actually destroy their tokens in exchange for tokens on the acquiring blockchain for a better price, right? So you kind of create a free trade for everyone on one blockchain, and then say if you destroy your tokens and generate Tokens on, on our blockchain, you'll actually make some money, and this is a way that you could actually, in a sense, acquire a token network. We've never seen this happen, to be clear, but I do think it could happen in the future, and you could use smart contracts to potentially do this across blockchains. Could also do it in a pretty simple way if the two tokens were already riding on top of one blockchain, like ERC-TV tokens on top of Ethereum. I don't think that there's a Place in general for traditional companies trying to purchase token networks at all. I don't think that makes sense because you can't buy a token network. You know, no one owns Bitcoin by Bitcoin. I mean, no one owns the Bitcoin network and there is no Bitcoin LLC or Bitcoin Inc that you can buy shares in, or you could acquire or anything like that. So in general, these projects don't really hav…

AI assessment note: “I don't want to really comment on M&A of companies that have launched tokens.”