Investing in Early Stage Blockchain Startups - Alon Goren

my name is alan goran i'm one of the founders of draper goran home we invest in early stage blockchain startups we incubate them and accelerate them as well and uh it sounds a lot more official than it is for who we are right because we've got the draper name on us and and tim is a huge supporter and we've known him for many years but we started off and we still are uh entrepreneurs ourselves so we started a thing called la blockchain summit about seven or so years ago and we started basically meeting the smartest people we've ever met in our life in this space and we we started doing deals with them not because we could afford to invest or anything but just because we had this stage this conference in this thing and we just wanted to participate and what we do today is not that different like we we find companies or dows or individuals that are doing really really amazing things and we basically support them work alongside them and help them grow so that's that's all the shilling i'm going to do on what we do if you're an early stage startup come hit us up um or if you're thinking about something and you want to bounce ideas off someone we're here um vcs in this world get kind of a bad rap and most of the time it's for good reason um i want to say that although we are technically vcs um we're like insanely different from everyone and we probably won't participate in 99.9 actually 100 of the type of vc rounds you hear on twitter and and things like that because unless we participated at an early stage and we're almost at the level of co-founders we won't participate we usually the first check into a company or whatever and the reason i bring that up is because every single one of you are as qualified or more qualified than i am to be an early stage investor in a dow or in a startup and that's where we are today like that's kind of the whole freaking point of why we're here um if if you're in this space and you're interested in participating in a company what i will say is one we're at like one of the best conferences in the world for that because everyone is very open and inclusive and awesome but don't be afraid to talk to people go learn what they're doing and if you have anything that you feel you can add value on participate that's kind of the whole point right i uh i have a great story in that my son uh at the beginning of of quarantine times i think he was seven years old at the time was listening to me talk to a group of founders who are putting together a dow the guys in prime doubt and i think a lot of them are here today um and he was listening to me as a kid who who knows what nfts are but like you know as much as you can wanted to participate and he's like how do i work at prime dow because he was listening to me explain the governance process of like first you put a proposal in then the people vote if enough people vote it gets brought in and they escalates all these things and i'm explaining it to him and he goes oh so it's like when i ran for student council at school and i was like what do you mean he's like well i have my google sheet because everyone was doing school virtually and he's like i explained to uh he's like i told the class i had a list it said i should be a student council because and then he made a list of the reasons why he thinks he'd be great at that job and he literally heard this and put a proposal in place in the prime dow dao on alchemy he uh made him do it himself and i made him email the team members for feedback beforehand and i didn't participate at all i just like i have a video of me watching him do it like over his shoulder because he felt like he could make nfts he's like i'm going to make a poopoo dot eath membership nft for these people because that's that's my son's thing and he did it and the reason why i'm saying that is because the only thing that's stopping anybody else from participating is just the confidence and the the the the guts or the guesto to to do it and as a seven-year-old he didn't have anyone telling him like oh you're not a developer you can't do this or you're not an engineer you can't do this and and when he asked me i was like of course sure because i'm that guy too i i'm technical enough to to break [ __ ] but i'm not as smart as as most of the people probably all the people in this room so i bring this up because i want everyone to kind of come into the baseline of investing in this new world that you have something to add to the table no matter if you're a seven-year-old who's interested in making nfts out of legos or you are an engineer or you're everyone else in the world somewhere in the middle and so we're at this day and age and um i should look at time because i talk too much in general um so okay we we started a little early so we're good on time okay cool um thank you um so i the reason why i chose not to bring my normal slide deck and my whole thing is because i my the crappy part of my job as a vc is kind of the same crappy part of any entrepreneur's job which is fundraising and so i'm constantly looking at a at a deck and going like this is the reason why dgh is the most awesome vc firm in the world and you should give us all your money and i go through it but this this audience i think uh um it's not that it doesn't lend to this audience i think it wouldn't be doing you guys a service by by just you know shilling towards you and explaining it but some of the things that are really really important because we kind of all go off the cuff and we all go kind of by our guts and by what's um by you know what drives us right like the the beauty of this world is that daos exist now opportunities exist whether it's in the regulated space on crowd funding and i promised one of my friends that's here that i wouldn't get into how screwed up the the uh the regulation is in relation to investing because you know technically according to u.s law most of us if not all of us aren't legally allowed to be investing in a tech startup unless they jump through ridiculous stupid hoops but this new world exists and if you were to participate in it at your own risk um you i i always tell people to all you know i don't know any different than to just kind of participate in the things that i love and i want to participate in so you know if it is a product or service that resonates with me or i think that i wish i could i had or i think would be amazing then i engage and i learn and i do what i can there's always these times when i meet like some of the smartest people in the world and they come to me and go we're doing medical records on the blockchain and i go i have no [ __ ] clue like i don't know how to help you so i i i can't i might introduce them to some people but i'll tell them i'm not the right fit for you but i want everyone to go in and and realize that there is a fit for you times thousands of companies around the world because we do live in now a borderless and global society at least we do amongst us don't let anyone tell you otherwise and and so the reason i brought that part up is because then we can get into the nerdier stuff when it comes to data right and and in the data if we want to i wanted to touch on this because the the title of the talk was investing in early stage startups which i probably should have refined a little bit but investing in early stage startups one of the most important things you need to to do other than you know the the basic research and the understanding that it's an insanely hard game and it's an insanely financially risky game we are in this world where everything goes up into the right until it doesn't right and if you've been in crypto long enough you understand and know and feel that roller coaster but if you just came here or you started participating and buying nfts nine months ago were all [ __ ] geniuses right but it's a game of hot potato remember that and you can be left holding the potato at the end of the day when you play those games so for me i don't participate in anything unless it's very very very long term i participate in the same way i got lucky in that when i finished my first startup and it failed the first coffee i had after it failed was with one of my previous investors and i was expecting that investor to give me [ __ ] and go like what went wrong and for it to be a crappy you know morning just because of my own feelings i felt like i let everyone down i failed i raised some money and i lost the money on the for those people but i got lucky in that that investor saw what i was doing in the blockchain space saw what i was doing with startups and different people and that investor said hey come be a venture partner here and learn what we do here because i think you'd be you'd under learn this world and what i learned from him is that none of the early stage vcs are investing the same way like some of our crypto trader friends they're not expecting to buy a token and sell it in in two months or two days or 20 minutes right they're not traders yes [Laughter] so but what they're doing is they understand that if one of their startups gets an exit the average time is eight to ten years and that's if it happens and i i was lucky in in having another investor at one time give me a phone call and i didn't understand this until years later but he called me and he said i'm fully diversified now and i i was like what does that mean because of you know and i think he was bragging he was totally showing off but um he worked he was a goldman sachs guy during the day but at night he was investing in startups and and he'd write a meaningful check to all these startups he said i'm fully diversified according to the data we gathered at goldman trust or goldman sachs whatever um i if the average angel investor has to make 32 investments to break even because that's how many on average for the average investor fail so you have so you think and that's and he said you know uh to his credit he goes i think i'm better than average but at least now i'm fully diversified so i have the data on my side because he was a math nerd um like a lot of us and he he brought that up to me and so another thing i want everyone to think about is that we have so many opportunities in this space i think it's uh it's uh stupid to go you know to go nuts and just like what what investors will call spray and pray like don't just like hey it's a it's it's a token i'm gonna i'm gonna buy one um or it's an nft or it's a company i'm gonna invest in it don't just do it for that reason still you know have some values spend some time with them and have conviction and know that the team is in it for the long haul because remember that eight to ten years if if you you know too many of the people we meet in places like this are very very short-sighted um because you can be because like i said if we got in nine months ago we're all geniuses um don't be that person so don't just spray and pray but participate in a lot of things one because we actually get to participate in this space and you actually get the kind of information that usually if you were a vc from 10 years ago you only got that information if you literally lived or not lived or your office was on one street in silicon valley called sand hill road and you're there and you get to meet those companies and those are the people that got the money and those are the people that had the information and if you didn't go there you had like a 10x harder path right but it's not that anymore as an investor you get to compete with those people and we beat those people to the deals every single time because those people have their billions of dollars so they they they have all sorts of asymmetrical opportunities for them too i'm not like saying we're better than them or whatever or they're better than us or whatever but remember we're here boots on the ground we meet our friends in the hallways and we have an opportunity to participate first those guys have billions of dollars and it actually it doesn't make economic sense for them to write the size checks or to send the amount of eth that we would participate in a dow or a deal so they participate way after us so this is this flip that's happening right now that's really really exciting from the investment space right like if we're participating here and one of these companies on the sponsor list or one of these dows eventually gets to the size and stage where they feel like they need to raise those tens of millions hundreds of millions from those vcs we got there first we got the that asymmetrical opportunity that that maybe those angels could have got if they're in silicon valley or maybe in l.a or or anywhere around the world right because if we go back to those rules and laws i'm going to try not to focus on it used to be that you had to be a millionaire to participate and it still is for a lot of deals in a lot of situations and don't break the law if you're a startup raising money because it it will not work out very well for you and um you should do what's right um i'm trying to because it's recorded i'm i'm i'm uh trying to be real careful but you shouldn't you should you should push the limits but you should have a lawyer and you should do things right especially if you're an american citizen and you have these archaic rules and laws that we don't agree with but we have to comply with the beauty of it is there's technology today that can help you overcome some of that stuff you could raise money from people who aren't millionaires and or you could do what a lot of companies are doing which is super unfortunate and maybe be based in a different country or place but going back to the uh checking timing um okay we're still good right okay um so going back to the investing side of things we now have the the the information that you know you couldn't get before because of the internet because you could actually meet the founding teams no matter where they are in the world you can actually understand the product if it's a dow you can actually participate in the governance in a way that was never able to be done before um you know back in the day people would argue with me when they were investing in my company that they wanted a board seat and i didn't really understand it at the time but basically they wanted the type of control that every single one of us has when we participate in a dow today they want to they just want a seat at the table and and we have that now and we have a way to organize with the other investors with the other participants and discuss it and and argue it and talk about things in a way that's just never never been done before the one thing i want to to say about that particular topic is to be careful when there's too many cooks in the kitchen there is there and we're you know i mentioned primed out earlier they're actually doing a ton of these things called dao to tao that they're doing doubted our relations and organizations and helping people do things and communicate and do partnerships uh within groups but a big part of what they're doing is trying to to make governance more um uh more efficient right and actually more i wanna say usable but usable is not the right word what we've learned in organizations in this space the first sort of go around was that these flat organizations that didn't have an org chart and didn't have a boss although it felt really good because i could be there next to my friend and throw an arm around them and we're all on the same level playing field meant there was no boss saying like get [ __ ] done and unfortunately we're like either we're ingrained and used to it or there just isn't an accountability in those kind of organizations that have that has been baked in until very recently and so what i want to say is that be careful that some of these groups in their organizations don't have a direction it doesn't mean that they have to have a leader that's an ass and says get [ __ ] done like the way i was saying it they shouldn't they should hopefully have a benevolent founder or person who's equal to them on the same level playing field and doing things right but be careful of those dows and those groups that spread out their ownership spread out their governance amongst lots of people and then because too many people are involved or they don't have that accountability baked in uh there isn't there just isn't progress like there's so many times you meet with these groups and go like well what's happened since the last time i met you and not much and that's that's the worst thing that can happen because as an investor on the you know on my day job side of things and i have to do things responsibly and i'm investing other people's money because i'm not a millionaire myself i have to do my research i have to do my due diligence i have to understand what's going on the best way to understand that a company is on the right track or a dow is on the right back or a person is on the right track is that there's progress and i could go they can follow up with me and say hey remember last time i told you i was going to do this thing we did it and it failed or we did it and it worked better than we thought or we did it and we learned that users don't give a crap about the thing they told us they wanted they're actually using this other thing and we're gonna build that you know but as long as there's progress there's movement there's there's evolution and that's probably the number one most important metric to look for in in uh you know when you're trying to back a founder now i know a lot of you are are engineers or founders yourselves most of you but you also almost all raised your hand as investors so that made me really really happy but i wanted you to kind of look at some of the things i'm thinking about um from that perspective because when you come to pitch to us you know i want you i'm i'm not the um i'm i will say i'm a terrible negotiator with startups because everyone knows exactly how i feel because if i'm stoked i'm stoked if i don't understand i'll tell people i don't understand i'm not the like blank-faced vc style guy that goes this is a terrible idea i think you should cut the valuation in half so i could get a better deal well if they want to write you a check they don't think it's a terrible idea so don't be an [ __ ] but i've seen too many of those and that's what gives many of them bad a bad name now i know that i got on stage a couple minutes early i'm said that most of the things i want to say