Finding Alpha Investing in Web3 Startups Lucas Matney mod; Kelly LeValley Hunt; Sutian Dong Multitu

[Applause] hey everybody uh i'm lucas matney i'm an editor at techcrunch uh have been covering stuff in the venture world for a long time but uh the stuff in web3 defies uh everything i've covered before it's chaos but it's interesting but i want to start by just kind of getting everyone's lay the land um what you're working on how long you've been in the space type of stuff you invest in let me start with you gonna take a microphone can we get another mic or two more mics so all of us are mic'd up or bob or john up i'm kelly lavallee hunt i'm the founder of pearl river venture capital and meant gold dust mint gold dust is an nft platform pearl river is an investment company run by myself so i'm the little tadpole on the stage uh thanks for having me my name is jake brookman i'm the founder and ceo at coin fund we're a blockchain focused investment firm [Music] mostly in new york boston and miami we've been in the space since 2015 one of the first crypto funds out there and been investing in all manner of blockchain and decentralization technologies since since that time it's our seventh year of full-time investing in the space we have over 100 companies in our and projects in our portfolio um excited to talk to you about investing today i've got my own microphone this is really exciting um hi everyone my name is john jong i'm a partner at multitudes we are an investment fund that invests in diverse founders where we're hyper focused on that across a broad range of industries we invest in funds and companies across both web 2 and web 3. i guess in terms of getting a start in crypto i had started my venture career at a shop in new york city called first smart capital where we were one of the first first checks into digital currency group and you know it's been a process of learning through through that investment from there um in terms of gosh what were the other parts of the question what we like to invest in um as i said we're quite broad what we're looking for are non-consensus non-obvious ideas started by diverse individuals who see the world in a way that no one else does so the question that we like to ask is what do you believe to be true that no one else does and if we can get aligned with that story that's where we get excited great thanks guys um you know i think uh one of the cool things about this panel is that we have a lot of people with kind of differing levels of resources behind them or you know research teams doing stuff on your own uh you know the title of the panel is finding alpha uh you know as a journalist i spend a lot of time on crypto twitter spend a lot of time sliding the people's dms on discord how do you guys find alpha for me it's fairly simple i this is my fifth year at east denver i invest in developers typically if i think it's a good idea personally and if i think i could probably take that to market then i i typically will get a little bit more information if they have a protocol i'd find out what kind of consensus algorithm if it's a platform i talk to their teams i talk to the developers how much knowledge that they have what their skill sets are how many years they've been writing code for example i think that's really important and if i think it's uh it's an opportunity that i could actually take to market then i typically try to invest and if and if and if i can't invest then i introduce other investors so we tend to be trend driven and thesis driven in our firm we have a a lot of experience in the space and a pretty deep understanding of the technology and what that allows us to do is to be early in the trends um that are happening and and also to kind of be able to predict fairly well which are trends that are important and up and coming so one like really good example from coin fund is that we're a very early investor in the nft space and one of the reasons is that it's kind of it's a bit of a passion vertical for me i'm i'm a digital art creator um kind of all my life and you know i saw rare pepes in 2016 on counterparty uh like way before the the word nft was even like a thing and had this like strong belief that that one day this would this would come to market in a big way um in in 2017 in november when when sort of crypto kitties launched i purchased crypto kitty number 12 for like 4 500 people thought that i was crazy for buying a jpeg of a cat um and then in the summer of 2020 when you know uh many people were very focused on you know defy um me and me and andrew steinwald went on bankless podcast and we said we'd like to make a bold prediction we think nfts are going to be bigger than d5 it just like speaks to the consumers more and sort of here we are in 2022 in early mainstream adoption of of nfd so that's like one example we've just been early and there's many other verticals you know we're deep in base layer technology scalability interoperability technologies of blockchains we've been investing in web 3 since 2017 we're early in d5 like mid 2019 and there's a few other trends that are happening now that will be more important later so i think i differ from uh the the two folks on this panel and that um i come my institutional investing background mostly comes from the the web 2 world um i so it gives me a certain amount of perspective in terms of figuring out okay well what worked in the web 2 world when it came to investing and what has the opportunity to be changed or evolved for the better i think fundamentally at multitudes what we're investing in our people right um but what that means for us and how we also differ from a lot of other vc firms in the space is that we don't just invest in companies we invest in funds as well if you think about your uh network right it's a function of circumstance and it's a function of choice and the people that you know that's unique to you it's almost like a digital fingerprint right no one else has the same network as you do and so what that means is that you have insights that are unique to you that no one else does it's the whole point around okay what do you believe in that no one else does what that means for us is that within the one three world we actually take a pretty strong view um in investing in small funds where the founding partners the partnership has unique access and deep connectivity into networks that we don't right um we like you know my background i'm an asian woman who's been in you know venture for for the last decade plus and i just know the things i know but that doesn't mean that those are the things that are going to be most generative for the world right and so how do we like we think about how do we invest in the folks who are closest to the action and so we're looking at we're about to invest in a fund that uh specializes in um in investing in data tooling and for me that's something i'm super interested in but i know i wouldn't have the fidelity of decision making that this person does and so we invest in these funds as a way to accelerate our learning in our connectivity in the markets that we believe will be big yeah and i i think you're right um if i can add to that um [Music] if you work alongside somebody like i worked along side of john crane and charlie crane who founded super rare uh when they when they left block apps which is the first blockchain as a service company that we took to market in 2017 we partnered with microsoft aws google red hat the un anybody that we could partner with when i worked alongside of them and watched them work and watched their integrity and their their coolness i thought they would be a good team to invest in and which later on they founded super rare and i said i want to i want to invest and i was one of their first investors and i met jake in 2020 i'm going to show you for a minute and i invested in coin fund i think last year at 250 000 um so my check size is like all over the shop there's no like strategy or anything like that that's probably not your next question huh no no i mean well this on this point i mean there's so many options for you guys in terms of you know investing in tokens investing in nfts investing in funds investing in equity you know equity investments and startups you know and i know that some of the bigger institutional funds are kind of fundamentally changing their structure so that they can invest in some more than other like how do you make the decision on where you want to direct you know this big pool of capital that you you have or you know what decisions you make yeah the big pool of capitals right here so i i have my own money i don't take anybody else's money uh to invest and so i think that you know i have to kind of sleep on it first um unlike you know i don't have a team of people that kind of guide me and my understanding and my moral compass i try to look to my peers for input but more or less it's just do i think it's a good team do i think the technology is right do i think they're they can make it [Music] and also can i sell it and if i can sell it then it's a good idea i invested in a company called gilded finance about two hundred thousand dollars a couple years ago uh they do tax um for wallets uh for and they do invoicing um for uh paying your employees for example and crypto they're based out of new orleans i'm from new orleans so i invested in them and they're a cool team so my check size is like 55 000 up to half a million dollars so and jake you have probably a little bit uh different um uh pocket size so um thank you in terms of uh like tokens versus equity so when we launched our very very first vehicle in 2015 you know we kind of took a position that this is a digital asset fund we want to be investing in digital assets that's what differentiates us from other investors in the space especially at that time what we learned rapidly was that you know these are not kind of binary choices like equity or token what we learned was that there's a a spectrum of ways that projects could structure like if you're a decentralized network you're accruing value potentially in the network asset if you are a infrastructure as a service company like block daemon you look very much like a like a traditional tech startup and an equity deal and there are many networks in between that have native assets as well as proprietary equity-based businesses that you know add value on top of the network and so what we learned quickly was that you have to be flexible and you have to be able to support a wide array of kind of mechanisms for exposure to different assets in blockchain that could be equity shafts notes convertible nodes convertible equity equity and so on and so forth um even even like providing liquidity you know and earning a yield could be an exposure to a network and so you know today we we sort of exercise that and we also see a lot of traditional investors now taking blockchain quite seriously and and and some people saying you know what you know we're just going to do like equity deals in blockchain or something my opinion on that is that if you're an investor in blockchain in web 3 and you're limiting yourself to one structure another you're probably doing it wrong you know there's a level of flexibility that you need in order to capture the value correctly of the things that you're investing in yeah and just right before you answer that i just want to add to that you have to be flexible and if you're not flexible you're probably in the wrong space um and i think that is really the key i was going to say like it's an in a it's a space of innovation on the technology side also on the deal structure side and you have you know if you want to be you know an investor in in a disruptive space you have to be a disruptive so i um we started as a equity-only investor right so we were one of those folks we're like okay like i think this is gonna you know this is interesting but we're gonna look at it from sort of the the web to lens of okay we are going to take equity positions and companies we find to be potentially um unbounded in their upside to your point jake that doesn't really work right because you're taking an old paradigm and trying to shoehorn it into this new ecosystem um what so that's all to say that for us it's a work in progress we have not made any tokens investment investments to date out of the fund one it's not um there's a couple of things here it's not because we're not interested until actually i think we find this the the the fractionalization of upside opportunities um to be really really interesting and and by fractionalization i mean the fact that you don't have to just take equity positions in companies anymore uh i think functionally and from a regulatory and legal perspective there's some stuff that we need to figure out on our side and i do think that's one of the opportunities that gives folks who manage their own money for example a lot of latitude and a lot of speed to run ahead of the you know the the sort of more traditional vcs who want to invest more heavily in this space because start conditions really matter right and so if you're set up 10 20 years ago to do this certain thing it's much harder to move that the direction of the company even a couple of degrees over then if you were to start de novo today and say okay well how am i going to be set up and structure to take advantage of the opportunities and how i think the future will hold when i don't have all this sort of historical baggage that i have to account for yeah it's easier to [Music] in my position it's a little bit easier because i'm just i'm educating a lot of lawyers i'm paying a lot of lawyers for me to educate them in this space which is kind of makes me a little bit crazy so anybody recommend some really good token lawyers it would be great i know you have a few that you can probably recommend um but yeah in the beginning um that's really that was one of the biggest challenges was the regulations what was it going to become um and it wasn't a challenge for me because of my own money and you know it's kind of you know i don't have to worry about as much as more institutional or funds because i'm not taking other people's money but the companies that were issuing tokens when i was investing with equity and then eventually they would be releasing tokens they were worried that the regulations would backfire on them or the the legal implications would backfire on them so we had to be kind of careful in the beginning i'm sure you you experienced that as well um but i think it's starting to become more you know the framework is start in the web three space the framework is is going in that direction um do you want to add to that jake yeah i mean i i think like um so to your point it it's a process where web3 is being adopted throughout the world not just by customers not just by founders but also by investors and today like what is the core difference between what we call a traditional investor and a crypto native investor well i think it's just that it's the ability to purchase your token to participate actively in your network to put in proposals in your decentralized governance system to add liquidity to your decentralized lending protocol right and today you know because crypto native investors are sort of specialized for these use cases they are compelling early-stage partners um who can increase your network's probability of success but over time you know everyone should be doing that right this is where we're going with web 3 and so i do think that like you know investors will update and you'll see traditional firms launching you know new and we do see that even even even now like starting to launch kind of token focused funds it's really it's really bullish for founders at the end of the day yeah i would i would add one thing to that which is that uh i think you know the in the web3 space there's a there's an opportunity for everyone not just people who are sort of traditional investors to think about themselves as investors right money is is fungible at this point and so the real real opportunities are thinking about okay well how do you aggregate attention right and how do you how do you use time wisely and and what that means though is that um instead of the the sort of more linear model of web 2 investing where lps invest in funds that invest in companies that do stuff for consumers and then the consumer drives value that goes back up to the company that goes back up to the fun that goes back up to the lp in this world you're seeing more of a circular economy right where you have creators and communities and capital but that capital can come from a lot of different places and i think the bar for that capital is getting higher right no longer can you say hey i've got some money i want to give it to you right the ask is well what else are you going to do right are you going to participate in governance right are you going to activate your community do you have a community to activate and so the um i think the paradigm for what constitutes a value-add investor is quite different when you have this new model of again non-linear participation but more circular participation in the web 3 world i think going off that same point i mean just talking about you know how many big institutions have gotten involved hedge funds when you're looking at you know tiger or co2 coming into a round like how does that kind of change how you have to kind of enumerate what your value add is to some of these startups and founders i'm gonna hand the mic over because i don't take money but um i i do get scared when i've invested pre-seed in a company and then they do a series a with like or b or something like that with sequoia i'm like oh my gosh you know like i i do get worried but anyway why so well you you they have stipulations in order to get involved they kind of you know they they throw the gauntlet down on some of these startups and i kind of have watched that over the past few years them get involved and i say sequoia and i'm generalizing um there's other big players out there and and i i'm constantly um think thankfully the people that i have invested in they do come to me um and they do ask my opinion on things um and they'll ask you know should we involve them they've reached out to us um you know sometimes i'll see them at an event and they'll ask me these questions and i do ask you know tell them proceed with caution it's kind of like a yellow light just make sure you don't give them the kitchen sink everything and the kitchen sink but i don't take i don't take investment i just kind of advise my uh the the teams that i have invested in um going forward so i'll hand the mic over to jake thanks kelly uh well i think the the first thing to say is uh the first thing to say is that the traditional investor interest is like net bullish right like so there's a lot more capital in web 3. there's also a lot more um founders coming in 203 i mean look we're at a conference which is arguably the largest crypto conference since kovis started in the us right like this right now there's more people in in denver than in consensus uh new york 2017 which seemed like a like a mad house and we're like what four x that or something um and you know like i used to work at amazon right like i took the web 3 route i guess earlier on and i had a colleague there was a technical product manager stayed at amazon for a while and now he's coming into three so what why did this highly compensated technology professional like choose to do it now part of the reason is because he feels like he can come in you know it's a legitimate space there's traditional investors he can get funded you know etc on the other hand like you know the type of investor that you mentioned at that stage tends to be more of a passive capital kind of investor you know we're happy to be you know much earlier stage than that and and engaging our companies like very actively helping to solve helping them to solve the kind of what we call the full stack of problems that they face in uh in blockchain um and those types of investors come in later as you know the business skills i i guess just adding on to that and we can continue on but like you know as as you see like you know folks like andreessen kind of adopting a little bit of what paradigms model has and getting a lot of research partners on board who are kind of like actively engaging with the community i guess as some of those bigger funds may copy that does that you know and they and they kind of like see what works for you guys and then they have you know these multi-billion dollar funds like how does that complicate things well i you know i think that our strategy at coinfund is not that we are trying to raise the biggest fund our strategy is that we want to be the top decile performers for our investors in every product that we do and i think that when i hear about you know someone raising a multi-billion dollar fund that makes me happy because i know it opens up like earlier stage capacity the type of institutional investors that we have you know they tend to write kind of big checks you know 10 to 15 million but not like the biggest checks like 30 to 40 million and what that means is that they prefer earlier stage vehicles because they get um kind of a higher asymmetry on their money versus you know a much larger vehicle that tends to get you know it tends to solve for capacity but not so much like return right so in some ways it's actually like good for our model when those investors move more upstream yeah i would say that you know generally speaking and this is i think something that everyone in this room would agree with me on um more competition is generally better right and certainly if you're a founder and there's more competition in terms of the capital providers to get on your cap table or be part of your early you know early story that's uh that's net positive i think for a fund or for any investor um some of it just has to come down with being being sort of honest with with yourself right um and thinking about okay well what are your strengths right your core strengths as a fund does that fit your strategy of investing and then can you effectively share that story with the world and if you can do those things well what you end up creating hopefully is a mo it may be a big mo it may be a small mode but hopefully you create a mo a reputational mode around what you bring to the table so that founders know that you you are not trying to compete with a tiger or a sequoia or an andreessen right there's something that you do that may not be for everyone but it could be um coaching services it could be help and go to market it could be community building but something that you do that is um is valued in a different way that's not to say and the beauty of you know investing certainly nowadays is that um as a founder you don't typically have to pick one right you can have multiple investors around the table and so in some ways it's like putting together a jigsaw puzzle of saying okay well what do i need help on right and this investor can do this really well this investor can do this really well this investor can do this really well this investor can do that really well and um from an investor's perspective really being able to crystallize your value add and have that be easily disseminated across the founder networks that you want to be a part of i think is uh i think requires a lot of focus on doing one thing well versus trying to cover everything and saying oh we're gonna follow the herd and you know try to replicate some of the programs that we see working for other people yeah um well i think we're kind of running out of time but one thing i do want to end it with is a bit of a defensive venture capital in crypto as a thing so you know obviously there was a conversation kind of started by you know i guess not started by but one that jack dorsey talked about in terms of kind of like the centralization of some of these crypto platforms for you know within uh web three but i guess generally you know you talk to some decentralization advocates and they you know look at things like pre mines or big token discounts with a pretty skeptical eye um i guess like do those themes seem pretty antithetical towards you know what web3 and crypto are uh in terms of you know pre-mines token discounts stuff like that i don't know how to answer that um but i do want to not to just completely derail that but let's keep on the questions i do want to say that there's a lot of precede people here that we really haven't really touched on and i think that it's i'm tiny and i do worry about the people that are here and that are seeking pre precede and that are seeking mentors as they move through the precede and seed in series a but i'll so i'll hand over the mic to jake but um because that no i think he he's better suited to answer that question i'm more suited to answer the things that are applicable for the eth denver um maybe the historical eth denver uh eat the host because now it's kind of moving into these like we're building or we're further along than what we were and now we're looking for sequoia funding or whatever tiger funding um i'm kind of still used to investing in pre-seed and seed levels and i really care about the community and making sure that they get funded so you asked if it's antithetical to the ethos i mean again my answer is that it's not a binary choice between a token supply that is funded by vcs or you know a totally community owned token supply everything in between is also in play the key point for me is that this technology enables you to construct the correct model and we see that in the market all the time we see highly decentralized networks that make the choice to only get funding from their communities or public investors or crowdfunding we have other kinds of projects that are building decentralized networks but find that it is incredibly important to have the right set of partners like if you're going to convert the telecom world right like you need intros to some ceos of a t and so forth right so all those models i think are valid now when jack dorsey you know kind of says the things that he says without that much precision you know i think i think a lot of that goes back to the idea that some of these token supplies are used as governance mechanisms and if you have a governance mechanism with a concentration um then you know maybe that's not the most optimal model but but what we see also is that we're just at the beginning of innovation of governance systems and crypto and we can solve those problems through technology right we can we can create like liquid democracy delegation we could we could do one token one vote systems and and many other adjustments to government systems that could solve those kinds of problems so i know we're we're at the end of time i will keep this very brief um plus one everything he said uh and and the other thing just to keep in mind is that venture capital as an asset class or as a sort of product is a good fit for a very small minority of projects or companies that come to market and so i think we we all talk about bc and sort of the the institutionalized capital markets um but one thing to to just really think about is that um there are a lot of other ways to build a business there are a lot of other ways to um to fund your business or your project or your protocol and to your point jake web3 allows for the flexibility to do some of those things uh within ease and scale that we haven't seen before so i do think we're really early in all that yeah and to add a point to that just sorry i know we're running out of time um and we won't get off the stage i just want to add to that this is these guys are like extremely intelligent and can guide at the further stages at the beginning stages what you need to make sure is your technology works and you also need to make sure that you include the people that are going to guide you in the right direction and not focus on the the dow's and the tokens and the who's the sequoia is a bigger picture make sure at least for the first year that you get your tech right and your team right and your advisors right and that's that was my point in like kind of skipping that question um because i think for this community um and the majority of this community right now is you know thinking about how do we innovate how do we create a new economy how do we further this economy how do we further this web 3 the future of web 3 and i think if you focus on your technology if you focus on getting it right if you focus on communicating with other people around in this community and getting good advisors you're on the right track for the at least the first year make sure that part is right don't think about anything else don't think about the tokens don't think about the dows don't think about unless you want to just create a dow to begin with and that's your idea i would really focus on the essentials and the foundation first and i think that for me is my i advise that's what i always advise everybody cool well i want to thank our our panelists for some some great conversation um yeah they're gonna pull me off stage right now so let's let's come to the mint gold does auction tomorrow evening at six o'clock you guys nft