Founders on the Frontline Hard Lessons in Capital and Growth

[music] you. Thank you, Georgia. Thank you to the audience for taking the time. Um, as Georgia mentioned, today we are stripping away the glossy success stories and going into real lessons that founders learn the hard way. Um, thank you speakers for taking this time as well.

I'd like to start at the moment that defines a founders's trajectory, which is the pivot. And I'll start with you. Um, Sakam, you've taken Bit Grid through multiple transformations. Which pivot forced the deepest rethink of your business model and what did you misjudge going into it?

Sure. Uh, thank you, Yasmine. It's true that Bitwrit has actually explored a lot of different avenues and I would say that you know we started off with a marketplace thesis we evolved into crowdsourced competitions to basically get AI from the community of developers that we have and ultimately we kind of now have one of the first licenses to bring AI assets on chain and very recently we signed on a agreement with the city of Akita to build what can possibly be Japan's largest AI data center. But through all of this, I think the biggest pivot in our opinion was none of these changes and evolutions that we had, but actually the fact of realizing that we are not an AI provisioning company, but we are rather a data management company. So it was like a McDonald's moment for us to figure that out.

Um when we started we had this idea that you know grand vision that we want to democratize AI for all and that led us to think that you know we should just get out with a marketplace that allows any developer to create and monetize their models and companies can just license it off the web. But we soon got into the chicken and egg problem and that created a bit of problems. We had already built a large community of AI developers and then we pivoted a bit into competitions. Now one of the features in this competitions was the ability for us to provide a sandbox where developers can build on sensitive information and for the longest time we just had that as an add-on but later we realized that that is something that can become the focus area of the company overall and this pivot means meant like we had to you know reinvent the entire company. We had to think from scratch, change our business model and that was nearly a moment for us that we felt we are starting from zero.

But in hindsight, I think that was one of the best decisions that we made.

It's fantastic. Mario, you have quite a unique perspective. You started off as a founder and then you moved into structuring complex deals. Um, what was the pivotal moment early in your founder journey that shaped your understanding of risk? It's actually quite an interesting story because the way I decided to start the business was completely different in how it turned out and I'm sure we can all agree once you start building you learn on the go right and so you have to adapt and this is I think a very important mentality to have to be creative but also very adaptable.

So I'd say at least in my trajectory as a founder um which was to be honest almost a decade ago now which is crazy. Um, one pivot to moment is what when you speak with the customers and you straightforward understand the pain points and realize, hey, I could actually slightly tweak this but create so much more value. And so because I was building in the automotive space uh especially around central eastern Europe when we decided to do on the B2B side the slight adjustment and uh improve the supply chains manufacturing out of the blue everything skyrocketed from there. So you just need to speak to the customers at the early days quite closely. Very good advice.

Is it okay I add a couple things please?

Um so at Dripper Associates we're early stage investors. So we you know we we're not in the sort of in the thick of things but we see you guys work. So I've been there for 20 years. We have a thousand portfolio companies. So over the years I observe a couple things.

What I then pass on to our young entrepreneurs is that I have established this rule of three. You guys want to hear what rule of three is? Right. So when they come pitch to us, I oftentimes say, "Hey, you know, this is your first business. Why don't you cool off and then not do anything, right?

And then wait a few weeks. And if you still want to do it, come back to me." I would say, "No, don't do it." So you do that three times, then you really jump in, right? So the idea is that when you want to pivot, you also wait three times before you pivot because we're trying to balance that commitment versus, you know, you hit a sort of a hit hit a wall and you really need to pivot.

So that balance, we use that rule of three. Three times before you commit and three times before you change. And we found that to work pretty well.

Excellent. Reeve, what was your experience when you've noticed that things um you needed to pivot because the environment around you was changing at a different speed than you had expected?

Yeah, it's been an interesting journey, that's for sure. And the environment has continued to shift. So, I got in the into the blockchain space in 2013 and we created Tether in 2014. And one thing I'm really proud to say about Tether, like Tether itself and the business model, basically the deck that I created in 2014 today is verbatim the business model. It hasn't pivoted one inch because give me a dollar, I put it in the bank account, I give you a token, it works on the blockchain.

Simple idea now, quite revolutionary back then, especially when the entire world was saying this is a terrible idea. This is illegal. You can't do this. And who cares about the blockchain, let alone who cares about Bitcoin? So back then it was very forward thinking, but it really found a use case, right?

It's it is the killer app still after a decade. And now today, stable coins is all the narrative. And why is that? So over the years, I pivoted. That business did not.

But in 2016, there was a lot of regulatory scrutiny. the market crashed and I had opportunity to figure out what's the right pivot because back then crypto was so highly regulated and it was or not regulated but risky because they were trying to put people in jail. They were actually going after people and so the concept was let's create tokens that work on blockchains that are programmable that are unique. So one thing that uh I don't get much recognition for in my team back then was we then created the NFT. We created the first ever platform for NFTs and this is before there was the term NFT.

We actually called it a VATOM but the pivot there was from a highly regulated space because we were moving money globally instantly for free. Every government in the world wanted to and tried to shut it down but that idea its time had come and so you couldn't shut it down and look at it today. But we pivoted to NFTTS this new type of digital token that's going to have a lot of value. But that business took a long time. the market crashed and so we pivoted again.

Instead of enabling developers to build their own NFTs, that company focused really heavily on enterprise and large institutions saying we're going to re revolutionize loyalty ticketing and all the different things that NFTts are finally now doing today. But this was way too early. And another pivot was we spent one year as a startup pitching American Express all the way up to Ken Chenalt. Met with him a number of times over months and they were going to invest $20 million. This is the tail end of 2016, beginning of 2017 into the ability to uh tokenize loyalty points.

Well, that didn't work out. So, we spent a year. We didn't get that money. So, that company made another pivot. What came out?

ICO boom hit in 2017. So we did an ICO. This company was called BlockVee. Launched a token, raised 20 plus million dollars in that ecosystem. And then then we focus on enterprise instead of the users.

And we actually missed the NFT boom. We were the first people to create this NFT and we missed the boom because what was the boom for NFTTS? It was gambling on images. We actually, you know, thought we were super smart and tried to create a lot of use cases, but we missed the point that has driven the entire cryptocurrency ecosystem since the beginning, which is speculation. And each new technology that comes in creates a new way for the world to speculate and ideally make money.

It's fun to gamble, isn't it? Look at all the tokens. Look at the ICO boom ICO boom. And then NFTs came and so the first thing that came out was to speculate on images. But the good news in the end of that story is in 2016 we got turned down for that $20 million from American Express.

That company kept going, kept grinding. It's called Smart Media Technologies. Still there today. And 10 years later, it just closed a really, really significant deal with Visa. So Visa is now tokenizing loyalty points and everything else.

So it's been a long journey with lots of pivots and lots of lessons along the way

and a massive congratulations to your success. Um, I want to jump into structuring your first deals. So, Andy, I'm gonna start with you. You mentioned way too early. I'd like to hear from you when negotiating a deal way too early.

What do you feel is one structure that founders can accept too quickly? Um so there's um another sort of story I tell our founders uh is that when you are raising money well actually let me quickly do a quick survey. Um raise your hands if you're married. This is a Come on. There's got to be more married people than that.

All right. Put your hands down. Raise your hand if you're dating somebody. Nobody. [laughter] Wait.

Wait. Somebody's married and dating. This is a This session is being recorded. Um, okay. So, I kind of equate fundraising um, especially early stage as dating, right?

So, when you think about dating, you think about relationship, long-term relationships. So, when I think about structuring, um, one of the things I ask our CEOs to think about is that, you know, if you are going through a relationship, right? Um, would you like things to be well defined or kind of abstract? Right? So, for instance, if you move into a house or an apartment with somebody, would you like to know if you were to split up who owns the toaster and who owns the bed and what not?

Right? So, going back to financing, um, I think about that first deal you do, um, we use safes, right? SAFES is a great instrument, but it's also a very abstract instrument. It's got a lot of um undefined terms, right? So, the one term that I ask our CEOs to think about is don't accept a safe too early.

If you can, um make sure you invest in a prefer financing. This way, uh you really define who owns the toaster, who owns the pet, right? And who pays how much the rent and what happens when you split up. Now, SAFE is is a great instrument. It's fast.

It's cheap. But it all depends on how much money you want to raise. If it's a big round, in my mind, a big round is for seed is say three, four, $5 million. Go to prefer financing, right? You pay a little bit more.

It's a little bit more painful up front, but in the long run, you have a better defined relationship that wouldn't cause friction later.

And Saxam, I see you nodding. Are you in agreement? I'd love to hear what you think about this.

Yeah. So we actually went through quite a different structure overall in the sense we had a lot of moving parts in terms of how our organization is structured as a whole. Um and I completely agree with what you said. It's it's really important for you to kind of have things defined and I think I think we we you know initially it was like you know wherever you get money from take it

right

go forward scale yourself double down on your growth but eventually you realize how important it is for you to structure everything as properly as possible and in our case we are operating at the intersection of AI and web3 right so we have a conventional business which is more on data management side where we are crowdsourcing these custom AI solutions from a community of like 40,000 developers but at the same time we have uh we we basically got a license to bring AI assets on chain and that's how we're protecting IP and as soon as you have some sort of a web3 component attached to it even if you're using that as uh a technology that supplements your business operations that raises eyebrows with some investors. So for us it was very important to kind of you know have an AI operating entity that is structured wherever we are operating. So we have one in the US, we have one here in ADGM and one in Japan. But at the same time we have a foundation which is ownerless which is not for profofit which was basically here uh you know one of the first of its kinds to be uh incorporated here in ADGM that handles everything that has to do with the onchain stuff. And now that we're kind of going on into a new chapter where we are co-developing the um AI data center in Japan which is mostly going to be powered by green energy that is something that requires serious capital.

You know it's a 500 megawatt project and that probably requires investments north of a billion dollars. So in that case it's not something that we can structure within the company itself. It goes more into the project financing structure where we are, you know, working with either the Japan government or sovereign wealth funds that are looking to kind of build these data centers in different geographies or even these big tech giants that need these sort of computational resources to diversify where the uh where their AI models are running. So, it's very easy to kind of go ahead and raise in different formats. But one thing that I'd advise to anyone who's looking at let's say crowdfunding or raising through tokens or um you know having these uh tokenized equities in place is just make sure that you have your future sort of planned out in terms of how you want to structure that and kind of keep that in place so that it's easier for you to scale when you need to.

If I may just add something to that and I really love the fact that uh you mentioned it as dating in the early days because this is

dating right I assume there see

but the interesting part is we actually use that terminology internally um sometimes to explain stuff to founders and friends of ours because and I'm going to use this kind of in a funny way but it's very important who you go in bed with right and so you want to make sure and you know us being uh investors but also first being founders beforehand, but really understand the importance of having a good partner, right? You need to make sure that you can rely on them in tough times and uh it's someone that you know could help you out if need be. But at the same time, when things are going very well, you can go very aggressive, right? And so something that I've seen for example in the way we've structured some of our first deals is um hey, how could we build for a brighter future but protect the downside, right? And uh we want to be with people that we relate to and understand on a personal level as well.

So I think this is very crucial when you think about your first rounds who you go in bed with.

And if we move on to the founders push to scale obviously with scale comes pressure with pressure come mistakes. Uh Sakam, I'm going to go back to you for a second. You've scaled across Japan, Abu Dhabi, now the US. Congratulations by the way. What assumptions did you make about scaling that were completely wrong?

So, one of the very first things that you realize whenever you're moving across a new geography is that it's never a copy paste exercise. You know, it's you're practically reinventing the company because there are differences in the way that you know the culture is, the priorities are and how business is done at every different place. So uh we made a couple of uh you know like it was the first time expanding across borders. We were first in Japan, we moved here and now we're moving in the US. And you see a lot of these differences because the like in Japan you take time to build relationships.

You network with the people that are in that sort of an position. You build that trust over time. You show up and it takes a lot of time to actually close a deal. And it's very interesting because in the US it's like you can have a call with someone who's probably at an entry- level role within the company and he is the one who relays you directly to the CIO and you close the deal within you know two meetings. So the speed at which business happened was different but at the same time the retention is different as well.

So in Japan if you sign on a customer they stick with you for quite long in the US they find a slightly better product and they change completely. Uh so one of the advice that I have for anyone who is looking at global expansion is to think about a a couple of things. First immerse yourself in the geography that you want to be in. Uh you have to you know talk to people as much as you can. We have something that we call like a customer advisory board that are just you know people that fit our ICP and we just talk to them about what problems they're facing and we listen.

We actually don't sell them anything. We just listen to what problems they're having, how decisions are made in the organization and how we can go about that. And second, have a stellar a team in the geography that you're positioning yourself in. It's nearly the same as found uh you know like finding a founder. So the team that you find in order to kind of scale your operations in a new geography is really really important.

Enri scaling challenges that founders often overlook. Well, he's got some great points. Especially in different geographies, you do do business differently. But scaling once you reach scale, that means you do have found product market fit and people appreciate the product. So then it really boils down to ensuring that you maintain trust, trust of your community, trust of the customer, and that they really believe in your brand because especially today in this day and age with social media and everything else and all the haters out there and Tether's a is a great example of that.

there was so much FUD over the years towards Tether and they've always withstood the test of time and stood up to it. So that trust and and brand reputation when you scale is really important. Obviously that's after you ensure that the product is always evolving and it's high quality but to me trust is really important.

Can I quickly add something? So as an investor what we observe is that um sometimes scale happens. So for instance, I invested in Poly Market very early on in 2021. I could tell you at the time of investment, I didn't realize they were going to book $3 billion of presidential bid right before the election, right? That scale happened.

It's probably a market pivot. It's the same product. We thought we're investing in a sports betting company and now they do three billion a month because they, you know, the market found their product. So scale happens sometimes. Well, we are just about two minutes to go.

So, to close, I know we've cut out some questions here because all of your information was so interesting. Um, quick round, Mario. What part of your founder journey now shapes your investment decisions the most?

I would say it's a very good mix of the qualities that I would see successful founders be and I think we can all agree that there's commonalities, right? And so if I'm able to identify these as early as possible, I think that's a very good positive sign for me to know that it's going to be a successful business. But also, I want to stress this at Yolo Investments, we don't go as first check. We typically tend to be at the early growth of the company. We want to be able to see the business already have found to an extent the product market fit uh somewhat to early revenue generating, right?

And so that would give us very good comfort to be like now is the time to double down and with our network we can help you scale guys. So that kind of cross country or maybe cross product even sometimes is is something very important for us. So a lot of learnings um but it's going great so far.

Um Saksham someone who has operated and invested how do you recognize when a port when a portfolio is becoming too scattered? Um I I think uh typically when you're talking about investing and I think my you know fellow panelists can kind of comment better on that. It's you you do have to take some similar bets and I think you have to kind of especially when it comes to early stage investing you have to make sure that you're kind of diversifying a bit into the competition as well so that whichever one picks up you have some sort of a upside in it. But overall, I think one of the identifiers that I've seen particularly in early stage companies is how well you can adapt and how fast you can adapt. And that is one of the key differentiators that sets the front runners uh apart.

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Your final takeaway that you would want the audience to go home with?

One, I'm just glad you're all here leaning into the crypto space even though this is a finance conference. And the takeaway is that's that is the takeaway. Participate, engage, be in be active. And the best part about crypto in general is all of the tokens. So that speculation does make it fun, does make it exciting.

So just join the roller coaster and enjoy it. And Andy, one key bit of advice that every founder should start with when looking for investment,

uh, look for be missiondriven with your startup and look for a investment partner who is also missiondriven because at the end of the day, it's about a mission.

Thank you all so much. Thank you to the audience, to the organizing team, to everybody for their time and I hope everybody enjoys the rest of their day. Thank you.

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