Investing in Innovation: How Venture Will Change in 2024 | Vanessa Grellet, Kelly LeValley Hunt

welcome back everybody and as you can see I've got three lovely ladies with me on this panel and we're going to have some interesting discussions around Innovation today and I'm going to let dear friend over here Susie kick things off and uh unfortunately I'm not here for you but I'll let you have this on marks okay we're working hi everyone Welcome to our panel on investing in Innovation I'm Susie bat and I'm a board member here at eth Denver I'm also on the shifi board and an adviser to two startups and I Source deals so I I have a good idea of um what kind of Investments um are happening this year however this panel um includes Vanessa and Kelly who are old friends of mine and have years of experience in investing in startups and blockchain so their perspective um encompasses our space since 2016 yeah so I'll let them introduce themselves Vanessa hey everyone uh my name is Vanessa gay I'm a managing partner at Alay Ventures we're an early stage web 3 fund we focus on preed and seed and core infrastructure hi I'm Kelly La valy hunt I'm the founder of Mint gold dust which is an nft platform and I'm also the founder of Pearl River Venture Capital uh we're Angel Investors and we typically invest in the web 3 Community before we kick off with uh question questions I wanted to ask the audience um who in the audience is a founder or a founding member team member great and who in the audience is actively fundraising you should always be fundraising I wish we could get the to the the poll from the streamers because this the streaming audience we're streaming so there we go yeah so um would each of you answer the following questions um what's your fund size your stage of investment you mentioned but let's reiterate your average check size and where in this space do you play Fun Size is approximately 70 million um so it's right sides for smaller checks in early stage um we focus on precedent seeds and do a little bit of incubation and we also um focus on three areas the first one is core infrastructure the second one which is part of that is ZK technology and privacy and the third one the third bucket is financial services Kelly yeah I that's kind of a funny question because I'm a uh my own fund um I'm not backed by a group of people I don't accept uh money into my fund so it it really varies based on the year and we were kind of talking about the bare Market versus the bull market and um so my fund uh actually or my ability to invest in with larger checks into like the series a uh grows significantly in the bull market and Shrink significantly in the bare Market i t I tend to focus strictly on web 3 and from precede or Angel to all the way up to series a uh typically in the web 3 world so this audience and this conference is really bidle focused so I'd like to make sure our um my questions and your answers are tailored so that the takeaways can be utilized in um fundraising for startups and just overall advice in the space in 2024 so can you give us a macro um q1 perspective of what kind of deal flow you're seeing right now so we've seen with the growth of um sort of the late stage bucket uh we see earlier stage also get their valuations inflated um so we're back um so it's it's good and bad I would say um because it's always nice to the reasonable valuations and I think we're going to be back in the 2021 uh type of of of activity where deals are closed very quickly um there's a lot of fomo on them and uh but we're still at the end tail of the bare market so not every deal uh gets that there are certain areas that get more attenion U so ZK is one of them uh obviously staking reaking liquid staking in all its forms is also um high high on the attention list and of course AI and blockchain um so that's that's a bit froy right now yeah I I I have to agree um but I also see a lot of um companies that are building defi platforms right now uh with also AI somehow backed into it or uh nft platforms with AI backed into it so it's really interesting right now I'm trying to get like a footing of like this year 2024 of where I'm going to see the most uh deal flow or opportunities and it's so bizarre the last three months or four months I've just thought this is really strange I think this is one of the first times since I've been investing that I don't see a clear focus of of this community of the web3 community there's a lot of defi sci-fi uh CI um uh Ai and then there's like a mixture of all of that and whereas years pasted it was um definitely blockchain Solutions or protocol Solutions or um you know uh platforms for art or Etc so there were there were clear Lanes prior to now this year 2024 and the end of 2023 it was it's just like a mixed bag I I you know we were just talking earlier that in years past and we've been around for a while um we've had a narrative to hang our hat on whether it was icos nfts defi account abstraction and this your AI but we are seeing maybe a mange or like a mix of hybrid uh platforms protocols projects and maybe that's the Innovation yeah I think I think you have to go through that period of of kind of you know shake and bake kind like you know with like a you know digging for gold and like the the the gold stays on the top and then all the junk falls out I think you have to kind of go through that where you like you kind of it has to be a mixture until the cream of the crop Rises to the top and when I say cream of the crop I mean like the the teams with a clear structure uh of go to market uh a clear strategy of go to market and a clear um vision of their goal whether whatever Lane it's in or whatever mesh of a lane it's in um I think eventually maybe in the third quarter of this year we'll see a lot more of the cream of the crop and have a more defined look and I I think this is the first time I've actually seen just kind of a mixture of where you can't I mean there are a lot of AI uh focused company startups out there but I just don't see a clear Lane for AI just AI let's talk about innovation in terms of like teams and talent and what we call like layer zero which is like people are you seeing any evolution in teams or skill set from years passed when you first started investing how is the people Capital evolved or innovated yeah I think it's great we see a lot of second time third time Founders people who have been in the space and building in the space for a long time coming in with new ideas being able to put together teams very quickly you know find talent and that was that was harder in the previous cycles and uh we see a lot of web to uh talent coming in especially in the new ecosystems um likeu or or optos um where you know it's kind of closer to what they know um so I think it's super exciting uh we also see people from the trfi um trying to move over I think you know the the Bitcoin ETF is a huge Catalyst of of giving uh credibility to our space in in traditional finance and we'll see more of that with the uh ether ETF and and all that stuff so really exciting to see more and more uh experience in the space and more Focus also on delivering specific Solutions yeah I agree um in years past it was really difficult to find like a solidity developer uh so we started back in the day in 2017 uh block apps we started training um people to write code for solidity uh if they had a JavaScript background we could very easily recruit uh into like the the the teaching of solidity we're seeing now that if you are in the web 3 space you have some understanding of a solidity and I think that that makes a big difference uh now I see guys coming to me and they're like oh I used to run this defi platform and it's just like like ages ago though like two years ago so that's kind of nice because you see that there's re there are resources that are evolving and they're getting a lot of um they're getting a lot of incubation time to be able to develop their skills to where they can actually build a startup or uh kick off one or lead a team in in a startup let's move on and talk about innov in maybe geographic location um Electric Capital produces developer report every year and um one metric which was surprising for me was that um new developers um with new Innovative uh projects were only 27% were coming out of North America um which me lends to like where is the sort of innovation or or original source code um happening and Latin America and Central Asia and Europe took the big pizza pie of it um what are you seeing in those Geographic areas so I focus only on North America and Europe um we'll speak of Europe um so I think it's it's not a question of develop velers it's a question of regional markets even though we think a lot of the projects are Global and the attention that the projects can get globally um so we see great talent in Europe uh less good to Market and Market access I would say so it depends on what uh where you focus uh whether it's defi or core protocols but I I see a I still see a lot of innovation in North America um just because of the Firepower in the universities and this huge reach that they have Capital um so it's not about the number of developers it's about the quality of the projects that um come out of each region and its capacity to go Global and I think that Mires a little bit the web to in that sense that it's just harder to scale in Europe than when you have a big Market immediately in in the US yeah I I agree uh my team for Mint gold dust they're based in Ghana Rio uh Brazil and Mexico City and I have a couple of guys um in California but for the most part I'm very decentralized with my developers I do see uh I see that developers are more nomadic now as you know in in comparison to like 201617 uh they're a lot more nomadic it's it after 2020 it kind of developed into it's okay to be a decentralized developer or coder uh I see a lot of um startups coming out of North America or they've moved to North America uh they moved their headquarters to North America there's a lot of funding on the west coast I mean the majority of the funding for startups in the world is coming from like the West coast of the United States and um which it's just kind of funny because you know the the European startups are very uh risk averse and they're much further along than the startups that you see in North America so they have more employees but it's really really risky to do business in Europe it's uh it's a lot more expensive from what I've seen and in North America you can kind of spin up a startup and try something out and get funding for it from the West Coast is a lot easier than you can see in other countries and the and outside of Europe and the US I think funding maybe with the exception of Asia there are some countries in Asia where you can get a lot of funding but majority of funding comes from the US from what I've seen and it's a lot more difficult to do a startup in Europe so it's kind of a nice little area to to build a startup in the US because you have the funds you have low cost of resources and you have you're you're a lot more agile in the US I think it's a lot less risky to to try a startup out in the US yeah the funding issue is a big one and I had never worked in Europe before but I've been doing that for the past year and a half and the risk appetite of early stage investors is is very high low why do you think there is that cultural difference what is I think um so what I've learned is that the VC's in Europe are I would say 80 90% Financial VCS that they've never operated a company so they don't really are they're not comfortable until they have metrics for you know the startups and you only get metrics after a certain amount of time and money spent on the startup so sort of the preedee um area is very difficult for them uh whereas in the US you know 90 % of the VCS are ex startup Founders or startup employees so they understand the struggles of coming in early and the risk and how to help also the companies you know that are engaging in this this journey I think bureaucracy in Europe also plays a lot into that uh but it's kind of funny because I I lived in um I lived outside the United States for 25 years um full disclosure so I um I I love the us but there is something to say about a more socially driven or community-driven Society or Community um and I think that I always tell people that live in European countries like Germany or the Netherlands like why don't you do a startup like you have like a system built around you a government that supports you in being a human uh I always um I lived in Germany for five four and a half years and then the UK for 12 years I lived in Spain for a little bit um I'm a big supporter of living in in Europe but the access to Startup capital is a like very very difficult to find that so a lot of the times their headquarters get shifted over to Delaware and they move over to New York or California or even Texas Miami uh to to to have access to that funding in the US let's shift and talk about innovation in funding um and what different variations of deal structures oh we have Rogue we have a rogue participant happy to have you last panel is yeah e for security cut me up so okay what yeah wait they couldn't let you on the long story but yeah oh so what's your name introduce yourself yeah I'm Anie from dragonfly we oh great nice to meet you welcome yeah no thanks um I'm so happy that there's we're not an all female group here I I was kind of like thinking we were discriminating against the the the limited amount of men in this event so welcome yeah I feel that well introduce yourself yeah so I'm Annie um I'm a partner at dragonfly we manage a few billion in crypto but um yeah I would say uh we started a few years ago kind of investing at the precipice of l1's Defi and all of that fun stuff but I think now as you look to the Future Between East and West we have an office in Singapore and in New York um I think we're very excited by things that the marriage of Adams and bits and I think it's uh that combination I think keeps crypto like quite exciting so Securities after you or what do we need to hide you out like hide behind the chair or something if security comes after you what's the story there know I mean um we could talk about it after I guess welcome welcome so we were we were discussing um innovation in people and human capital innovation in perhaps projects coming from different Geographic locations and now we're talking about Innovation and funding and like different ways to for projects to be funded um would you like to add anything that yeah I would say um a decade ago you had an exposion of venture right cuz I think like money was cheap everyone was doing Venture but then now the industry split uh into what we like to call like minnows and sharks so there's like tiny funds that are really good at like some parts could be crypto could be like Venture Capital uh could be American dynamism or whatever like the flavor dour is and you have the large funds many of whom you know charge huge fees and they're kind of making all this money off management fees and I guess they don't have to invest that much right cuz they can make money in all these sorts of obsequious ways uh I don't think people are really ready for that because like venture has been overallocated for a very long time and innovation has been relegated to a very few areas in the American economy per se uh we operate kind of globally and so we see it as a comparison between like say here in Asia 20% of every American dollar goes into fintech which are like big Banks and you know they're spent bailing out these Banks or whatever in Asia and African India totally different right like the average agent India I think is like 21 in uh China it's 49 in America it's like 35 and so I think that gives you a sense of like where we see I guess and like I guess where Venture itself will probably change in the future so so as I mentioned in the beginning of our panel our the audience here at eth Denver this is our seventh year running has always been focused on bidding um when you have a startup looking for preed um investing um tell me what the Cadence and dialogue is when you begin like what can our audience take away from our panel um as uh advice or what to expect when those conversations start to help begin their fundraising process well I would say the three things that we look for but I guess that's probably the case with everyone here is Team market and distribution um there's that line which is that firsttime Founders focus on products second time Founders focus on distribution and I think like that's very true because uh crypto in some sense is a unit of globalization and if you can't distribute your product to even a few people that's quite a bad sign I think right like given that Capital now moves at the speed of thought if you can't make people like your Tweet or retweet you have like no business being in business I guess right like business is actually way harder than yeah I think when I look at startups I tend to focus on the founders um what they had done before and what their their skill set are uh in a startup you also to think about like maybe somebody has to take the the the concept of sales into consideration not just somebody that does coding and maybe somebody that uh does the books but sales is super super important how do you go to market and I'm assuming that's what distribution uh from your perspective is and like how do you structure yourself like who's your target market and how are you going to get there how are you going to reach these people and because it doesn't sell it itself you know the whole idea of you know in the early years of eth Denver was like build it and they will come well that's great for a a community Gathering or a conference but it doesn't always happen that way with code so just because you can code something doesn't mean it's going to get into the hands of people that actually want to pay for it yeah what we look in the team is um sort of a complimentary Team U the idea that you're able to build a team and that's something you want to do um um and so I think that's that's really our number one criteria whether your idea has a good potential product Market fit or Tech Market fit and has real Innovation um and also I think what you need to demonstrate when you speak to VCS is that you know you're able to take feedback you're able to Pivot we're you know you're building a a long-term relationship when when you get funding or at least with your your lead investor um you want to have great relationship for them for the next 5 years right so that that's a really a relationship building of trust and that you can work together we're at the end of q1 of this year and hopefully an uptick in the market what are you um excited for um is there a particular Cadence in your in your deployment of Capital um that is has anything to do with I don't know timing or is there for for startups who are raising does a quarter quarter to quarter have any differentiation in in in their raise or is it Market driven or like how would that I'm just trying to think like how is there any advice to give them and when to raise yeah I guess for us I mean probably the case for you guys too but uh like we have a general sense of deployment over the life cycle of our fund so it's not like oh it's Q3 sorry guys like no we can't invest in you um I would say what's a lot more important is probably understanding The Meta for a lot of companies like things in crypto because fundamentally it is capital right I mean defi itself is a coalesence of different segmentations of capital that you're trying to like Round Up in one place in some sense but I would say a lot of people kind of miss the meta and if you do miss it it becomes very hard to walk it back so the meta might be like the theme of the moment right not that people should be investing thematically I know we don't but like there's times where you might miss the boat and that doesn't have to do anything with like the time on a calendar right it's just like where people's minds are at it's like AI right now right correct and uh a lot of people will be focusing on that whether that's the right thing or wrong thing time will tell but historically focusing on themes has been quite difficult right like I think like you can look to the green bubble of like the 2000s and the only successful company of that period was Tesla a car company right so I think the same is true of crypto where uh typically if you look in places where other people look at uh it doesn't go that well so yeah I I tend to only focus on instead of historical investment structures or Trends because the web 3 world is so centered around the bit coin price I mean the market is you know if it's you're in a you're going into a bare Market you better be closing your round and you better be closing more than you actually need uh because you're going into a bare market and I've had a couple of uh companies that I invested in um go out of business in a bare market and the last bare Market was horrible it was like really painful much more painful than this bare Market I don't even know if we're still in a bar market right now right before the half having which is unbelievable bitcoin's going to hit 67,000 before the having that's never happened before so I'm kind of excited about what's to come but I do know that if you're in a if you're going into a bare Market you should look definitely look at as a startup uh founder in the web three space definitely look at understand where when the having is and over and what that period of time is so that you can plan for that bare Market because it is really going to affect your sales it's really going to affect your raises it's really going to affect um your resources in a bare Market there's so many developers available to work with you in a bull market forget about it and their price prices are very very high so you have to kind of plan for that over over a longer period of time uh not just you know don't just think about the raise think about the timing of the raise it's so valuable to plan for that in the web 3 space and I think on the investment side there's really a herd mentality and a lot of deals are driven by fomo or by you know specific themes that a few gather around so you know when you're building something and let's say the life cycle you get an investment and then you issue a token 3 years later Etc you have to think of projects that are not the ones that are being built right now or launching a token now but something in the future and innovation in the future my um one of my uh Partners incubated bit tensor a few years ago who was thinking about the craziness of AI that's going on right now and it was totally under the radar for years so you really need to think of where is the market going what are the big trends what you know what cycle you're going to be in obviously to launch your token and you know I think we can have some predictive you know data around uh the Bitcoin haling Etc and the the previous Market Cycles it doesn't mean that it's going to repeat itself but you can you can see the trend so also when you're fundraising think about how long it's going to take to build your protocol uh when is your what's your strategy and go to market based on that and also I think really important what do you need from your investors you need liquidity do you need um you know advice on building teams do you need go to market um um there's different types of projects that really need different things um so you need to make sure that you make those ass to the the funders well we have just a few seconds left speed round um one piece of advice for the entrepreneurs in the audience the biders in the audience one piece of advice you'd give them right now uh for me it would be don't take advice I've never taken advice and every time I have it's uh ruined my life in some sense so yeah just uh well I think people fundamentally know what they want to do deep down right and I think one perk about going to a lot of these things like eth vver is to be Salan in your originality right I mean it's like the job of being in a crowd is to I think keep finding yourself in the rings of one insane I think that was Marcus Aus which I think is like especially true in things like this right where you always want to be original and underdetermined when everyone else is overdetermined so ironic than well this is going to be really ironic I would say to Startup Founders to listen more and so not to be not to be uh controversial but I have a hard time you know I've been investing and working in software for years many years and um also I see a lot of like you know every single bare Market there's a startup that has this really amazing idea but you know they have the same idea that there was like you know four years or five years before they just weren't there in the web 3 Market to see it so listen more take those nuggets from those advisors and and apply it as much as you possibly can but apply it in your own way I would say uh no matter how big your idea is it's not big enough so always think how you can push yourself more how you can challenge yourself more and how you can maybe take advice from others but you know we are naturally limited by ourselves and so the more people you have around you and the more advice you have um it is it is something that you want to look out for but always think maybe you know there's something more great and you can innovate more then Susie you have to give your advice as well I mean you have to like tell us your thoughts as well I want to hear your oh my God Kelly not to put you on um surround yourselves with um surround yourselves with the energy um that you want to give and receive that reciprocate like know your boundaries and know um when to draw them yeah I think but thank you all for your thoughts and your friendship and good luck to everyone out there thanks for coming