Crypto Investors Roundtable: Latest Outlook, Trends, and Narratives - TOKEN2049 London 2022

good morning everyone welcome to the crypto investor Round Table we've got 40 minutes today to discuss the narrative and outlooks and we're going to leave 10 minutes at the end for you all to ask your questions so please do get those ready I'm joined by a fantastic panel of veterans in the crypto native investing space if you want to introduce yourselves uh my name is Niraj I'm a GP at polychain where I focus on early stage crypto and liquid investing we're a fun sort of globally distributed across the US Europe and Asia and we have a strong focus on investing in companies that help accelerate the global adoption of the space and I have a strong focus on on infrastructure investing especially before polychain I was an infrastructure and sort of privacy researcher at UIUC I did that for a number of years and now focus on commercializing that sort of Technology with polychain great height thanks everybody for joining us this this morning and including us on the panel Diana um so indeed my name is Richard Muirhead uh I'm uh the about called co-founding managing partner at uh fabric my background is that um I was really terrible at computer programming um but really excited about what they could do um and built a couple of different software companies one essentially in kind of web or even internet 1.0 around the network space I had an IPO with that helped axle partner set up in Europe and then built a uh a company that was in the whole kind of cloud space and got super inspired by co-selling with Ben Horowitz uh if any of you've read the book The hard thing about hard things anybody read that book in this audience who knows who Ben Horowitz is yeah from a16z Andrews and Horowitz good to start to understand the the crowd um and um got excited about the idea of innovating within the space of venture capital and and finding out what was the next you know big wave of technology to kind of be part of and that led me into kind of web 3 and building uh fabric Ventures and I think we'd all agree uh the wave is certainly an exciting one to Surf especially in the last 24 hours [Music] that for sure so after a really phenomenal 2021 for crypto VC we've actually seen a downtrend since May and the Terra collapse and October we saw continued deceleration and now we have last night with some unexpected news FTX uh obviously facing some liquidity issues and binance coming in to help I'd love to hear your thoughts on that and the potential effects for the market do you want to go yeah I'm happy to start yeah so yeah I I think it you know maybe wasn't the most surprising given ftxs and alameda's sort of historical relationship with the market um you know I think it's just important to say it's obviously very bad for the space especially for users um our you know net wealth is sort of lower as a result and and sort of net confidence the space is lower I do think it highlights an important systemic risk with C5 which is important to think about we've not only seen it with FTX Alameda but four or five very large crypto entities over the past six months in addition to dozens of others um so I think we'll we'll be interesting to see what actually happens with the deal if it ends up going through or not but I think it is telling us some very important lessons and really testing the the sort of solvency of these large especially C5 entities in the space yeah so um I think um it's always good at these points to kind of uh remember um that you've got to keep hope and actually generally speaking um uh you know Human animals are pretty good at that in fact sometimes too good like we get rap you know uh carried away with our optism optimism a kind of some irrational exuberance um and as we're kind of briefly touching upon sort of Backstage you can we can lose um a kind of an insight into the second and third order effects of our our actions and I think that's effectively kind of what has happened mostly in the context of these big uh and I'll use the euphemism that there are to use which is sort of systemic issues within CFI I think they're also known as people um and um and I think um mostly it's to do with that it's very hard to understand you know complex systems and you know an exponential change and second and third effects as I said um occasionally of course that starts to blur into fraud or negligence and I think there are out there such cases and that's you know unfortunate but I think my takeaway from that is definitely that actually we want for example more defying rather than less it's not D5 that is the the issue here um at all I think also you know we we need to retain that hope but we also need to take a really you know hard look in the mirror um at what we can learn and learn from this it's an opportunity to obviously make sure we've got the uh the runway to survive I mean the first order of business in a downturn is to make sure that you make it through it and you're not one of the ones who blow up or run out of steam or you know or run out of you know of cash indeed um but we're going to see more of this as as uh you know the infamous Buffett or famous Buffett says when you know when the tide goes out you know you find out who has got their pants on and who has not and I think this is you know just going to continue for a little while longer so I think we should be mindful of that when we're planning our businesses okay so bear Market's a time for Market consolidation we might be expecting more of that but they're also a great time for building so I'd love to hear what areas of innovation you guys are focusing on in the market right now where you're seeing deals happen yeah I'll kick off give the European perspective so you don't have to say first every time and we can bounce back but um I mean I guess I first like to say um I mean it's it's stated a lot that kind of um you know great Innovations great companies get started in the kind of the winter in the bear markets and I think statistically it's basically very even and so the point is don't be put off for the fact that things are tough um and I think even throughout the cycles and there is something about scarcity and hardship that makes you you know think hard about you know how you prioritize and that can actually often be a blessing so you know take the the kind of Silver Linings from the clouds to do that and I also want to say that you know we're sitting here in Europe um uh a kind of subtext to my personal you know Mission or objective of the years has been to show that the opportunity for entrepreneurs you know using technology is something that is is universal you know around the around the world and that think we're seeing this steadily in lots of different ways not just in web 3 but on a sort of secular basis we're seeing more and more Innovation popping up all around not just Europe but obviously across Asia and latam and so forth and I think it's not just exciting but super important for the stability of the of the planet so I just want to say that's a moment so you know please if you're out there and think you're building going do do that um and there's an opportunity in Europe because there's a bit of an Arbitrage you know this is still a less competitive market for Venture firms trying to get into Investments than than other parts of the world um so the most important thing for you as a as a Founder is not to get the best possible valuation it's to get funded and to make it through this next period And so that isn't that that speaks of an opportunity for everybody and so maybe to and we'll go into it and further to talk about specific areas um you know infrastructure and and then we can sort of maybe into some of the details about things like cross chain and you know composition and portability all that stuff I think we'll continue to attract a lot of investment because we're still so early you know like we've seen such a shift from kind of it's just Bitcoin to oh my gosh actually we need touring completeness and a generalized smart contract platform like ethereum and oh gosh actually we can have contenders to ethereum too like now we have hundreds of layer one chains and a whole contemplation of what that that kind of knitted together kind of Mosaic of um of L ones will look like and what the dapps on on it will look like and so that's a whole new realm of infrastructure investment and so the other areas that we see people working around is um definitely gaming so this is not surprising because we've seen kind of game economies take off we've seen people then look take hard looks at how you know play to earn economies can be made more stable um you know how you don't hyperinflate or or hit the skids uh you know that's really interesting because it's it's deep you know it's computer science it's deep you know economics it's like um and I see people building super complex models and experimenting at high speed I think that's exciting people doing but also the usability side of of gaming um and discoverability how do I make it totally uh inconsequential to get a wallet to operate within a game how do I how do I find different games to operate in and how do I operate between games so all exciting areas and maybe we'll come back to it to give you a chance fast the bats on a little bit but um I think for a long time we've been thinking about the institutions are going to come and kind of validate the web 3 space as being the financial ones and Mike novograts from Galaxy uh and their uh their an LP of ours as well as the kind of collaborator and Deals um you know is fond of talking about the herd of institutional investors coming and I think we're only kind of like one or two bulls into a herd of 100 yeah and it's still super early and um I I think that actually though the institutions that might come first are actually the media institutions and not the financial ones because it's easier for them to do that and I think that the the the the the the wall of um uh uh possible Innovation or the kind of barriers of discontent around social media and the possible disruption to sports media entertainment that has happened by you know this kind of speculative surge around nfts is a real thing and and I see a lot of sort of important activity around in that space so it supports me doing entertainment but also social media in a decentralized format as the ultimate form of distribution for that yeah that was a great response to try to supplement it as best as I can I think to Richard's point a bit earlier I think something that's important to think about is is also sort of utilize the lessons that have been learned in startups before obviously crypto provides a lot of New Primitives and tools for developers to build on but it doesn't change the fundamental gravity of building a startup and building something new I think what I'm really excited about is finding sort of new novel Concepts things that didn't exist in web 2 before and I often look to new sorts of developments in cryptography new things that happen in layer ones new distribution models those are interesting ways to find where you can have edges in your product and go and actually get a new set of users I think seeing companies like polygon arbitrum Etc start to develop these really amazing Partnerships means that companies are interested in using the Crypt you know in using crypto and web3 stuff so that that's sort of your challenges you need to make sure your product or company is good enough to go get those customers I think where we're at from a sort of a market perspective is that constraints certainly does breed new creativity and I think this will be a good sort of market and interesting sort of way to see if your product can can sort of outshine what exists before it's very very easy to get funding in bull market very hard to get funding in a bear Market but if you can get it that means you've passed sort of the chasm of something interesting so just I think always keep that top of mind when thinking about investing and I try to keep that in mind when thinking about Founders to invest into foreign take the ping pong ball back again if on that one because I think um it is a super important Point again uh like um if I am in any sense talking to any Founders out there which is you know for me the most important audience is it's a pickup on niraj's point that you know go go and try and find stuff that just is not possible in web 2. go and build stuff that web3 now makes possible um and for and for us or for me I always conceptualize the kind of superpower of web3 as this ability to you know coordinate the few and then the many to you know take action around quite complex tasks and importantly to contemplate sharing activities and data that they would never share before because and this is not fully baked yet but that you know cryptography is at the heart of web3 ecosystems but specifically zero knowledge proofs you know holds out the kind of potential for you know privacy preservation at scale in a way that we've never seen before and so whether you're talking about um you know incentivizing people to contribute different bits of narrative to to games in return for some kind of upside or maybe it's a piece of their own life as in terms of not some upside within the game economy or whether it's and we're looking at some of those or whether it's you know incentivizing everybody to give a little bit up of their kind of personal data you know you know there's lots of data about what we're doing when we're getting up you know what our heart rate is like you know what our blood sugar is ETC et cetera on a continuous basis comfortable uh that you're giving up to a network and for the collective good and not you know even to Apple who's probably got the best reputation in terms of privacy out there um I think you know the opportunity throughout I'm looking I'm not a health expert and that's one of our kind of interesting challenges is to how to bridge into these different areas and now it's getting it's getting serious but you know through the whole life cycle of drug development and treatment of illness and whatever there's clearly you know data is what it's all about and so and then you can see incredible studies where you you lift a data Cent from like a few hundred points to a couple of thousand points and you create like a kind of from a you know 20 efficacy to an 80 efficacy in in the in whatever um treatment you're delivering so it's really really exciting so I think look for the ways that super repair can be used in web 3 that just wasn't possible in web 2 and and I think you know hopefully we get funded Maybe by us yeah one quick point I want to add on on top of that that is a great a great sort of framing is that I think when you think about markets as a as a whole think about it in terms of crypto you can think about in terms of the internet oil all these historical boom and bus Cycles the earlier you are in the market often the easier or less things you need to do to become a successful successful company or product simple example if you were you know looking for oil a hundred years ago very easy to go you know stick some stuff in the ground and extract oil today you can't do that today you need highly specialized fracking Machinery very very tough market and I think where we are in cryptos it's still relatively early you know 2017 you could just launch a coin and with the right product right near narrative you could be very successful today trying to launch a simple Dex on ethereum probably won't be successful unless you have a very enticing interesting go to market distribution strategy so I think to the point about infrastructure and looking for these new markets look for things that offer these new tools and capabilities because if you can be early in the market you have a greater chance of success than if you wait four or five years and so you're sort of in some ways making a bet on user behavior and how technology will evolve fantastic um now let's talk about like the land Escape of funds of funds themselves um Richard you've been in the space very long time we met back in 2014 when the conferences were just Bitcoin conferences um poly Jane obviously as well one of the longest standing funds in the space as crypto native investors with the influx of new investors coming into the space how do you share those Lessons Learned and and how are you seeing this landscape involved that's an example of what's important web free by the way it's very collaborative um so I I think to think about Investors and maybe what's relevant for people in the room is especially how to pick your your investor how to pick your VC I think I think that there's a lot of really bad advice online often when they write lists of best investors and things like that it quite often you know biases towards who's public who's active online and I think that's a component but I think there's other components that are more interesting of the types of VCS I think what's most important is a strategic help no VC will ever make a company great I think that's a really important point it's the founder and makes the company great a VC can help you shortcut it they can help you get great customer intros or tell you to skip maybe a mistake they've seen with other companies but no VC will ever make the company great so it's it's a very important decision but it's not one that you'll you know live or die on I I think what's important is to have a really strong working relationship and personal relationship so much of a VC's role is also just emotional support and guidance as the company is being built they've worked on tens or hundreds of companies I work with over 20 or 30 companies on on a weekly or bi-weekly basis so that's an important component for me and in thinking about how to construct around or how to pick investors I think thinking about the Strategic sort of specific value they can give you even from an advice perspective is important can they help get you interesting customer intros can they help you hire although I think it's you know that one's maybe not as important as it used to be and I think thinking about where a VC fits into your company is very important and and what stage it comes into too having a really big VC come in too early is maybe a mistake often and often having you know investors web 2 investors that maybe are are kind of wishy-washy in the space May often be bad if you start the company and two years later they stop answering your emails so I guess I maybe took that question more as uh you know how to pick investors but I think also there's some interesting stuff just in the evolution of Venture as well yeah yeah no that makes sense into you know um yeah start off by um well you know I mentioned earlier one of the things that got me excited to get into space was to be able to innovate and and maybe I'll come to that in a second about how I think web3 investing is fundamentally different actually from you know web to investing I'm not just talking up our book but I really think it is we'll come to that we whether you want to call it vc3 or we call it like Venture contributor versus venture capitalist and so we're going to expand on that but going in a sense it's going to reinforces the kind of the essentials the basics you know you first of all you should I totally you should choose the investor that is right for the stage at which your company is at so you're trying to skip around a bit it doesn't make sense secondly choose the ones who knows the most most about your your space thirdly try and choose the individual you're going to work with and and be really um thoughtful about you know whether this is going to be a firm that's going to be there for the long run so whether it's like tourists from the top like whatever think of a kind of a web 2 or web one example like you know a Deutsche Bank or Morgan Stanley who kind of drifts into kind of um Venture investing or or whether it's like a new firm that hasn't got some kind of longevity proven out to it it can be critical I suffer from this horribly in my second company had an amazing individual Michael Chow for now investing out of child from Ventures great great investor um but he was at Apex and then they decided Apex funders they decided not to do Venture investing anymore and so the whole team crumbled and he left and whatever you know this is your this is you know whether it's your first second or third act it's probably part of your life's work whatever you're building so choose somebody that you want to partner with for that and a firmly set up for that also um and if if I made quickly on the Innovation side side of things um I think um you know there was this I I I've been pitching now to raise funds for our fund for quite a while now and there was this a period when you know it was like it was like well you can only invest in Bitcoin so kind of what could you possibly be doing you're just insane and then and and and that was the backseat of 2013-14 and then obviously the ethereum ecosystem came along and people like oh yeah that makes a little bit more sense but the general sense was that this is super nichy and super volatile is a really enough deal flow for a fun little or many funds around the world and there was probably a day um uh about one or two years ago when when it was just the right sort of size to focus on but now it's it's I think expanded into a whole parallel universe that we can address with with web3 and there's a lot to cover and so I think you've got to range everywhere from understanding pretty deep Tech and cryptography into the infrastructural level ZK you know proves all the way through to kind of cross-chain architectures but then also range out to to understanding game mechanics and onboarding of you know Gamers through to the the regulatory issues around you know that are balkanized in the context of health and and so so there's a huge range to cover and as I touched upon earlier I I think the time although to reinforce again one of your points Niraj probably your number one point in your Manifesto for being a good VC is to not [ __ ] it up from the boardroom it's like you know don't be like a backseat driver that's the first thing you've got to do because you've got to trust in the founders you're like really implicitly at the same time there is the potential here for really contributing because you can be running nodes in the network you can be contributing content you can be you know getting uh creating community and bringing that on board to kind of a new you know gaming environment whatever it is and I and so and you can be participating in the very open research that's that's taking place around kind of the cutting and Edge infrastructure so there's a lot of things to contribute to that there wasn't before and so at the end of the day you end up covering all of that you'll go with the Deep Tech the different applications be a good investor and stand back but you've also got to be kind of involved where we're appropriate and I think that's actually quite a new model and not there's not only one model probably but there's quite a new set of models for for investing in in web3 that's our thesis at least yeah I would absolutely agree with you there in terms of like the amount of innovation that's happening in the space it obviously also attracts crypto native VCS who also want to be part of that building I mean I know for for us at 1kx that can be building sub-dials definitely on the research side as well hosting conferences hackathons and really like actively contributing to this community building for the project which is inherent to the nature of web3 itself until we get ease and up by Dows themselves which I don't really think about it but I think they're part of the future for sure of the BC model for sure yeah absolutely are are you seeing that as well all right is that to me yeah it's you um a little bit I think um the most interesting sort of Dao as VC Concepts have been the the anonymous funds like the e-girl capital type of model I think is quite interesting because both I think the anonymous part is super cool but then the the Dow part itself investing into companies is quite interesting I still think that there's some open Kinks that need to be worked out you know from a legal docs perspective you know is there still a company entity attached the Dow but no I think Dao's as investing entities is you know one use case is quite exciting and we're pretty you know we're hoping to see see more of that it's still quite early but definitely like it yeah I mean yeah it was we're definitely should we say well to say tritly whatever long long Dows in fact it was for me I kind of stumbled into well because earlier but then mid 2013 it was when I read about the concept of decentralized autonomous organizations that for me it really like okay my God this is like incredibly big and and and it is I mean solving governance in a new way that is more Equitable more inclusive and means that you can tap into all of the talent that you would never hire into a company is you know by definition incredibly powerful but also by definition incredibly hard to get right um we have a kind of uh one of our advisors and a venture scouter who was originally part of the core team at fabric anesthesia below um who are building Nation three and so they're trying to invest in um essentially technologies that can help transform the nation-state so not just vc3 but Nation three and you know perhaps now more than ever we want to be innovating see if we can find better forms of governance at that level but without getting that ambitious which ultimately I also agree with the wood support I think that um you know better ways we can attract more Talent better Talent into expert networks into Angel investment clubs effectively or whatever when you have these open transparent you know sort of and codified structures of governance and and and I think there's a lot of potential for collaborating um I mean we're not going to kind of to emphasize I think even in those Dow structures there's a lot you don't really want to have kind of decision by a committee of 150 people because you get naturally you tend to get a reversion to the mean and kind of in that and I believe the statistics will tell you that normally there's actually quite a lot of contention around the most exciting opportunities and it's normally about the conviction of one or two or three individuals within a smaller in a set of a small firm that lead to the biggest outcomes so you don't want to have that the decision making but you can have everyone participate still and be include included within the Syndicate Center in a powerful way and being like a super a sort of angel investor um alongside Venture firms and so forth which I think is part of one of the roles they can take great so we have time now to open it up to the audience um 10 minutes for questions um I think there'll be someone coming around with a mic because we have one over here so basically this cycle had the law of criticism regarding predatory tokenomics especially in author ones like Solana we're almost like low float high fdv is is a meme now what's your thought on how a project can raise capital and have a decent fare distribution the question that was about uh tokenomics models and how to have a shared distribution of capital it's like how how to raise capital and and have a fair distribution with your um your community pretty much okay distribution to the community when you're raising Capital through your tokenomics models any inside repeat it one more time so um with the token some tokenomics models have uh experienced some criticisms and he's just wondering if there's any advice around how to fairly create those types of models in a way that's fair to the community of any advice around the tokenomics designs yeah maybe take a stab at it yeah yeah um I think I think defining what community means is a very difficult problem I think you know to give you a sort of historical sense of what has happened from a financing perspective in crypto um really 20s you know early 2000s when Bitcoin first started that the way that it got distributed was through Mining and a lot of people view it to be fair because it was open access anyone could turn on a computer set up a mining rig and mine Bitcoin and as we've seen that change over time and also we see a lot of new types of tokens that are proof of stake based or tokens that you know don't have a consensus component but distributed token distribution is one of the most difficult problems out there I think the uh you know recent context of seeing how Community tokens have become a thing really stemmed from the first private token sales and around 2016-2017 when the SEC started providing a lot of guidance that a lot of these things were not compliant a lot of token sales move to being Private Sales with VCS and I think this did a bad disservice because icos allowed anyone in the world especially uncapped icos allowed anyone to get access to a token before it launched I think that was a great token mechanism and I'm kind of sad it's it's hard to do especially from a regulatory perspective I think the the sort of community token allocation we've seen today has become very popular you know we see often half of the tokens are given away to a community but again I would I would ask the question what actually is is a community in some ways VCS are a community too or part of the community token allocation um there are a lot of downsides to giving away half of the tokens to the community they're not locked up they're Anonymous they often aren't there providing real value to the token and often they can be sort of rent extractors so in some ways I think we need to think really hard about what that actually means rather than just giving away 50 to an amorphous Community which may just be a couple of whales I know of several token communities where the community portion was just a several large investors so that's my gen General View and token economics I think it's good and interesting to see more Innovative models with you know air drops and Venture contributions seeing a lot of defy dials start to do some things like this and and a couple of layer one ecosystems um you know especially a sort of ethereum Cosmos and a few others we've seen some very interesting models of multiple teams working on a protocol so I'm excited to see more innovation in that space I don't think it's moved quite as fast as I would have liked but that's my uh you know that's something that we have to work on well said um I'll just try and build on a couple of points I mean one is that I saw a narrative that like you know returning to the the pure model of the the kind of open Ico was actually maybe the kind of fairest and uh best way of doing things if we can get over the some of the regulatory questions and maybe you know we progressively are um I think at the heart of this is is the fact that you know Community is is part of it's a it's a secret source to kind of web through and so it's not shouldn't be an afterthought it needs to be kind of the first thought and so indeed what what does community mean what is participation in this specific community mean what do you want over time with the community and I think as you said um maybe that's lagging a little bit some of the thinking some of the tools also so we've been looking quite a bit at the tools to kind of actively manage Community what does that mean who do you reach to how do you uh not just it's not just a token allocation but what happens over time are they still participating can you change the nature of the token allocation over time have it be more Progressive I think there's a lot of almost think it was like CRM in the sense of community relationship management for the web 3 era and then many variants of that I think are pretty interesting and the Heart of that will be you know token-based incentives and and tokens that are at stake and so forth so there's a whole extra juice there for uh to to work around um so so I think it's going to be interesting I think there's opportunities for startups frankly in that in that space um and then you know and those who do it best are gonna I think are going to kind of reap the benefits but uh um you know it's it's non-trivial um especially because I guess some in some senses you have to kind of maybe this goes back to privacy preservation you're you want to know what people are actually doing in contributing physically as well as virtually um but but sometimes that's anathema to the notion of being able to participate sort of anonymously and you know without having to get it and so maybe if we can preserve privacy in different ways that'd be good and I've heard this would put it this way there's a lot of interest from some of the big Tech Two Tech you know web 2 Tech Titans in kind of proof of physical work and activity and engagement and how to bridge proof in the sense of bridging that to web3 communities so I think that's going to be pretty interesting as well uh it's going to be not not just popes like proof of actual presence of a conference but other stuff was the talk good I think great so we have time for one more question and the competition state okay thank you hi Patrick Martin European media Finance uh I have a question are you still looking at new layer ones uh or are the ones that we have sufficient and if you were looking at new layer wants to invest in what would they have to have to differentiate from whatever is out there already new layer ones uh are these something you're looking at what would they need to be interesting remember to take a stab again yeah yeah um yeah I think I think layer ones are still very interesting I think I think the the real distinction between layer ones and and Roll-Ups and app chains and you know layer threes have really blurred quite a lot I think again I would go back to the same question um is it novel is it interesting does it provide some sort of new distribution some new developer tool certain application features can in some ways only really be done on a new layer one or it's a lot easier to do it on a new layer one so filecoin is a great example or something like cello that sort of combined both a sort of a front-end end and back end was evm compatible so I'm not seeing as much as as we used to see on the layer 1 side but I think what's become very popular is this app chain and app chain as a service concept um if you can sort of own your own Community own your own token and have your own validation it's become quite an interesting concept for developers the jury is still out on if that's the right model but seemingly ethereum as it moves to a roll-up Centric model and sort of acts as a beacon chain and you know is basically for settlement I think that opens up opportunities for new Roll-Ups that are app specific or sector specific I've seen gaming Focus chains and and D5 Focus Roll-Ups and things like that and then the big question for me would be what's the new security model I think Cosmos has some interesting stuff on the on the mesh security that's very interesting we're investors in this company eigenlayer that's allowing you to restake your ethereum for security which I think is a really incredible Innovation and several other models that you know there's hybrid centralized decentralized things so to answer the question simply yes but I think it it will require more than it than it used to and and that's why we're seeing less companies being built in the space today at least that looked like what we saw in 2017 which were basically more scalable versions of ethereum Niraj Richard thank you so much for your time thank you everyone for joining [Applause]