A Deep-dive Into Web3 Investing: Trends and Insights for Founders and Investors | EBC10

[Music] oh yeah no no no okay guys one one more time one more time and Victoria Victoria's mother is in the audience do bring it on yes La last panel before the start of battle okay guys um wait wait wait I have the honor of having Chris and M great with me so um a deep dive into web fre investing I hope you're excited as some of you already know I'm the founder of EBC I hope you've had a good time now it's time to dig into a little bit more into the web three space when it comes to Investments and VCS so Margaret she is part of Ledger Cafe fun yes as a partner there and we have Chris one of the founders of 1kx so now I think maybe you can say 30 seconds a little bit about yourself and then we're going to dig into how you actually reach to the point where you are today but maybe Chris and Margaret say just something a little bit different so like not the usual things you would say when you introduce yourself something different Chris so for example I don't know what was your first uh I don't know Tech Gadget back back in the days first te Gadget I don't know like the Game Boy or whatever like okay um yeah I mean first of all thank you for having me um my first tech Gadget um I can remember that I always wanted to have a Game Boy but uh my parents didn't want to get me one so I couldn't do that but uh yeah then eventually like I saved enough money and then I bought a PlayStation you bought a PlayStation that was my first tech nice one Chris Margaret first takech Gadget MP3 CD player nice one nice one okay guys so let's let's understand I think it would be nice for the audience to understand how you got into web 3 investing so little bit your history till the point of being a an investor in the space you want to go um yeah so um for us it was um a little bit different story I would say like a little bit unusual uh before we went into investing or into like blockchain we were actually Founders ourselves um and we were based in Berlin at at that point and yeah we were doing like mobile applications and you know because uh Berlin had you know like a lot of like history with like blockchain so you know you had like the first place in the world actually where you could spend your Bitcoin in Berlin and um ethereum was also built in Berlin so you know we had a little bit of like touch points you know but we didn't really spend too much time there um because we were busy with our own startups um that changed a little bit when it was like around I think early 2017 at that point you know mobile um you know was a little bit stalling in Innovation um you know like we didn't really feel like it's the platform you know where we can have like the most impact um and so at this around the same time ethereum was going through its first hype cycle and so we started to look into that um you know maybe maybe we should build something on top of ethereum um and so we've looked into that um but yeah we are like a little bit more application developers and uh yeah back then it was a little bit too early for us to build something there um even though I studied computer science um there were like a lot of like abstraction layers missing back then um and yeah so instead of um really like um building something ourself there um a lot of like other talented ENT were joining the space around this time and we were in a fortunate position you know that we could give them some advice on operational topics hiring topics investing topics fundraising um and yeah we got pretty positive feedback from those Founders um but also from other VCS that they've worked with and those VCS they eventually encouraged us to launch our own fund and yeah that's kind of you know like how 1kx you know came a little bit to be and uh yeah this was like a very nice opportunity for us because I can remember as a Founder I was like uh you know like digesting all of like the blocks Etc you know from USV a16z um and so this was like a very very nice opportunity um and yeah we wanted to make sure right that we are like also building a fund that is like very differentiated um and yeah it's going pretty well um back then we only started out with uh 6.5 million uh now we are managing 700 million so has been kind of like a pretty nice uh increase um like early this year we've launched um a seat stage fund uh with 75 million um but we like yeah focusing additionally like on seed stage Investments and yeah I think that provides a little bit more than a little intro yeah nice so from 6 million to did you say 600 700 million asset on 700 700 yeah that's a that's a good growth Margaret tell us a little bit about your background and how you ended up as VC investor yes uh so personally I was actually already a VC investor uh doing early stage investing in Berlin as well uh so I was working for headline and Cherry Ventures two berin base fund covering uh the London Market the French market and the German market and then I got into web 3 by actually doing nfts out of my photographies H so I do a bit of photography on the side um and then I discovered the real benefits of web 3 from a user perspective as an artist where you get more transparency more ownership uh more control over the fees and the journey of your artwork and where you remove the mid of man of the galleries um that don't really make sense in certain models and I think when you understand where three from a user perspective then you have a different Insight than from a investor perspective where you everything becomes a bit more tangible and so I started with the nft aspect but then went a bit deeper into the infrastructure and um different real world use cases and for Ledger C specifically it's a bit of the same in the sense that Cass initially is an investment firm H so we do mostly series B investing in Tech sectors um across geographies and across sectors including web 3 and actually Cass started with the private Equity activities and then we started the Venture Capital activities in 2016 and one of our first Investments was in Ledger um so that was the biggest line of the first fund uh and actually was at the time it was in 2017 so at a time where both crypto and Hardware were not really good buzzwords to have a new pitch te and so being an early believer in the company and in the space helped a lot develop strong relationship with Ledger and so a couple of years later we decided to do web three funds together and to basically combine the cath expertise in the investment space with The Ledger expertise in the crypto space Ledger being today a Pioneer in securing um cryptocurrencies worldwide uh so you have 20% of Bitcoin holders that hold a ledger um it's also obviously a big advocate of self custody and on the C end um similar trajectory to 1kx in the sense that we started with a fund which was 250 million and we reached the third fund was is a 1 billion fund with which we invested series B only and so coming in with Ledger Cafe and raising external money for that fund was a good way to position ourselves earlier on in the Journey of the startup so we invested CID and CA tickets between 1 million to 5 million and then later on uh Kath can potentially come in with a 1 billion fund and keep supporting uh companies like we did with flesk for instance Ledger C first invested in the series a round and then uh Cass invested in the series B round very nice very nice thank you for introduction so Web Two Builder turned web 3 investor and web 2 investor turned in your free time a little bit an artist and then you turned also to a web free investor no thank you very much for for your introductions so let's dig into the questions yeah so lately uh I think this is interesting for everybody to know what what areas are you finding exciting when it comes to investment opportunities because we all know there is different types of Hypes right but right now what's hot what's relevant um yes so I mean we always try to stay a little bit outside of like the super hyped topics um it's usually like evaluations are like too crazy there and um um you know we want to kind of like see we want to you know like do some asymmetrical investing basically um what I currently and I mean we kind of like invest across like the whole stack right you know like from consumer to deep Tech um but what I'm personally um pretty interested in right now is I don't know like this category of you know I would almost call it like crypto fintech you know for example Ledger um is maybe like a like a company in that category um there's you know like staking providers you know like are in that category um and so there's like a lot of like businesses in crypto that are making a lot of like real money um and yeah like they're being ignored by a lot of like investors who are just kind of like um blinded by tokens at the moment um and so like valuations are actually also you know like pretty attractive there as well um so that's kind of like one thing that I like and another thing that I like is uh deepen uh so deepen stands for decentralized physical infrastructure networks um and basically like they use uh blockchain technology to coordinate Hardware resources um and so it's for example I don't know like GPU networks storage networks um you guys are probably like familiar with um filecoin and arweave these are like some prominent examples there and um yeah that's kind of like a super interesting category in my opinion as well um I have like a CTO background so you know like I was always you know like looking for these kind of like things um and yeah there you also have um a lot of networks that are having real revenues um you know that are coming almost like from web 2 um and are now like embracing web 3 um and yeah to kind of like onboard other node operators through the networks and so on so that's something that I'm personally pretty excited about thank you Chris and Margaret um with the fun we actually look so initially we were covering quite a lot of spaces and we refined the investment CES over the months um recently we spent a lot of time on bitcoin layer 2 uh that was a bit before before the summer and we actually decided to place a bet in um on Bob and Mido um we generally speaking we're looking either infrastructure play because we do believe that consolidating the technology is going to be fundamental for the adoption of cryptocurrency and we're looking a lot at how blockchain interacts with the financial asset industry so either how blockchain technology can help traditional players of the finance industry improve their processes and become more efficient and more accessible so for instance we invested in Midas which tokenizes treasury bills from the US um we also looking at how uh processes from the traditional Finance industry can be applied to the crypto Market um and we're also looking at yield enhancement um solutions that are done in a very regulated and um compliant way so for instance uh earlier this year there was a lot of fuss about liquid reaking protocols we actually ended up investing in ERI after having looked very closely at all the different players so generally speaking we like to understand a vertical uh and speak to all the players in that vertical and then decide to understand what is the model that is most attractive to us and look for that specific model um yeah and we also put quite a heavy Focus recently on uh gener like business model and revenue generating companies um because actually there are quite a few models that can be quite traditional business models that can very well be apply to the crypto industry and avoid the kind of bubble that we can see sometimes in some uh token deals great thank you okay so let's talk a little bit about trafi and defi so yes we see of course the trafi space getting closer to to defi with interest in in well in the technology in in approaching it much more which wa we've seen that maybe for quite a while that's one thing but then also lately we seeing kind of like the opposite happening right so okay yeah trfi is embracing defi but now we also see kind of like defi getting closer to trfi so I know we discussed a little bit this behind the scenes and I think you have some quite interesting views on this um Chris at least there was you know part of the direction you did didn't really agree on right you think it's better if traight just sticks to Defi and blockchain Technology but maybe yeah elaborate a little bit on what we discussed behind the scenes I mean I mean I kind of like think all of this is like super valuable and you know like democratizing access you know to ETFs um via like tokenization um and like stocks Etc is you know like a very good thing to do um however it's not necessarily something you know that we are looking for for like um in Investments um in that area um because it's like pretty kind of you know like tough to differentiate you know like the you know like the different companies there uh we kind of a little bit think of it like a as like a lemons Market um what I personally like find more interesting in that area is um actually like bringing yield on chain that is like otherwise not accessible um and so like I think a a good example um of that would be um epina right um which basically brought uh the yield from the basis trade um um the carry trade um onchain and like a lot of people you know suddenly were able to just kind of like deposit uh usdc or um whatever stable coin into into the contract and were like earning like um I don't know 25% um yield on on basically like these these instruments and there are many many more of these types of instruments in trefi you know that um retail is just does doesn't have like any access to um and so that's personally like where I am more interested in yeah I would uh second that actually I think you have a very interesting use cases uh for instance even we looked at a space in the private credit space where you can actually leverage the stable coin that you own and generate a very good yield of up to 14% And that's it's yield that is otherwise not accessible and that the blockchain allows to make accessible um so this is a particularly interesting space in various angles but like you know lot lots of Foundations sit on a lot of money of course most of the money they have or money is crypto or stable coins but like so how do you see that these these slowly these Foundation can get access through blockchain so onchain to a black rock fund isn't it a bit funny I mean like these you know decentralized foundations now getting access to a black phone I mean I'm not sure if I mean if actually like many of them do that um it's just the beginning okay it's the beginning yeah I mean they still need to do like kyc and everything right so um but yeah it's it's definitely like an interesting um area and use case of it but it's it's it's a bit funky isn't it like it's opposite right I mean like we were embracing like you know trat fight getting closer I mean I find it very funky um but uh this is just the beginning this onchain wealth man and I believe we will see much more of it uh the next 12 months 18 months um but yeah let's continue okay guys so um just a quick yeah quick note what about AI is any is there happening anything there or is it just a little bit of like woo but not really real tell us a little bit more um I mean I think like um all of the activity in AI right now or at least like the usage is happening in web to um there's like very little stuff that's happening in web 3 and when you talk to the web 2 AI uh people they don't care about crypto um at the moment so I do think that will change um but we're not there yet um and then I'm also not really sure like you know what the specific form factor will look like um you know like in how crypto and and AI can like work together so um you know for these reasons um we've kind of like stayed a little bit on the sidelines so far um with like all the deals you know that um yeah relate to AI same for us it's actually really not a sector we deep dived into also because we had identified other sectors that we were very bullish on and where we wanted to position ourselves earlier on before the companies that we were targeting became too big and not accessible for an early stage fund I think for AI there is a bit of a bubble around it web 3 is really far away from their core concerns so this is not where we're seeing most opportunities most interesting opportunities for the fund that being said we had a conversation this week saying that it's we should probably start looking into it a bit more um but we we haven't done so proactively yet in terms of prioritization okay so it's not real yet I mean we we're looking at all of the deals um but yeah like so far we haven't really seen um anything that really convinced us okay thank you guys so um let's talk a little bit about the community right so I guess especially thinking of uh startups that have tokens uh they have a big community on Twitter Discord Telegram and so on so yeah there is these discussions sometimes right where it's like okay Community versus the VCS who is short-term thinking who is long-term thinking so what are your views there um well I mean I I do think um we at 1kx we're definitely like you know one of the uh one of like a some very Community aligned investors um but it's it's kind of like a suit like a two-edged sword um and kind of in my opinion um when the markets are great and the token goes up community and like you know retail Etc can be like a great great amplifier um and you know like things are you know like always amazing um but yeah like when things are like going down um retail often times um has a little bit more of like a short-term View and you know then they start um yeah I mean like we we've seen this a couple of times in our portfolio where the founders are like getting really really concerned and worried about like what what retail people are or like what what community is like thinking um and specifically because a lot of like the community members they're like just dming the founders directly and so the founders feel like um like pretty kind of like yeah put under pressure um and to to kind of like work on some short-term measures to you know like improve the token price whereas in our opinion you know like their energy is like much better focused you know on like you know working on like some more long-term um uh product uh things so that's a little bit um the the two the two-edged sort that I'm seeing there I great yeah I would actually second that I think the crypto is about the community of ownership and so obviously you have the power that has shifted much more in the end of the community and the community is having a much more proactive role in shaping the direction that the industry is uh taking but that also means that from a business perspective or actually it lacks a bit more the business angle and the business angle comes with longer views and also sometimes a prioritization of product or decisions that need to be made more in the long run than in the short term and obviously be in a very volatile and rapidly evolving Market that can have a stronger the community can have a bit of a stronger impact and also sometimes hinder a bit um some of the efforts that the business is trying to implement that would be the caveat that comes with the economy of ownership I guess do we have any token hold holders here can you raise your hand yeah are you putting short-term pressure on the founders on Twitter telegram no I mean it's it's usually like a very loud minority um it's definitely like not not all of them um but yeah like some of them they get like really frustrated the markets overall go down right and I mean like what can the founder do right um when the project goes down with that like everything is super correlated in crypto um so yeah sometimes it's pretty tough to navigate that I can imagine okay guys so um so continue a little bit uh with tokens when do you recommend recommend recommend uh um a startup to issue a token and when not this time you go first yes um I guess there are different factors to take into consideration first having a clear product Market fit uh having a very clear positioning making sure that your token is going to be needed by the community so that you have a certain demand that you can tap into for when you launch uh being very clean on the regulatory aspect depending on the region where you operate because obviously that's a growing concern uh it varies a lot from one geography to the other us Europe APAC region will have very different uh restrictions um and you will be operated in much more defined or gray area depending on uh where your compan is based um clearly Define the value that your token will add not we I think now it's a bit more healthy healthier but before like a year ago we were seeing a lot of companies that want wanted to emit a token just for the sake of issuing a token um and that we were really strongly advising against it um because also it takes a lot of time to define the toonomic and it can also kill the value proposition of your product if it's not directly align with what you're supposed to offer um so yeah I guess Market Readiness making sure you're tapping into a demand that's there choosing the right timing as well for um in terms of like where the market is at depending on your fundraising needs um and when not when do you not rank so when when do you not recommend when yeah when not because I remember you said like at least behind the scenes you said like a typical SAS SAS startup I wouldn't recommend normally so maybe yeah little bely it all depends on what you're here to offer to the community uh and obviously if you're selling a SAS product to B2B customers then issuing a token is not necessarily going to be the best uh route for you but um even if if you sh a token to raise some funds then you need to do it at the right market conditions as well um so is there going to be ler token sorry is there going to be a ledger token yeah that's a good question uh I'm representing Ledger Kath not no um okay um uh yeah I I I I think like very similarly right um not every company needs a token and and I'm saying this um when I I mean we like in 2019 we were wearing t-shirts that said token maximalists um so you know we were like really like uh on the token side but yeah like not every for not every company like a token fits or makes sense um and yeah then for the for the ones you know like where it does um it's always like the the the like the very complicated question is you know like when do you introduce it right um and it can often times be like very tempting um you know to just kind of like launch it and then give out some rewards but um you know the the traction that you will see from those rewards is not real right um so it basically goes up but it goes down the moment you turn off the rewards um and so it's very very critical um also what Margaret said right that um you have really like product Market fit first um that you know your product works even without a token and we always kind of like say to our Founders think of like uh you know tokens as Rocket Fuel um you know they like really really can really like accelerate your product but you know if there's like no flame you know then you know then Rocket Fuel cannot do anything so okay so no so so if you're a SAS company I if you have a SAS product don't go for a token normally and if you don't have product market for don't even think about it okay so guys we are coming to an end and we have the startup battle finals now so um which is important we've had 50 startups pitching at our build stage but before wrapping up maybe just just a little uh advice for startup Founders anything they can take home besides everything else you've shared Chris Margaret um yeah I mean this is always like a tough one um it depends on you know really like the founder I think like an overall um it's important you know to be willing to go out of your comfort zone um you know like nothing good ever you know like happens you know when you just stay within your comfort zone so you really need to kind of like be very willing to go outside of that um you need to you know you you need to be like the face of the project right and so you know you need to kind of like be pretty good at you know like networking um and yeah just you know talking to like a lot of people convince them to use your product um I mean it again it depends really like you know on what stack um um you actually like work on it's different for Consumer um Founders for example right I mean they you know they don't have too many customers you know they're having just like a ton of users and you know they can talk to like anybody so it's a different conversation there um but yeah overall resilience um and yeah getting out of your comfort zone thank you Chris Margaret advises I would double double agree on that and I would also add maybe be compliant by Design I think it's a right way to start the company um compliance is going to be a big Topic in the crypto industry uh and but in the past it was not like that right you would build and then you will figure out yes uh it it all depends on where you operate but actually this can become your uh competitive Advantage as well so for instance when we looked at um companies in specific space we were actually much more looking at companies based in Europe that would comply with the European regulation to avoid being CAU later on so you have the US versus the Europe approach I think at the moment given the recent moves from institutions from the SEC and from different institutional bodies being compliant by Design if you're operating in the financial asset industry for instance is quite relevant obviously all depends on your area of interest and you have kind of like nuances to add depending on your positioning um but usually starting to think about it from day one can be quite helpful in the future thank you thank you Margaret thank you Chris thank you for big big Applause and a big thank you to Victoria thank you so much that was awesome absolutely brilliant