Blockchain Perspectives - Successfully Appealing to Investors in the Space - Jake Brukhman

awesome um guys thank you so much for uh coming out to see our talk my talk is called what we look for successfully appealing to crypto investors and founders i'm an investor i started coin fund which i'll tell you about in a minute and the reason that it's investors and founders is because it's not only founders who are appealing to investors it's investors who are working with founders every day and it's a two-way street so i'm going to tell you a little bit about who we are and what we do at coin fund and then for the most of the talk we'll talk about what we as an investment team look for in founders and projects in web three and we'll talk a little bit about what you as web three founders should look for in your investors as well coin fund is on its seventh year of full-time investing in the blockchain space we're a team of 31 people across boston new york miami and more recently europe we have over 100 portfolio companies all in the krypton blockchain space we have five vehicles in production we have three early stage funds a liquid strategy and more recently we hope to work on metaversal which is an nft strategy we have eight people in our investment team and four partners doing investments full time that's 12 people doing investments we see hundreds literally hundreds of projects in crypto every week we like to think that we're a technical team who understands the technology of blockchain we're hands-on we like to work with founders day-to-day and we're multi-disciplinary we have people in our firm from many different areas from technology from finance from regulation from fundraising and so on and so forth and what we like to tell our portfolio companies is that we are full stack problem solvers for our portfolio projects and networks and that's the coin fund white paper that came out in 2015 just an example of areas where we are constantly adding value to our portfolio recently ex cftc chair chris john carlo who you might notice crypto crypto dad joined us as an advisor at coin fund we take you know the regulatory processes that are happening in blockchain pretty seriously and this is something that we're working on actively and now i want to talk a little bit about what we look for when you send us your deck and we're looking at your project it starts with people most of these projects are early stage and in the early stage the two most important things are timing and the team we like to see founders who have a little bit of domain expertise in the things that they're building in crypto that's been pretty easy because a lot of crypto has been in infrastructure and it's required a lot of you know great engineering talent and going really deep on some of this stuff when you're someone with a lot of domain expertise and you're going deep chances are you're also more like a mission driven founder you're more likely to stick around longer and wait until your project comes to fruition and just as an example there's many examples of this in our portfolio but nick and john from fuel labs is one of our portfolio companies building an optimistic roll-up under fuel labs you know these are folks who have deep domain expertise in consensus john has done graduate level research work in that area their team is extremely well versed in virtual machine design and programming languages these are serious technologists that's what we like to see in our portfolio when you send your deck to an investor you have to remember the investor has seen many many decks and many of them are like yours and it's always really important for a founder to have self-awareness about what they're doing and the market in which they're operating if you're operating in a vacuum then you know you're less likely to be successful it makes me think of ian and will at syndicate who is probably you know the team in the dow space that has done absolutely the most work on doing market research about how dows are likely to come to market these guys talk to every single investor every single customer they could find web 3 customers web 2 customers and i asked everyone how do you think dows are going to function what are going to be their use cases what are the most important ones and based on that very self-aware research they recently launched their first product which is dow infrastructure for investment clubs and i think there's a lot more to come it's really important to demonstrate to your investors that you really understand not just what you're doing in your company but what the companies around you are doing and why you differentiate from them i hear this at coin fund all the time the risk by moving quickly if your team can move quickly then you could put products into the market faster you can pivot faster if it comes to that you really lower the risk of many things that are associated with operations and running a company and sometimes founders are just really excited to to come to market quickly will who's a miami i live in miami right now will is a miami based ceo and founder of a company called toys which is an nft toy company and they're so excited about this company partially because it was inspired by will's kids right he wanted to give his his children the opportunity work you know to to play with digital toys and these guys are just moving so quickly if you want to move quickly then you really need a team that can do so one of the key advantages that we look for in our portfolio companies is an advantage in hiring team building and organization so you might know you might be aware that hiring especially in the technology side in crypto is one of the biggest bottlenecks right now in this whole space it's really hard to find talent and in terms of organization um a lot of crypto companies are what we call decentralized which is a fancy way of saying remote first but remote first organizations are different than kind of the traditional organizations that have uh we've seen in in the past and so if you have an advantage in hiring team building and organizing people this is a serious advantage and when i think about companies in our portfolio that have demonstrated this i my mind goes to block damon we invested in block daemon in 2018 at a 15 million evaluation and today they recently did a three and a half billion dollar round with tiger global they're an organization of 150 people most of those people about a hundred of those people were hired in probably in the last you know four or five months they're global they're serving node infrastructure all over the world and a key skill in doing this is being able to organize a team of that size and caliber and complexity so we look for those kinds of advantages when you're in the early stage sometimes you get an idea and it's just your idea alone and you're a single founder but if you look out into the market most projects have two or more founders and this is likely because if you're a founder like maybe you're a tech guy but if you're a tech guy chances are you're not that great at marketing and if you're a founder who's an amazing marketer chances are you don't know solidity and so it's really important when you're going to talk to an investor about a serious proposition for a project to come with a team that can credibly put that project into market and technology is only one part of that equation the other part of the equation is support biz dev sales marketing pr many other functions and so many companies come together with multiple founders to address some of these challenges when founders come together they should have aligned incentives like it wouldn't be fair if necessarily if you know someone had 99 of the stake in their company and their co-founder had one percent you know as investors we look for how people and companies are aligned and that informs us about the risks of you know whether this company is stable durable does it have risks a risk of falling apart at some point or someone just losing interest because they don't have enough skin in the game also if you're dating your co-founder or if you're married to them you probably should let your investors know that because the aligned incentives between founders are extremely important so we talked about founders now i want to talk about your vision your idea a little bit like what makes for a good project what excites us well as kind of vcs or crypto investors we're building portfolios for what tends to be traditional uh institutional capital and so we want the companies in the portfolio to be big and what that means is if you come to us with an idea for a coffee shop or like an ad agency those businesses tend to not be as big as technology businesses or you know or some of the infrastructure that we've seen in blockchain and so when you're going through the process of making your idea you also have to think about whether the investors that you're contemplating are the right investors for your idea and i want to say something a coffee shop could be an interesting business but a tech vc might not be the right capital formation mechanism for that business even if your coffee shop works on nfts but in web 3 we actually have some other interesting capital formation mechanisms that you could use to fundraise for businesses like this so these businesses are not precluded from investment because we could do things like bitcoin grants we could and crowdfund mechanisms that we see in new space but as investors with an institutional portfolio we want to see a big vision we also want to see that your timing is great this kind of ties back to that self-awareness point that i was talking about before like do you as a founder have an idea of how your technology your product interacts with other technologies and products in the market i'll give you a couple of examples in 2019 there were some folks who were going to market with really cool nft apps like like mobile apps that were you know essentially made the nft minting experience really easy for users surface to metrics you could do a little bit of selling and so forth but in 2019 there's no volume for nfts at all it's what you know the first real volume in nfts was in the summer of 2020 about august when rarible put in an 8 million dollar gmv month and that was the largest gmv in the nft space up until that time but in 2019 these founders are just too early and they found that they didn't have a lot of customers not a lot of people were making nfts i mean they converted everyone who was making nfts at the time it was about 6 000 people but there wasn't a market for people who were buying nfts and so this company ended up pivoting out of blockchain on the other hand i met a founder the other day who is working on a messaging protocol messaging is kind of hot right now and he asked me have you seen other companies do messaging before and i said yes i have i've seen maybe 12 of them over the last three years but your product is actually going to win and he said why i said because you have great timing so really quickly um just a couple of more traits you know when you're putting forward a product you you want to do one of two things you want to project an important innovation in a web tech trend or movement or you want to be a category creator and let me give you a quick example of each of those things so there's definitely a tech trend in d5 right and uniswap was the first amm but what we saw come after unit swap was an entire market of different kinds of amms taking different approaches and so for example balancer put forward a rebalancing mechanism that really like wasn't on the market before that amms motivated liquidity mining and for all of the d5 summer of 2020 a lot of projects were helping people mine and were putting forward their own tokens to kind of buy liquidity and then more recently a project called tokamak put forward this concept of shared liquidity where token holders vote where their liquidity should go and it you know it's independent of the projects themselves a really cool category creator in my view is a company that coinfund co-led called upshot which is working on price oracles for non-fungible assets in other words reference pricing for nfts why i think this is a category creator is because for the most part we've had marketplaces be the predominant mechanism by which nfts get liquidity so if you've been on openc you know that you need to find a counterparty to transact with you need to find someone to buy your uh your nft in order to get liquidity but if we have on-chain oracles for nft pricing then what we start to be able to do is to create new disruptive liquidity mechanisms for example deposit your nft and get a loan automatically based on that reference price or hey liquidate your whole entire portfolio of nfts at the reference price and suddenly being a marketplace might not be as competitive anymore finally there's a blog post um a blog that coin fun diary called the nine core value propositions of crypto networks when we invest in companies or projects it doesn't matter if you're a highly decentralized network or a centralized company operating in web 3. but what we want to see is that no matter who you are you are using the core value propositions of crypto networks effectively and what are those propositions openness permissionlessness the fact that you have tokens that you can use to incentivize customers and acquire customers the fact that your network might be community owned and subject to vote of token holders the fact that your network might be censorship resistant and so on and so forth um check out the article if you want the details and really really quickly in the last minute here what should you guys be looking for in your investors there's a lot of investors coming into the space there's a lot of traditional vcs this year who are starting funds or writing checks um there's a lot more crypto funds than there were in 2015 when coin fund started how do you choose the right investors you want investors who are available to you in in terms of time capital advice right so they should be around you want investors who are actively helping you to solve problems i mean this is like a nascent industry all of our mainstream adoption is still in front of us there's a lot of infrastructure technology that are they're still being worked out there's a lot of missing pieces not all the problems are easy and the more heads around the table in solving problems the better so what your investors as a baseline should be providing for your for your project is networks where they can get you with service providers they can hook you up with marketing with pr they can help you through understanding kind of your regulatory risks especially in the united states they can get you integrated with a partner they can make introductions to people who will impact the bottom line of your project but you also want investors who are proactively do risking your project this goes back to you know us working with crypto dad as our regulatory advisors right like there are founders in our portfolio who are doing potentially regulatory edgy things like fracture fractionalizing nfts or starting investment funds in the blockchain you want your investors to be watching your back to be understanding of kind of how those regulatory processes are playing out monitoring competition and letting you know about it and then also sticking with your company because they chose to invest in you and not your competitor at coin fund we've we tend to we i think we let our co-led something like 17 rounds last year and we tend to win leads in technical projects because founders tell us we really understand the technologies that they're building when your investors understand your technology at a deep level they can help you create better products and finally there's a lot of opportunities for investors to have skin in the game in your network not just in your equity deal investors can add liquidity to your lending protocol they can vote in your decentralized governance system and they can you know there's many other mechanisms that allow them to support your project and ensure your long-term success not just through passive capital but through active capital this this point is probably the one that defines the crypto native investor thank you very much we might have a minute for questions