#200 Ciaran O'Leary: BlueYard - The Disruption of Venture Capital

Transcript

[Music] this episode of epicenter is brought to you by shape-shift oh the easiest fastest and most secure way to swap your digital assets don't run the risk of leaving your funds on a centralized exchange visit shapeshifter IO to get started hello and welcome to epicenter the show which talks about the technologies projects and startups driving East centralization and a global auction revolution my name is Brian Fabien crane and I'm a hero

today we'll talk to Kayla O'Leary who is the channel partner at gluey art capital fluid is one of the VC firms that is very active in the blockchain space having invest in companies such as ob1 file coin protocol labs and user feed our topic of discussion will be the role of venture capital and blockchain technology and the kind of unique challenges this room brings Kira welcome to the show thank you I listen to it in late 2015 before investing in protocol labs so this is a nice way to circle back yeah and I was that you guys also organize the event that things just went

blue yard started decentralized and encrypt there I was looking you up again it was the excellent event so thanks so much for having me there yeah before was cool and things went crazy yeah yeah including you guys had ever Snowden who spoke no with a live stream which was pretty impressive that you guys managed to get that we did we'll do it again sometime when things have cooled down so can you tell us a bit about your background so your before you started this VC fund bouillard you will also be see at a different company and like maybe how did you first get into the whole VC world and what was your what were your years at early birth that previously see like yeah so if you

would have told me in my early 20s or late teens that I would be a founder of VC firm in my mid 30s I would have considered that a considerable considerable life failure I had very different plans I wanted to become an airline pilot but then I guess I chickened out of the commitment of 40 years of flying for an airline and then I studied business because I thought look you know something handy to have in the back pocket and then stumbled into what I think is the worst background for VC but a bunch of other VCS that are ok have it all so so maybe I'll still make it but I stumbled into Investment Banking at Lazard and then I worked for a large private equity firm called The

Carlyle Group but I left in my late 20s because I just realized it wasn't for me and I didn't want to spend a lifetime doing that that that thing and I tried myself out as an entrepreneur was working on a couple of projects and in that time I bumped into somebody who was working for earlybird venture capital and he said well look if you're thinking about becoming an entrepreneur trying yourself out why do you come on board get exposure learn build up a network and and then leave again and I said that's a terrible idea because at that time European VC had a pretty poor reputation and European intrapreneurship too but as I signed up for it with the

view of just staying for a short time I realized something was changing Berlin was happening London was happening Stockholm was happening things were getting more ambitious more fun and I realized there was an opportunity to you know help change the ecosystem and so I got stuck and I opened up the early bird office in Berlin invested in a bunch of companies like Wunderlist and carto and was a little bit more opportunistic and in that time though I worked together with Jason wittmeyer and we had looked at our investments and had realized that a lot of them were around essentially liberating markets breaking them up

empowering individuals versus organisations and essentially this topic of democratization was floating around in our mind and this was sort of 2013-2014 and then in summer of 2015 we said well look we're so passionate about what back then we call democratization and and technology's empowering the democratization that we said the best way to do this is to start a new firm that would be thesis-driven and and and just do that and stand for that and then after a while our thinking became a bit more sophisticated and it ended up being that we care about the decentralization of markets the empowerment of individuals and the liberation of data and I'm sure we'll be

talking about what that means but what I can tell you is is that back then the blockchain was just a small part of our thinking and then obviously it came into our lives in a very big way ok that's very interesting now when you when you're thinking about starting this VC fund were there you know do you feel like some big things we're gonna happen in the VC industry that it was gonna change also as an industry and and how did that impact the way you went about starting blue yarn yeah for sure we didn't know exactly what but we felt in a sense that also starting a new really small firm on a

white piece of paper would allow us to question ourselves and our model more often and more aggressively and venture capital has not been disrupted for decades and I think everybody is now talking about icos and token sales and how disruptive that can be and it is but if you draw a dotted line to Kickstarter to AngelList to other kind of crowdfunding platforms and other kind of things you'll realize that it isn't just one thing but it's a multitude of things that is a changing what kind of product intrapreneurs want to fund their company and B how capital can access early-stage opportunities and I think the best VC firms are right now

deeply questioning themselves and what kind of value can they provide over the next five to ten years that will allow them to survive and what is essentially going to be a more decentralized model out of all of these tools heads like you mentioned crowdfunding icos in your opinion what are the what are the forces that would produce the most change in the venture capital industry and and why so I think right now we're seeing in the token craze and let's just call it that somebody sent out a tweet I forget who was it was like only in crypto can you struggle to raise a two million seed round but easily raise 80 million in

togas timbered yeah okay really what's driving a lot of things there right now simply the availability of capital without having to go through gatekeepers which have fancy offices and long wooden tables and you have to create a pitch deck and present them so you take away that gatekeeper and you you access the the markets directly now I think that that's important what I think is long-term a much more disruptive disruptive aspect is that if you're doing a token based network and you involve your ecosystem from the ground

floor and you incentivize them with tokens you're getting capital on board that essentially helps you to bootstrap your your business and your ecosystem and that's something that VC's cannot really provide and so I think the VCS that are saying oh this is all going to end in tears and this is all terrible they will have their moment there will be a correction but that shouldn't take away from the fact that the model itself is vastly superior and so I think the reasonable assumption is is the model will survive and how can we thrive and provide value in a model where just gatekeeping access to capital more access to early-stage opportunities is

not our core value proposition and I think there are multiple things and still you still need to do due diligence you still need to get to know people it's still a people good intrapreneurs want to work with a close group of people to sort of spar with them and so there are things we can talk about later where venture capital can survive but it won't be gatekeeping so your essential argument is that this ICU model this token model allows entrepreneurs to bootstrap and network along with getting financing so it's like it's serving two functions at the same time but if we look at the total space of all of the

businesses of all of the technological areas like you might think of machine learning we are there are so many other areas aren't there many areas that do not need such a network at all and do you think this token model can impact areas like that for example let's let's assume an ale area such as like electric cars so visas might expect to invest in things around electric cars or autonomous cars but that sort of area doesn't necessarily need a network of users to be bootstrap do you think B C's owned in those areas will also be affected by this token

model yeah so I think it's fair to say that you know it won't have the same impact on every level of business or vertical but if you think about it in the history of financing as soon as a new model is established that works really really well and is a good product for entrepreneurs and people investing it tends to find its way into other areas and the way to think about it is you don't just necessarily have to have a token model with your users you could also have a supply chain you could with cards and distribute you know it reward people

with tokens for contributing to it I think a lot of car manufacturers are going to view the future as having transportation networks versus necessary producing aluminium boxes and that provides another level and so I'm with you I don't think everything will be tokenized immediately but if the model supplies which I think it will I'm sure we'll see parts of it creep into a whole bunch of other industries I wanted to come back to your thesis the blue your thesis briefer right so we have this decentralization of markets empowerment abusers liberation of data of course if you ask me you know all these good ideas I would say like yes good ideas but presumably

you guys you know you aren't a charity right like you aren't a political committee so what makes you think that these are good business principles or investment principles to build a fund on yeah that's a very good question of course when we raise the fund was something we had to answer to the people giving us money so at the core of it is the belief that smaller distributed units that are self assembling a network will be superior to very large

monolithic structures and I think we're seeing this throughout you know everywhere an area where we are now massively suffering from large monolithic structures is the internet itself and that's how we got into investing in protocol labs and user feeds and other companies we can talk about is the the Internet has through its server client architecture in particular unfortunately aggregated to three to five gatekeepers that essentially control the Internet and we can see today that it's striving innovation the Internet is extremely vulnerable you know we're looking at essentially monopolies controlling our

data and running commerce and human nature and societies and economies have a way of reacting against that and creating new platforms because the business pain becomes so big and when we start a blue yard we saw that you instead of this romantic notion let's make a better internet we were having the best Stanford grads we're going the best MIT grads the best engineers everybody saying this cannot go on we're gonna rewire the internet from the bottom up you're seeing individuals people rethink data ownership who should I give my data to shouldn't I control it myself so you see for us for the users and you especially see enterprises saying well look actually I'm generating

all this data fitting it into silos the silos are getting intelligent I'm getting just addicted to them so we need to rethink this so blue yard is essentially focused on those market driven demands that should help we architect the technology of those markets so we didn't just go into we're thinking hey there would be a neat thing to achieve but based on those sentiments okay you know I think that makes sense you know I believe that thisis one thing of course that's also changing with blockchain and tokenization and there is a very well-known sort of article by Joelle maneger this idea of fad protocol

so this idea that most of the value is gonna get absorbed by the protocols let's say in Bitcoin actually most valley is in in Bitcoin their currency not in the companies you know probably if you aggregate it all the value of Bitcoin companies you get to I don't know three four billion maybe like really Bitcoin focused companies and and and that's you know just a small fraction of the value of Bitcoin so how do you think about those things like first of all you know where the sort of value is gonna get aggregated is that gonna be in the applications in the protocol we still see some of these massive you know Google size companies being builder is that area over yeah so

I hope that bitcoin is a bad example and and the reason I say that is so Joel's thesis I think was to say look protocols used to get zero right so HTTP tcp/ip or zero and maybe that's not ideal for the maintenance and health or whatever protocol and also kind of unfair to the creators of a protocol so protocol should create a higher percentage or even a percentage of value they capture or be able to capture a certain percentage of the value they create Bitcoin if I think we're honest

the way we're viewing it today is as a great storage of value and sort of a proxy for what could be the future of monetary systems and a hedge against you know some of the bad things happening in the world and so a lot of the value of Bitcoin and the Bitcoin blockchain is essentially on on storing dollars and that leads to an effect where Bitcoin is really valuable but the Bitcoin blockchain isn't very well suited today to build mass scalable applications I think that's obvious now as Bitcoin the Bitcoin blockchain evolves as theory involves as tezo's comes along and

others I'm hoping we are going to see block chains that the you know the majority of value is captured by the developer and application ecosystem with the protocol capturing some value versus it being skewed like on Bitcoin so I think that's a function of the immaturity of the application layer and and the underlying block chains blue yard is you guys from a structure I think or a structured like a regular VC fund and you have a VC background of a few and now we're coming into this world where obviously a lot of things happening very differently with all these I SEOs and stuff so how do you go about actually investing here do you

just invest in this kind of really early seed stage projects or would you also invest in in more later stage things or yeah that's a question we've been asking ourselves so ideally what we like to do is to continue to apply what we think are the good parts of the venture model so to go in really early get to know teams take a view on the personality is most importantly secondly the technology and what they're trying to build and then take that risk when a whole lot of other people aren't willing to do it yet and

of course with with the availability of lots of pre-launch capital that of course is becoming more difficult I think we have to admit that and that's why honestly speaking you know recently we haven't been doing a lot because of those dynamics but we do want to continue to apply that part of the venture model I think there is something to be said that if you know we missed the boat but we still have you know good access to the team we see something others aren't seeing and we can get in a little bit later and buy some tokens that are meaningful and the economics work for us I don't think we should be so touchy-feely about the exact timing we come in it's more about are we taking unique risks or

we need to we have a unique view or are we sort of just a piling on when everybody else is already pod on for a year and by the way our investors the investors in blue yaar could just you know I will have the same view because it's publicly known and can just buy the tokens on an exchange so I think we have to be very honest with ourselves where are we adding value through taking unique risks and where are we just doing something the market is doing in any case so okay like one of the questions I have is so if with the limited partners of something like lugar is there expectation that the VC firm creates a unique thesis and takes unique risks or

is it just that it produces the best rates of return over the next night five or 10 years no matter what the internal strategy you use is yeah look at the end of the day we have to produce returns in a story it's just if you are an investor in venture funds or many asset classes you're thinking like we are you're thinking in a portfolio while you're saying drive exposure to later stage Asian opportunities do I want to have South American early stage opportunities and do I want to and so as a the seed firm your your most importantly a product for entrepreneurs but you're also a product

for your investors and you have to answer why do you need this product and so blue yard was a very specific product and we're very lucky that you know some investor said oh that's nice I'm looking for that product but you do have to do that I mean there are very few funds in the world but they do exist that have no thesis no focus and have just a track record of just producing so many good superior returns that it doesn't really matter and that's also okay but I would also say frankly that Jason and I you know it's just the way we are as characters and it's the most fun for us and we're passionate about these thesis so we could have had to do it that way but we do need to answer to

differentiation so is it the case in the VC world that like when funds are young they necessarily won't come with a track record of returns right like in order to build a track record of returns you need to operate as a fund for like five or ten years and to operate as a fund for the that long you're gonna need limited partners so when the forms are young they need to be much more differentiated in order to attract people to like limited partners to invest their money and as as maybe funds grow grow older and they build a track record purely the track record is just sufficient enough to gather funds and then the firms can

afford to be less differentiated yeah I think that direction II that's true you know if you want to raise a meaningful first time fund I still think you need to show synthetic performance is how we call it so looking at your what you did before angel investments or at the other VC firm and creating a synthetic portfolio and I think it allowed to chose you know some solid performance I think you're right people are willing to take a risk on something that is new differentiated and fresh and then maybe I give bonus points on an unclear track record versus obviously being something that's a bit old and established and has an unclear track record but yeah you

know it's it's it's it's you know VCE has every 10 15 to 20 years gone through these refreshment cycles as new technology waves have come out and I think we're seeing a similar thing now there are 70 or more crypto funds in creation right now I think in the US alone but the the concern I have just overall for all of us and it goes back to differentiation is capital is becoming a commodity right it's it the world is awash with capital and so we're gonna have to continuously think harder and harder about what the products around capital are that make it

differentiated and so I think we're just seeing another wave of that recently there was this article on I think CNBC and I was really astonished when I saw that because it said that the ICO the amount of money raised by ICO has now surpassed the amount of money erased in kind of seed an early-stage venture capital funding now I think it was maybe a bit of an apples to orange comparison since ICO type funding isn't necessarily see just east age but still it there seems to be a you know there is clearly a massive boom going on how do you think

what's your view on this boom and where do you think this will go are we gonna go to you know hundreds of billions of dollars raised through icos every year what's the trajectory you know I wish I would I could say oh there's a massive over-allocation right now which i think there is and that may not be a bad thing we should talk about that because I think it'll lead to a pool of talent and really important things being created but there are so much capital lined up to go into this space for all kinds of reasons and then there's of course the inside trade effect of people that have ether and

Bitcoin and I've made really good returns are looking to redeploy it essentially the ecosystem so we're seeing this flywheel and I'm not brave enough to say you know it'll it's gonna stop sometime soon because the irony is if something terrible happens with their world that makes crypto even more interesting than though you know old acids company shares Fiat and so it should fly even quicker so I think it's going to be up to some systemic thing internally and I you know there are some ideas how that could that could come about so I think in what it means is that when people said oh this could

really disrupt venture capital that's wrong it already has right not not that you know it's now competitive to VCS funding AR or bioscience or whatever because it isn't but if a market can attract more funding than the entire you know seed and and and whatever very early stage we see funding across the world in such a short period of time we just have to step back and acknowledge that as a disruptive force as I said though in terms of trajectory I think it will increase although they were honest we're now seeing a very serious decay in quality very serious decay in quality

where you know the majority of I SEOs are beginning to become extremely questionable the conversation the public conversation on Twitter and reddit has been taken over by crypto day traders versus people who really care about technologies and markets and want to see in the world in the long term and so III wonder if that will eventually lead to a situation where you know sophisticated investors and maybe entrepreneurs take a step back and and we think the model you know one of the things that I think is

still crazy is your proceed company your building your product you raise double-digit million and then you have it liquid and traded and you have what these crypto day traders breathing down your neck and you should be zigging zagging focusing on the technology focusing on users and that is a part of my friend that is a shitty value proposition for entrepreneurs and so I that this is why I think sophisticated entrepreneurs will start with lockup period it's really being selective about who they have hold the token and so hopefully we'll see some kind of natural selection but it's a I guess it was a long-winded way of saying I just don't know there's so much capital in this space so much still coming in that it's

hard to see it stopping anytime soon yeah I very much agree I see the same thing and there's all these forces that are just structurally aligned to increase this and drive it forward and and what if the dangerous things that I've been thinking about this is when you have all of these new money coming in like endowments and family offices and investment ponds etc and they say okay we need to have you know we need to allocate a portion of our money to this crypto space like they don't I don't and then they take this kind of index fund approach and this happens at scale I think this could really mean that there

and they may not look closely at the quality of the projects at all they'll just buy some augur buy some - buy some Minero right like just buy all of it and I think that can add just continue fueling really poor projects for a long times and I mean personally I you know look I don't want to I don't want to have anything to do with almost any of these projects at this point that are raising funds and on the other hand you know it may not do these projects serviced by being so in the limelight you know once you have a billion market cap and and have raised so much or

whatever you know the heat is on and and and and maybe you are a great project and and some nice girls and guys but but it's just hard to work under that kind of pressure but I you know that is that that is lined up now the counter to that would be if you look at a lot of our storage of value Fiat gold whatever it's also essentially just the human mind making something up and agreeing that that is value you know and you could say that humanity is deciding and markets are deciding that a basket of various crypto tokens which could be a healthier

approach than holding a narrow basket of crypto tokens that this is a way for us to store value and to transact value and that is better than owning sort of shares and gold companies or having physical gold or other ways or oil but you know we're just this is what we've decided and if the world just allocates a tiny percentage to that that ends up being a huge amount of capital and I'm with you that that's something that that could happen now the one thing that is really encouraging is at least in terms of aetherium and Bitcoin is resilience and I think that should that should be the thing we all hold on to is how many

times were they dead in the corner supposedly how many times was this over how many times was this hard for it gonna go kill it and we've created you know at least with those two core networks and protocols we've created extremely resilient networks and technologies they may not be perfect they're still not very scalable they're it's crappy they're too expensive but directionally you can see there's incredible resilience and I think that's also something people are buying into when you think of the storage of value argument this episode is brought to you by shape-shift the world's leading

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wallet just as easily as putting on your slippers whenever you see that good-looking Fox you know that's where a shape-shift is so to get started visit shape-shift I owe and start trading and we'd like to thank shape-shift for their support of epicenter I would love to speak about valuation a little bit because I mean historically my understanding and please correct me if I'm wrong here venture capital has produced you know decent returns but not like outlandish right not much higher I think than common stock market or maybe even similar and and now we have people raising huge amounts of money I did

gigantic valuations so what do you think this is gonna mean for returns do you think people that the general returns of you know your average investor in in this space will be would be good will be terrible it has obviously been amazing in the past but looking forward what do you think will happen and how do you think about valuation as an investor yourself yeah so to your question on VC returns you know I think for at least the data we have from our investors large US university endowments mainly Foundations venture capital has been a really good and over-performing asset

class for them but because their investors in a very small portion of the market that generates returns and if you took the average of the venture market you're absolutely right it probably isn't that good especially if you look at the cost base and I'm assuming you're gonna see something very similar in the crypto space that you know majority of projects or the average may over long term not be so interesting but you're gonna have a few fundamental projects and building blocks that could be extremely valuable so in terms of returns you know you know it's hard to see this being sustainable and I think that you know we don't know how long the

bubble will last how long it will ride out but I think it's likely that if you're buying into you know every kind of project at publicly listed multi-billion market caps that you know historically is always gone south now having said that the big question is indeed you know are we thinking about this in in old ways that don't apply anymore and in terms of you know ABC you say I invest two million at the seed stage and I want 10 to 20 percent organic stuff so the fundamental difference that we're trying to work through is if we hold equity in a

company we're backing a team that sets up a legal entity that hires developers to be you know that builds a product ships a product has to do sales and marketing has to acquire customers retain customers generate revenue generate a margin on that revenue and we eventually get the discounted cash flow of of that business but if we're investing in tokens that essentially represent a market and are the underlying economic unit of the mark essentially we're owning an atomic unit of a market itself versus a small piece

and a company that has to extract economic rent from a market and you know Jason and I are still trying to work through what that means mathematically but what it does mean is that if these projects are more successful holding a token if you have a reasonable percentage of the network that's something we should talk about should be much much much more valuable than holding equity in a traditional company and not even starting with benefits or as I will say negative effects around the quiddity but I think owning an atomic unit of the market itself is is really important I think that you know we're gonna see similar risk profiles in

the sense that there'll be lots of failures although there is something to be said that if tokens can help you bootstrap an ecosystem and a network maybe your chances of succeeding are higher I'm not too sure I buy into the notion of raising lots of capital at the beginning we'll de-risk because capital tends to corrupt and and also lead to bad decisions but I would say what we care about is the century thinking about our ownership in in the network and then thinking through if this works is this you know a fundamental pillar of a new Internet and could be worth tens or more or billions of transaction volume and we own a part of those you know essentially

transaction volumes or is this sort of aneasha application and and and it's a little bit too early but those are the things were were thinking about so can we go to an example of this kind of thought process so the tokens being representing the whole value of market activity and fraction of the tokens being a fraction of that can you take an example with a specific project yeah I mean an easy one for us to talk about because we're investors is file coin so essentially it's a token with a real utility value and an intelligence

right so it's the logical routing layer of supply and demand and and verifying storage and accessing storage but it's also an economic unit to purchase storage and to and to earn value for for storing and so we're not offering a nine dollar ninety-nine a month so and so many gigabytes and we have to hire a product whatever but the market should hopefully you know self-assemble and we'll start transaction in ways we can't possibly imagine and by us owning file coins were essentially in for the ride of the market cap of the entire storage

ecosystem versus say investing in a company that was hoping to sell a SAS product to two users on the network but I think what what's very fair to say is a lot of people including us you know we're experimenting and I want to say in in in a couple of cases borderline winging it and it's uncomfortable and we're trying our best and we're thinking about it and we're creating you models but I think we're going to look back and and and shake our heads at how immature and simplistic may be some of the analyses and frameworks

are or were I think that that's we have to admit that so like with with admit normal companies there is this fear you can think of valuing a normal company as being like net present value of the disk of the future cash flows that that startup is going to produce and you can put estimates on those cash flows but kind of my fear is with things like file coin and Bitcoin and helium there is just there is no trinsic valuation model and while we can my impression is why we can say that yes they represent some kind of market the etherium represents the market of trust

less computation I feel it's just hard to assign a rational value to it it is but that your rationality also is something that exists in the equity markets you know so if you look at Tesla's market cap I mean clearly we're riding ahead of any reasonable discounted cash flow analysis there I think even your musk admitted admitted to that I think that what's happening now is that this is all getting tied you know diluted by the storage of value aspect that's going on you know that is really really hard to quantify and that say hey we're just gonna believe this is

valuable we can transact in it but there is a way to say well what problem is this addressing how important is this problem is this a 50 100 tuna billion problem or a 500 million problem and then the difference is instead of if you own tokens instead of looking at the discounted cash flow you're looking at the market transaction volume you know essentially well and then potentially that the additional value that the token crates and so I do think there's something to be said for at least trying an analytical approach people are doing it you know Chris Bernanke I think is is

is is ahead there and has done some really thoughtful things but there is a way to approach it and I think um you know 96 to 99 you heard the same arguments it was I go out it doesn't matter it's just gonna be huge and and and a couple years later people were like no no let's think this through and it's gonna happen here and and I know that at least among the investors we invest with and talk to there's a lot of like hey you know we need to do a better job in thinking this through and creating models and sour responsibilities so how do you think with blue yard about buying equity in a company versus the token versus both like when do you want to do which if

like it yeah how do you think of these two you see they talk more about tokens so are you more interested in that aspect so for full disclosure we have tokens and equity and equity and tokens with the same teams and it's it's it's all of the above and the reason is is that we think both have their merits and it really depends on the plan that the equity based company has with the protocol and the tokens I think there's a strong argument to be made that if the company has one protocol with one token and it plans to release those tokens to

the market and keep a certain part back on the balance sheet and then hope for appreciation and that's the way to fund a company it's really hard to see besides your look through ownership of those tokens it's really hard to see why would be interesting to hold equity versus the token there is something to be said that because especially with early-stage technology it's not clear you know we're pretending is if all of these things will succeed and then you have all these tokens well what if the network doesn't get delivered one of the protocol fails what if or it's not what we thought it would be what if the

company decides to well look we went through some really important learnings now we're going to do our next thing you know and it's maybe another token model maybe a slightly different model and so we want to attach ourselves and work with great people and being in the company and owning a slice of equity gives us a relationship and a different risk profile and so at least from the blue your perspective we're willing to do both there are some of our companies that plan to potentially that of multiple protocols may have multiple tokens may have multiple income streams and they're the equity side may be really attractive I think we just need to have an honest conversation

with the intrapreneurs also where they see the value and typically they're very honest and and and and will will sort of be pretty clear on where they would like to see the value true but I think if it's a single protocol company with the token and there's no sort of economic angle for the for the entity except just holding a bunch of tokens I think it may be better for everybody just to hold the token so what I should say is that you know we've also invested equity and companies that are planning to do a token down the road and it may turn out that it may be more attractive to to own the token versus the equity but we want

to work with the team now we want to establish that relationship we want to help them get to that point and then we can figure out what path to take the economics on so we're you know we have to acknowledge that it isn't always clear you talked before about owning a meaningful percentage of the network or a meaningful amount of tokens well what's meaningful and then why does that matter let's go back to the equity world there are a few venture firms that have amazing logos on their portfolio but still struggle to raise the next fund because they had such tiny stakes or got in and such high prices that it didn't allow them to generate returns that you know lp's expect for a risky asset class

and so I think the answer we always have to roughly provide is if this is a blowout success you know it just it works what if this works where can this go can we with our you know the amount of tokens we hold could we pay back at least half the fund or the fund or potentially multiple times the fund and that's something we always try and extrapolate and that's why I think we've concluded also because we obviously with with token sales and the way the market is we typically have a very small percentage of the network we need ideas and protocols that could

be fundamental parts of a new internet so the sky isn't the limit but like Alpha Centauri and that's why you're seeing us invested more fundamental pillars versus like oh there's like we're using tokens for like I don't know car rental you know that for us that that doesn't work as of today so the interesting part is if you if you compare something like a traditional like hedge fund that is usefully investing in liquid assets so if you if you look at the universe of like hedge funds that that that by regulation and by design need to be always liquid these

hedge funds can only invest in like liquid securities and be ready to redeem the investors value at any time now in the VC world traditionally like you're holding like illiquid things and necessarily the limited partners cannot liquidate their investments very quickly so because of this fundamental in liquidity in the VC world hedge funds had a might have had a very hard time in the past actually backing backing startup technologies and startup technology companies and which is why like this market like might have like clearly separated into these two things

now what do you think like if if the future of like style of financing and project financing is through tokens do you think these two worlds will merge and this difference between like a VC and a hedge fund will it still exist yeah so it is blending here and there and there are hybrid models and certainly were Co investing with with a bunch of hedge fund like models you you all know so they're having the time of their life right now and the reason is because they can afford to be and that's their strategy and they're paid to do it they can think and act very short-term so they could say hey look not too sure

about this technology and team over five to ten years but you know what I think I'm getting into good terms in a presale I think it's gonna pop 3x and I'm gonna like you know walk out you know a couple of months down the road and so they're having the the time of their lives in terms of returns and capital gains and carried interest and everything so hedge funds are great when the market works that way but because of their model they could be the entrepreneurs at the risk of this being self-serving worst enemy once the market flips right because in theory then their job is to earn money on the way down and I'm just waiting for

crypto short products they probably already exist and they can get pressure from the LPS capital withdrawals and so again if you are essentially what is a seed like company and you want to do big maneuvers left and right and you need to pivot into zig and zag something we should also talk about is is you know how clearly do you want to define the token delivery you know how does that tie you up way ahead of time I hate that you know having a whole bunch of hedge funds and crypto day traders could really come to bite you so I do think one the disadvantage we have is that we have to commit long term and we want to commit long term in terms that means we can't be as opportunistic in a bubble

but for entrepreneurs it means they know they have a capital source which is used to going through ups and downs and isn't expecting money over the next 12 months or 24 months but is happy to see this out over five to ten years and so I think we're going to battle it out a little bit but III do see both models staying in the space both models being successful in their own way and we are seeing hybrid hedge funds that sort of seemed to have clarified with their LP base that for example they also sign up lock-up periods you know those kind of things it is a weird weird little world that's emerging here I mean I

and it's also I think a bit I don't know I have some reservations right like let's say if if you if the sort of strategy is we have access so we get in these pre-sales but then we trade me as well right so on the one hand you're sort of committing long term but not really and then trading it immediately at the same time it's obvious how you can create amazing returns like this especially at this point I think it's what you'll see is that what we saw with file coin and you know in some other projects and I think we'll be seeing more and more is look now everything's going up to the right to the corner so nobody's being forced to think through

how investors behave but I think you're going to see more projects a I do not want my token trading before I've delivered the network it has utility value on and the people that come in and get a good deal presale investors and really mess whatever I'm gonna expect them to hold this for a long period of time and then I'm not going to allow them to dump everything first day of the network but I'm gonna have them sort of you know time you know piecemeal it out over time and I'm solving for the health of the network versus the ability for

people to earn short-term gains and I think that conversation is is not being had enough but I think entrepreneurs are gonna sort of come around and do more of that because they've the leverage to do it right let me say look curious though you know if you so let's say you have this VC strategy say we're gonna go early we're gonna grow these teams really work with them for a long term but then at the same time the thing you're holding is a liquid asset right it's being traded up and down there's lots of volatility don't you think that also adding a trading desk or like somebody who does somewhat see okay this you know maybe some announcement but

it's totally overblown and and then liquidates position no come back in don't you think that this almost necessarily will create better returns yeah I think there's something to be said for you know what what actually happens also in the equity world so you have you're an early stage investor angel seed investor and you've a company on your hands which is doing amazing and skyrocketing and is you know has pretty high valuation and a lot of capital that you take a little piece off the table right so you're you're just sort of generating earlier returns early

liquidity but you're keeping a big portion up for you know the upside and I think a liquid token allows you know angel like investors and VC's to do that in an easier way but I do think that the product we're offering to intrapreneurs and to our investors is to take really long-term views and not to optimize for major short-term market timings and so I think at least what we've told our investors is you know this is this may be a wild ride up and down in terms of valuations and our you know how fund reporting and how we value things but

we're not solving for that we're optimizing for that we're solving for ultimate you know proceeds over a five to seven year horizon and so I think it will be tempting to do it and the best will will resist now having said that it's you know if a network launches its successful it's working it's you really your call when you want to get out you know and so I think we're going to see people just doing Trados I think there was an interesting analysis they're also going back to the equity world that a lot of superior gains were generated in the history of venture capital by VCS holding on to their shares after the IPO

versus selling quickly in the IPO I think Google is probably the most extreme case and probably Amazon and so we're going to see some of that here too it may be sort of a corollary of my question now not about return so much but more about you know the ethics and you know in traditional equity markets right there's lots of rules around insider trading around reporting etc etc we don't have any of this in this market what do you think are some of the things that are happening today that you think are you know deeply problematic and that should change and how do you think we should go

about this as an industry yeah so I think the industry has to make a decision so like any form of capitalism it's terrible at self-regulating just terrible now that's just not the crypto decentralized space but that applies to nearly every piece of capitalism and capital does capitalism does is the greatest system we know but it does lead to certain market failures and potentially aspects that are that are troubling and so I think this community needs to decide where there will be wait to let the regulator's come in more or less heavy-handed and I think they're

obviously thinking about it the reason why they're not thinking about it too much yet is we can't forget is who's speculating here this isn't yet mom and pop risking their pension fund on it but this is usually people that know what they're getting into oh yeah question mark but at least you know they're there it isn't quite but I hope that there is radical competition in the decentralized space for transparency and good behavior and documenting it and then implementing it essentially what would be smart contracts so it kind of like if we are this wave of

decentralized open transparent networks of all investing in it we should eat our own dog food and think it through the whole way so there should be radical transparency I think terms of you know we discussed this earlier insider trading you know why not say of the pre-sale investors who want wallets are selling when and and and and you know why maybe not but the when is enough in terms of usage of proceeds you know I think that's something that that there should be competition around and in how that's documented to avoid having a fleet of private jets and then also you know thinking about new kinds of

governance systems you know I I don't think what you want to have is a a majority of crypto day traders that hold a majority of the tokens to be able to influence governance control on projects but maybe there is a way to create governance that gives everybody a vote for certain decisions early on before the network has launched maybe there's a way to have essentially like a board like system that works with the entrepreneurs and so I hope that we can solve it over competition and then the market just decides to fund those projects over others and so if you're not radically transparent if you're not embracing good governance and

transparency is just the likelihood that you can raise it goes down am i optimistic that that is going to happen no because we're human beings and and and we don't work that way but I'm let's let's see I know some some people are ya know it's it's easy to hear that because I'm like I really hope that this would happen but I absolutely do not believe this is gonna happen I think the Train we have seen in this industry if anything is extremely strong evidence that this is not happening and that yeah I think you're totally right the quality of projects is decreasing the terms it's just insane how much worse they've

gotten you know if you compare like things like aetherium two things that have raised more recently if there's no even comparison they're literally terms like 1,000 times worse and things like that or 100 times worse and and a you know extreme focus on marketing and so yeah yeah so the writing is on the wall when you get you know 20 targeted Promoted Tweets for different token sales and with it now somebody find a Groupon for tokens or you buy the new Bible now having said that bubbles are important to bring

things to the mainstream to have them become unavoidable in every conversation be it at the dinner table or in the boardroom and to attract lots of talent and at the end of it typically were left with you know a short-term mid-term bloodbath in terms of capital but with some really amazing new platforms that could be the next wave of innovation and that's I think is the upshot here is that the markets are deciding to fund decentralization and block chains in an unforeseen volume and speed and you know what if 5% 10% stakes that could

transform the internet the way we think of it today and so I'm as bummed out as I am as an investor to sort of have to you know now become slightly less active when it comes to you know 80 million one page or white paper or see deals I still see opportunities that are high-quality I see more and more amazing teams gravitate to the space so I'm suspecting we're going to be busy in the space and I'm suspecting at the end of it we're going to be left with some new platforms that that could be game-changing maybe one last question so if you look forward and you know now

with this long term view and you know clearly you're very thoughtful analytical guy and thinking deeply about some of the trends where they're going do you feel like you believe if you have a conviction about some of the changes some major developments that we're going to see in this industry that you know people just don't see in you know most blockchain industry people don't have on the radar or would disagree with you on I mean if you go through Reddit and Twitter and elsewhere and the slack channels of projects it's more disagreements then and than anything else I think the unpopular view is that we have the direction right but

the market timing terribly wrong and I'm going to where I usually you know I'm a little bit different is that I say we're willing to back you know big big networks and protocols that are the architectural framework to a decentralized internet and I am absolutely not willing to deploy a lot of capital on early application their stuff and so things were doing add values to engineers to developers to people designing new systems solving problems on the internet how data is transported stored used owned but I

think were way ahead of our skis on a lot of the application layer stuff but that's okay so were we in the late 90s and and we still ended up with Google and Amazon and eBay and you know went on from there but I think we're essentially in the in the day and age of you know the the Cisco's of a new decentralized internet except that it's not new hardware it's it's it's new protocols yeah I mean that that's the same sentiment I think both of us Brian and I can appreciate ladies it's just quite hard to build applications that that are cheap enough

and scale well enough so one of the last questions we had is like throwing any in previously you said that this is a bubble but the bubble can have really beneficial consequences because they lead to lot of entrepreneurs coming into this space and exception so right now as of today the market cap is around 150 billion dollars assuming this is a bubble can you give us an estimate of the size you think it will grow to a speculative estimate of how big this can this can get so you know 150 billion dollars if you look at you know global

you know equities that you know hard acid wealth or whatever you know it's a negligible percentage so and there's so much capital lining up I'm I don't like giving estimates of things I've just no idea about so I am just guessing but I would not be surprised if we still saw from here out several orders of magnitude of capital coming in and so and I think we're going to see that appreciate in in many different ways but

in in a majority long term thinking to cerium and and Bitcoin and then more protocol-based tokens as they launch and so I think we are still going to see this go to places where we think it's crazy now we're going to certainly think it's really really crazy I still think we have a way to go but you know I may be wrong and this we may we may look back at this and say hahaha yeah and what we should admit this like you know the thing we should not forget is this could go down by 98% and then recover back again to where it is today

so you know volatility is also insane in the space and that's that's okay but you know let's don't forget that that you know we did the way down could also be pretty pretty extreme but we're bullish on the space directionally were bullish on its impact on society markets economies over the next ten years and that's what we're trying to solve for not not timing this bubble well Kieran thanks so much for coming on it was real pleasure to talk with you and learn a bit more about what's driving you guys a blue yard so thanks so much for joining us today thank you was an honor and I'm already dreading

listening to this in a few years time and seeing how laughable it will be in in no matter what happened so but that's gonna be fun yeah and I just realized this was their episode 200 so congratulations yeah of course we're gonna link to some of the posts that blue yards written and and the team is written there on their theses on some of their investments they've done and and the website as well so if people want to look at that a bit more closely or maybe if you have an excellent idea get in touch of them and see if they can support you so you'll be able to find that in the show notes and yeah so thanks so much for for joining us also to a listener once again so

we're gonna be back next week with another episode in the meantime if you want to support show you can do so by leaving a review iTunes huge helps us very much and yeah thanks so much for recording back next week [Music] [Music]