From Chaos to Consolidation: The Rise of Crypto M&A

Transcript

Fantastic. I'm really looking forward uh to this uh master class. Um give you a little bit of context about myself for those of you in the audience that might not know me. I've been involved in this industry for the past eight years, older than the conference itself, which is now seven years old. Um and it's true that you know there's bull markets, there's bare markets, a lot of different cycles. Um it's true that you know those cycles do wear you out. Uh how many of you in the audience have been around since 2017? Okay. Yeah, quite a few of you. It, you know, it does really kind of wear on you a little bit. And uh this subject is something that gave me a little bit of a second breath, a second life because I felt a lot of energy and a little bit, let's say, some electric uh thoughts, no

pun intended, um when I discussed this topic with people. So hopefully at the end of it, you feel that way as well. Um maybe just give you some context as to why maybe my presentation today is going to be uh more or less uh relevant. Um, if you don't see your logo on that screen, we can uh chat uh later to see if we can add you to our hall of fame. But these are some of the companies that we've worked with over the past years of five uh five years that Storm Partners has been uh around. Um, and what does uh Storm Partners do? Essentially, we've been quoted as the McKenzie of Web 3.

We're a strategy advisory firm and essentially we focus on outcomes first and we believe that M&A can be a very very strong outcome for a lot of people in this industry. So, I'm going to talk to you a little bit about why, but first, I mean, how did we get to where we are uh today? You know, a lot of boom, bust, and bloat, as I like to call it. A lot of acronyms from ICO, IEO, IDO to TGE. Um, you know, uh we could have many more like NFT. Um, but essentially, there's really been a bit of a of a growth and a bit of yeah, this kind of uh weight that's been on a lot of our shoulders. uh a good friend and colleague of mine always tells me and

reminds me that there's more uh cryptocurrencies uh listed on coin market cap than there are on um uh that there are stock listed in the world. So, uh there's quite a quite a few, maybe even too many. I think too many in in my point of view for the moment at least. Um and a lot of use cases that could uh that could come uh together and honestly it builds a lot of confusion. It dilutes and we're all a bit confused about what's going on. Um so it was it was the wild west and the ones that we are seeing today are looking at uh uniting.

Um uniting uh is the word I like to use. A lot of people say consolidation. We're like okay the bare market is going to happen. Uh a lot of these companies are going to consolidate but actually unfortunately uh consolidation didn't happen. Why is it because uh a lot of people's treasuries and normal startup you have your treasury you have your runway and normally we're talking about the volatility of foreign exchange before. Well normally that currency uh doesn't double triple or even uh 10x in value. A lot of these companies that raised in 2017 held a bit of that in Ethereum, held a bit of that in Bitcoin and essentially they never ended up kind of dying even though they had never

really found product market fit. Uh friend of mine was telling me that most layer 1 blockchains today are more hedge funds than they are pro protocols. So um they are uniting they are finding ways uh to do things uh together. I do want to kind of remain on this point that consolidation shouldn't be seen as a loss. It's often seen as a as a bad thing. It's like, ah, okay, we're coming together. I'm I'm losing certain percentage of my equity. I'm no longer kind of really in control there. But to our belief, uniting is a feature, not a bug. Why is that? Because the world is quite a big place. If you have uh people that are trying to build exactly the

same as you uh in Asia that you are here in Switzerland or in America, why not unite with them? Blockchain by design is global and so if we can come together, we can benefit from these v variety of uh benefits here, economies of scale and the likes. Um here maybe to give you some perspective around M&A. It's not let's say a topic that has just been uh coming up. It's something that has been around for quite some time. Some huge numbers. Normally, you only see this type of numbers when we're talking about a cyber security hack, which is normally not a very positive thing. These are actually quite positive numbers. I mean, there's the type of uh figure that you normally see in uh the traditional

world. So, you can see that our industry is maturing and there are some large transactions happening. Maybe to give you a little bit of context there because of course data is uh king. Um you can see that there is been a growth in mergers and acquisitions over the past uh quarter. Uh we are seeing more and more in the works too. So here's a little bit of uh the numbers for you with that lovely graph and then a little bit more here by sector because it's true it's like okay but what are the types of companies that are really consolidating and here you can really see from two slides ago that a lot of it is uh is finance today because when we talk about consolidation unfortunately a lot of let's say the NFT and some other

players actually did go bankrupt. So um how are we accelerating here in in web 3? Because it's true that when we look at M&A as we said before it's not a negative thing it's a positive thing and um this is how we see kind of the evolution. So I'm going to focus more on uh three of the growth levers here. Um, and these three growth levers came to me as being important because it's true that myself, uh, as a founder, an entrepreneur, I'm thinking as well, okay, what are the best ways that I can grow my business? And these were the three that I evaluated and that I often put forward to some of our clients.

There are many more, but because we don't have too much time today, I'm going to focus on, let's say, these three. So, vertical, horizontal, and geographic, but as you can see, there are a few others as well. So for me vertical growth is about okay you're doing one thing you're doing one thing uh well how could you do uh better of that thing right so I I run a strategy advisory firm for me it's like okay uh we have a variety of different uh departments um how could for example in our legal and compliance department what could we do to have better lawyers compliance officers and the likes yes we could hire them but are there ways to be able to acquire uh a law firm or the

likes to be able to bring that type of knowledge inside. So when we're working with some of our clients, we see, okay, well, they're doing well. Is there a way for them to double down on those efforts instead of spending many hours and days looking at um LinkedIn strategies, etc. They could just bring in the talent uh from a vertical standpoint. um horizontal here is very much okay well yes we're doing legal and compliance but recently a lot of our clients have been asking for some financial matters we had some team members that were quite strong in the finance side but we were discussing okay is there a way to look at uh acquiring a finance company that has already uh been battle tested and that we can grow directly in that

vertical through that type of acquisition so I really like the the horizontal side because it allows us to find that product market fit uh without actually having to discover it ourselves because there's an entity that already has and geographic as I mentioned before blockchain uh technology is global by design so if there's someone doing it in another field somewhere else we can directly go uh there um so I would like to just pause a little bit and kind of uh bring in a guest here um that uh might not be miked up just yet u but would be great for him to uh take the stage um because this is one of the clients that we've worked with over the past uh couple of years and they were not

necessarily having problems but they were looking at uh the industry as okay we're doing AI AI is extremely complicated as you all know most of you know open AI and XAI they have some very big challenges they're quite uh they're quite big as entities they have a lot of resources and our uh client here singularityet was looking at okay how can they achieve AGI, artificial general intelligence via uh decentralization. So not just having one entity controlling your data. And so I'll leave the stage to my colleague here Nicola who's let's say the man behind uh the merger here of Singularity Net Fetch and Ocean Protocol who'll give you a little bit more

insight as to why this was so relevant for this entity not only from a commercial perspective because it's true that their tokens were trading around the top 100 by coin market cap and by the time this happened they shot up to top 20. So quite quite an impressive feature. So let's give a round of applause to Nico and let him uh talk. Thank you very much. So yeah, it works. Um, first of all, I'm a lawyer. So let's say Shaz pointed out that I have engineered this merger, which is true, but from the legal side, not from the commercial side or business side.

Another clarification before we enter into the topic, we need to clarify one very important thing. When Shazo showed the figures before, we were talking about more traditional M&A deals in which one company acquires another company. This merger was very peculiar because it's a token merger. They had three tokens, they ended up with one and they aggregated the the supply. So this is a very peculiar type of merger that can happen only in the digital asset industries. There is no other industry in which you can merge let's say the sort of like traded instrument without merging the organizations and the way in in which this has been

achieved is through the creation of a common entity that is called ASI alliance foundation uh with a governance mechanism that unites uh the three founding members which are fetch AI singularity and ocean and through the merger of the tokens. The merger of the tokens happened through basically uh the basically getting rid of two tokens and maintaining one smart contract on which the total supply was increased to match the aggregate supplies of the three and then this has been exchanged back. Uh the very let's say innovative thing of this is that nobody did a token merger of this size before

and so we were assisting singularity net and one time single net came to us and said we want to do this how do we do it and the first answer was we don't know but we will figure it out and then basically the whole process has been agreed between us and the lawyers mainly the lawyers of fetch and we found a framework work that we believed was um let's say appropriate to protect the interest of of both our clients and to achieve what they wanted to achieve and then we moved forward with that. I can also tell you that because it was let's say the first of a kind uh there were a number of issues that we sort of had to to let's say use our creativity to

overcome and still of course maybe it wasn't perfect and it's to certain extent still work in progress in particular on the governance side but is a very interesting thing because of what Shiraz was saying earlier there are too many tokens on the market there are too many projects that are trying to do exactly the same thing and could benefit from mutual synergies if they aggregate. If they find other another project or two projects that are trying to do exactly the same thing and they p they could pull together resources and unify their team, their technologies and then move forward stronger. And this is exactly what happened in the case of the ASI alliance and it is enabling them to move forward stronger and to

accelerate on the path to achieve their objectives. So it is uh in my opinion a successful case. Of course the real success of this we can see only in three four five years but let's say they they started strong and and we hope they will continue. Thank you very much. [Applause] Wonderful Nicola. Thank you. Thank you so much. And so um we we spoke a little bit about the past. We've spoken about a present use case. Now I want to take you a little bit into the future and how this can really uh involve yourselves with your entities the things that you're thinking about as uh as well. So a little bit of behind the scenes. So so Nick gave the the legal perspective here. Um and we had a decent amount of

our teams working in sync. So I want to give you some of the challenges that we face as well because it was definitely not an easy uh case, right? So one that we've been asked even even today is how do you value tokens, right? Um, and this was a pure token merger for ASI, but we're currently working on three deals where there are entities that have tokens and equity. And they're like, okay, well, our equity is a certain uh value, but our tokens uh are of a certain value as well. Can we sell the entity for that value? And unfortunately, uh, as we do work on the buy side and the sell side, we see also what, uh, the entities that are buying companies say. And the unfortunate part is that even though your token may be valued at a few tens, if not hundreds of

millions on Coin Market Cap, certain larger companies that might want to acquire you might see this token as a liability because they might not have a token and it might be harder for them to be able to integrate you into their ecosystem. So instead of giving you a discount or a premium on the token, they might have to fork out a certain amount of money to be able to convert that token um for the users into fiat uh as well. So valuation of tokens is incredibly important because as we might uh have seen with the whole Mantra uh topic where Mantra went from a 6.97 billion valuation to like uh 70 million overnight. Um you can see that the order

books the liquidity of these projects even though they're valued quite high unfortunately there's no real kind of let's say uh buying pressure within that. So valuation of tokens is extremely important and don't just say okay yeah coin market cap says this I'm going to be able to sell for my token price plus my equity price. Doesn't always work like that. Um Dowo coordination uh it's much more complicated uh than you you may uh think. Uh it's it's quite interesting that even though the leadership of the three companies that Nicolola mentioned really wanted to do this, they had to get the buyin from the community. So it's true it's a dual-edged sword because it's quite a beautiful thing to say that okay the stakeholders have such

uh an impact on the future of the project. But it could have happened that those users said no actually we don't want this to happen. We believe in this specific uh vision. We don't want that uh we don't want that to happen. And so they can often be quite complicated uh because yeah decentralized autonomous organizations operate in strange ways sometimes. Um narrative alignment is is very complicated as well. Um and and I'll touch on that one as well with this with the last point here of egos is that you know we all have different visions and missions and maybe we're doing uh what we are not necessarily for the money. Maybe it's for other reasons and uh our egos can often get in the way and if we are not merging uh a company or

acquiring with the right narrative alignment it can lead to a lot of problems down the line where then maybe that company might want to spin out or maybe the asset is not worth as much as was b was bought for. So when we look at some of the lessons learned it's not just about merging the tokens it's about merging missions um that everybody is aligned internally. you go out for drinks, go to have a few dinners. It's not just about uh the tech. It's really about okay, is building together uh going to be the best way forward and will those teams get along? Uh today we're still a human-driven uh society, not just uh technologically uh driven.

So human side is very very important. Um so what does uh M&A ready uh look like? Um so it's quite uh quite interesting to see that a lot of uh companies that are looking at uh merging or looking at uh M&A aren't necessarily doing it for the money. They're really thinking about uh acquisition channels, speed to market and new geographies. Here I'm really going to just talk about the kind of the speed to market. Is there a way that instead of just deploying their capital um they can give up some of their equity tokens and they can get to their objective uh faster? Uh it's really really important to have that one in mind. Um so what are they buying? So if

you are looking at let's say the tangible value of your company, it's not really the hype and promises. It's true that you can consider kind of goodwill hype is is is an is an important factor if you don't have good community sentiment. Maybe the other elements of your business aren't going to be so worthwhile depending on how the organization wants to take it, if they're rebranding or not. But here are some of the uh seven points that we believe have really unlocked uh the valuations that the the founders the seuite have sought after are licenses and regulatory compliance. It's very tangible to have a license. Um, having good teams. I think most of you in the

room know the difficulties of hiring uh good people. If you can have great people within your company, there is a value there. Um, new access and then of course the three last ones are extremely important especially in our industry. Uh, active users, total value locked and transaction far second. Okay. So, uh, for yourself and the audience before I kind of leave it over to slowly but surely to Q&A, um, how can how can you get prepared? Um, having having a clean house, you know, I mean, your your doctor can't help you if you don't uh give them uh exactly kind of what's going wrong with you. Same as with your lawyer if you're not completely transparent. So, if you can have a clean house, no skeletons uh in

in uh in your closet, if you don't really believe that your token has uh value, then just kind of sunset the token. Uh get right with your community and then go into the transaction having really uh clean books and being quite uh safe. Um the last one, as an entrepreneur, I'm always a bit kind of wary of to like not have any pet projects. So, I know that maybe some of you creatives in the room always like to do a variety of things, but here it's true when it comes to M&A. Um, we've seen that the buy side really just want to know, okay, what are they specifically buying and what are they getting uh out of that? Um, then papering up is a is a very uh not necessarily difficult but administrative

one for all of us. But yeah, just making sure you have um everything set in your data room. The amount of times that we've had companies come to us be like, "Yeah, yeah, we're we're super ready to get acquired." We ask them for their data room and they're like, "Yeah, okay. We'll give it to you." It takes a month for them to give it to us. We're like, "Okay, but where where's your business model?" It's like, "Ah, we needed one of those those things." Like, "Yeah, yeah." Or a financial model. Ah, okay. So, try to uh see I think chatbt can really help you to understand what needs to be in your uh your data room. If you don't know, feel free to to chat to us. We're happy to to let you know. Um and just kind of having that set is going to save

you so so much time. And then you know we everyone talks about differentiating factors USPS try to know okay what uh what is the organization that might want to buy us what are they getting here? What is really the USP that they're buying? Um so uh to kind of close off here today um some key advice like be realistic of course know your worth but our industry is known for overinflated valuations. So uh please try to understand okay what is really a realistic uh amount um try to leave to the side the ego side right uh it's not a surrender it's a scale up we can do uh more uh more together and uh of course an an obvious one if not it's just a

plug for us but uh do uh partner yourselves with people that understand this industry uh as well it's quite it's quite complex and these transactions can be difficult and we're here uh to help So um a little bit of uh kind of the missing link that we believe uh it is um get away from the chaos. I think we're going to see much more consolidation. We are already seeing it. A lot of these tokens, a lot of these projects are going to come together. Um it's no longer rare. Uh it's really required. uh US companies if I take it back to the geographic standpoint uh have a lot of money today because they uh the provisions they had for a lot of the SEC um kind of cases that were ongoing have

been lifted. So there is a lot of activity uh happening from that side. So um it's going to be happening more and more and uh proactivity so true a lot of the time deals don't just come to you and fall on your lap you can go after them. So, I will leave you with my final uh kind of one of my favorite quotes here is that luck is where preparation uh meets opportunity. So, if you're prepared uh now is the opportunity to be lucky. Thank you. [Applause]