An Inside Look at Crypto Venture Firms | Roundup

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode all right everyone welcome back to another bell curve Roundup uh you've got Michael's one and two Yano and Vance sorry uh travel schedule made me miss last week I heard it was a good one welcome back everybody we miss you now the big question is are we back as an

industry or are we back we're back we're back we're fully back people are people are yellowing into coins like it's November 2021 again normies are texting me like 2022 never happens people are ready to go people like what low cap gems should I buy yeah yeah exactly yeah when you start hearing those three words low cap gems it's on I will say though I missed the boom and telegram groups telegram groups are popping off right now yeah the the few survivors are having a great time everyone that's still dead not too uh not to completely rain on the parade but I'm I'm still holding out that there's gonna be something I don't know somewhere in like a couple weeks

and and we're just back to back to the little doldrums but I you know this is good it feels nice feels like we could get back in just like a couple of good positive newsdays the uh the thing that that I'm kind of looking for as in terms of you know maybe we're we're not back or like a scary narrative that could push people you know brush people back a little bit is the uh January inflation print looks hot looks like it almost you know doubled in terms of you know the acceleration from last time so I I could see there being a little bit of uh you know stop and start people getting concerned something like that and specifically what we're talking about is

I think it's Cleveland fed that puts out uh inflation now which is a day by day tracking of inflation and it's an approximation it's been hot uh relative what the relative to what the actual CPI and pce prints have been over the last I think three or four months so it hasn't been a perfect barometer of where the actual print will come in but it is a pretty good indication at least Trend wise where things are going um because it maintains a day-to-day measure well we had um earlier this we had yesterday actually the fomc um and Powell kind of that's where Powell kind of gets up and you know announces what they're going to do in terms of uh you know rate hikes or Cuts

or whatever so they did the 25 basis points that most people were expecting but I think in terms of the verbiage that he used it came off a lot more dovish than people were expecting j-pal not only announces the 25 bips which everybody and their mother expected to happen um but what was really the bulk of the announcement bulk of the news was his press conference about a half an hour after the announcement and that's where you really got to see sort of the the conversation point but also the perspective behind the 25 basis point increase um I think the two kind of major components of this are at least markets following the conversation are now pricing in 50 bips increase for the rest

of the year um so that that may mean we have another 225s or a 25 pause and then maybe a 25 later on um or we have more Heights and then rate decreases at the end of the year but markets are expecting 50 bips the Tom Lee headline though was the word disinflation was used 13 times throughout his conversation and so at least that you know that word itself is starting to enter into The Narrative of what the FED is putting out um and yeah dovish is a great way to describe it markets reacted immediately um and uh we'll see I mean you know to Vance's Point earlier inflation for Jan

January could be a some cold water that gets thrown on this trend we got to put some respect on on Tom Lee's name he was like the only bullish person last year I would read his like letters just to like keep the Keep The Vibes up even if I didn't necessarily agree with what he was saying but you know he's been right and like I just remember all these interviews and if people don't know who Tom Lee is he's kind of like this this permeable macro strategist that is very data driven and very contrarian but also just very smart uh but whenever things get bearish they like to have Tom Lee on CNBC and they just beat him up every single time and it's like so Tom Lee you're back and you're still wrong how does it feel and like these interviews are just terrible but like those are

usually a sign that you know Tom Lee is is going to be Vindicated at some point is like the inverse Jim Cramer take yeah I think I think Jim Cramer is bullish now too which is uh maybe a negative signal um but the uh yeah Tommy isn't wrong he's just off by about six to 12 months it seems yep he's just early I'm a huge fan of tomly he's been he's been pretty right I think uh by and large and it's hard to get out there and be bullish when everyone's screaming in your face and it's very consensus to be bearish so I'm a timely supporter I'm a Stan of Tom Lee for sure shout out tomboy me too

um yeah what else is happening with with the with the FED stuff I mean my take was that his heart just wasn't in it you could tell it's like we're at 25 basis points it's basically zero like maybe there's one more you know a lot of the stuff was crossed out the Ukraine stuff the uh the supply chain stuff in the in the letter um I don't know it feels good like we're on the other side of what I think is the rate Peak and now you have Powell kind of acknowledging a lot of what people have been screaming at him to acknowledge which is just the disinflation it feels like that was like a watershed moment for people who've just been getting beat up by these rate hikes like thinking back to last year the fact that he hiked 75 basis points four times that's like

taking a sledgehammer to just the economy do you remember I can't remember if it was June or if it was July but one of the first 75 basis point increases he literally walks out there and he he's like holding the piece of paper and he's like shaking you know the thing about that j-pal versus this one this one you know a little a lot more cool calm and collected but also just like the narrative is something that I think is more conducive to people liking him and not actually hating him people had this really specific Target in mind of about three percent remember that's what people thought the FED could get to because when he did his original pivot you know when at one point you know when he was you know sort of early in his uh

fed days you know he was like we're gonna be more hawkish and raise rates and you know they tried to get above three percent like the whole Market just puked and he famously pivoted so when he started doing these rate hikes everyone thought it'll get to like two and a half or three percent or something and you know to his credit he I think he kind of made the right decision I think he's gonna get a lot of credit in retrospect for 475 basis point hikes in a row like yeah gun Black and drucken Miller and all the people who were kind of beating up on him over the past couple of years have have done a 180 and said you know he's actually one of the better fed chairs of our lifetime and I don't know looking back if you didn't hike like that we still

may have a large inflation problem and we're not out of the woods yet but it was mostly you know necessary medicine I mean Dragon Miller is saying that whenever CPI has surpassed five percent in the history of the fed you have to raise fed funds fed funds rate higher than CPI to break CPI so Drucker Miller is still calling for like another one and a half percent this year another 150 basis points this year which I I think would be probably bad policy and then unless we see inflation really take up over the next couple of months uh re-tick up but you know there there is a lot of you know countering perspectives at this point from very esteemed people

like Dunlop and drunken Miller they're really zoomed in on this one metric by the way which is they sort of invented three months ago which is Core X shelter so they they're what they're basically trying to do is like they're trying to see through some of the noisier more volatile uh components of CPI which is core which excludes food and energy and then they know that there's this big lagging component which is shelter so they're really what they're really trying to see through too is Wages that's why labor markets and the unemployment rate has been in focus and that has started to turn so the last the last CPI that came in really soft and I think that that played a part in in his like kind of dovish stance today and the other big piece of data that came in I think it was Monday or Tuesday I think

it was Tuesday was ECI which is the employment cost index which is kind of a basket of a number of different things but it's sort of a proxy for wages and that was expected I think last month was 1.2 percent it was expected to do 1.1 percent this this month but it's actually 1.0 and so that you know beat I think also helps with a little bit more of the Davis perspective do you guys like just last you know I mean we were talking about like kind of joking we're back but like I mean what do you think when you see when people are like pinging you about low-cap gems and you know can Kanto or Kanto is like ripping you know like uh it it and honestly even in stocks like carvana is up like 100 in

in a week I mean what what do you what do you is that like not something to worry about and that's always going to kind of happen off the lows because those things got beat up and they were shorted or do you view that as like being you know being indicative of slightly less organic rally it's just like part of the cycle in my opinion and you saw like a few of these during 2019 where Bitcoin rallied to I think it was like 14 or 15K you know in its old all-time high back then was like I think it's 18 or 19k you can kind of get these pretty vicious rallies and as long as it's not in like the absolute trash of the long tail like I haven't seen does your shib really really go off yet that's the stuff that kind of concerns me

um and I think you've also had a more a bigger rally in the higher quality names which like that's one of the things that we're looking for in terms of is this industry mature enough to you know allocate a lot lot more money to you need the market to kind of be more rational than it has been in the past so I don't know Kanto is is like a legitimate project in in our minds um and like synapse is doing well and lotto's doing well and all the projects that do idx is doing well um you know like polygons doing well Dogecoin isn't really moving you know uh it's up a little bit today but but not a lot it feels pretty healthy I agree I think it's it goes in waves right you

see the the you know once you get to the speculative wave that's when it starts to be too speculative but I think we're still on that first wave right now and the way I I think about is sort of like choose a trend and three is a pattern like we're starting to put like data points together where we can map one to two but it takes one to two to three to be able to say okay like this is a changing narrative like this is a Changing of the Guard a lot of it's PVP too like especially the the cosmos stuff we're just so such low liquidity that like you see people tweet about it and then it'll move and you know people are just kind of jockeying for exit liquidity or or entry liquidity well and that's the thing like the liquidity right now is so low that

it doesn't take much up or down from a buying or selling perspective to move these markets pretty drastically and and so I think that you know is probably the biggest narrative if someone comes in and wants to buy ten thousand dollars worth of you know something that's not traded on a central asset change and they're they're buying it through uniswap or or sushi or somewhere one inch that's going to move the market a lot all it takes is uh Hal coming on the Empire podcast to uh move dydx 30 30 higher that's Jesus not Financial advice it's a pretty bullish review can we get a check-in guys of um what's going on on kind of like the the private side of crypto I know uh Michael we we talked about this a couple of weeks ago but uh

actually Jason and I this is on both of our minds because we had a bit of a doom stage call this morning with uh someone who's like sees basically a lot of uh kind of earlier to mid-stage uh crypto companies and he said there's still a decent amount of pain to get work through uh both just in terms of valuation resets but also just um you know there are some crypto companies that are kind of burning a lot of cash and like they're going to have trouble basically raising Capital um would love to get a sense from from the two of you both just in terms of like how you're seeing in terms of like New Deal flow coming into the space and in valuations but also maybe uh you know without talking any specifics about your portfolio companies just like how are folks doing that raised you know in 2021

maybe on higher valuations and like have they adjusted to sort of the The New Normal takes a while to reset these valuations and private markets are kind of the last to reset but you're now at a point where prices have corrected and pretty much doubled and a lot of the Venture stuff is a lot more attractive as a result but but they still need to reset the valuations that they're going to Market at um I would say most of our companies have two years of Runway and so they're going to be needing to raise in you know 2025 like mid 2025 you know like that would be my guess at least um but we know of a lot of portfolio companies of other folks and and just generally in the space that have six to

eight months and things like Aqua hires and selling companies for parts uh have definitely been conversations that we've had with a lot of folks frankly like there isn't enough product traction with most of them to really do any interesting like M A or you know Aqua higher style deals um so that's one part of it I would say the other is like the end of this year you're gonna see a lot of people kind of hit the wall in terms of their Runway and they're gonna need to raise and you know if the market is where it is today the market clearing price for a ton of support startups coming to Market is going to be a lot lower um than it has been in the past couple of years and

entrepreneurs still kind of don't realize that so we need them to kind of like you know have the come to Jesus moment so they can actually get a fundraise done so you know start of the year new fresh new okay what did we learn last year but like what's the plan for this year conversations kind of going around the horn with with all the major uh portfolio companies that we have the advice that we've been giving is assume that the end of 2023 looks exactly like we are like the place that we are in right now which is essentially you know we might get 40 pump you know 50 drop and like things are going to move around but just assume that you're gonna end the year with a lot of the same basic metrics that we have right now which is you know tvl user growth

activity you know on-chain you know potential customers and so if you're going to start in into Vance's point if if we have you know two years of Runway it means that you have to start thinking about what your fundraise looks like in 18 months from now if not a little bit sooner than that which means that from then uh if you work backwards what product what service what user um base are you going after 18 months from now because that you you don't have right now because right now it's not working right now the product Market isn't isn't there like things that worked in 2021 2022 aren't going to work in 23 and 24. so how do you change how do you adjust how do you you know

reinvent to get to where you need to be so that you can survive and and that's a lot of The Conversation Piece right now that we're having um but I think it also stems from and one of the interesting perspectives um that I think about is like what is the fundraising landscape for other Venture funds and what is the basically therefore what is the liquidity that's going to be available for these fundraisers that need to happen in the second half of this year first half of next year or second half of next year and it's not going to be good for any fund who has to raise a fund in 2023 and in fact it may even be like impossible to something that's painful

um there were times in 2019 where Venture funds straight up could not raise right yeah there are a lot of notable Venture firms that could not raise their funds in 2019 and ended up pulling it off eventually over the course of 18 months in 2020. I think that's going to be a lot of what you see here I think you're also going to see Venture funds who maybe raise 500 for their last fund have to go through the process of raising 225 for their next fund you've now seen tiger who has set off to raise 13 originally and then they announced that they're going to downsize to six and now it's down to five like that is representative of what you're going to see from a venture fundraising landscape now the other part is you know and you know we are inclusive of this set

but there there are a number of venture funds who raised basically at the end of the cycle last year who still have a ton of dry powder but the problem is the bar for accessing that dry powder is three four five times higher than it was 12 months ago and you know we we are being extremely cautious in terms of how we make new bets we want to take concerted large bets but the bars to get there is just that much higher um and the valuations that are going to clear the market are going to be that much lower you know who else had to reduce their fundraising Target and and their strategy set chamoth so jamath is now opening Social Capital

back up to external LPS and he was going to raise I think like three or four and do like growth stage and like hedge fund stuff now he's raising one for early stage stuff and he's having the first close in March which kind of implies like if you don't close like if you don't close everything at one point it means that like the demand is softer than you might have been expecting it's just a tougher environment I guess for for everyone but yeah especially for crypto the Dynamics though for a fund if you missed the raise or not as bad as when a when a founder or when a company can't can't make their raise because like unless I unless I don't understand yes and no I mean it he so so yes uh if you are a venture investor right now who has a fund who is

out of dry powder like no more Capital to be able to spend how do you stay relevant while people are also doing deals you're just uncompetitive and if you miss a cycle so let's say you miss a year of being able to make new Investments the best investments should be in that year you don't have coverage over I mean the whole point of a venture fund is that you have vintages every you know funding cycle which could historically it's been two to three years over the last five years that's shortened probably to like 12 to 18 months which is kind of crazy deployments have just been really really quick but now you're probably going to see like three to four years for deployments and if you're stuck in one of those mid Cycles where you deployed your Fund in 18 to 24 months but in fact

you can't raise for 36 months you're out of the game for a whole year and and you lose brand appeal you lose relevancy and and you know it's not a death nail blow but it is something that just kind of removes the the cachet that you once had if you're not able to make new Investments so that answer is kind of like I'm gonna I'm sure it's like a really stupid question but going through these Cycles it kind of just makes you think like why aren't there more funds that just stop investing or don't invest at the peak and then they wait and hold all their dry powder to now right why don't they buy it I know that's like no that's why I'm like sure it's a stupid question but you know I I mean it's it's uh it's obviously not

that easy uh as as saying it that way but I think this is where you know the best fund managers are prescient in terms of fundraising Cycles when getting things done but also pacing and being really prudent about when you're deploying that capital and how much you're deploying at any given point in time I'd also say like in crypto we have a really unique opportunity to change the traditional Venture strategy where like hey a venture fund can hold liquid assets and maybe those liquid assets could be used as you know things that you could recycle into further Venture Investments and so you do get to have a little flexibility on your strategy a little creativity but I think that you

know is tough when your Venture fund is all saps and Equity Investments and you have no dry powder it's a very different different place to be in there's a there's actually one more dynamic inside a venture firm that I don't fully understand how it works that I want to understand it so when you guys raised what 400 million for your last for the last fund um when you so my understanding is you don't go get it it's not like someone like it's like all right like March 1st we close the fun and then like the next day March 2nd like 400 million shows up in your bank account you have to call that Capital how does that process actually work like are you at some point this month gonna call your LPS and be like hey Joe like I you know I've got a good deal that we're looking at like can

you send us the money like how does this work so you is so before I answer that question there's like two jobs if you run a venture firm number one is you have to be like a really good investor number two is you have to be a good fund manager very different jobs being a good fund manager when do you raise who do you raise from like how do you like basically communicate to LPS get your brand out there like run the fund in the operational sense but investing is like how do you put the money to work when you raise money for a venture firm we raise 400 we did one close we closed it all um and we've been calling it over time usually like you'll call a chunk up front and then you'll call like 10 every few months after that um but to Michael's point

if you want to hold liquid assets and you want to do something aggressive you know near the bottom like you have to call a lot more of that and you have to run kind of like this quasi-vc hedge fund style strategy and that's something that VC LPS are generally not used to and so like that's the other part of being a fund manager it's like how do you communicate your strategy to folks getting them comfortable with that and that's what you guys are doing right now I know you guys are taking big shots because you think that we're at somewhere near the bottom so you're having to make those calls right now we did make those calls um and uh like we're we're not kind of being as aggressive right now but when we thought there was really good cheap opportunities we we did but you know it's it's uh it's an

educational Journey for everyone it's uh it's not exactly as straightforward as you know we're going to invest in 15 equity-based companies and we're gonna you know make seven of them work and three of them will fail like there's a reason why we're talking about interest rates and what the FED is doing and all that stuff like this is not necessarily what Michael and I signed up for but this is kind of what you have to do you can't sacrifice the fun for the sake of the Mandate you still have to have a venture thesis and basically what that means is you have to be able to underwrite even if it is a liquid investment a venture outcome potential for that for that investment like you can't be like oh I think this is gonna pop 20 or like oh I'm just gonna do a yield farm with a bunch of cash

um it's not really anything that you can put into a venture fund that's there are other types of funds that you know have those different types of strategies so your LP base is expecting you to make Venture Investments and that's what we do but the the way that you do that from the start and the way that your portfolio is constructed at the end in crypto historically every single one of those profiles has been different you know what you started out saying hey we're going to put you know this Capital into 60 to 70 companies over the course of 18 months to 24 months it's like nope okay everything just blew up so there's really attractive liquid buys that you know we think are going to be high potential opportunities for us like we're changing the strategy three months into the fund and and that's okay but

you have to have an LP base that's supportive of that why does that work that way like when a company raises money if we raise 400 million bucks that money just gets set it's not like we just you know it's like hey we want to do a big ad spend the the reason why historically is um well it's twofold one LPS have multiple areas that they're putting capital in it could be you know a long-term Equity hedge fund it could be um you know a distressed debt fund it could be Venture Capital it could be crypto who knows but the point is they need to manage their obligations to other managers but also potentially to whoever they are if it's an endowment they're funding the operating budget for the school

um it's if it's Foundation they have the same sort of you know mandate as well um and so there's a lot of like moving pieces on the lp side but the other reason why Capital calls have historically been you know the model for how you actually uh you know run a fund like ours a closed ended fund is it actually is a model where you can juice irr and this doesn't really happen for the Venture Capital firms because really what people care about at the end of the day from a venture firm perspective is what's your DPI which is dollar dollars distributed per invested dollar and and that's all net of fees and it's just like dollar per dollar how much did you get back over what time Horizon it's

usually 10 years but when you're a private Equity Firm and you're benchmarking to let's say the the equity markets of like six seven eight percent you've got a hurdle of six to seven to eight percent and that's you only get you know performance performance fees on top of that hurdle and so if you're able to say over the course of two and a half three years I'm only going to call Capital when I make one of my five to six Investments for this fund and we're talking like you know buy out private Equity firms that actually you know can add a percent or two to what your total irr is for the thought just because you don't actually start calling the internal rate of return on that Capital until you call it so that that's kind of the other reason why Capital calls have

been a construct of the fund structure but once again for Venture it's not really you know the main driver of success Venture like a Venture Land crypto Venture landscape question for you guys I don't know how much you can share here but like in my mind there's like a group of tier one crypto Venture firms like electric and Paradigm and polychain and throw a framework in there and parify and like uh I'm sure I'm sure I'm leaving out something but like you know that there's like a tier one group of crypto Venture firms that's in like my mind um but in like when you actually look at the returns of these firms are they like drastically different yes we can't ask about our returns but yes

okay well framework okay then take framework out of it but like when you compare those firms like how like and what like how how different are they very different like there's people who've hit Grand Slam home runs and there's people who are kind of like you know points like 0.5 x to 1x like the dispersion is is massive some of it is what your thesis is some of it is what you've invested in um a lot of it is frankly timing and like that doesn't sound like the most fair thing in the world but like if to Michael's point if you miss a cycle if you don't have Capital to buy at the bottom you're going to show up to LPS with a bunch of a liquid stuff you know in terms of you know private startup Equity that doesn't necessarily have markups or product Market fit and

oftentimes that's what determines the survival of a lot of firms I would also say every single one of those firms I think every single one of those firms that you just listed was started in essentially the last three to three and a half years so historically from Venture Capital perspective we're like in the first to second fun cycle for each one of those firms right now like you can't even really say like what are the returns you can have like initial marks and maybe some of them have initial distributions but the the way that this works over the next five to ten years is you're actually gonna have the the stratosphere separate and figure out who's really good and who's good and who's not good and and that will be sort of the longevity which is

based around the strategy but most importantly it's based around the people and right now the the biggest indication of success is like who are the GPS who are the ones that are calling the shots who are the ones that are making the Investments and and the younger people at the firms too who are you know making Investments and Rising the range and like what's your bench look like and what's what what is the next crop of people who are who are up and coming GPS and the the reason why you think of those firms is being successful firms is is largely because of probably the personalities or just like the Republican presidents of those people yeah but that is not an indication of them being long-term successful Venture investors and I think it'll take five

years five more years I guess really the only Venture firms that have like a track record are the ones who started in like 2013 for like the Panteras blockchain Capital like there are very but even them dude I mean look how many eggs well Pantera has been around for a long time Pantera started with a blockchain or sorry a Bitcoin only Fund in 2013. their first Venture for fund I think was like three years ago oh yeah I guess there really aren't many firms the other thing is like so our first fund was was 15 million and we only had one outside LP at that time uh multi-coin I think their first Venture fund was 17.

like like you can put numbers up on on that type of capital because like a you're riding a wave B you have a very small fun size but as you grow your Fun Size it gets harder to do that and you know it's it's a function of like how the industry is evolving it and what's investable but also like how big your fun size is and so I think what you're going to see to like you know to the point of like tiger and them like raising less like Pawn Ventures has one and a half billion you know Andreessen has four and a half you know Paradigm that's two and a half like they're gonna really need to put up numbers or else it's going to be a little bit different of a conversation the next time that they go to market and I think that's

going to be where the rubber meets the road and a lot of this stuff in terms of like determining who's good and and maybe the answer is like the most you can put to work is like 400 or 500 million like that's as much as we felt comfortable raising and being able to really succeed with it but but also keep in mind here like this is a this is a byproduct of the size of the rounds and the valuations that people are raising at so like when we started in 2019 we're talking about seed Deals they were getting done at like sub 10 million dollars or like you know seed series a that are getting done at 30 to 40. you know like and uh we weren't really able to participate because of the size of it in the uniswap series a or the compound

series a but the people that were were andresian because they had 350 million and so you kind of think about it in terms of like your Fun Size to get you access into whatever deals are happening at that point in time but if you've got one and a half billion or four and a half billion you know what are the deals that you're able to get into now that you wouldn't be able to get into now but think about that with the context of you have to get to your ownership percentage for you to have any hope of returning any sort of multiple on this fund and so I I think it's going to be really interesting to see you know what happens to the fund sizes because that'll dictate a lot of what you know the lp landscape is but also just like what's

available from new investment perspective like we have really good evidence both from Paradigm and the address and funds that like you can kill it I think Paradigm was 300 as well like you can kill it with that Fun Size like we don't have a lot of evidence that over a billion like you can really put numbers up and I think that's what LPS are looking for sometimes and if you guys can't this is tricky to comment on that's fine but every once in a while I'll see this kind of like it's like a party round or something where it's like a huge raise with a bunch of big names and I was look at that I'm like I just don't think that makes any sense because the valuation is way off but like everyone is is in it can you as much as you guys can like is

that like kind of a known thing or like a dynamic that you just have to be in this round or it's like helpful from a VC brand perspective to be in those sorts of rounds it is 100 a dynamic that we a rarely participate in uh if ever and be highly advise any of our portfolio companies or potential portfolio companies away from that strategy because ultimately what happens is if you don't have a lead taking half to two-thirds of a round you have a tragedy of the commons type situation where it's sort of like hey is this your investment is is do we have to do work or are you doing like who's the one who's doing the work after the investment's done to actually make sure that this investment and this company

and this protocol is going to be successful and we've seen it time in time again where it's just like who's on first and and like why you do these party rounds is not for the financial return uh most of the time it's so that you have a logo that you can put on your website and you can use that logo on your website to get on CNBC or you know introductions to LPS or hang out with Tom Brady or hang out with TV the two data points and um this actually doesn't come from us it comes from a few of our LPS who've been in the Venture investing industry for the last you know couple of decades is the two barometers of success for a venture firm over the long Horizon are fun size and Fun Size consistently so you know like

Benchmark raises 400 to 450 every single fund cycle so that's number one and number two what's the average ownership percentage for each of the Investments that they're making and those are kind of the two North stars that we think about which is like what's the most optimal Fun Size for this next funding landscape this next two years um and then you know we're just maniacally focused on every investment being high ownership I've got one more question then I want to move on to talk about ordinals because I think that would be a fun fun thing to get your guys perspectives on but what is the um what is the one thing if you're a Founder what's like the one most important question you should be asking your VC or what's like the thing that

Founders should be asking that you feel like they rarely do when they're raising probably fun structure um a lot of people got burned because they had hedge funds investing in these like early token rounds and like yeah we're gonna hold it and then it's like a totally different story once [ __ ] hits yeah yeah and and like who's the partner you're working with like you get Michael Rai at framework or or like both of us in a lot of cases um but a lot of it is kind of like the the like franchisee model where like the main partner wins the deal and then it's like some Junior guy who takes over that's not really what you want either and and granted we have people who are more Junior on the team that are

stepping up now to to own deals but historically it has been you know either us or someone that you know is is like Soup To Nuts the person who did the deal um and that that I think is a really important component the second or the other component that I would say um frankly is just like what proof points of success do you guys have post investment so like you know the way that we like to work is you know as soon as we make an investment all right let's set up a regular you know recurring thing is it bi-weekly monthly every you know five six weeks doesn't really matter but like that's sort of like office hours with us and that you know if there's nothing to talk about great cancel it we don't need to talk about anything if you want to

talk recruiting you know next fundraise product strategy whatever it is like let's sit in a room and discuss everything and I think that that surprisingly that model doesn't seem to Traverse across funds and you kind of like have people showing up to board meetings every three months being like okay great what are you guys doing this year or like what's your biggest goals and like what are the kpis that you want to hit by the end of the year it's like we've had three meetings in between now and then and like we're totally you know engrossed in what the product is and who you're selling it to every day on telegram we talk to people just like that's our job I don't understand the board of meeting thing there was a and Andresen popularized the model of um like they they built a lot of the

functionality in-house so like they built like in-house sales experts they built and has marketing experts it has recruiting experts and like they I think a lot of funds do that now and they were the ones to popularize that what is the what is the like crypto model of like who are the experts that you need to bring in-house I'm sure there's obviously the sales and the marketing and the hiring and stuff like that but are they like do you have governance people who like when you invest in a protocol you you know the protocol can talk to your governance team like data team like what what is is there an equivalent there so so I think um in crypto it's a lot different because nobody really has the expertise to be like super helpful for these startups and like where these like operational teams that you can like

parachute into companies really work in my opinion or like private Equity companies okay you need to turn like a plastics manufacturer around let's hire a Plastics team that ran an old factory and we'll put them in like there's a Playbook okay great with like startups and especially very esoteric startups most of the people that we talk to want playbooks like have you guys seen this before what was that like they want help hiring you need a deep networking crypto to know who's actually good like you certainly don't want to hire a bunch of web 2 people and throw them in a company and then the last thing is just like founder therapy and you don't want someone Junior doing that or you don't want someone who doesn't you know have real skin in the game doing that because

a lot of it right now is like all right like do you have all your fingers and toes like how do we make you survive for another two years like okay yep you don't have any product Market fit let's pivot the company like you can't really give that advice unless you're just like a crypto lifer like there really is not that many people that can actually do that job and I don't think hiring a big platform team is is really helpful the other thing that I would say is there there are a lot of Technical Services that really help bootstrap growth and engagement so like running nodes and like being initial validator um you know if you have the capabilities so like framework has this concept internally called framework labs and we've got a number of people at framework Labs that focus on running infrastructure and sometimes it means

you know we're testing out new trading models that um you know some one of our portfolio companies building uh or maybe it means like we want to be in the initial validator set of like the test net for um you know the the protocol that's launching and we want to give feedback like that type of stuff really really helps like we're one of the largest chain link node operators we're one of the largest graph node operators um to this day and and so I think that is a differentiation that most like traditional Venture firms don't have let's say crypto natives kind of get that but it doesn't scale that every investment it doesn't steal to every protocol but it is an added benefit for a lot with the caveat that block Works isn't obviously a protocol I the founder

therapy thing resonated uh definitely and then also like people told this to Jason and I in the beginning of blockwork so we didn't listen and I really wish we had bring on an HR recruiting person like way earlier would have saved yep oh so much time three years earlier yeah you want like with the platform stuff like you kind of want all those people in-house yeah like you don't want you know oh we're gonna send over our marketing guy and he comes down and sits with you and he's like all right so what are you guys doing it's like I where do we where do you even start at that point like you have to have those people in-house I I'm kind of bearish on like the platform model we're going to build like this talent agency and farm everyone out it just doesn't really work

also it's fees it's feasible when you can make three percent off of four now yeah every year and LPS love it because it's like you know like LPS like to know that everything is being taken care of a lot of situations like that just you can't make that happen but like if you're like yep if they need help with marketing we got this person we got this person for HR we got that person for compliance but like it doesn't actually help that much well another one actually that could be I have a I have a buddy who works for a private Equity Fund and uh they use this thing it's kind of cheesy it's I forget it's entrepreneur or something but it's basically a basic business planning goal setting sort of framework for companies and uh I say that because blockworks is retooling hours internally

um just about like how you set goals how those goals like all kind of roll up into each other and like a good reporting structure is again not the kind of thing that you might think of when you're an entrepreneur like in the trenches trying to like drag in revenue or like improve your metrics but it's a super important thing is you get slightly larger totally but like on the more kind of soft skills side of things so like the the platform team that we have and and we do have you know someone on our team who who like runs platform which is maintaining relationships with audit firms maintaining relationships with recruiting firms maintaining relationships with any sort of firm that like any of our portfolio companies could use but one of the things that we found at least is like if you provide

someone with a framework for how to like run their company as soon as they take an investment from framework Ventures it's sort of like do it our way and like Roi is the only way it's it you can't do that it's sort of like it takes time where you're sitting with the team every other week or every month and you're like what's going on okay that's interesting let's talk about it like that type of interaction I think is like vastly more important yeah have you seen that uh that it's like kind of a joke but that okay ours were a psyop from Google to [ __ ] up everyone else's uh for like medium articles that you can read and be like got it okay ours not that difficult to implement you don't

need like a Six Sigma Guru coming into your company and being like we're gonna whip this thing into shape that doesn't doesn't help no entrepreneurs need to figure it out themselves yeah you're right um guys I do want to I do want to talk about Bitcoin ordinals because I actually it's kind of funny but I also think it's frankly kind of interesting so just to like set the scene so Bitcoin ordinals it's a pro it's an nft project uh that is on bitcoin by this guy Casey rodemore um basically the the tldr is that there was a big upgrade to bitcoin that was made a little while ago called Tap Root and it relaxed some of the limitations around a very specific type of type of data called witness data uh and it basically what this what this guy Casey

figured out was that you could actually within the witness data part of each Bitcoin block you could actually make nfts based on how sats are configured it's a very clever pretty elegant construction actually so you can kind of think of it like like there was a guy Dennis Porto or something that did a really good write-up of this and we'll link it in the show notes but if you almost think about it from the concept of like hey I bought a bunch of coinbase stock over the course of like a year and then I sell one it's almost like a weird accounting thing do you do first in first out or lasting first out but it's the arrangement of those different pieces and that's what kind of the nft is in terms of how the stats are arranged it's just a it's a cool kind of

construction the the output of this though is that that data is posted to the Bitcoin blockchain in a heavily subsidized way it's like 10 times cheaper to post that nft data than other types of data and it reignited this big debate that had gone on in in Bitcoin a long time ago starting back in I think 2010 or 2013 with I think there was a project called DNS domains where people wanted to store domain data on the Bitcoin blockchain and it kind of gave rise to these two camps of is Bitcoin uh a general data storage type type platform or is it should it only be used for financial transactions and it apparently this debate never really got solved but there

was kind of like a uh uneasy compromise which is this thing called op I'm blanking on that but there's basically a function where it limits the amount of non-financial data that you can post to a Bitcoin block and it's prunable which means that not all the nodes need to download it so it's kind of this like compromise and uh Casey's project ordinals circumvents that so it's kind of mixed the the reaction on Twitter has been sort of negative by some of the more Bitcoin fundamentalists you might say uh like Adam back who's a you know fundamentalist and I pivot away from maximalists whatever whatever religious the Maxis yeah Mike I heard you talking

about this and Vance is looking at his second screen loading up on these ordinals right now so yeah loading up yeah it was kind of cool uh I think it's kind of cool yeah and uh basically Adam suggested hey maybe the miners can should censor the crap out of these to you know disincentivize this sort of data from from getting posted and obviously it's got an enormous amount of pushback on Twitter but I'd be curious what what both of your guys takes on this is I don't I don't know if either of us are like deep enough in in Bitcoin land to like really make a judgment call here I was actually like looking at like if Nick Carter or Jack Muller should put out a statement yet doesn't look like anything has been put out but I would buy one of these like I see like

there's Bitcoin rocks uh and like I think that's interesting I kind of want to own a piece of History whenever it's possible so I'm but like can't can you buy it yeah I don't think there's like I mean you can buy but you're like posting the nft to the to the blockchain is what happened is my understanding of it however I can get it I want to get it that's my thought process but like I don't know I don't know why these people are so angry about everything like they're making cool stuff and you're just like pissed off that is the response that Vance gives when the market is up 40 I want to buy one I don't know why everyone's so angry about everything why can't we all just get along no but I think it does bring up I mean some so Mike you you've been

following this closer than I have but it sounds like the there's a core group of bitcoiners who are like hey this shouldn't clog up the Bitcoin blockchain that we shouldn't clog up Bitcoin with like these pictures and these nfts and things like that but then if you if you if you don't clog it with these pictures what you're essentially doing is you're censoring some part of the Bitcoin blockchain which is very against another one of their arguments do I understand it correctly there so here's the debate that I actually think is kind of interesting which is so I'm like pretty deep the this season of of the interview part of bell curve is like app chains and specifically like app dedicated block space right so like forget the chain construction or whatever but let's say you want to have uh block space that's dedicated to one specific

application but you also want it to be open and permissionless that's actually weirdly contradictory because like let's say you start a chain and it's like hey we're at amm or a DEX but it's permissionless so you get contributors that want to build stuff that isn't amm or dexy on the Chain how do you keep those applications off of your chain it's it's weird and I actually think that's what Bitcoin is kind of going through here because they are the original app chain it's the money app chain and a part of that Community has been like we don't want other stuff on this chain we want to save this block space for financial related trans actions and how do you actually enforce and do that permissioning around app specific block space I think that's

that's at least where my mind went I'm not is that a we've seen a few chains like design themselves so specifically that like like for instance like commute blacks like you can't transfer uh erc20s like you can't do anything it's basically only for like nft swaps and that's kind of like what the chain is for it's not like a general permissionless L1 as you might imagine it but like they're very specific in their use case but I don't know like it kind of seems like counter into or you know counterproductive to be permissionless but also censor the apps that you want on the chain and frankly this is generating more fees for Bitcoin than Bitcoins generated in a long time so I guess it would be kind of tragic to see Bitcoin turn into our weave but I don't know what the other sustainable

economic model it has is my general rate of this especially the pushback is there's someone trying to do something and then everybody else is like throwing up on it there needs to be sort of a central rallying point as to like what the future of Bitcoin is and it's it's kind of like what we've been talking about over the last couple of months with like what is bitcoin versus every other you know asset and and blockchain that's out there like what you're talking about Mike is an application specific set of block space but that's like defined and also agreed upon as to what that app is doing and what this block space is for when you have like everybody fighting over this space it's like literally fighting over land or

like real estate you know it's like no this is mine and then everybody else is like no no this is not mine and then like not in by not in my backyard starts to take over and and so I think you know there just has to be Central rallying point like is Bitcoin for transferring value digital gold is it for uh or payments or digital gold or is it for you know applications that can be built on top of it like ordinals um I I think this one of my predictions from 2022 in 2023 was that there would start to be a conversation around what the start what what the future of Bitcoin actually is and I think at least this is the start

of the process of people having more of a conversation about it the the one unique take that I have on bitcoin is that the mining landscape is going to be really interesting over the next couple of years so core scientific the largest uh U.S uh the largest North American Miner of any Bitcoin in bankruptcy currently Argo looks like it's going to go into bankruptcy they got some sort of Emergency Loan facility but it doesn't look like they're going to be kept along for for two for a lot for too long Green Hill going into bankruptcy as well like you have most of the Bitcoins that are produced in North America in some sort of estate conservative conservatorship that is willing to trying to get out of that and like you're probably gonna have someone roll up all of these different mining operations that went bankrupt and

have a lot of power over where crypto and Bitcoin goes and I don't think it's going to be a Fundamentalist it's gonna be like Apollo who like doesn't give a [ __ ] about ordinals or you know Luke Dash Jr or like you know Taproot they're just trying to make money and they're trying to make it economically viable so it's going to be interesting to see I also you know there was a there's a metaphor because they the the they everyone admitted very quickly they can't do anything about this even though there are a lot of people that were unhappy there's nothing that can be done and someone someone made an analogy I actually think it might have been roon Christensen on a podcast like years ago but he made this analogy when you're shipping software it's like move fast and break things

because you can iterate it really quickly and ship you know codes and fixes very quickly but if you're shipping Hardware you don't have that option you have to be very very careful because the expense of like a product recalls really intense and uh shipping blockchain code is very similar right because it's unless you're if you're truly decentralized you can't uh you know take that back so this was kind of an interesting example of that Dynamic also coming back we we've looked at like a lot of these like bankrupt mining businesses and then like man at the right price can we get there like is this interesting like do we want to get into like Bitcoin mining and the reality is it's so expensive it's Hardware intensive like you're basically beholden to the having schedule which says next

year you're going to have half the revenue you had this year so you'd rather have that price double it's just a really tough business you know and and the people who are still alive are only the best run miners it's pretty wild I don't know that much about uh gold miners or frankly like data like cloud cloud storage business but I mean those are I you know those are similar business they just seem like it'd be really tough um and why would you really want to compete on like it just sucks to be in a business where your Competitive Edge is like how many pennies can you save you know on your margin that's just not a fun environment to work in I mean that's it that's infrastructure for you like everything water you know electricity everything it's like how fine of a

margin can you eke out a profit and it's like you look at the investor decks of like you know when these things went bankrupt or their first day bankruptcy presentations and it's like schematics of the plants or like the warehouses that they have these like miners in in North Carolina and they're like yeah we're thinking about adding like another Wing to like add more miners it's just like wow I'm just gonna buy Ethan stake it and get the yield from that and like I guess if we want more we're just gonna like you know lever that up but like you know building more mining facilities not what Michael or I really want to do with our time I think it's I have a buddy who's um VP of strategy or head of strategy or head of Ops or something like that at grid if you guys can no no yeah

so operationally intense I have so much respect for them honestly like it is so it is he's literally like you know hard hat building these at these sites building like you know construction complex like Excel calculations like trying to figure out the the debt facilities as well like hundreds of millions of dollars like debt lines and it is uh I have a lot of respect for folks building on the Bitcoin miner side of things it's a very complex operation I never have people are just swapping in curve pools and staking it like yeah at some point one of these businesses is just like too hard relative to the other to just like be kept alive you know how much is your electricity bill on

staking your eat like a few bucks a month it's nothing I just I think any business where you have to wear a hard hat in a professional capacity is not a business that I wanna yeah I'm not a hard hat guy fail guys Mike doesn't even go outside when it's raining so yeah yeah no let's let's close on a fun uh maybe it's a fun one I don't know did you guys just see uh Charlie Munger wrote an op-ed in the Wall Street Journal which is the United States should ban crypto did anyone see this op-ed honestly like Charlie munger's just like kind of a

clown in my opinion like they made a lot of their money backing companies like Coca-Cola fueling things like the Obesity epidemic in the U.S like I kind of understand the point of like gambling bad but you guys have been selling trash to U.S consumers for decades and and I don't see any repercussions that you've had so I don't really pay attention to them the other uh thing that came out this morning and I'm I'm you know don't know whether or not it's going to go through probably not but um Nikki Haley came out with a cognitive test requirement for uh Congress people or or people in politics that are over a certain age um obviously we can't do that for private business but uh interesting dichotomy interesting dichotomy of the

two uh uh perspectives happening within a day of each other so that's obviously that's that's obviously her taking a massive jab at Biden but I don't think it's the one that's a queen move that's yeah I love that she's cool that's awesome I think it's pretty funny I think it's I mean politicians it's like too old on that note we've only got like 18 months of of the current Administration left it's pretty wild flew by everyone was bullish on Gary Gensler yeah this guy taught a blockchain class at MIT oh yeah we're good don't worry it's like you know I'm I'm saying well okay so this is my

like Black Swan perspective I I still think we haven't heard the last of him in 2020 for sure not for sure not well the year just started [Laughter] but you know it's possible we get like you think about the bullish Catalyst next two years as stupid as I think it is the Bitcoin happening you know that that's one we got a lot of good stuff on the east side the app side probably the legislative side but if we get regime change good Lord in a good direction if DeSantis is is there if Nikki Haley's there even if Gavin newsom's there Gavin

Newsom is a crypto guy he he uh blocked that bill that was gonna kill all the crypto companies in California yeah I mean Devin Devin Newsom is is pro-business and yeah no innovation yeah his perspective is just like listen we shouldn't cut opportunities off unless we fully understand it we should protect people from them if they need protecting but these are these are enterprising opportunities yeah there's a great video of him explaining to I think it was the California Senate the state senate of like why nuclear is good and why there would be blackouts if like they didn't have this power plant and it was just like two ships passing in the night but but at least he was out there just you

know giving him giving them hell what a I mean question for for everybody um what what as it currently stands is your base case for who is running not necessarily who wins but who is running from the Democratic and uh the Democrat and Republican sides oh boy um we're 12 we're 11 months out from an election year wow yeah Nikki Haley DeSantis um Nikki Haley DeSantis Trump are the two owners like those are the three Republicans yeah for the Dems I don't know Buddha

judge Biden um Newsome Kamala those are probably the I think yeah generally I'd say Biden is probably going to take the Dem side I think I think it's going to be Newsome Oh Stacy Abrams could run I think it's gonna be Newsome Trump and I think Newsom is going to win do you angry Newsome Trump look at the guy he's like he's just like a good looking guy he's slick like he's look at the guy look at the guy he's a good guy look at him look at his look at his face Peter Peter teal gave this talk recently which is like there's two ideologies in in America that can scale Across the Nation and like unite everybody and win

the presidency one is like the Manhattan complex like the Hillary Clinton complex the Bill Clinton complex like the we're New Yorkers like you do what we say and like we're those type of people the other is like the California ideology of like Gavin Newsom kind of Kamala Harris like you know like the growth the technology that perspective and then now there's kind of like the Florida ideology of like you know like uh anti-woke and anti-esg and all that stuff so it'll be one of those three ideologies but Gavin's by far the slickest in my opinion Balaji thinks Bitcoin is an ideology yeah is he is he studying or how's he doing now here are the odds here are the odds right now DeSantis Biden Trump

Kamala Nikki Haley Gavin Newsom Michelle Obama Pete Buddha judge that's what the markets have it as we weren't uh too far off in our top picks yeah I don't know I think I think you could see DeSantis fade down the stretch kind of like Jeb Bush style but uh some someone's been listening no no I stopped listening all in I can't I can't get into it I don't know uh well I I yeah it's the front runner thing right the for DeSantis but right he knows I don't know but good place to wrap yeah all right boys [Music] all right later laughs

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