About Episode

Jascha Samadi is Co-Founder and Partner at Greenfield One, a Berlin-based early-stage venture fund dedicated to blockchain and crypto. Greenfield One makes long-term bets on early developer teams building towards an open, decentralized and more robust architecture of tomorrow’s web. Prior to Greenfield One, Jascha was Co-Founder and CEO of apprupt, which was acquired by browser maker Opera Software in 2014. He is also Co-Founder of Flux, a scalable open market protocol. Jascha holds a Bachelor and Master of Law from Hamburg University.

This episodes combines two topics we have talked about in the past, Venture Capital and Crypto and how the two can go together. We talk about how crypto VCs invest into new technology, teams, and tokens. We learn how the decision criteria for a crypto VC, the differences, and the similarities between crypto VC and traditional VC. And we learn how the blockchain helps the transparancy on which VCs are all in on the project. Enjoy this deep dive into Web3 Investing.

Links

https://de.linkedin.com/in/jaschasamadi

https://www.greenfield.one/

https://www.crunchbase.com/person/jascha-samadi

Contact

If you want to get in touch: contact@thewallstreetlab.com

We look forward to your mail and will do our best to reply.

If you want to reach out to us personally, here are our LinkedIn profiles, please mention the podcast.

https://www.linkedin.com/in/andreasvonhirschhausen/

As always, please do not forget to take 17 seconds to leave us a review on Apple Podcasts or wherever you get your podcasts from.

Be well,

Andy

Transcript

EPISODE 84

[INTRODUCTION]

[00:00:04] ANNOUNCER: Welcome to The Wall Street Lab podcast, where we interview top financial professionals and deconstruct their practices to give you an insider look into the world of finance.

[00:00:23] AVH: Hello, and welcome to another episode of The Wall Street Lab podcast. Our guest today is Jascha Samadi. Jascha is cofounder and partner at Greenfield One, a Berlin-based early stage venture fund dedicated to blockchain and crypto. Greenfield One makes long term bets on early developer teams building towards an open, decentralized and more robust architecture of tomorrow’s web.

Prior to Greenfield One, Jascha was cofounder and CEO of Apprupt, which was then acquired by browser maker Opera Software in 2014. He is also cofounder of Flux, a scalable open market protocol. On his education side, Jascha holds a Bachelor and Master’s Degree of law from Hamburg University.

[INTERVIEW]

[00:01:10] AVH: Jascha, welcome to the show.

[00:01:13] JS: Thank you, Andy. Thanks for having me.

[00:01:15] AVH: The obvious probably starter question, when I read through your LinkedIn, is you have a Bachelor and a Master’s in law. And I think you made a second degree from University of Muenster. But did you ever work a day in your life as an actual lawyer? Or did you directly started founding companies?

[00:01:34] JS: No, I never really practice law. Obviously, as part of the studies, I had multiple internships, but I never really had the privilege to practice law as a lawyer. We founded the first company, or was actually the second, but right out of university while we were graduating. And that was then the beginning of my entrepreneurial journey, which led me not to practice law.

[00:01:56] AVH: Okay. Doesn’t sound like such a bad tradeoff to being a serial entrepreneur. I think you have founded so many companies. And then as you are now running a crypto VC, could you, first of all, explain maybe what is a crypto VC? What actually what you’re doing? And then how did you stumble upon doing that? Why do you decide to go from founder to investing in the crypto space?

[00:02:22] JS: Yeah, so as a crypto VC or an early stage crypto fund, we focus on development teams. So similar to traditional venture fund, we invest in early developer teams and founding teams that have an idea or like a prototype and want to build something in the space with, I guess, the difference is that we focus only on crypto and founders that are building something in crypto. There are quite a few things. And I’m sure we’ll get to that during the show. There are quite a few things that are very different being a VC or a venture fund in crypto that are very different from what we would typically consider venture capital just by the nature of assets being liquid as opposed to illiquid in traditional venture. But generally, the focus that we have is, unlike a hedge fund that only invests in assets, we say we do invest in the people behind the assets. And we do that very early on with a very long-term conviction, which is also in line with what VCs would typically do.

To your second question. My journey into crypto was, as many in the space, driven by coincidences, I should say that eventually pushed me down the rabbit hole in 2015, ‘16. Back in 2012, I played around with the Bitcoin whitepaper. Never really understood it. Didn’t buy any bitcoin. Thought this is only about payments and payment – I didn’t feel like that was interesting back then to me. I guess my journey before that was that, as you said, I cofounded a company called Apprupt in the early days of mobile, which was a platform for app developers, and later on brands, to analyze and monetize all your app properties, basically.

And we started that in the early days of mobile. So I was always kind of drawn into technological paradigm shifts, if you will, as mobile was one back then, similar to crypto Web3 today, and interested in changes and significant changes that technology would do and do to our lives, basically.

So the company – And I’m trying to make a long story short here. The company that we founded at that time and mobile, Apprupt, was acquired by Opera, the browser makers, as said in the beginning, back in 2014. At Opera, I was aware or got aware of early conversations about crypto and Web3, which was very interesting to me, because there was a very different angle than I had previously categorized crypto and put it into my mental bucket of, “Hey, this is only about payments and speculation.”

But luckily, through opera, I had the opportunity to actually look at the space from a different angle. And Opera then later on – So saw I left the company at the end of 2016. And Opera later on went on to – I think it was at the end of 2017 when they launched a fully-fledged crypto wallet as part of the core product on every device in the browser. So suddenly, you are now able to hold, and receive, and send, and then transact with crypto right out of your browser. And that was very eye opening to me while I was still at the company. And that kind of got me excited about crypto. So when I left in 2016, I had fallen down the rabbit hole. I kind of was tired of mobile and advertising for various reasons, but had discovered crypto, and then went into the rabbit hole from there.

[00:05:19] AVH: And then how did you start? Did you directly found Greenfield? Or did you first do your own company as a serial entrepreneur?

[00:05:28] JS: Yeah. So I mean, I started investing. After I left my job at opera, basically, at the end of the earnout, I started doing a lot of personal investments and research. So I probably spent a year in front of my laptop trying to understand what was happening here. Web3 was a term that wasn’t created yet. We didn’t talk about DeFi yet. So a lot of the innovation that was happening was also at the bottom, bottom layer of the stack. So alternative layer one chains as an alternative to Etherium. And then so I basically spent the year in front of my laptop reading and researching, going to conferences, and meetups, and talking to people, and investing, because obviously crypto does offer you the opportunity, as retail private investor, to make investments in this space. So that was something that kept me busy.

And then I had the opportunity to help co found a company and the project in the space called Flux protocol. I was pretty much the very first investor, and a very active investor in the first year or two. Worked very closely with the team. And through that experience, we came to the idea of building a fund in the space, because what we did, the usual playbook, I guess you help a team start something. You provide some early funding. You work with them towards the first version of a prototype or a first version of the product. And then, I guess, connect them to VCs in the space, which was what I did. So I connected them to a lot of German, Berlin-based and European general VCs. Because back then there was no crypto-focused venture capital or fund at all.

And it was an interesting experience, because we basically said that, “Look, guys, here’s a very great and talented team. And there is enough money in the company. So no rush. We’ve just launched the first version of the product, but it’s crypto.” And that was basically when most of those conversation ended. And it got us curious, because unlike what we saw in the US – So my partner, Sebastian, who we started Greenfield with together, he was still living in the US. So he comes from a long VC background. Spent 12 years in San Francisco. And he was there, and we saw firsthand, this was probably 2017, ’18, a lot of the big US household names, Andreessen Horowitz being one of them, launching dedicated crypto funds. And we’d saw that as an opportunity in Europe, because there was, and to a certain extent today, still is none, at least none from the core established ones. And that was just basically what got us to raise and launch offers fund back in 2018.

[00:07:48] AVH: I mean, listening to some of the people in crypto, as you said, most stumbled into it, right? Many are maybe a bit longer involved in crypto. You said you started around 2016, 2017, really. And then you launched a fund. Was it difficult to raise venture as somebody that has not like a 5, 6, 7, 8-year track record either as a venture capitalist or in the crypto space first time fundraising, right? Was it very difficult to attract? And then the whole space was really, really new, especially to institutional investors, right? This must have been very difficult to pitch.

[00:08:28] JS: Yeah. And one thing that, I guess, in that context is also worth mentioning, we had the great idea to go out and raise our first fund pretty much four months after the previous bubble basically popped, if you will. So we just entered the bear market. And a couple of months later, we had the brilliant idea of going out to raise a crypto fund in Germany or in Europe locally. So yeah, I mean, it’s not completely surprising to say that the first year or two, fundraising was obviously a bumpy road. At that point, I had already spent two years fulltime in the space both is someone very close to founding a project, but as well as an investor. My partner, Sebastian, came to this with more than 10 years as a VC. But as a team, as you say, it was a first-time team, if you will, working together, even though we have a very long history together.

My previous company, we raised our Series A from Deutsche Telekom. And he was the person running Deutsche Telekom’s venture fund in the US at that time. So this was in 2010. So we had a decent and long history together. But still, as a team, it was a first-time team. Plus, we just entered the crypto bear market. A lot of people said crypto is over. This Web3 thing is not going to work out. Bitcoin is just a scam. La-la-la-la-la. So for sure, yes, it was not an easy product to sell at that time.

But on the other side, what gave us a lot of confidence was the fact that the bear market actually turned out to be an amazing time to do early stage deal flow. Because, unlike the previous two years, ‘16, ‘17 or even ‘18 part of it, there was no noise in the market. There’s no distraction from public media. Bitcoin just hit 15k, 16k, 14k, whatever. And also, the type of founders that will stick around at that point when the market was at the bottom, these were not mercenary-like founders, these were very visionary people that don’t care about Bitcoin being at 15, 10, 4 or 20. They care about what they are building. And that was a very, very healthy time in the market, which gave us a lot of confidence that we are on to the right thing here, because the amount and quality of talent that we saw was just something that was very exciting to us. So on the flip side of having a difficult product to sell to local investors at that time in 2018 and ‘19, we saw amazing deal flow and had the opportunity to work with amazing founders very, very early on.

[00:10:48] AVH: What was, would you say, the key point if you had to, I don’t know, decide on one where it’s like, “Look, those, I guess they were visionary investors, otherwise they would not be in the space, right?” What was the tipping point where you said, “Look, we have this great, great deal flow?” Did you figure out what was the key reason why they invested in the end?

[00:11:09] JS: You mean in us or in –

[00:11:10] AVH: Yes, in you.

[00:11:12] JS: I mean, we’ve went through various funds now. So we are now investing out of our third fund, which we just announced. It’s fully closed, and announced shortly before Christmas, in November. The first two funds were obviously very small. The very first one was our own capital and people that we knew well, and that trusted us, other entrepreneurs, and angels, and a few VCs, actually, a few German VCs, put in some money. And I think that first fund was, I would say, driven by, obviously, our own capital, but also trusted relationships that we had at that point.

The second fund, you could say, which we raised back in 2020, was probably the first institutional product, if you will. So Bertelsmann was an anchor investor in that fund. So very large European corporate. Actually the biggest board the first major corporate publicly investing in a crypto fund in Europe, at that point. A lot more exposure to family offices in that fund. And I think that what happened between 2018 and 2020 was us being in the market as a team for a good amount of two, two and a half years. So this check mark of this is still a first time team, this was not such a strong factor anymore. The performance in that fund, we started to see quite some promising indications from the way the portfolio developed at that point, because some of the assets had already been liquid.

And then generally just, I guess, the market momentum and also what happened in other regions of the world when it came to institutional adoption and exposure to crypto. So I think, obviously, part of it was timing, part of it was general market maturity. And then obviously, also track record and performance of the team, I would say.

[00:12:52] AVH: Let’s dig into the side where you invest into companies. And the obvious question is, for people that know a bit about the space, just a bit, not experts, because they probably wouldn’t ask these kinds of questions. But are you investing then in equity? I mean, are you investing into the company’s equity? Are you buying when they have an ICO? Or are you buying tokens? What is it actually that you’re investing in? You said, you preface that the investments often are liquid. What does that mean? So where’s the investment – Actually, where’s the money actually flowing?

[00:13:30] JS: Yeah, so that’s a very good question. That’s probably a question that we could spend hours talking about, the different instruments that are very different from traditional venture. The way you invest, the way you engage, the way you support founders, the way governance is being done, as opposed to traditional boardroom governance in the company. So to answer your question, in a short sentence, typically, we are not investing in traditional companies, because we are investing – And it really depends on what level of the stack you’re investing. If you’re investing, like we’ve been doing for the past three to four years, if you invest in rather deeper down in the Web3 stack, so in the infrastructure and the actual blockchain protocols, then equity in a company is not the appropriate instrument to get exposure to that. Because these systems, and platforms, or protocols, or blockchains, they are meant to be something which is decentralized. By definition, they are not owned by a single organization. So Bitcoin is not owned by a company that has a CEO and a leadership team. Etherium is not owned by a company and doesn’t have a CEO, even though Vitalik, one of the founders, obviously is still a very public figure.

So that, I think, understanding this significant difference is very important to understanding what this space is really about and what you actually end up investing in. So we invest in software protocols, in infrastructure. That is, in many cases, structured as a decentralized network work. And tokens are the instrument that represent a small ownership stake in these networks. And that’s actually what gives you exposure.

So on the way to that, we invest at a stage, which is very, very early when you typically don’t have that system ready and operational in production. So we invest pre-launch. So at that stage, the instruments oftentimes tend to be hybrid, because there is no public blockchain yet that would be able to issue you a token. So we invest a year or two before that actually exist and that’s being launched.

So at that stage, the instruments are oftentimes hybrid, in a way. It’s a mix between thinking about a hybrid structure, between equity and the future token, if you will. But the end goal, when we invest in protocols, and the infrastructure is always that we have exposure to that token. And then at some point, later down the road, the token is something that is liquid and publicly traded on both decentralized exchanges and traditional centralized exchanges, like Coinbase, and Kraken, and by Nance. And that is when the difference between, let me call, liquid and illiquid VC, or traditional VC, and being a crypto VC starts to be very present. And because you’re actively managing a portfolio that consists mainly of liquid assets, as opposed to illiquid assets, like equity in a company.

[00:16:20] AVH: And from maybe legal standpoint, as you’re a lawyer, how can you invest in a protocol before the chain is even there? Because those are decentralized. Often teams, I would say. They are decentralized applications. Who do you transfer the money to? Do you transfer the money to Vitalik Buterin and say, “Vitalik, I need an IOU, that once the company is established or once the blockchain is there, I’ll get my tokens.” Or how does that work?

[00:16:55] JS: Yeah. And I would say there’s probably a spectrum of different instruments or frameworks in which you can invest in these liquid tokens. So the structure, which is the closest to a traditional shareholder agreement, or equity purchase agreement, or a traditional safe note, if you will, is the so called SAFT, so a Simple Agreement for Future Token, which looks very much like an equity play. But the asset that you’re purchasing is a token that doesn’t exist today, but in the future, and you’re purchasing it from the company that issues it.

But then the way this is normally structured, I’m trying not to go too much into details, that with the launch of the protocol and the blockchain, the company, which has so far been the developing entity, if you will, because at some point somewhere, someone will have to hire people and employ people and pay salaries in order to get this thing built. But then once it’s launched, the company is legally obligated to transfer ownership and control to the so-called DAO, so a decentralized autonomous organization. And that is basically the community of token holders, both founders, developers, investors, average people that just happen to be part of the community and contribute. And they then start to take control over the protocol and its future development and maintenance.

On the other side of the spectrum, ventures, if you will, are pure DOA raises, or so-called treasury diversification structures, where there is already DAO, the protocol is already launched. And you purchase tokens directly from the DAO, which is this decentralized group of pseudonymous token holders that then have to vote. So you need to come up with a proposal. And we’ve done that a couple of times. That proposal gets passed by token holders voting in favor for it. The smart contract gets deployed on the blockchain. You send the funds into the smart contract, which then transfers them into the treasury that is controlled by the DAO. And the smart contract in return provides you with the tokens that you purchased. And then there are some other terms that you can come up with like vesting and lockup structures, because obviously, we’re not actively trading. So we do have a very long time horizon. So in many cases, we have a two to four-year vesting schedules. So we’re not pumping, dumping basically. So it basically ensures our long term alignment with the project. But that’s probably on the other side of the spectrum, the more adventurous the structure.

[00:19:29] AVH: Super interesting. I really learned a lot from that answer. I dabble a bit in crypto. I’m really interested. But this is very, very new to me. And I openly admit that the only thing that I wonder – And this is, I guess, you need the right country to found in. Because you found a company, and limited or something, maybe Malta, and then you say on 31st of December, or like on 1st of January, the actual blockchain launches. And then the same day, all the assets, all the ownership is like poof, gone from the company and into Web 3.0. Is there special regulations? Or how do you ensure that the country says, “Yeah, okay. Yeah, sure. Poof! Make all the assets of this company go away “up in smoke”, right?” Because in the legal, today’s infrastructure, is it then gone? Or how does that work?

[00:20:31] JS: Maybe that was a little misleading. The company never – In most of the cases, the company at the pre-launch stages, if you will, never owns 100% of the tokens, because at that point, the tokens don’t exist. So basically, the Genesis point, when the tokens are being put into existence, is only when, and at that very moment, when the protocol is launched.

So let’s say you’re investing in an early stage DeFi team that is building something on Etherium, any kind of DeFi protocol, then the tokens that govern that protocol and represent ownership stakes in that protocol are only created at the very moment when the team deploys the smart contract on the Etherium main net. So from an accounting – I’m not an accountant. And this probably very naive answer to your question. But from an accounting perspective, the company doesn’t give up ownership of an asset that it was holding before, because it never holds the assets actually.

The more interesting question, though, is from talking about jurisdictions and regulation, is how are token-based fundraisers treated from an accounting perspective or a tax perspective? And in many countries, including Germany, there is no way to treat this tax neutral. So Germany proceeds from token-based fundraisers as revenue. So taxable revenue. Whereas there are other jurisdictions like Switzerland, for instance, that already have frameworks and provide guidance to founders around what classifies a token as security or what classifies it as utility and provides a neutral way to basically book token-based funds from a fundraise without necessarily treating that as revenue. So there are still obviously regulation and legal systems still have to do a lot of catching up, I think, over the coming years.

[00:22:20] AVH: Now, on a little different angle, to understand what are your investment criteria. You said, after the DAO launched, all the token holders are up pseudonymized, right? We know Vitalik Buterin has X Eth or something, but like it’s often not because people say like, “Yeah. Hey, this is my wallet, and I hold that amount of tokens.” How does it work in the pre-launch stage? Are those developers still synonymous? And you just look by blockchain verified online profile and say, “This good team.” Or do you actually vet the developers themselves?

[00:23:01] JS: It depends. I mean, typically, it’s a very similar structure to the way a VC would invest. Because as it is, in traditional venture, this is kind of a marriage for both sides, because both sides are making a bet on the other side that this is going to be a fruitful relationship. And we are going to work together on this to a certain extent.

So the personal relationship between us as an early stage investor and the founder is always at the core of our work, and the way we would look and assess an investment. So that person angle is very, very important at the earliest stage.

However, again, similar to the kind of instruments that we’ve happened to use over the previous years, on the more adventurous side of the spectrum, we’ve also invested in not fully anon, but partly anon teams. People in crypto sometimes, or in many cases, tend to have a very, very high sensitivity for privacy. And if you look at the way blockchains are, the architecture and the design behind the blockchain, everything is transparent. So you can verify things on chain. And as you say, if you know someone’s Etherium address, or wallet address basically, you can pretty much monitor, and verify, and trace each and every single transaction back to the very first interaction that that person had on chain.

So if that is the case, there’s, I guess, some side or a certain argument in crypto that you can make and say, “Okay, I don’t need to know the physical identity of that person if I know his or her wallet address, because I can verify everything that he or she did on chain.” So that’s a little bit the other side to it. So long story short, we have done investments in partly anon teams, where part of the founding team are anon. Not all of them, but some part of it. But, I guess, at the core of it is always for us that relationship to the team. And that obviously requires you having some sort of a personal relationship to the team.

[00:25:03] AVH: Just out of sheer curiosity, if part of the teams are anonymous, do you still have like calls often? And then it come up with a virtual mask? And there’s like, “Yes. How can I help you?” Or is this just like you basically never interact with them out of the Discord chat?

[00:25:17] JS: No, no, we do interact a lot still. But in video calls, they switch off the video, for instance. I mean, from the audio, we haven’t had a case where someone changes the voice basically. So you kind of know, “Okay, if it’s an English and you see, okay, the person has a German accent. You kind of can assume that that person comes from Germany. But in many cases, the anon team members just switch off the video and still interact regularly on calls and meetings.

[00:25:42] AVH: And then how do you vet the teams? Do you have your own programmers in-house that look at the code, the quality of it? I mean, you have experience in the crypto world, so I’m guessing here that the whole idea is a big part of it, right? If you say, “Well, we’re going to build pets.com, but just in Web3.” It’s just a horrible idea. That’s just like, “We’ve got to make a token to share chocolates in the physical world. “You’re like, “Yeah, okay, that’s a no-go route.” But you look at how good the ideas. What else do you look at? Do you look at the qualifications of the developers? Do you look at the current code base? How deep do you go into the tech stack?

[00:26:24] JS: Yeah. And the obviously also depends at what stage we are starting to interact with the team. So how much is already there that we could take a look at? Generally, I would say, there are some things that are very similar to traditional venture and some things that are very different to traditional venture.

So similar is obviously that you try to build a relationship with a team and understand the dynamic within the team. And I guess just generally try to under – Because you never know what tomorrow brings. So you just generally try to understand or build conviction around the fact whether you think the team is capable of solving problems tomorrow that they today don’t know that they will exist, basically. So that I think is very common to traditional venture. That now you obviously try to look at what have they done before. Have they been in crypto throughout the bear market, which is always a very, very promising sign? Or are they just people that just entered on the hype, basically, which then is probably reason to go a little bit deeper on some of the things that they’ve done before?

What is very different from traditional venture is that – And those are actually the areas where we spent quite some time with many teams, is that, first of all, we are investing and operating – And founders are operating building a space where everything is open source. So you and I could go and copy each and every DeFi protocols, or even Etherium codebase, and just fork it and create a second version or a copy of it. So what that means is that, unlike Web2, and I guess my previous background in mobile and advertising where everything was closed sourced, and you want to make sure that nobody understands the magic source behind what you’re doing and you need to keep it tight, and the technology is the most important assets here and all of that. In crypto, some of these factors are taken away or obsolete by the fact that everything is open source.

So what that means is that it oftentimes comes down much more to community, because the one aspect behind a protocol that you cannot copy and paste and fork is actually the community and the amount of people that are collaborating towards this one common goal in a very decentralized manner. So community and driving community consensus through governance structures is something that becomes very important.

So first of all, how do you build a community behind whatever you are building? And then how do you maintain and structure and communicate within that community? So the governance structures also becomes something that are very important. On the technical side, what we do, however, so we brought on – In 2020, we brought on some senior technical talent from coin base, Jendrik, as our head of engineering and tech lead, to do obviously in-depth technical due diligence. So we still look at smart contract code, to the extent that is already there. We read through audit reports. We try to understand dependencies. We oftentimes, also, after we’ve made a decision to invest, we interact with the code and the protocol itself. So on many networks, we run our own node infrastructure. We are Oracle providers. We are liquidity providers. We run the staking node. So we try to be as active and engaged within these networks as we can. So the technical side is a very important one, but always from this open source collaborative perspective, basically.

[00:29:41] AVH: You mentioned a couple of things that you do for investors. I mean, the money part is obvious, right? In traditional VC, they always say, “If you let us invest,” because now there’s like an overflow of VC capital, right? So founders now can choose who’s money do they want. How does it work in the crypto VC space? Do you come, “Well, look, we’ll not only give you the money, but we already have invested in five other projects. We know how to build the community. Our technical leader is really good with code. So he might help you out there.” Are there any things that you argue to founders, “Look, this is what we are bringing to the table, and then we help you do this?”

[00:30:27] JS: Yeah, that’s a very, very important aspect of our work. And most of the people that – Almost all of the founders that we’ve worked with, the can – In this current market environment, which is a lot more competitive than it was two or three years ago, throughout the bear market, they can basically choose from which investor they are taking the money. So it really comes down to what other things, as you say, are you bringing to the table?

And the good thing in crypto is just because everything is open source, and the Ethereum blockchain, as many other chains, is openly verifiable by anyone from outside, value ads. And the way investors support the founders is something that suddenly becomes measurable because it’s public. So the way we interact and work with many of the teams obviously depends case by case on the background of the team and the stage that they are already at and what they have done before and all of that. But there are a few things that you as an investor can actually do to help grow the project and grow the protocol. And it kind of depends. I mean, in the early stages before launch, it’s a lot conceptual support with certain designs, whether that’s the token, kind of the economic design of behind the token. It’s about how do you at best setup governance that it’s most effective and what is the best social consensus framework around your protocol. You can help with research. You can obviously have with all the traditional things that traditional VCs would do in hiring and these kinds of things, storyline, narrative, helping with further fundraisers.

But then once the protocol launches, or I guess, turns into test net stage, and from there, goes on Mainnet, you can become a user. And it is not just something that you do as a courtesy, but also something that is economically and financially incentivized. So for us, as a fund, in many of these cases, it actually makes sense to support not just because we are supporting, but also it is an economic activity. So you can run nodes. And by doing that on day one, helping to decentralize the network. You can become a liquidity provider. And by doing that, on day one, you help the protocol grow in volume and the liquidity and thus attract more liquidity because it’s a proof point if people deploy liquidity to the protocol. And all of these activities are financially incentivized by the protocol to actually getting something back as a financial reward.

So there are a variety of things that you can do. All of these things typically require you to be more technical to have certain infrastructure and capabilities in-house. And it’s a little bit like being an early stage investor in Uber with a series A, Uber going for an IPO. So the stocks become liquid. But you as an investor are also required to build up a fleet of Uber drivers. That’s a little bit probably the way I would look at it from in crypto, if I look at the way we interact with the teams and the platforms that we’ve invested in.

[00:33:25] AVH: I liked, and I noticed the flow of the conversation that your approach is long term. This would have been one of the questions I had. And it now becomes clear why this transparency is so good, because as a founder, you can also see if the VCs just are in it for short term money or if they actually bring value to the table. Because as I said, it’s all open source. It’s all in the blockchain. It’s all are verifiable. Because in my last conversation about crypto, and I spoke with Patrick Loring, he said like it’s already been in the past. And I think this experience were even further in the past.

But one of the problems that he described is that some VCs in the crypto space, they fund the startup pre-launch, get the tokens fairly early very cheap. Token launches, and they dump all their tokens. They get rich, and the users – The first seed, like a 50% drop on the first day of launch. And they’re like, “What the heck is happening?” And that this made a bad name in the space. But if you actually say, “Look, all our token agreements have vesting. They actually require us to run certain nodes.”

And now that I think about it, you have the transparency. You can see this fund X, Y, Z, just day one after launch, it just dropped all that token. But Green [inaudible 00:34:41] held the tokens for three, four years, right? You can actually – Very transparently, see you as a good track record of investing into those DAOs.

[00:34:51] JS: Yes. And I would even add to that, because many, or almost all of the tokens are issued to you through a smart contract. So it’s not the founders sitting there and then sending you tokens every six months or once a year. It is deployed through a smart contract, which has encoded and embedded the agreed vesting structure. It is guaranteed by definition and by the virtue of the blockchain that there is no way you can basically break the contract or your legal contractual agreement by just dumping, because you are only being issued tokens alongside, I guess, the vesting contract.

However, in the early days, and also in ’16, ‘17, when a lot of the momentum was still driven by ICO, and ICO investors, and sometimes some very sketchy structures, these pump and dump schemes were something that we saw a lot. This is not so present anymore today, because founders also very smart. They’ve learned a lot. And if you do that one or two times, then the market is still small. So people talk. You can significantly damage your representation by doing these things.

[00:35:58] AVH: Yeah. Again, track record becomes very transparent, comes very open and very important, right? If you listen to some VCs that I spoke to, they have to same thing. For them, one of the VCs I spoke to, Toby, he said, “Yes, I need to have legal contracts in place. But I don’t ever want to use them,” right? If I have a disagreement with you, it’s comes down to trust, it comes down to the track record the two of us have together. But it’s 90% driven by human interactions. So why are certain companies and classical VCs or certain angels so damn good? Because they have a track record. If they invest in a company, they’re going to help you.

Just thinking about Naval Ravikant, right? Like why does every company want an investment from Naval? Because if he invests, it just has a signaling effect. But in crypto, you can open that. It’s not between company one and Laval, but it’s just between everybody, because the track record at the trust is there verified on the blockchain.

[00:36:58] JS: Exactly. And so the signalling and the reputation is not something that is based on other people saying things about other people and you trying to get a reference. It is pretty much transparent and unquestionable, because it lives on chain on the blockchain. Even if we dump the day after the vesting ends or the lockup ends, that’s something that is publicly verifiable. And on a five or six-year timescale, you can actually go back and see, “Okay, who are the ones that actually hold it together and held it together and optimized for the long run and the long term?” And I guess it’s a different mental model, if you will.

[00:37:34] AVH: It heightens accountability.

[00:37:35] JS: Yep.

[00:37:35] AVH: I want to ask one question to the topic we had before about investing and in teams, just because it popped up later after you started describing what you bring to the table. What makes a good team? Because if everything you have to think about, you have to find a really good engineer, at least one, right? You have to find somebody who’s really good in engaging the community. You have to find someone that is really good at doing the social protocols, to governance. What is, say, the minimum you need in a team? In a typical startup, you often need the salesperson to sell to – And that might be either marketing or businesses. And you need a technical person, maybe a product person. Are there some minimum requirements for you to fund a startup in crypto?

[00:38:24] JS: Yeah. I mean, obviously, there are ideal structures and scenarios. And then if you deviate from the ideal structure, it becomes a question of is some of that priced into the opportunity and evaluation? But generally, I would say that what you typically see, as you also described, is that in many cases, you have a very strong technical person. So a strong technical leader. You have someone with an economic background. Because if you think about it, many of these systems are their own kind of isolated, or their own economies, basically, that have their own monetary policy and all of that. And then you have typically someone, as you said, who, unlike a traditional sales person, you have more someone who’s a good speaker, and who can build a community, and rally a community. And then, generally, also, it’s not a top-down leadership style that you see. Because if you think about on the long term, what the founders are doing, they’re building a community and the group of peers around them, as opposed to hiring a team below them. And that’s a very important aspect here, because the long-term goal for the teams in many cases is actually, at some point, to step back and let the community take over control because this is a public good. I mean, blockchains are public goods. It’s an open source piece of software. And there shouldn’t be, as I said, a CEO or a leadership team after a certain period of time that controls the destiny of that piece of software. So it’s very important that, at some point, the community is strong and diverse enough and feels empowered enough to then really take over step by step.

[00:40:02] AVH: And again, not to beat a dead horse, but Transparency is key. If I come in as potential new community member and I see free wallets holding all the tokens, are they going to decide everything that’s going to go on? I’m like, not going to join that network. But if it’s 15 million different wallets at all roughly hold the similar amount of tokens, you’re like, “Okay, that’s an independent decentralized place.”

Jascha, thanks so much. This has been very enlightening for me. I’ve learned a lot. And I’m getting more and more excited about the entire space as I speak to you. And, Jascha, how should we end this? Do you have anything that you want to get out to the audience?

[00:40:42] JS: I would just say be curious. I mean, crypto, it’s not an exclusive ecosystem. It’s actually the opposite. It’s very inclusive, and it encourages people to – All you need is just Internet access, and a browser, a wallet, and off you go. So I think curiosity is something that has driven a lot of people into the space. And I would always just encourage people to be curious and play around with these things. And yeah, learn by doing basically.

[00:41:11] AVH: Awesome. Jascha, thank you so much for enlightening me, and hopefully a couple of listeners. And take care.

[00:41:17] JS: Thank you. Bye-bye.

[OUTRO]

[00:41:21] ANNOUNCER: Thank you for listening to the Wall Street Lab podcast. For the show notes and much more, visit us at www.thewallstreetlab.com to see what we’re up to before anyone else. Subscribe to our newsletter on our website and follow us on Facebook and Twitter.

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Published On: February 3rd, 2022 /

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