April 4, 2025 • 41 mins
In this episode of How I Invest, Evan Fisher, Founder of Portal Ventures, shares his expertise in fundraising, venture capital, and deal flow. He discusses the key elements of successful fundraising, how to craft a compelling pitch, and what investors look for when evaluating opportunities. Evan’s insights provide valuable lessons for both founders seeking capital and investors looking for high-quality deals.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
One of my favorite things about investing is itit's really like psychological warfare in some
(00:05):
ways.
Truly, it's like everyone says, you know, youhave to run into the building when it's on
fire.
And that's really easy to say.
It's like whoever has the willpower and ismeasured enough to think through those times,
that's the person that runs in and does it.
And so a result of this is we're always in thelookout for, like, what are things that just
don't really make sense from a crowd psychologyperspective?
(00:26):
And it's lot like software investing actuallyor just traditional venture investing.
And that we wanna be back from founders thathave unique insight, have unique ability to
execute, and they're playing sufficiently largemarket with the potential for moats to create
size.
You're a star associate at Insight, a$90,000,000,000 fund.
You're crushing it when we first met.
(00:46):
You decided to leave that and start PortalVentures.
Why did you decide to start Portal Ventures?
I I started Portal Ventures in early twentytwenty two.
It's something I've been thinking about for fora long time, though.
I started getting into crypto during the DeFiboom.
And as time went on, it dawned on me that thiswas not just a new no.
(01:07):
It wasn't just Bitcoin.
It wasn't just a new product.
It was an entirely new asset class.
And as I saw that, I started pitching morecrypto deals at Insight.
I got my start at Insight after spending acouple of years at Goldman, and I was helping
invest across software, Internet, fintech.
And I started pitching crypto deals.
The crypto deals that most excited me, though,were typically, a, early stage and, b, token
(01:30):
deals.
And the reason for that was I saw theseprotocol business models effectively.
I started portal because I saw the emergence ofa new asset class.
It's a new asset class because it's a businessthat derisks in different manners than software
does.
Construction's different.
Way you think about sourcing's different.
The return profile's different.
The liquidity's different.
The the list goes on and on.
If you, if you look throughout history, newasset classes emerge.
(01:52):
New asset managers emerge.
Like, there's a reason Blackstone is not theworld's best venture capital fund.
So I have limited reason to believe that theworld's best venture funds will be the world's
best crypto funds.
So I left to to start.
I raised about 40,000,000 for fund one in earlytwenty two.
It supported the managing directors at Insightto run at the mission of being the preeminent
first check-in crypto investor in the market.
(02:14):
I saw a lot of managers in in crypto grew overtime, and that meant where they made the
majority of their money, they were no longerplaying.
And that's that's ultimately where where wewanted to play.
You wanna be the first check into a new cryptoprotocol.
Tell me about the advantages and disadvantagesof being the first check.
Yeah.
You know, it's my favorite area to play.
I'll start with that.
It's my favorite because of some reasons it'srelated to you get to see a business and a
(02:36):
founder transition from really an idea to ascaled protocol that's making money and trading
in the billions of dollars of valuations ifyou're lucky and successful.
The biggest advantage is it's the gameselection that you're playing.
Investing in general is all about gameselection.
You have to choose the games that make sense.
And when you're investing at the first stagewith ownership that makes sense relative to
(02:58):
fund size, what you have to do is you have tobelieve that you can pick something that's
going to be in the right order of magnitude ofoutcomes.
When we think about investing, we're playing agame of backing founders with conviction before
anyone else is around the table, like making adeal before it's a deal, being the first money
in.
Then if it's a billion plus outcome, ittypically returns the fund.
So that's that's what we're hunting for.
That's something that we feel comfortablebetting on at the end of the day, especially in
(03:23):
an asset class like crypto, which is sovolatile and so tricky to actually have
precision on.
So the overarching benefit is it's a game thatwe we not only like playing, but we think is
the optimal risk reward and the most profitablefor the industry today.
The biggest risk is obviously that it'sincredibly volatile.
It's an industry that moves, I would say, everytwelve to eighteen months with a complete
(03:44):
turnover, which is to say the pace at which youbecome irrelevant is about twelve to eighteen
months in crypto if you are not constantlyreinventing yourself.
And what that means is if our job is to stay atthe head of the pack, ahead of the trends,
we're constantly reinventing ourselves.
Every year, you have to figure out what'sexciting and what's new.
And what does the game look like to actuallybuild interesting, crypto business?
(04:05):
That manifests in a lot of ways.
One obvious example is just where we source,for instance.
The big funds can source from early stage fundslike us, and we hope that doesn't change.
We hope that we can be a great source of dealflow for the world's best mid stage crypto
funds into perpetuity.
But when we look for talent, you know, thereality is sometimes in the past, we would find
talent at universities.
(04:26):
Maybe it was with Katrina, my businesspartner's work at Penn Blockchain.
That's still a good source of talent, but itcould be universities.
Increasingly, you're seeing crypto actuallyattract a lot of traditional founders since
you're seeing spinouts from Stripe found a lotof great crypto businesses.
But if you go even further back, sometimes youfound the best crypto founders just at a meetup
in Berlin, for instance.
(04:47):
Our business in terms of how are we sourcing,how are we finding the talent that we're
backing is is one example of things that arejust constantly changing that we have to
constantly reinvent.
If the entire industry is reinventing itselfevery twelve to eighteen months, how do you go
about creating a portfolio of investments, andwhat principles stay the same, and what changes
every cycle?
It's a really good question.
(05:07):
Our it sounds a lot like software investingactually or just traditional venture investing.
And that we wanna be back in founders that haveunique insight, have unique ability to execute,
and are playing in a sufficiently large marketwith the potential for moats to create sizable
outcomes.
Like, that that's the core of it at all times.
The way that we actually execute on that,though, typically a very thesis driven
approach.
Every quarter, Katrina and I sit down, and wesay, what are the theses that we're most
(05:30):
excited about?
A thesis could be related to an end market.
So it could be related to Bitcoin, forinstance, as an end market.
A thesis could be related to a technology.
You know, it could be related to a newencryption standard or a new technology that
allows you to create a deepened network, forinstance, or it could be related to a business
model.
We've done deep dives into differentdistribution mechanisms effectively.
(05:51):
Through that process, we then try to get worldclass on the thesis that we're running at.
So we we reduce the scope of invest theinvestable universe.
And in doing that, we go really, really deep inspecific thesis.
The process of doing that then helps us figureout, okay, where is the best talent for this?
You know, the Bitcoin founders that we backeddon't actually come from the same talent pools
(06:11):
as, for instance, the real world asset founderswe backed.
We're the first track into a protocol calledArch, which is smart contract programmability
on Bitcoin l one.
Arch has raised two rounds after us.
It's becoming really the dominant player forprogrammability on Bitcoin l one.
There we found the the founders through Bitcoinangels, and KOLs.
It was referred to us from them.
(06:32):
You know, the founder's background is hepreviously ran a shoe company, a sneaker
company, and got really deep into the category.
That looks very different than Plume, forinstance, which is an RWA l one.
It's a real world asset l one.
Much more of a regulatory focus, very differentgo to market.
For Plume, Chris, the founder, sold a companyto Coupa in the past, and he looks a lot more
(06:52):
like a traditional Silicon Valley Founder thatthat ultimately got really deep in crypto,
became quite crypto native, and could buildsomething special.
So that's the process from there.
If we go deeper, though, into then what do wedo to fill a portfolio with that?
What we do is we say, we want businesses thatcan be really fundamentally valuable.
We find those businesses based off of theses.
We then want the output to be typically aportfolio of no fewer than 30 assets with no
(07:14):
less than 5% ownership.
It all comes down to the, like, what do youhave to believe math?
Our job at the end of the day is to produceoutsized returns for our LPs.
We construct a portfolio where if we have acouple of assets that are multibillion dollar
outcomes, we're happy with our fun math.
And and that's that's ultimately the game thatwe we wanna play in with what crypto is today.
Let me tell you about a conference I'm veryexcited about, Alpha on the Delta, which is
(07:38):
coming up in late April during Jazz Fest in NewOrleans.
Unlike some of the larger conferences, Alpha onthe Delta is limited to a 50 allocators and 30
niche managers on an invite only basis.
It's an authentic and different kind of eventwith some really great people.
If you'd like to learn more and request aninvite, visit www.howiinvestdelta.com.
(07:58):
That's www.h0wiinvestdelta.com.
I hope to see you there.
How do you get smart on a specific thematic betthat you're trying to make, and how do you
operationalize from deciding this is somethingyou wanna focus on into finding the top teams
(08:18):
in that space?
We think about this all the time because ifwe're doing our job of becoming world class on
a specific thesis, typically, deals come to us.
And, typically, we can make quite sophisticateddecisions and the portfolio works.
So then the question becomes, how do we makesure that we're finding the things to actually
double down on?
And how do we make sure that we're gettingsmart?
The first step is we're constantly compilinglists of ideas and theses that we might want to
(08:42):
dive deeper into.
That's a growing document that we keepinternally.
Three quarters, we have capacity.
We say, what do we wanna go deep on thisquarter?
So we pull from that list.
And the way that we prioritize is we say, isthis both, something, a, that's sufficiently
large such that we could create a sizablenumber of investments off the thesis?
So it's not worth, you know, spending threemonths getting smart on something that can lead
(09:04):
to one investment for one to 3% of the fund.
We we need to really be able to express thisthesis.
The second, though, say, is there somethingthat's happened from a technology perspective,
from a market structure perspective, etcetera,that makes this actionable?
And it's those two are ideas that we developedby doing postmortems at the end of the day.
So we've been doing thesis work for a longtime, and what we found was there were some
(09:27):
theses that were better than others.
So we actually created a rubric for evaluatingour thesis in hindsight.
The ideal outcome is a thesis that is bothcorrect and highly actionable.
And so our Bitcoin economy ecosystem or Bitcoineconomy thesis fell into this camp.
We, early on in early twenty twenty three,believed that Bitcoin, as it continued becoming
more dominant, would have a need for morecapital efficiency and more programmability.
(09:51):
And we went really deep over that thesis forsix months.
We were probably three quarters ahead of mostventure funds in this category.
So we could put our chips on the table at lowprices with high ownership before others came
in.
And it was a thesis that we could reallyexpress in a lot of different ways.
We we made four or five investments off of thisthis thesis.
The second category is a thesis that's correct,but not very actionable.
(10:11):
And so that's good, but at the end of day, it'snot the highest ROI on our time, which is our
scarcest asset.
So that's something where we we made a fewbets, and we feel good about them, but there
weren't many ways to express it.
The third would be a thesis where we're justnot correct or it's not actionable, and those
are effectively the same to us.
So that's kind of how we think aboutoperationalizing it.
We're constantly doing retros to see are therenew things we should add to this framework such
(10:33):
that we can keep getting better and better atfinding what's next.
You are three quarters ahead on this Bitcoineconomy thesis.
How did the idea come to you?
How did you decide to advance it?
And and walk me through your process.
Thank you for listening.
To join our community and to make sure you donot miss any future episodes, please click the
follow button above to subscribe.
One of my favorite things about investing isit's it's really like psychological warfare in
(10:57):
some ways.
Tru truly, it's like everyone says, you know,you have to run into the building when it's on
fire.
And that's really easy to say.
It's like whoever has the willpower and ismeasured enough to think through those times,
that's the person that runs in and does it.
And so a result of this is we're always in thelookout for, like, what are things that just
don't really make sense from a crowd psychologyperspective?
(11:18):
And that helps tip us off sometimes on thingsthat could be interesting to explore.
And so at the time that we were looking intothe Bitcoin ecosystem, the Bitcoin economy,
just before that, people said, Bitcoin willnever be anything more than digital gold.
No one wants to use their Bitcoin for anything.
Everyone just wants to hold Bitcoin and not doanything with it.
And I'm like, that's weird.
Like, I don't think everyone falls into thatcamp.
Sounds a little black and white thinking.
(11:38):
And I started asking some people.
So was like, I'd actually like to get yield onmy Bitcoin.
I started asking friends, and I started askingwhales, like, what would you actually like to
do with this very large asset?
So you talk to the customer and you realize,oh, okay.
Like, not everyone wants to do things withtheir Bitcoin, but, like, it's certainly No
one.
Then you look at this and you say, okay.
It's an asset that's trillion dollars at thetime, and it seems consensus within the crypto
(12:00):
world that this is going to be parity with goldat a minimum.
So this is gonna be a $10,000,000,000,000asset.
You say, okay.
If 10% of the holders of this asset wants to dosomething with it, that's a $1,000,000,000,000
asset base off of which you could earn fees forloans, off of which you could earn transaction
fees for sending it.
You could do a lot of different things withthis.
And so then we said, okay.
(12:21):
You know, I think that it's worth evaluating.
Like, there's a customer that has a need.
How do we dig in and say, what's that need?
And so that that's what we did.
One of the biggest things that we found was alot of Bitcoin holders want to be able to maybe
take out a loan against it, but they don't wantto bridge it away from Bitcoin.
They don't wanna bring it to an exchange allthe There are certainly people that do wanna do
that, but there's a very large portion thatjust doesn't want it to leave the Bitcoin l
(12:42):
one.
And for that population, there was nosufficient answer at the time.
There were some ways of actually creatingpseudo smart contracts, but they they weren't
perfect for technical reasons we could go intoon Bitcoin l one.
But it was expensive, and it was really slow.
And the Arch guys had interesting thesis aroundhow they could use a new innovation in Bitcoin.
So back to, like, there needs to be a marketstructure change with the taproot upgrade and
(13:04):
descriptions to effectively inscribe the stateinto the Bitcoin chain.
So it's technical, but effectively, they foundthrough this upgrade, there's a new way to
create more efficient smart contracts onBitcoin.
And we we were the only institutional investorsto have the conversation there.
We just realized that they were the smartestteam in in the space, and we we were able to
offer them conviction before anyone else wouldtake them seriously.
(13:28):
You fast forward to today, you know, multicointo the second round at the moment, and they're
they're gonna hopefully go liquid, and,hopefully, it'll be a a multibillion dollar
outcome in in the next few years.
So that's that's kind of start to finish howhow we thought about these things.
You had this thesis on a small part of themarket that you expected to grow very, very
fast, and you wanted to see that there's a bigenough market size.
(13:48):
So if you were right, the last thing you wannado is be right and the market is small.
That's a lot of brain damage in that.
Yes.
You are technically correct, but it doesn'treally do anything for your fund, or it's not
it still ends up being a bad investment.
So you had to run it through those models.
And then once you realize that the the thesismade sense, then you went about finding the
right player that would execute on that thesis.
(14:10):
There's one investing category that'soutperformed major US and world stock markets
over the past three years, privateinfrastructure.
Private infrastructure is expected to doubleover the next ten years with the continued
development of AI, increased demand for powergeneration, and the modernization of supply
chains.
This asset had previously only been availableto large institutional investors, but now you
(14:32):
can invest in it exclusively through Republic'spartnership with Hamilton Lane, whose co CEO
Eric Hirsch I previously had on the podcast.
Visit Republic.com/hlpif.
Again, that's www.republic.com/hlpif to investtoday.
That's that's right.
And then, of course, we it turns into how do wehelp them be successful.
(14:55):
So how do we get our our hands dirty in in dayone?
It's a result of going so deep on that thesisof an asset.
That asset is unique insights and knowledge.
And so when we're backing founder, it'stypically not just that the founder has a
unique insight.
We typically also have a complementary uniqueinsight.
And they're they're most definitely alwayssmarter than us on this front.
You know, the day we wouldn't be backing themif they were.
(15:16):
There there are often strategic things that wecan provide and put on that help actually
change the success of of the company.
There's this there's this framework instartups, the 500 mistakes that a seed company
makes.
It's the same 500 mistakes.
But now if you take that down to crypto andthen you further take it down to l one Bitcoin
startups, and you have this really valuableinsight to deliver to them on exactly the
(15:39):
problem set that they're working on.
That's right.
And another thing that's really interesting incrypto is, you can derisk projects by just
bringing some of the right people in becausecrypto is very dependent on getting the right
partners and bringing the right people onto thenetwork.
Like, at the end of the day, we're we'rebuilding these these networks.
And so in the past, it was like, okay.
This concept of community.
I don't think of this as like, you know, it'snot like some NFT community is what's making or
(16:03):
breaking the project.
But we can help bring in angels where maybeit's someone that's really plugged in to
institutional Bitcoin holdings, for instance.
Therefore, they're close to the customer, theBitcoin whales, the big institutions holding
Bitcoins.
As a result, they can just actually helpconnect Arch with the customer a bit more, and
that's really helpful.
So so we try to be quite helpful on the insightfrom day one and then just bringing, like,
(16:26):
world class angels and partners into theproject when it's most I like the Keith Raboy
frame framework of its most liquid in the earlystages.
When it's most liquid, we input a lot of help.
And sometimes it feels like we're almost like athird cofounder in in a way for that that
initial period.
Where the thesis is most liquid?
It's The thesis, but also the product.
Like, because we're investing typically whenthere's nothing but an idea.
(16:48):
And so very often, we we back founders andthere isn't a deck.
You know, it's very often that we're we'retalking to founders about an idea that we're
excited about.
They're excited about the idea, they'reconsidering building something.
And and we say, oh, why don't why don't weinvest?
They're often not raising actually when we'redoing it.
So a stat that we we go on often is that 70% ofour deals to date have been proprietary as
(17:10):
defined by we were the only institutionalinvestor around the table, or we preempted the
first round before it happened.
And that's something I take from Insight,actually, as we draw parallel there.
Insight is world class at creating proprietaryopportunities.
They're doing it in growth stage software,though.
And so proprietary looks very different frompre c c in crypto.
But we we still take this framework of, like,when you can create proprietary opportunities,
(17:33):
that's a source of alpha, and that's our job.
There's this idea that if you invest at a veryearly stage and you're investing with four
other funds, somehow it's more derisked, orit's not really derisked.
It's the same level of risk.
You just maybe have a false sense of security.
I strongly agree with that.
And sometimes it's actually even more riskybecause it's it's kind of like the tragedy of
the commons.
Like, we we really like going on the rollercoaster with our founders.
(17:56):
We we never feel it to the same extent, ofcourse, because we have a diversified
portfolio.
They're working on one thing.
But we find it to actually be helpful becauseit's just like it means that we're we're
invested.
We we have skin in the game.
And so if there are four other investors aroundthe table, no one's feeling it like you are.
Like, we don't wanna see something that we led.
But at the end of the day, if there are lot ofpeople on the table, it's it's there's there's
(18:18):
not the same ownership.
Conversely, if it's a huge success, it returnsyour entire fund.
It's a big Yeah.
What percentage of your theses die, and howquickly do they typically die?
You know, there there may be only been one ortwo theses that have, quote, died.
Talk to me through the process and the funnelof your thesis.
Give me percentages.
I don't have the exact percentages.
(18:38):
I'd I'd have to go back and cut cut numbers onthat front.
We we just have a notion that tracks all ofthis.
I can speak though to a couple of theses thatdidn't make it through.
The first would be, a thesis that Katrina wasworking on a couple of years ago in MEV, which
is think of it as pay for order floweffectively on blockchains.
MEV is a huge profit pool crypto.
(19:00):
And we looked at that, we said, okay.
We should consider having exposure.
If you run a fund, then you know.
Having instant access to fund insights,modeling, and forecasting are critical for
producing returns, which is why I recommendtactic by Carta.
With tactic by Carta, fund managers can now runcomplex fund construction, round modeling, and
scenario analysis, meaning for the first timeever, you could use a single centralized
(19:23):
platform to do everything from analyzingperformance to modeling returns with real
industry benchmarks.
Most importantly, communicate it all withprecision to your LPs.
Discover the new standard in private fundmanagement with access to key insights and data
driven analysis that could change thetrajectory of your fund.
Learn more at Carta.com/HowIInvest.
(19:44):
That's carta.com/h0wiinvest.
Just something in the MEV space.
At the time, the biggest MEV play was abusiness called Flashbots, which was MEV on
Ethereum primarily.
We we went deep.
Katrina published this very thorough report onthe state of MEV, who the players are, how it
(20:04):
works, what the supply chain looks like withinthe supply chain, who's best positioned to
capture value.
What we found was at the time, if you weren'tinvested in flash bots, that it just really
didn't make sense to bet on anyone else.
Like, they were the biggest fish, and they weregoing at the time, it looked like they were
gonna vertically integrate, and they're justweren't was it gonna be space for other
winners?
That's changed a bit with the Solana landscape,but that's a thesis that we got to the end of.
(20:27):
We said, okay.
There there's just nothing to do here.
Like, there's no way to act on it.
And that's when we then in one of ourpostmortems, this is the one where we we looked
at it and we said, oh, what did we get wrong?
We got wrong that there was no change in marketstructure at the time.
It's like it was a big profit pool, but someonefound out earlier that it was a big profit
pool.
Someone built a business that was capturingthat profit pool, and that's very impressive.
(20:47):
And we weren't in the business, and and that'sokay.
But, like, we shouldn't try to chase somethingthat doesn't have a market structure catalyzing
new opportunities.
So that that's one example.
Another example is I spent a lot of time earlytwenty twenty four digging into DeSci,
decentralized science.
It's a really interesting idea.
The concept is one concept, for instance, youhave a lot of IP that isn't doesn't have the
(21:09):
most efficient fundraising markets.
It's because science is not where it very wellfinanced.
It's not an efficient market.
And so there were founders saying, if we try tofix that using benefit of crypto, which is new
capital markets, new ways of raising, new waysof financing, and apply it to decide?
And so I I went deep on on the space, and,ultimately, what I ended up finding was that
(21:30):
there just wasn't anything that was actionable.
Like, there there I I actually I spit out fromthat one, and there are three or four ideas
that if we find the right founder, I'd love toincubate.
We we actually like, we have them written down.
It's like we wanna work with someone that'sworld class on an idea like this.
But the projects that were being built, we justdidn't think we're going to produce the venture
scale outcomes that we we wanted or orsometimes the projects were just, doing too
(21:52):
much at one time.
You had a fund one.
It was very successful, but I'm sure you may soso tell me about some of the learnings from
fund one and how you apply that to fund two.
Yeah.
The biggest lessons from fund one.
Right.
See, there there's one thing that we did reallyright, and there's one thing that we would we
change for for fund two.
The thing that we did really right was we werenot afraid to act with conviction and ideas
(22:14):
that were very unpopular or invest at timeswhen others were really not deploying.
And so there are a handful of theses andcompanies that we got excited about that just
couldn't raise, and we thought we really hadconviction.
We did it, and and we were not just early andcontrarian, but we were wrecked.
We also invested during time periods where themarket was silent.
(22:35):
Company in fund one that I think is gonna beone of our fund returners, we wired capital to
the founder the week after FTX collapsed.
And, you know, other founders in the space werelike, no one's doing anything.
Like, deals are getting pulled, where to stand.
So and we were like, we believe in what you'rebuilding.
We think you're building something generationalin DeFi.
And, of course, we wanna back you.
And so we feel really good about just actingwith conviction and doing right.
(22:59):
What we would change on this front to doubledown on it though is there were times in fund
one where we backed something, and we hadconviction, but it wasn't happening and it
wasn't moving as fast as we thought it was.
We kind of questioned that conviction.
What we actually should do in those times isdouble down and say, okay.
If we're right, we should probably put morechips into this company.
And so there there, you know, call it three orfour companies in in fund one that this applies
(23:22):
to.
Where I looked at the market and I looked atthem, for instance, struggling to raise the
next round.
And I said, this is weird.
Like, I'm I'm pretty certain that we're righton this.
Nothing's changed on the thesis, but themarket's not getting it.
We had a really interesting opportunity wherewe we could have doubled down at not a material
step up on on valuation and really increasedour ownership.
No.
These companies will still return the fund, Ithink, with where they're trading, but you'd
(23:43):
really inflect the math.
And so then that raises the question of, how dowe get around that?
Which is where we we wanted to carve out morecapital in fund two.
So we when we jumped from 40 to 80, part ofthat was so that we could double down on our.
And we've actually doubled down on twocompanies already in fund two.
We led follow on rounds into them.
We're very excited about both of them, and andwe feel good to have that that capability.
(24:05):
The the second lesson that we learned waslearning to pay up occasionally.
When I started the fund, it was a time whendeals were flying left and right at a hundred
million dollars for the first round.
And so, naturally, we were very adverse topaying up.
We said this just doesn't make sense.
The reality is there were a handful of dealsthat we could have done where maybe the first
round was at 50 or at 60.
(24:27):
And it just it never traded below that.
And there are some of those companies which arealready liquid and would have returned the
fund.
A lot of our rather the vast majority of ouranti portfolio, with maybe a few exceptions,
are because we didn't pay up.
So that raises the question of when should wedo that and what's reasonable.
How's crypto investing like biotech investing?
The way
that we think about these founders and theseprotocols, for instance, like, we're thinking
(24:48):
on probabilities sometimes.
It's like a blue chip crypto native foundertypically has a higher probability of success.
And that's one of the components that lookssimilar to bio.
So if you think about biotech investing, thinkabout how do you actually value these
companies.
The way you do it is you say, okay.
Based off of these stages, like, based off ofstage one, stage two, etcetera, etcetera, what
(25:10):
is the probability of success or theprobability of getting to the next stage?
And then what's the cash flow available basedoff that?
Then you apply discount rate.
When we think about these founders, the moresuccessful or blue chip Kubernetes founders
typically have a higher probability of gettingto the next stage or building something
successful.
And we think in stages.
And so unlike software investing where whenyou're doing a series a, you you wanna see x
(25:31):
million dollars of revenue.
You wanna see them scaling.
That's not the case in in crypto.
So crypto derisks based off of stages.
Take an example.
Like, you can look at Solana.
You know, for Solana, you you start with a anidea and a hypothesis that turns into a
technical document that outlines how you wouldtransform this idea into something that you
could build.
You then build it.
You have, like, a test net.
(25:51):
You have a working prototype effectively, butit's not live because it still would have
issues.
Then you get a working prototype out.
You launch your main net effectively.
And your next step is you have to acquireapplications and users and capital.
And then eventually, way down the line, onceyou have applications and users and capital,
your revenue just hockey sticks.
We've seen that happen with Solana over thelast one to two years, that their revenue just
(26:13):
absolutely hockey stick.
Then the question becomes, what's it worthbefore that happens?
Like, should we be is it useful to value theseon on revenue in those early stages where that
would imply an incredibly low valuation?
And the answer is no.
That that wouldn't actually be useful.
That would result in you underpaying for thingsthat are valuable.
For that, we we look a lot to just biotech, andwe think a lot about, okay.
(26:33):
When we're investing in a protocol, like, whatare the probability gates that they need to go
through?
If it works, how big is the market?
What's the rate that we need to get paid onthat?
Then you you can kind of think with thatframework to say, okay.
What what's a fair valuation to pay forsomething?
It's like biotech in terms of differentmilestones, like pre like, phase one, phase
two, phase three.
Yeah.
Or, like, preclinical trials or before thedrug's been synthesized, for instance.
(26:56):
So some of your biggest reservations about fundone are not backing into your winners before
there were consensus in the market.
How do you how do you know that it's one ofthose opportunities versus just a bet that you
made wrong?
What are those early signals?
It's a really good question and and franklysomething that I think, like, every investor is
always working to get better and better at.
(27:18):
Because investing, it's all about, like, alpha.
And then one of the hardest things is isactually sometimes the hardest thing isn't
finding the alpha, but it's knowing that thisactually is alpha and that you wanna act on it.
For for us, the way that we we think about itwhen we can't get the social validation, and
for our precedes, we never get socialvalidation is is the thing.
There there's just something different aboutyou make the bet and you watch it play out and
(27:39):
you still stand strong as opposed to making thebet with just straight And it's it's a muscle
that requires training.
So what we find to be the most valuable indoing that is we go back and we read what we
wrote at the time of investing.
And we say, okay.
Is the team shipping on this timeline?
Is the team still running at this?
If they pivoted slightly, are they pivotingbecause they failed, or are they pivoting
(27:59):
because they actually created an even moreinteresting insight?
If I had to boil it down to one thing, though,it would be the pace at which they're shipping.
I think if the team is shipping and moving andhiring well, it's iterating and iterating and
iterating, and the thesis stands strong andthat it wasn't invalidated by anything in the
market, that's that's a position where we wouldsay, okay.
Let's let's double down.
Where I think you can go into trouble is if thethesis you feel the thesis is still correct and
(28:20):
that the market hasn't invalidated it, but forwhatever reason, like, the team's just not
shipping against it.
And so so said another way, it's it's oftenit's rare that a thesis would be invalidated so
quickly such that you believe something at thepre seed and then, nope, twelve months later at
the seed, it's invalidated because the thesisis wrong.
It it's usually related to execution or theunique insight as opposed to the categories.
(28:41):
How quickly are they iterating iterating solvesmany problems?
It's it's this compounding force that continuesto compound quarter after quarter, and and
after ten years, you have a world classcompany.
If you have a world class team and you havefast iteration, you have a world class company.
The does it make it easier for you to havestronger conviction given that you're not a
solo GP, you have a partner?
And talk to me about the interplay between youand your partner and how you look at these high
(29:04):
conviction contrarian bets?
It definitely is helpful.
Katrina joined about two years ago.
And I at Insight, I saw in the IC Room justthese heated debates.
You know, sometimes they'd be yelling matches.
Sometimes it would be very data driven.
It was it was always different, but, like,there was a lot of friction in that room.
(29:26):
Devin and Jeff are just world class sparringpartners.
They they just they go at each other, and andthat's where where the magic happens.
And so we certainly find that we're able tomake more contrarian high conviction bets
because of the big debates that we we haveinternally.
We try to really encourage debate.
I'd say, generally speaking, if we're notdebating and we're not disagreeing, we get
(29:47):
concerned.
If we are, sometimes it can get quite heated,but we look to that and we say, okay.
We're making a good decision.
Like, we're getting to the bottom, butfriction's positive.
I would say the biggest benefit really is thatyou're forced to argue something.
You know, it's one thing when you're a solo GPto talk to peers who don't really have a skin
in the game and debate with them or to writeyour logic down in a memo and, you know, work
(30:10):
through it with yourself or maybe, like, toargue with chat GPT on it, whatever people do
at at this point.
But it's another thing when there's someonethat's heavily incentivized in the financial
success of your fund saying, I think you'rewrong.
Prove me.
And in that process, you start to realize like,oh, do I actually believe this?
And if you do, you get really excited to toleave the deal.
We also don't believe that we need, like, fullconsensus is is another concept we we have
(30:33):
internally.
And and this, I take from just some of thebetter investors that I've I've seen.
And so, you know, if if we're really heated onsomething and it's below a certain threshold of
a percentage of the fund and one person'sconvicted, the other person still doesn't buy
it, the the outcome is good luck.
I hope it works.
And and I prefer that outcome to I'm not onboard.
(30:54):
I think you're wrong.
Because when we look back at the deals thathave done best, they've often been the deals
that have been most debated.
And so I I won't name the the companies that wewe just mentioned, but a subset of those
companies, for instance, we had heavydisagreement on where one of us wanted to do
the deal, the other didn't wanna do the deal,and both of us are thrilled that we did.
You have this strategy of surviving overseveral decades, and you apply this to the
(31:15):
crypto space.
Talk to me about that strategy, and what areyour main drivers behind it?
Crypto is a secular trend.
I think the protocol business model isequivalent to the software or Internet business
model.
If we zoom out and we look at software and whatit did to the world, software was three things.
It was new products.
You know, like Salesforce is a new productthat's not possible without software,
(31:37):
obviously.
It's a new business model in the sense of it'svery high gross margin and can achieve 30 to
40% EBITDA margins at scale because of thecapital efficiency.
And then it's a new asset class because the waythese things scale, the way that they derisk,
the way that you value them is totallydifferent.
Protocols are similar.
I think protocols are businesses and productrather products that are created by networks of
(31:58):
computers.
Protocols as a business are businesses thatskew towards near zero fixed costs in the long
run.
So if you think about Solana again, Solanadoesn't produce blocks.
Solana, the protocol, does not have operatingexpenses.
The Solana Foundation has operating expenses,but the Solana Foundation does not need to
exist for the ongoing success rather for theongoing existence of Solana, protocol.
(32:19):
So it's businesses that near or asymptotetowards zero fixed costs.
As a result, it's it's a new asset class aswell because the way it derisks is different.
The way you value them is different.
Their income statements are different,etcetera, etcetera.
So I think that's gonna create trillions ofdollars of market cap, that that being protocol
business model.
They're gonna be very large businesses withnear zero fixed cost created and enabled
(32:39):
because of tokens and blockchains.
And if you believe that, you believe there'strillions of dollars of market cap creation,
and the industry is gonna mature over thecoming decades.
You say, what's most interesting to do?
What's most interesting to do is is just tobuild an enduring firm.
It's to figure out how do you you stay alivefor that whole story and how you deliver
exciting returns to your investors along theway so that you you can do that with the ups
and downs.
(32:59):
I don't think that's straightforward, and Idon't think that's straightforward because of
how volatile the industry is.
The characteristics that made a $5,000,000,000outcome three years ago are very different than
the characteristics that make a $5,000,000,000outcome today, and I expect them to be very
different from the characteristics that make a$5,000,000,000 outcome in the next few years.
You see these massive speculative run ups andthese massive speculative crashes.
There's no consensus on how you should actuallyvalue these assets yet.
(33:23):
In software, you're betting on the inputs.
You're saying, is this a market that I thinkcan support a large outcome?
If it can, I think the public equity marketsare gonna value it in a certain way?
In crypto, there's not consensus even on howthese assets will be valued if they are
successful.
And so there's a lot of risk.
And and for us, we say, okay.
Just survive.
And if you survive, you you build a franchisewhere you build ten, fifteen funds in into the
future.
You you're in a really good position at thatpoint because venture is a business that has
(33:46):
real compounding returns to success.
Incumbents have huge benefits because,ultimately, great deals beget great deals.
When you back a great founder, that founder istypically in a network that leads to other
great founders.
And when you have a reputation of being thefirst money in to great projects, there's a
stamp of approval.
You know, like, people want Sequoia's money.
People want benchmarks money.
(34:07):
And so we look at that and we say, okay.
We're early enough to this industry where wecan build something that looks like a benchmark
or USB specific for crypto over the decades tocome.
Let's focus on doing that.
And to focus on doing that, it's about gameselection then.
So this goes back to the the first point wemade, which is because of how volatile it is,
we wanna be at the pre seed.
We think it's really hard to act with precisionin this industry right now.
(34:28):
I think it's really hard to invest in somethingin an $800,000,000 valuation and underwrite a
three x case.
If you invest something at 800, like, it couldbe trading at 200 in two years, and it could be
trading at 10,000,000,000 years.
Like, it's it's quite hard.
And so we say, okay.
Let's let's just play a game right now where wehave a size of fund that makes it such that
with the ownership we're getting, if a handfulof our companies are multibillion dollar
(34:50):
outcomes, our math works, and we're thrilled.
And that doesn't preclude our companies frombeing $10,000,000,000 outcomes.
You know?
Like, we're backing things that we think can bedeco quarrels, of course.
But we don't need that to happen for us to besuccessful and and for us to survive.
And so it it just it makes us a bit long termlong term greedy.
Some LPs will say the days of the $10.20, 30 xfund are over.
The amazing opportunities in the crypto marketare over.
(35:12):
Why should LPs still care about the assetclass?
There are a few reasons.
The first is venture returns are commoditizing.
So every asset class asset classes are productsat the end of the day.
And as products are created and the market'screated, margins on that product and that
business compress.
And that's no different for the assetmanagement industry.
(35:32):
Crypto is a relatively new product, that stillhas the potential for outsized returns.
It's highly risky, but it has the potential.
Where does that potential come from?
It actually comes from all the risks that Ijust described, which is to say, if you think
you have alpha on understanding how thesethings will be valued, you've alpha on finding
the best founders given how often it'schanging, and you've alpha in the form of
information asymmetry that you understandsomething others don't understand, that can
(35:55):
produce outsized returns.
It's hard to produce, you know, the 2017, '20'18 vintage funds, but I think you still can
produce materially outsized returns relative totraditional venture, which is an asset class
that has been increasingly commoditized.
That's the first thing.
The the second thing is I think one thingthat's durable in crypto is the liquidity
profile of these assets, which is to say ifyou're investing in pre seed software
(36:19):
businesses, you know, you get your money out inten to fifteen years if the company is
successful, unless there was a huge acquisitionearly in the company's life.
In crypto, you know, there there are a handfulof companies where we were the first money in
one to two years ago, and the asset will beliquid in one to two years.
In fact, there's a company that we put moneyinto in q four of twenty three that went liquid
(36:40):
at north of a billion dollars in the pastquarter.
And now we have a a lockup on these.
That's something that's different versustraditional equities.
Like, there's an extended lockup for a coupleof years or a few years.
But even so that that puts you at a timeline toliquidity of potentially, call it, three to six
years for for pre seed seed investing withasymmetry.
We're not a group that's going to sell justbecause it's liquid, but we certainly aren't
(37:01):
afraid to take chips off the table if we thinkthat the company is really approaching its its
terminal valuation.
And I think that's a really interesting productfor investors, and that's something that's just
durable in the asset class.
The last cycle has been really dominated byBitcoin.
Do you see that trend continuing in 2025, '20'20 '6?
There's a really interesting dynamic happeningin the market.
(37:22):
So if we look at prior cycles, whathistorically happened in the market structure
was Bitcoin increased in value largely becauseof the market structure changes the happening.
So supply decreased, which drove price up.
As that happened, it created a wealth effect incrypto.
So everyone that owned Bitcoin said, wow.
My portfolio is up three x.
I might as well go further down on the riskcurve with that capital.
(37:42):
Printed money in the crypto ecosystem.
And then you had these investors that werepredominantly crypto investors say, okay.
I'm going to push money into long tail ofassets.
Because the floats were so low on them, itdrove alts, so altcoins up pretty aggressively.
So it was all a float to float dynamic.
What's happened this cycle is Bitcoin's beenleading, but it's a different pool of capital
(38:06):
in Bitcoin, actually.
And so it's it's a lot of individuals still.
Yes.
But it's a lot of institution, and that'sexciting for Bitcoin.
But what does that mean?
It means, you know, if an institution all of asudden goes three x in their Bitcoin holdings,
their answer is not, hey.
Let me take that money and move it into a,like, high risk, high reward asset that I don't
actually understand the fundamental value.
Concurrent with that, retail, the group thathistorically had that wealth effect, said, I
(38:30):
also am actually not going to put these intotraditional altcoins as, like, the speculative
investment product.
They started putting them to meme coins becausethey got results higher.
So it was it was like, if it was speculation,they said, why not just speculate to the
extreme?
Why not just speculate in something that'sgoing to go up and down in days and the
multiples are higher?
And, what that did is it left this dearth ofcapital pursuing fundamentally valuable tokens.
(38:50):
And to answer your question, Bitcoin's beendominating largely because of the same cycle
dynamic that happened in the past of thehalving incomes, supply decreases, and
continues to increase with the institutionaloption and increases.
But alts haven't gotten a bid because of thatmarket structure.
The question comes, okay.
When will alts get a bid?
And the answer is they'll get a bid when theystart being fundamentally valuable.
There are handful that are is the reality.
(39:13):
There are handful that are producing reallyimpressive revenue at scale right now.
You could argue the quality of revenue.
You could argue the durability of the revenue,but they're impressing like, creating revenue
scale.
There just aren't a long list of assets thatare doing that.
And the reason there aren't is is back to ourpoint earlier in the conversation is founders
historically didn't have to do that.
If the market did not demand founders to createintrinsically valuable businesses, they will
(39:33):
not create intrinsically valuable businesses.
But now the market's demanding it.
And that actually makes it a very exciting timefor me to think about investing.
Because specifically at the pre seed seed, youhave these founders that are saying, I wanna
build something of value.
I have to be thinking about how is this gonnabe profitable?
Why is an investor gonna wanna buy this downthe road?
Because the trade of just launch a project,have a token, make money.
(39:54):
Like, that that trade doesn't work anymore, andthat's a much healthier market structure.
So to to answer your question, I I don't reallyknow on on the off of the cycle.
I think it's gonna be very divergent.
I think there will be some that really impress,but I I don't think you're going to see
everything move up as you previously hadbecause of the market structure.
That's healthy.
And then also it's creating very healthybehaviors at the precede seats.
So so we're really excited to invest into thisenvironment.
(40:15):
What do you wish you knew before foundingPortal Ventures?
The biggest thing I I wish I knew was, when youhave conviction, don't just double down, triple
down.
I I think it goes back to that point of findingalpha is really hard, and when you have it,
triple down on it.
And that's not to say triple down blindlyeither.
There's a real nuance to saying, okay.
This is my thesis, and this is how I'm gonnaexpress it.
(40:36):
So so I I wish if I could go back in time, I'dsay, like, spend a lot of time thinking about
what your conviction is, having a highconfidence interval that when you express it,
it translates to being right on your thesis.
If that is an efficient flow, just triple down.
It's been Peter Thiel's biggest regret asinvestor, and that is not doing Facebook series
a after he did the seed round.
(40:56):
Evan, appreciate you jumping on the podcast,and I look forward to sitting down in real life
soon.
Thanks for listening to my conversation withEvan.
If you enjoyed the episode, please share with afriend.
This helps us grow and also provides the bestfeedback when we review the episode's
analytics.
Thank you for your support.
One of my favorite things about investing is itit's really like psychological warfare in some
(00:05):
ways.
Truly, it's like everyone says, you know, youhave to run into the building when it's on
fire.
And that's really easy to say.
It's like whoever has the willpower and ismeasured enough to think through those times,
that's the person that runs in and does it.
And so a result of this is we're always in thelookout for, like, what are things that just
don't really make sense from a crowd psychologyperspective?
(00:26):
And it's lot like software investing actuallyor just traditional venture investing.
And that we wanna be back from founders thathave unique insight, have unique ability to
execute, and they're playing sufficiently largemarket with the potential for moats to create
size.
You're a star associate at Insight, a$90,000,000,000 fund.
You're crushing it when we first met.
(00:46):
You decided to leave that and start PortalVentures.
Why did you decide to start Portal Ventures?
I I started Portal Ventures in early twentytwenty two.
It's something I've been thinking about for fora long time, though.
I started getting into crypto during the DeFiboom.
And as time went on, it dawned on me that thiswas not just a new no.
(01:07):
It wasn't just Bitcoin.
It wasn't just a new product.
It was an entirely new asset class.
And as I saw that, I started pitching morecrypto deals at Insight.
I got my start at Insight after spending acouple of years at Goldman, and I was helping
invest across software, Internet, fintech.
And I started pitching crypto deals.
The crypto deals that most excited me, though,were typically, a, early stage and, b, token
(01:30):
deals.
And the reason for that was I saw theseprotocol business models effectively.
I started portal because I saw the emergence ofa new asset class.
It's a new asset class because it's a businessthat derisks in different manners than software
does.
Construction's different.
Way you think about sourcing's different.
The return profile's different.
The liquidity's different.
The the list goes on and on.
If you, if you look throughout history, newasset classes emerge.
(01:52):
New asset managers emerge.
Like, there's a reason Blackstone is not theworld's best venture capital fund.
So I have limited reason to believe that theworld's best venture funds will be the world's
best crypto funds.
So I left to to start.
I raised about 40,000,000 for fund one in earlytwenty two.
It supported the managing directors at Insightto run at the mission of being the preeminent
first check-in crypto investor in the market.
(02:14):
I saw a lot of managers in in crypto grew overtime, and that meant where they made the
majority of their money, they were no longerplaying.
And that's that's ultimately where where wewanted to play.
You wanna be the first check into a new cryptoprotocol.
Tell me about the advantages and disadvantagesof being the first check.
Yeah.
You know, it's my favorite area to play.
I'll start with that.
It's my favorite because of some reasons it'srelated to you get to see a business and a
(02:36):
founder transition from really an idea to ascaled protocol that's making money and trading
in the billions of dollars of valuations ifyou're lucky and successful.
The biggest advantage is it's the gameselection that you're playing.
Investing in general is all about gameselection.
You have to choose the games that make sense.
And when you're investing at the first stagewith ownership that makes sense relative to
(02:58):
fund size, what you have to do is you have tobelieve that you can pick something that's
going to be in the right order of magnitude ofoutcomes.
When we think about investing, we're playing agame of backing founders with conviction before
anyone else is around the table, like making adeal before it's a deal, being the first money
in.
Then if it's a billion plus outcome, ittypically returns the fund.
So that's that's what we're hunting for.
That's something that we feel comfortablebetting on at the end of the day, especially in
(03:23):
an asset class like crypto, which is sovolatile and so tricky to actually have
precision on.
So the overarching benefit is it's a game thatwe we not only like playing, but we think is
the optimal risk reward and the most profitablefor the industry today.
The biggest risk is obviously that it'sincredibly volatile.
It's an industry that moves, I would say, everytwelve to eighteen months with a complete
(03:44):
turnover, which is to say the pace at which youbecome irrelevant is about twelve to eighteen
months in crypto if you are not constantlyreinventing yourself.
And what that means is if our job is to stay atthe head of the pack, ahead of the trends,
we're constantly reinventing ourselves.
Every year, you have to figure out what'sexciting and what's new.
And what does the game look like to actuallybuild interesting, crypto business?
(04:05):
That manifests in a lot of ways.
One obvious example is just where we source,for instance.
The big funds can source from early stage fundslike us, and we hope that doesn't change.
We hope that we can be a great source of dealflow for the world's best mid stage crypto
funds into perpetuity.
But when we look for talent, you know, thereality is sometimes in the past, we would find
talent at universities.
(04:26):
Maybe it was with Katrina, my businesspartner's work at Penn Blockchain.
That's still a good source of talent, but itcould be universities.
Increasingly, you're seeing crypto actuallyattract a lot of traditional founders since
you're seeing spinouts from Stripe found a lotof great crypto businesses.
But if you go even further back, sometimes youfound the best crypto founders just at a meetup
in Berlin, for instance.
(04:47):
Our business in terms of how are we sourcing,how are we finding the talent that we're
backing is is one example of things that arejust constantly changing that we have to
constantly reinvent.
If the entire industry is reinventing itselfevery twelve to eighteen months, how do you go
about creating a portfolio of investments, andwhat principles stay the same, and what changes
every cycle?
It's a really good question.
(05:07):
Our it sounds a lot like software investingactually or just traditional venture investing.
And that we wanna be back in founders that haveunique insight, have unique ability to execute,
and are playing in a sufficiently large marketwith the potential for moats to create sizable
outcomes.
Like, that that's the core of it at all times.
The way that we actually execute on that,though, typically a very thesis driven
approach.
Every quarter, Katrina and I sit down, and wesay, what are the theses that we're most
(05:30):
excited about?
A thesis could be related to an end market.
So it could be related to Bitcoin, forinstance, as an end market.
A thesis could be related to a technology.
You know, it could be related to a newencryption standard or a new technology that
allows you to create a deepened network, forinstance, or it could be related to a business
model.
We've done deep dives into differentdistribution mechanisms effectively.
(05:51):
Through that process, we then try to get worldclass on the thesis that we're running at.
So we we reduce the scope of invest theinvestable universe.
And in doing that, we go really, really deep inspecific thesis.
The process of doing that then helps us figureout, okay, where is the best talent for this?
You know, the Bitcoin founders that we backeddon't actually come from the same talent pools
(06:11):
as, for instance, the real world asset founderswe backed.
We're the first track into a protocol calledArch, which is smart contract programmability
on Bitcoin l one.
Arch has raised two rounds after us.
It's becoming really the dominant player forprogrammability on Bitcoin l one.
There we found the the founders through Bitcoinangels, and KOLs.
It was referred to us from them.
(06:32):
You know, the founder's background is hepreviously ran a shoe company, a sneaker
company, and got really deep into the category.
That looks very different than Plume, forinstance, which is an RWA l one.
It's a real world asset l one.
Much more of a regulatory focus, very differentgo to market.
For Plume, Chris, the founder, sold a companyto Coupa in the past, and he looks a lot more
(06:52):
like a traditional Silicon Valley Founder thatthat ultimately got really deep in crypto,
became quite crypto native, and could buildsomething special.
So that's the process from there.
If we go deeper, though, into then what do wedo to fill a portfolio with that?
What we do is we say, we want businesses thatcan be really fundamentally valuable.
We find those businesses based off of theses.
We then want the output to be typically aportfolio of no fewer than 30 assets with no
(07:14):
less than 5% ownership.
It all comes down to the, like, what do youhave to believe math?
Our job at the end of the day is to produceoutsized returns for our LPs.
We construct a portfolio where if we have acouple of assets that are multibillion dollar
outcomes, we're happy with our fun math.
And and that's that's ultimately the game thatwe we wanna play in with what crypto is today.
Let me tell you about a conference I'm veryexcited about, Alpha on the Delta, which is
(07:38):
coming up in late April during Jazz Fest in NewOrleans.
Unlike some of the larger conferences, Alpha onthe Delta is limited to a 50 allocators and 30
niche managers on an invite only basis.
It's an authentic and different kind of eventwith some really great people.
If you'd like to learn more and request aninvite, visit www.howiinvestdelta.com.
(07:58):
That's www.h0wiinvestdelta.com.
I hope to see you there.
How do you get smart on a specific thematic betthat you're trying to make, and how do you
operationalize from deciding this is somethingyou wanna focus on into finding the top teams
(08:18):
in that space?
We think about this all the time because ifwe're doing our job of becoming world class on
a specific thesis, typically, deals come to us.
And, typically, we can make quite sophisticateddecisions and the portfolio works.
So then the question becomes, how do we makesure that we're finding the things to actually
double down on?
And how do we make sure that we're gettingsmart?
The first step is we're constantly compilinglists of ideas and theses that we might want to
(08:42):
dive deeper into.
That's a growing document that we keepinternally.
Three quarters, we have capacity.
We say, what do we wanna go deep on thisquarter?
So we pull from that list.
And the way that we prioritize is we say, isthis both, something, a, that's sufficiently
large such that we could create a sizablenumber of investments off the thesis?
So it's not worth, you know, spending threemonths getting smart on something that can lead
(09:04):
to one investment for one to 3% of the fund.
We we need to really be able to express thisthesis.
The second, though, say, is there somethingthat's happened from a technology perspective,
from a market structure perspective, etcetera,that makes this actionable?
And it's those two are ideas that we developedby doing postmortems at the end of the day.
So we've been doing thesis work for a longtime, and what we found was there were some
(09:27):
theses that were better than others.
So we actually created a rubric for evaluatingour thesis in hindsight.
The ideal outcome is a thesis that is bothcorrect and highly actionable.
And so our Bitcoin economy ecosystem or Bitcoineconomy thesis fell into this camp.
We, early on in early twenty twenty three,believed that Bitcoin, as it continued becoming
more dominant, would have a need for morecapital efficiency and more programmability.
(09:51):
And we went really deep over that thesis forsix months.
We were probably three quarters ahead of mostventure funds in this category.
So we could put our chips on the table at lowprices with high ownership before others came
in.
And it was a thesis that we could reallyexpress in a lot of different ways.
We we made four or five investments off of thisthis thesis.
The second category is a thesis that's correct,but not very actionable.
(10:11):
And so that's good, but at the end of day, it'snot the highest ROI on our time, which is our
scarcest asset.
So that's something where we we made a fewbets, and we feel good about them, but there
weren't many ways to express it.
The third would be a thesis where we're justnot correct or it's not actionable, and those
are effectively the same to us.
So that's kind of how we think aboutoperationalizing it.
We're constantly doing retros to see are therenew things we should add to this framework such
(10:33):
that we can keep getting better and better atfinding what's next.
You are three quarters ahead on this Bitcoineconomy thesis.
How did the idea come to you?
How did you decide to advance it?
And and walk me through your process.
Thank you for listening.
To join our community and to make sure you donot miss any future episodes, please click the
follow button above to subscribe.
One of my favorite things about investing isit's it's really like psychological warfare in
(10:57):
some ways.
Tru truly, it's like everyone says, you know,you have to run into the building when it's on
fire.
And that's really easy to say.
It's like whoever has the willpower and ismeasured enough to think through those times,
that's the person that runs in and does it.
And so a result of this is we're always in thelookout for, like, what are things that just
don't really make sense from a crowd psychologyperspective?
(11:18):
And that helps tip us off sometimes on thingsthat could be interesting to explore.
And so at the time that we were looking intothe Bitcoin ecosystem, the Bitcoin economy,
just before that, people said, Bitcoin willnever be anything more than digital gold.
No one wants to use their Bitcoin for anything.
Everyone just wants to hold Bitcoin and not doanything with it.
And I'm like, that's weird.
Like, I don't think everyone falls into thatcamp.
Sounds a little black and white thinking.
(11:38):
And I started asking some people.
So was like, I'd actually like to get yield onmy Bitcoin.
I started asking friends, and I started askingwhales, like, what would you actually like to
do with this very large asset?
So you talk to the customer and you realize,oh, okay.
Like, not everyone wants to do things withtheir Bitcoin, but, like, it's certainly No
one.
Then you look at this and you say, okay.
It's an asset that's trillion dollars at thetime, and it seems consensus within the crypto
(12:00):
world that this is going to be parity with goldat a minimum.
So this is gonna be a $10,000,000,000,000asset.
You say, okay.
If 10% of the holders of this asset wants to dosomething with it, that's a $1,000,000,000,000
asset base off of which you could earn fees forloans, off of which you could earn transaction
fees for sending it.
You could do a lot of different things withthis.
And so then we said, okay.
(12:21):
You know, I think that it's worth evaluating.
Like, there's a customer that has a need.
How do we dig in and say, what's that need?
And so that that's what we did.
One of the biggest things that we found was alot of Bitcoin holders want to be able to maybe
take out a loan against it, but they don't wantto bridge it away from Bitcoin.
They don't wanna bring it to an exchange allthe There are certainly people that do wanna do
that, but there's a very large portion thatjust doesn't want it to leave the Bitcoin l
(12:42):
one.
And for that population, there was nosufficient answer at the time.
There were some ways of actually creatingpseudo smart contracts, but they they weren't
perfect for technical reasons we could go intoon Bitcoin l one.
But it was expensive, and it was really slow.
And the Arch guys had interesting thesis aroundhow they could use a new innovation in Bitcoin.
So back to, like, there needs to be a marketstructure change with the taproot upgrade and
(13:04):
descriptions to effectively inscribe the stateinto the Bitcoin chain.
So it's technical, but effectively, they foundthrough this upgrade, there's a new way to
create more efficient smart contracts onBitcoin.
And we we were the only institutional investorsto have the conversation there.
We just realized that they were the smartestteam in in the space, and we we were able to
offer them conviction before anyone else wouldtake them seriously.
(13:28):
You fast forward to today, you know, multicointo the second round at the moment, and they're
they're gonna hopefully go liquid, and,hopefully, it'll be a a multibillion dollar
outcome in in the next few years.
So that's that's kind of start to finish howhow we thought about these things.
You had this thesis on a small part of themarket that you expected to grow very, very
fast, and you wanted to see that there's a bigenough market size.
(13:48):
So if you were right, the last thing you wannado is be right and the market is small.
That's a lot of brain damage in that.
Yes.
You are technically correct, but it doesn'treally do anything for your fund, or it's not
it still ends up being a bad investment.
So you had to run it through those models.
And then once you realize that the the thesismade sense, then you went about finding the
right player that would execute on that thesis.
(14:10):
There's one investing category that'soutperformed major US and world stock markets
over the past three years, privateinfrastructure.
Private infrastructure is expected to doubleover the next ten years with the continued
development of AI, increased demand for powergeneration, and the modernization of supply
chains.
This asset had previously only been availableto large institutional investors, but now you
(14:32):
can invest in it exclusively through Republic'spartnership with Hamilton Lane, whose co CEO
Eric Hirsch I previously had on the podcast.
Visit Republic.com/hlpif.
Again, that's www.republic.com/hlpif to investtoday.
That's that's right.
And then, of course, we it turns into how do wehelp them be successful.
(14:55):
So how do we get our our hands dirty in in dayone?
It's a result of going so deep on that thesisof an asset.
That asset is unique insights and knowledge.
And so when we're backing founder, it'stypically not just that the founder has a
unique insight.
We typically also have a complementary uniqueinsight.
And they're they're most definitely alwayssmarter than us on this front.
You know, the day we wouldn't be backing themif they were.
(15:16):
There there are often strategic things that wecan provide and put on that help actually
change the success of of the company.
There's this there's this framework instartups, the 500 mistakes that a seed company
makes.
It's the same 500 mistakes.
But now if you take that down to crypto andthen you further take it down to l one Bitcoin
startups, and you have this really valuableinsight to deliver to them on exactly the
(15:39):
problem set that they're working on.
That's right.
And another thing that's really interesting incrypto is, you can derisk projects by just
bringing some of the right people in becausecrypto is very dependent on getting the right
partners and bringing the right people onto thenetwork.
Like, at the end of the day, we're we'rebuilding these these networks.
And so in the past, it was like, okay.
This concept of community.
I don't think of this as like, you know, it'snot like some NFT community is what's making or
(16:03):
breaking the project.
But we can help bring in angels where maybeit's someone that's really plugged in to
institutional Bitcoin holdings, for instance.
Therefore, they're close to the customer, theBitcoin whales, the big institutions holding
Bitcoins.
As a result, they can just actually helpconnect Arch with the customer a bit more, and
that's really helpful.
So so we try to be quite helpful on the insightfrom day one and then just bringing, like,
(16:26):
world class angels and partners into theproject when it's most I like the Keith Raboy
frame framework of its most liquid in the earlystages.
When it's most liquid, we input a lot of help.
And sometimes it feels like we're almost like athird cofounder in in a way for that that
initial period.
Where the thesis is most liquid?
It's The thesis, but also the product.
Like, because we're investing typically whenthere's nothing but an idea.
(16:48):
And so very often, we we back founders andthere isn't a deck.
You know, it's very often that we're we'retalking to founders about an idea that we're
excited about.
They're excited about the idea, they'reconsidering building something.
And and we say, oh, why don't why don't weinvest?
They're often not raising actually when we'redoing it.
So a stat that we we go on often is that 70% ofour deals to date have been proprietary as
(17:10):
defined by we were the only institutionalinvestor around the table, or we preempted the
first round before it happened.
And that's something I take from Insight,actually, as we draw parallel there.
Insight is world class at creating proprietaryopportunities.
They're doing it in growth stage software,though.
And so proprietary looks very different frompre c c in crypto.
But we we still take this framework of, like,when you can create proprietary opportunities,
(17:33):
that's a source of alpha, and that's our job.
There's this idea that if you invest at a veryearly stage and you're investing with four
other funds, somehow it's more derisked, orit's not really derisked.
It's the same level of risk.
You just maybe have a false sense of security.
I strongly agree with that.
And sometimes it's actually even more riskybecause it's it's kind of like the tragedy of
the commons.
Like, we we really like going on the rollercoaster with our founders.
(17:56):
We we never feel it to the same extent, ofcourse, because we have a diversified
portfolio.
They're working on one thing.
But we find it to actually be helpful becauseit's just like it means that we're we're
invested.
We we have skin in the game.
And so if there are four other investors aroundthe table, no one's feeling it like you are.
Like, we don't wanna see something that we led.
But at the end of the day, if there are lot ofpeople on the table, it's it's there's there's
(18:18):
not the same ownership.
Conversely, if it's a huge success, it returnsyour entire fund.
It's a big Yeah.
What percentage of your theses die, and howquickly do they typically die?
You know, there there may be only been one ortwo theses that have, quote, died.
Talk to me through the process and the funnelof your thesis.
Give me percentages.
I don't have the exact percentages.
(18:38):
I'd I'd have to go back and cut cut numbers onthat front.
We we just have a notion that tracks all ofthis.
I can speak though to a couple of theses thatdidn't make it through.
The first would be, a thesis that Katrina wasworking on a couple of years ago in MEV, which
is think of it as pay for order floweffectively on blockchains.
MEV is a huge profit pool crypto.
(19:00):
And we looked at that, we said, okay.
We should consider having exposure.
If you run a fund, then you know.
Having instant access to fund insights,modeling, and forecasting are critical for
producing returns, which is why I recommendtactic by Carta.
With tactic by Carta, fund managers can now runcomplex fund construction, round modeling, and
scenario analysis, meaning for the first timeever, you could use a single centralized
(19:23):
platform to do everything from analyzingperformance to modeling returns with real
industry benchmarks.
Most importantly, communicate it all withprecision to your LPs.
Discover the new standard in private fundmanagement with access to key insights and data
driven analysis that could change thetrajectory of your fund.
Learn more at Carta.com/HowIInvest.
(19:44):
That's carta.com/h0wiinvest.
Just something in the MEV space.
At the time, the biggest MEV play was abusiness called Flashbots, which was MEV on
Ethereum primarily.
We we went deep.
Katrina published this very thorough report onthe state of MEV, who the players are, how it
(20:04):
works, what the supply chain looks like withinthe supply chain, who's best positioned to
capture value.
What we found was at the time, if you weren'tinvested in flash bots, that it just really
didn't make sense to bet on anyone else.
Like, they were the biggest fish, and they weregoing at the time, it looked like they were
gonna vertically integrate, and they're justweren't was it gonna be space for other
winners?
That's changed a bit with the Solana landscape,but that's a thesis that we got to the end of.
(20:27):
We said, okay.
There there's just nothing to do here.
Like, there's no way to act on it.
And that's when we then in one of ourpostmortems, this is the one where we we looked
at it and we said, oh, what did we get wrong?
We got wrong that there was no change in marketstructure at the time.
It's like it was a big profit pool, but someonefound out earlier that it was a big profit
pool.
Someone built a business that was capturingthat profit pool, and that's very impressive.
(20:47):
And we weren't in the business, and and that'sokay.
But, like, we shouldn't try to chase somethingthat doesn't have a market structure catalyzing
new opportunities.
So that that's one example.
Another example is I spent a lot of time earlytwenty twenty four digging into DeSci,
decentralized science.
It's a really interesting idea.
The concept is one concept, for instance, youhave a lot of IP that isn't doesn't have the
(21:09):
most efficient fundraising markets.
It's because science is not where it very wellfinanced.
It's not an efficient market.
And so there were founders saying, if we try tofix that using benefit of crypto, which is new
capital markets, new ways of raising, new waysof financing, and apply it to decide?
And so I I went deep on on the space, and,ultimately, what I ended up finding was that
(21:30):
there just wasn't anything that was actionable.
Like, there there I I actually I spit out fromthat one, and there are three or four ideas
that if we find the right founder, I'd love toincubate.
We we actually like, we have them written down.
It's like we wanna work with someone that'sworld class on an idea like this.
But the projects that were being built, we justdidn't think we're going to produce the venture
scale outcomes that we we wanted or orsometimes the projects were just, doing too
(21:52):
much at one time.
You had a fund one.
It was very successful, but I'm sure you may soso tell me about some of the learnings from
fund one and how you apply that to fund two.
Yeah.
The biggest lessons from fund one.
Right.
See, there there's one thing that we did reallyright, and there's one thing that we would we
change for for fund two.
The thing that we did really right was we werenot afraid to act with conviction and ideas
(22:14):
that were very unpopular or invest at timeswhen others were really not deploying.
And so there are a handful of theses andcompanies that we got excited about that just
couldn't raise, and we thought we really hadconviction.
We did it, and and we were not just early andcontrarian, but we were wrecked.
We also invested during time periods where themarket was silent.
(22:35):
Company in fund one that I think is gonna beone of our fund returners, we wired capital to
the founder the week after FTX collapsed.
And, you know, other founders in the space werelike, no one's doing anything.
Like, deals are getting pulled, where to stand.
So and we were like, we believe in what you'rebuilding.
We think you're building something generationalin DeFi.
And, of course, we wanna back you.
And so we feel really good about just actingwith conviction and doing right.
(22:59):
What we would change on this front to doubledown on it though is there were times in fund
one where we backed something, and we hadconviction, but it wasn't happening and it
wasn't moving as fast as we thought it was.
We kind of questioned that conviction.
What we actually should do in those times isdouble down and say, okay.
If we're right, we should probably put morechips into this company.
And so there there, you know, call it three orfour companies in in fund one that this applies
(23:22):
to.
Where I looked at the market and I looked atthem, for instance, struggling to raise the
next round.
And I said, this is weird.
Like, I'm I'm pretty certain that we're righton this.
Nothing's changed on the thesis, but themarket's not getting it.
We had a really interesting opportunity wherewe we could have doubled down at not a material
step up on on valuation and really increasedour ownership.
No.
These companies will still return the fund, Ithink, with where they're trading, but you'd
(23:43):
really inflect the math.
And so then that raises the question of, how dowe get around that?
Which is where we we wanted to carve out morecapital in fund two.
So we when we jumped from 40 to 80, part ofthat was so that we could double down on our.
And we've actually doubled down on twocompanies already in fund two.
We led follow on rounds into them.
We're very excited about both of them, and andwe feel good to have that that capability.
(24:05):
The the second lesson that we learned waslearning to pay up occasionally.
When I started the fund, it was a time whendeals were flying left and right at a hundred
million dollars for the first round.
And so, naturally, we were very adverse topaying up.
We said this just doesn't make sense.
The reality is there were a handful of dealsthat we could have done where maybe the first
round was at 50 or at 60.
(24:27):
And it just it never traded below that.
And there are some of those companies which arealready liquid and would have returned the
fund.
A lot of our rather the vast majority of ouranti portfolio, with maybe a few exceptions,
are because we didn't pay up.
So that raises the question of when should wedo that and what's reasonable.
How's crypto investing like biotech investing?
The way
that we think about these founders and theseprotocols, for instance, like, we're thinking
(24:48):
on probabilities sometimes.
It's like a blue chip crypto native foundertypically has a higher probability of success.
And that's one of the components that lookssimilar to bio.
So if you think about biotech investing, thinkabout how do you actually value these
companies.
The way you do it is you say, okay.
Based off of these stages, like, based off ofstage one, stage two, etcetera, etcetera, what
(25:10):
is the probability of success or theprobability of getting to the next stage?
And then what's the cash flow available basedoff that?
Then you apply discount rate.
When we think about these founders, the moresuccessful or blue chip Kubernetes founders
typically have a higher probability of gettingto the next stage or building something
successful.
And we think in stages.
And so unlike software investing where whenyou're doing a series a, you you wanna see x
(25:31):
million dollars of revenue.
You wanna see them scaling.
That's not the case in in crypto.
So crypto derisks based off of stages.
Take an example.
Like, you can look at Solana.
You know, for Solana, you you start with a anidea and a hypothesis that turns into a
technical document that outlines how you wouldtransform this idea into something that you
could build.
You then build it.
You have, like, a test net.
(25:51):
You have a working prototype effectively, butit's not live because it still would have
issues.
Then you get a working prototype out.
You launch your main net effectively.
And your next step is you have to acquireapplications and users and capital.
And then eventually, way down the line, onceyou have applications and users and capital,
your revenue just hockey sticks.
We've seen that happen with Solana over thelast one to two years, that their revenue just
(26:13):
absolutely hockey stick.
Then the question becomes, what's it worthbefore that happens?
Like, should we be is it useful to value theseon on revenue in those early stages where that
would imply an incredibly low valuation?
And the answer is no.
That that wouldn't actually be useful.
That would result in you underpaying for thingsthat are valuable.
For that, we we look a lot to just biotech, andwe think a lot about, okay.
(26:33):
When we're investing in a protocol, like, whatare the probability gates that they need to go
through?
If it works, how big is the market?
What's the rate that we need to get paid onthat?
Then you you can kind of think with thatframework to say, okay.
What what's a fair valuation to pay forsomething?
It's like biotech in terms of differentmilestones, like pre like, phase one, phase
two, phase three.
Yeah.
Or, like, preclinical trials or before thedrug's been synthesized, for instance.
(26:56):
So some of your biggest reservations about fundone are not backing into your winners before
there were consensus in the market.
How do you how do you know that it's one ofthose opportunities versus just a bet that you
made wrong?
What are those early signals?
It's a really good question and and franklysomething that I think, like, every investor is
always working to get better and better at.
(27:18):
Because investing, it's all about, like, alpha.
And then one of the hardest things is isactually sometimes the hardest thing isn't
finding the alpha, but it's knowing that thisactually is alpha and that you wanna act on it.
For for us, the way that we we think about itwhen we can't get the social validation, and
for our precedes, we never get socialvalidation is is the thing.
There there's just something different aboutyou make the bet and you watch it play out and
(27:39):
you still stand strong as opposed to making thebet with just straight And it's it's a muscle
that requires training.
So what we find to be the most valuable indoing that is we go back and we read what we
wrote at the time of investing.
And we say, okay.
Is the team shipping on this timeline?
Is the team still running at this?
If they pivoted slightly, are they pivotingbecause they failed, or are they pivoting
(27:59):
because they actually created an even moreinteresting insight?
If I had to boil it down to one thing, though,it would be the pace at which they're shipping.
I think if the team is shipping and moving andhiring well, it's iterating and iterating and
iterating, and the thesis stands strong andthat it wasn't invalidated by anything in the
market, that's that's a position where we wouldsay, okay.
Let's let's double down.
Where I think you can go into trouble is if thethesis you feel the thesis is still correct and
(28:20):
that the market hasn't invalidated it, but forwhatever reason, like, the team's just not
shipping against it.
And so so said another way, it's it's oftenit's rare that a thesis would be invalidated so
quickly such that you believe something at thepre seed and then, nope, twelve months later at
the seed, it's invalidated because the thesisis wrong.
It it's usually related to execution or theunique insight as opposed to the categories.
(28:41):
How quickly are they iterating iterating solvesmany problems?
It's it's this compounding force that continuesto compound quarter after quarter, and and
after ten years, you have a world classcompany.
If you have a world class team and you havefast iteration, you have a world class company.
The does it make it easier for you to havestronger conviction given that you're not a
solo GP, you have a partner?
And talk to me about the interplay between youand your partner and how you look at these high
(29:04):
conviction contrarian bets?
It definitely is helpful.
Katrina joined about two years ago.
And I at Insight, I saw in the IC Room justthese heated debates.
You know, sometimes they'd be yelling matches.
Sometimes it would be very data driven.
It was it was always different, but, like,there was a lot of friction in that room.
(29:26):
Devin and Jeff are just world class sparringpartners.
They they just they go at each other, and andthat's where where the magic happens.
And so we certainly find that we're able tomake more contrarian high conviction bets
because of the big debates that we we haveinternally.
We try to really encourage debate.
I'd say, generally speaking, if we're notdebating and we're not disagreeing, we get
(29:47):
concerned.
If we are, sometimes it can get quite heated,but we look to that and we say, okay.
We're making a good decision.
Like, we're getting to the bottom, butfriction's positive.
I would say the biggest benefit really is thatyou're forced to argue something.
You know, it's one thing when you're a solo GPto talk to peers who don't really have a skin
in the game and debate with them or to writeyour logic down in a memo and, you know, work
(30:10):
through it with yourself or maybe, like, toargue with chat GPT on it, whatever people do
at at this point.
But it's another thing when there's someonethat's heavily incentivized in the financial
success of your fund saying, I think you'rewrong.
Prove me.
And in that process, you start to realize like,oh, do I actually believe this?
And if you do, you get really excited to toleave the deal.
We also don't believe that we need, like, fullconsensus is is another concept we we have
(30:33):
internally.
And and this, I take from just some of thebetter investors that I've I've seen.
And so, you know, if if we're really heated onsomething and it's below a certain threshold of
a percentage of the fund and one person'sconvicted, the other person still doesn't buy
it, the the outcome is good luck.
I hope it works.
And and I prefer that outcome to I'm not onboard.
(30:54):
I think you're wrong.
Because when we look back at the deals thathave done best, they've often been the deals
that have been most debated.
And so I I won't name the the companies that wewe just mentioned, but a subset of those
companies, for instance, we had heavydisagreement on where one of us wanted to do
the deal, the other didn't wanna do the deal,and both of us are thrilled that we did.
You have this strategy of surviving overseveral decades, and you apply this to the
(31:15):
crypto space.
Talk to me about that strategy, and what areyour main drivers behind it?
Crypto is a secular trend.
I think the protocol business model isequivalent to the software or Internet business
model.
If we zoom out and we look at software and whatit did to the world, software was three things.
It was new products.
You know, like Salesforce is a new productthat's not possible without software,
(31:37):
obviously.
It's a new business model in the sense of it'svery high gross margin and can achieve 30 to
40% EBITDA margins at scale because of thecapital efficiency.
And then it's a new asset class because the waythese things scale, the way that they derisk,
the way that you value them is totallydifferent.
Protocols are similar.
I think protocols are businesses and productrather products that are created by networks of
(31:58):
computers.
Protocols as a business are businesses thatskew towards near zero fixed costs in the long
run.
So if you think about Solana again, Solanadoesn't produce blocks.
Solana, the protocol, does not have operatingexpenses.
The Solana Foundation has operating expenses,but the Solana Foundation does not need to
exist for the ongoing success rather for theongoing existence of Solana, protocol.
(32:19):
So it's businesses that near or asymptotetowards zero fixed costs.
As a result, it's it's a new asset class aswell because the way it derisks is different.
The way you value them is different.
Their income statements are different,etcetera, etcetera.
So I think that's gonna create trillions ofdollars of market cap, that that being protocol
business model.
They're gonna be very large businesses withnear zero fixed cost created and enabled
(32:39):
because of tokens and blockchains.
And if you believe that, you believe there'strillions of dollars of market cap creation,
and the industry is gonna mature over thecoming decades.
You say, what's most interesting to do?
What's most interesting to do is is just tobuild an enduring firm.
It's to figure out how do you you stay alivefor that whole story and how you deliver
exciting returns to your investors along theway so that you you can do that with the ups
and downs.
(32:59):
I don't think that's straightforward, and Idon't think that's straightforward because of
how volatile the industry is.
The characteristics that made a $5,000,000,000outcome three years ago are very different than
the characteristics that make a $5,000,000,000outcome today, and I expect them to be very
different from the characteristics that make a$5,000,000,000 outcome in the next few years.
You see these massive speculative run ups andthese massive speculative crashes.
There's no consensus on how you should actuallyvalue these assets yet.
(33:23):
In software, you're betting on the inputs.
You're saying, is this a market that I thinkcan support a large outcome?
If it can, I think the public equity marketsare gonna value it in a certain way?
In crypto, there's not consensus even on howthese assets will be valued if they are
successful.
And so there's a lot of risk.
And and for us, we say, okay.
Just survive.
And if you survive, you you build a franchisewhere you build ten, fifteen funds in into the
future.
You you're in a really good position at thatpoint because venture is a business that has
(33:46):
real compounding returns to success.
Incumbents have huge benefits because,ultimately, great deals beget great deals.
When you back a great founder, that founder istypically in a network that leads to other
great founders.
And when you have a reputation of being thefirst money in to great projects, there's a
stamp of approval.
You know, like, people want Sequoia's money.
People want benchmarks money.
(34:07):
And so we look at that and we say, okay.
We're early enough to this industry where wecan build something that looks like a benchmark
or USB specific for crypto over the decades tocome.
Let's focus on doing that.
And to focus on doing that, it's about gameselection then.
So this goes back to the the first point wemade, which is because of how volatile it is,
we wanna be at the pre seed.
We think it's really hard to act with precisionin this industry right now.
(34:28):
I think it's really hard to invest in somethingin an $800,000,000 valuation and underwrite a
three x case.
If you invest something at 800, like, it couldbe trading at 200 in two years, and it could be
trading at 10,000,000,000 years.
Like, it's it's quite hard.
And so we say, okay.
Let's let's just play a game right now where wehave a size of fund that makes it such that
with the ownership we're getting, if a handfulof our companies are multibillion dollar
(34:50):
outcomes, our math works, and we're thrilled.
And that doesn't preclude our companies frombeing $10,000,000,000 outcomes.
You know?
Like, we're backing things that we think can bedeco quarrels, of course.
But we don't need that to happen for us to besuccessful and and for us to survive.
And so it it just it makes us a bit long termlong term greedy.
Some LPs will say the days of the $10.20, 30 xfund are over.
The amazing opportunities in the crypto marketare over.
(35:12):
Why should LPs still care about the assetclass?
There are a few reasons.
The first is venture returns are commoditizing.
So every asset class asset classes are productsat the end of the day.
And as products are created and the market'screated, margins on that product and that
business compress.
And that's no different for the assetmanagement industry.
(35:32):
Crypto is a relatively new product, that stillhas the potential for outsized returns.
It's highly risky, but it has the potential.
Where does that potential come from?
It actually comes from all the risks that Ijust described, which is to say, if you think
you have alpha on understanding how thesethings will be valued, you've alpha on finding
the best founders given how often it'schanging, and you've alpha in the form of
information asymmetry that you understandsomething others don't understand, that can
(35:55):
produce outsized returns.
It's hard to produce, you know, the 2017, '20'18 vintage funds, but I think you still can
produce materially outsized returns relative totraditional venture, which is an asset class
that has been increasingly commoditized.
That's the first thing.
The the second thing is I think one thingthat's durable in crypto is the liquidity
profile of these assets, which is to say ifyou're investing in pre seed software
(36:19):
businesses, you know, you get your money out inten to fifteen years if the company is
successful, unless there was a huge acquisitionearly in the company's life.
In crypto, you know, there there are a handfulof companies where we were the first money in
one to two years ago, and the asset will beliquid in one to two years.
In fact, there's a company that we put moneyinto in q four of twenty three that went liquid
(36:40):
at north of a billion dollars in the pastquarter.
And now we have a a lockup on these.
That's something that's different versustraditional equities.
Like, there's an extended lockup for a coupleof years or a few years.
But even so that that puts you at a timeline toliquidity of potentially, call it, three to six
years for for pre seed seed investing withasymmetry.
We're not a group that's going to sell justbecause it's liquid, but we certainly aren't
(37:01):
afraid to take chips off the table if we thinkthat the company is really approaching its its
terminal valuation.
And I think that's a really interesting productfor investors, and that's something that's just
durable in the asset class.
The last cycle has been really dominated byBitcoin.
Do you see that trend continuing in 2025, '20'20 '6?
There's a really interesting dynamic happeningin the market.
(37:22):
So if we look at prior cycles, whathistorically happened in the market structure
was Bitcoin increased in value largely becauseof the market structure changes the happening.
So supply decreased, which drove price up.
As that happened, it created a wealth effect incrypto.
So everyone that owned Bitcoin said, wow.
My portfolio is up three x.
I might as well go further down on the riskcurve with that capital.
(37:42):
Printed money in the crypto ecosystem.
And then you had these investors that werepredominantly crypto investors say, okay.
I'm going to push money into long tail ofassets.
Because the floats were so low on them, itdrove alts, so altcoins up pretty aggressively.
So it was all a float to float dynamic.
What's happened this cycle is Bitcoin's beenleading, but it's a different pool of capital
(38:06):
in Bitcoin, actually.
And so it's it's a lot of individuals still.
Yes.
But it's a lot of institution, and that'sexciting for Bitcoin.
But what does that mean?
It means, you know, if an institution all of asudden goes three x in their Bitcoin holdings,
their answer is not, hey.
Let me take that money and move it into a,like, high risk, high reward asset that I don't
actually understand the fundamental value.
Concurrent with that, retail, the group thathistorically had that wealth effect, said, I
(38:30):
also am actually not going to put these intotraditional altcoins as, like, the speculative
investment product.
They started putting them to meme coins becausethey got results higher.
So it was it was like, if it was speculation,they said, why not just speculate to the
extreme?
Why not just speculate in something that'sgoing to go up and down in days and the
multiples are higher?
And, what that did is it left this dearth ofcapital pursuing fundamentally valuable tokens.
(38:50):
And to answer your question, Bitcoin's beendominating largely because of the same cycle
dynamic that happened in the past of thehalving incomes, supply decreases, and
continues to increase with the institutionaloption and increases.
But alts haven't gotten a bid because of thatmarket structure.
The question comes, okay.
When will alts get a bid?
And the answer is they'll get a bid when theystart being fundamentally valuable.
There are handful that are is the reality.
(39:13):
There are handful that are producing reallyimpressive revenue at scale right now.
You could argue the quality of revenue.
You could argue the durability of the revenue,but they're impressing like, creating revenue
scale.
There just aren't a long list of assets thatare doing that.
And the reason there aren't is is back to ourpoint earlier in the conversation is founders
historically didn't have to do that.
If the market did not demand founders to createintrinsically valuable businesses, they will
(39:33):
not create intrinsically valuable businesses.
But now the market's demanding it.
And that actually makes it a very exciting timefor me to think about investing.
Because specifically at the pre seed seed, youhave these founders that are saying, I wanna
build something of value.
I have to be thinking about how is this gonnabe profitable?
Why is an investor gonna wanna buy this downthe road?
Because the trade of just launch a project,have a token, make money.
(39:54):
Like, that that trade doesn't work anymore, andthat's a much healthier market structure.
So to to answer your question, I I don't reallyknow on on the off of the cycle.
I think it's gonna be very divergent.
I think there will be some that really impress,but I I don't think you're going to see
everything move up as you previously hadbecause of the market structure.
That's healthy.
And then also it's creating very healthybehaviors at the precede seats.
So so we're really excited to invest into thisenvironment.
(40:15):
What do you wish you knew before foundingPortal Ventures?
The biggest thing I I wish I knew was, when youhave conviction, don't just double down, triple
down.
I I think it goes back to that point of findingalpha is really hard, and when you have it,
triple down on it.
And that's not to say triple down blindlyeither.
There's a real nuance to saying, okay.
This is my thesis, and this is how I'm gonnaexpress it.
(40:36):
So so I I wish if I could go back in time, I'dsay, like, spend a lot of time thinking about
what your conviction is, having a highconfidence interval that when you express it,
it translates to being right on your thesis.
If that is an efficient flow, just triple down.
It's been Peter Thiel's biggest regret asinvestor, and that is not doing Facebook series
a after he did the seed round.
(40:56):
Evan, appreciate you jumping on the podcast,and I look forward to sitting down in real life
soon.
Thanks for listening to my conversation withEvan.
If you enjoyed the episode, please share with afriend.
This helps us grow and also provides the bestfeedback when we review the episode's
analytics.
Thank you for your support.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!