Archive for June, 2017

Cryptocoins: Inherently More Valuable Than Startup Equity?

Posted on June 30, 2017. Filed under: venture capital |

At the time of this post,’s crytpocoin is trading on public exchanges at a network value (network value is the cryptocoin equivalent of market cap for a public co) of $163M. It is basically a pre-launch messaging app. I don’t think there’s any debate that this asset is not priced correctly. If Status were a startup Delaware C-corp selling preferred equity to venture capitalists, it would be valued south of $10M and most smart investors I know would pass regardless of price. Issuing coin instead of equity has enabled a valuation premium of 1000% or more.  So what’s the deal?

It’s important when thinking through this question to recognize that coins are not a proxy for shares in all cases, and often, depending on the design, only a portion of the value created by the project flows through to the corresponding coin. Numerai and Numeraire is a good example of the market’s confusion around this point. Numerai is a hedge fund that trades on crowdsourced predictions from data scientists. Numeraire is an ERC 20 coin that is used to reward those data scientists for contributions, and also to incentivize them to represent their confidence in their models accurately via a stake mechanic. The value of all the Numeraire coins in existence is roughly equal to the net present value of the future cash payouts to data scientists who are contributing…and that value is substantially less than the value of the Numerai hedge fund itself. In fact, cash payouts are not even tied to firm profits at the protocol level. They are discretionary. Numerai is an awesome company. The founder is really smart. Numeraire is an elegant design (you can read their paper here), but when it floats and trades up to $175M network value on the first or second day, while cash payouts to data scientists are currently in the range of $1M per year, you know that not everyone is understanding the difference between equity in a project and ownership of a coin. fwiw, I hope to buy Numeraire if it starts to trade at about a $10M network value.

Ok, so with the distinction drawn between equity and cryptocoin, a question I have been asking myself is whether or not there is anything inherently more valuable about owning the coin in a blockchain project (let’s say for purposes of this question that all of the value in the project flows through to the coin) vs owning preferred equity in what would be the corresponding startup organized as a Deleware C-Corp. I think a lot of people feel the answer is yes, but why? One clear input that would command a premium for coin vs equity in a startup is liquidity. If I am buying pre-ICO coin, or even coin at onset, my ability to sell my position immediately or within a short time frame makes me willing to pay more than illiquid startup equity i have to hold for many years. I’m not sure how much of a premium to apply for this privilege, but if Status were valued at $10M as a startup pre launch messaging app, maybe this increased liquidity would command a 2x premium? I think that might even be generous, but I can at least wrap my head around a $20M valuation for that reason. I still wouldn’t be a buyer, but someone who believed in the plan and design could maybe justify that price.

So is there anything else, other than increased liquidity, that justifiably commands such a steep premium, from even $20M to $163M? Maybe on a project by project basis, there are some unique properties of the coin’s design that make it more attractive than the value that might be captured by owning equity in a company with similar ambitions and product roadmaps, but across the entire asset class there’s only one other thing I can think of that is driving premium pricing: a second use case for the coin that has nothing to do with it’s utility in the network it governs.

That second use case, I believe, is Bitcoin’s primary use case: store of value. Bitcoin feels like a pure play and likely long term winner of the “store of value” use case. You might hear people talk about Bitcoin as “digital gold,” a place to park your cash, a place to escape the controls of your unfriendly government, a place for capital flight, etc…whatever that use case, Bitcoin does that and increasingly it seems likely only that…store of value is the killer application of Bitcoin…all the other applications that people have talked about for BTC and hoped for in the past (i.e. digital commerce, peer to peer micropayments, etc)…I think are more likely to be owned by separate protocols and coins specifically designed for those cases.

So right now all these other protocols, Status included, I think are borrowing some of the store of value use case from Bitcoin, commanding a premium to their true utility value, by capturing dollars seeking store of value, and the question I have is should they be? Do they deserve a part of this use case? Is there an argument for many coins acting as digital store of value or only one or a few? Is it better to be a pure play store of value (like paper money for example), or to couple a store of value with an industrial application (like gold…which makes pretty jewelry in addition to a good place to park your cash). I am not an economist, and i’m sure there are very good reasons why we used to store value in things with utility, and then we decoupled the two at some point with money, so now that store of value is digitized, do we want to store our value in a coin that has utility within say a messaging use case, or would we rather store it in a vehicle that is just for storing value? I don’t know the answer to that, but my gut says there will be a small number of coins that get to own this store of value use case, and not 1000s…so a lot of that “second use case premium” we’re seeing in today’s ICO pricing will probably evaporate.

Can anybody think of other dimensions of a coin, besides these two, that justify valuation premiums relative to startup equity?

I’m not an expert in a lot of what I’m talking about. Please correct me or add to this thinking if you have the background to do so. It’s a question I’m really interested in understanding.

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I was an investor, she was a founder…

Posted on June 23, 2017. Filed under: venture capital |

I met my wife at a tech holiday party. I saw her from across the party and the rest of the people in the room disappeared…but this story doesn’t go the way you think. We didn’t get to talking, and laughing, and go for a drink after the event. We didn’t flirt. We talked product…and business…and design…because she was there as a founder, not as my potential date. I was a Partner at Lerer Ventures at the time, and despite obviously finding her attractive from across the room, the second I learned she was a founder, I chose to appreciate her platonically, as a peer. It wasn’t even a question.

I knew how hard it was for women to network in our field. I knew that half the men in the room would confuse her attempts to do business as romantic interest. I just wasn’t willing to be a part of that problem…and so we talked, and went our separate ways.

There is absolutely no context where it is appropriate for an investor to make an advance on a founder, no matter how much chemistry is in the air. I waited 6 months, my wife chose a career path as a visual artist instead of a tech entrepreneur, and only then did I reach out and ask her for a date. I think I told her on our first date why I hadn’t asked her out sooner, and I know that the professional respect I showed her was one of the things that let her know I was a good person with a good heart. She liked me MORE because I didn’t ask her out, despite our obvious chemistry.

I guess the point of this story, and why I share it now, is that there is a right way and a wrong way to handle attraction in a professional setting. The right way is to back the fuck off and let people do their work despite any attraction. The wrong way is to blur the line. If the chemistry is real, it can wait…business changes, careers change, no professional context lasts forever…be a decent and respectful person…be context aware…and down the line someone might just marry you for it.

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“Show me one good application built on the blockchain” and other such challenges

Posted on June 7, 2017. Filed under: Uncategorized |

“Show me the newly enabled applications that provide unique user value, and that aren’t being sold on novelty of the blockchain.” – Sam Gertzenstang, ex-Andreesen Horowitz, Imgur, Lerer Ventures, Sidewalk labs)

“It was a great way to make money, and that’s all. No startup was made. The world does not have a new wonderful thing created in it. Just $.”Nabeel Hyatt, General Partner at Spark Capital, on Etherium

This challenge is not unique to Sam or Nabeel (both of whom i truly respect). It’s the elephant in the room when looking to the blockchain space from far away. All this money is coming in, people are getting rich, they’re talking about it all the time, but what does the world have to show for it? What applications have been built? Decentralized or otherwise? There are the believers who are building out the low level infrastructure to make this space viable, and then there are the impatient who refuse to accept this investment of time and money without an easily understandable, clearly visible real world application that they can wrap their heads around.

Investors…especially venture capital investors, like to understand opportunities in reference to things they have already learned and understood in the past. It’s a shortcut…rather than relearning the fundamentals and mechanics of every new business from the ground up, they just match the dynamics of one market or product or approach they deeply understand to a new thing they have just come across, and then tend to ask questions around potential incongruences or congruences to calibrate their analysis. There is absolutely nothing wrong with this approach.

When faced with new technologies or opportunities without clear reference points or prior understanding, I have found myself forced to choose whether or not to invest time and energy in understanding the fundamentals of that thing from the ground up. Personally, I get bored by things that are easily referenceable and understandable (even if valuable) and tend to gravitate toward the new. I look for opportunities to think and create on first principles, and the blockchain is ripe in this regard. The upfront investment to get to first principles thinking in this space is incredibly high. Higher than most other markets or technologies that I have learned in the past…and for those not willing or interested in putting in the time, it is easy to throw your hands up and say “show me the application so i can easily reference this new thing with other applications I understand already.” We are not yet in the stage of development in the ecosystem where investors can shortcut their way to understanding this space, and as a result you either have a choice whether you want to work toward building a thesis and understanding from messy, not perfectly articulated (let alone built) product and business articulations, or you can wait for those messy building blocks to be synthesized and expressed in a neater format…and both are totally reasonable approaches. What is less reasonable, is thinking that the ecosystem and it’s participants somehow owe you a clear product expression…on your timeline…simply because they are excited about it and have chosen to invest their time and potentially money in the messiness.

Personally, I have the luxury of time, I’m not sitting on a $700M fund that needs to be deployed today, and I’ve chosen not only to embrace the messiness, but to try to clarify and even design upstack protocols and applications to push my understanding and also help the ecosystem to build on whatever synthesis I can contribute. I feel good about that. It’s not vapid profit seeking. I’m not talking about all the money i’ve made in the space, and I am deeply confident that the building blocks that I am understanding can and will be assembled into things that satisfy the hand-throwers on Twitter and otherwise…

It’s not my job to defend this space, although recently I have been feeling like I am put in that position sometimes because of my time investment in it. I don’t have a blockchain company, I don’t stand to profit from other’s believing in the applications that are on the horizon, but I do care about it, and irrationally feel a bit attacked when the hand-throwers burst out. I guess that means I am a part of the community.

P.S. I started out writing this post to bullet point the unique properties of blockchain projects that unlock applications that previously could not exist (which is an ongoing and messy but improving framework that I have been building over the past few months), but I guess I’ll save that for future post(s).

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Crypto Investment Club #2 (evolved)

Posted on June 1, 2017. Filed under: Uncategorized |

Last month I organized a small and informal “crypto investment club” gathering in washington sq park. About 10 people showed up to talk about investing in the blockchain and cryptocoin space. My hope was that I could share some of my theses around coins like Bitcoin and Etherium as well as more emergent “altcoins” like Augur, Zcash, and hopefully some that hadn’t even become “public” via initial coin offerings yet (“pre-ICO”). I think the first meeting was pretty successful insofar as high quality vcs, wall st people, developers, and founders all came together to share their interest and ideas in the space. I wasn’t sure that the “crypto investment club” would have more than one gathering, but I find myself continuing to seek community and depth of thought in this area, where many of the folks I know and tend to think with are either no so interested or interested but really only at the surface level.

In thinking about how to create a productive gathering, I want to evolve from “show up and jam on whatever” to something a bit more like a white paper reading group. Most blockchain projects that are planning to or that have already ICO’d write a pretty meaty paper that outlines the nature and details of the protocol they are building, and to date it’s one of the only substantive inputs available into an investment decision on a coin. So my thought is for the next and maybe all meetings going forward, we will start reading these papers together, and discuss the strengths and weaknesses of new coins with a specific project and paper anchoring the conversation. I’ve found that reading these papers thoroughly sheds light on broader concepts and key learning that is relevant to an understanding of the space in general, and I think questions and discussion around the blockchain/crypto space as a whole will naturally emanate from focussed discussion on a specific project each meeting. A complete reading of the white paper at hand feels like a reasonable requirement for attendance and meaningful participation, and I think it’s also the only way people can leave with an actionable perspective on whether or not to invest in a coin or project.

I feel a little hesitant to evolve the structure in this way because it adds some friction to interested but less technical or experienced folks, but I assure you getting through these papers is a matter of focus and effort that I think is accessible to more folks than you would think. Coming with questions is as valuable as coming with answers around these papers.

So, if you want to attend the second “crypto investment club” brown bag lunch or others going forward, we’re gonna do it again at Washington Sq Park next Thursday, 6/8, 12:30-1:30PM. Email me to join the list:

There’s no requirement to put capital to work, and I don’t see that becoming a structural component of the group…just fyi

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    I’m a NYC based investor and entrepreneur. I've started a few companies and a venture capital firm. You can email me at (p.s. i don’t use spell check…deal with it)


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