WEBVTT - What’s Up With Crypto’s VC?

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<v Speaker 1>I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,

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<v Speaker 1>and this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.

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<v Speaker 1>It's Monday, June seven, California. Silicon Valley is both a

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<v Speaker 1>place and a philosophy. It's hailed as v place for

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<v Speaker 1>US tech startups to get funding and attract talent. Vcs

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<v Speaker 1>or venture capitalists, are an integral part of this mythology.

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<v Speaker 1>These are the people who provide the private capital billions

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<v Speaker 1>of dollars worth, so tech startups can chase the next

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<v Speaker 1>big thing. Despite the volatile crypto market, some of those

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<v Speaker 1>vcs are still betting big on the potential of the blockchain.

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<v Speaker 1>For the latest on this, Bloomberg reporter Hanna Milla joins

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<v Speaker 1>me for a look at how crypto is influencing VC

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<v Speaker 1>and vice versa. Hannah, thank you again as all it's

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<v Speaker 1>for joining us on the show. Thank you for having me.

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<v Speaker 1>So today we're going to talk about venture capital. I

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<v Speaker 1>am delighted to be recording this episode literally in San

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<v Speaker 1>Francisco on a week where there are as there always

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<v Speaker 1>is a lot of tech and vcs in town. This

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<v Speaker 1>is a place as part of you know the tech

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<v Speaker 1>scene that folks in and out of the US we

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<v Speaker 1>have heard about that has given rise to one of

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<v Speaker 1>the biggest sources of funding for tech startups, many kinds

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<v Speaker 1>of startups. We are primarily tech and increasingly crypto startups.

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<v Speaker 1>What do our listeners need to understand about venture capital

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<v Speaker 1>and crypto. Well, there's big money coming in. That's the

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<v Speaker 1>first thing to understand. Venture capitalists are really excited about

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<v Speaker 1>the space, and they've gotten their limited partners on board

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<v Speaker 1>with this, and they're cutting really big checks to support

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<v Speaker 1>crypto and web three startups. Unlimited partners are the people

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<v Speaker 1>who say, yes, you can write this check, or you

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<v Speaker 1>can't exactly or increasingly just like do a bank transfer

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<v Speaker 1>for a very large amount of money. Yes. And when

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<v Speaker 1>you say they're raising big, big money, like, give give

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<v Speaker 1>me a sense of proportion here, what are we talking about. Yeah, Well,

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<v Speaker 1>there was a four point five billion dollar fund, a

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<v Speaker 1>record breaking investment vehicle that came just recently from Entries

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<v Speaker 1>in Horowitz, which is a huge player in the space.

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<v Speaker 1>This is just a massive amount of money coming out

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<v Speaker 1>at a time when there's a huge market downturn for

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<v Speaker 1>crypto crypto stocks, everything pretty much everything, So it was

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<v Speaker 1>really fascinating to see that come up. It shows that

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<v Speaker 1>there's still a lot of confidence that the space will

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<v Speaker 1>overcome this. And and and Horowitz, they are obviously one of

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<v Speaker 1>the older, people, say, more prestigious names in venture capital.

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<v Speaker 1>They've been in crypto for a long time. This is

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<v Speaker 1>not their first for a into investing in crypto companies,

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<v Speaker 1>oh gosh. No. Yeah, they were an early investor in

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<v Speaker 1>open Sea, which you know is the leading n f

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<v Speaker 1>T marketplace at the moment. Uh. They've been backing really

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<v Speaker 1>some of the biggest names in the industry. Uh. And

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<v Speaker 1>they have this very large dedicated crypto team and just

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<v Speaker 1>launched a research arm dedicated helping their portfolio companies. And

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<v Speaker 1>of course, one of the people who was running that

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<v Speaker 1>crypto fund went off and started her own recently as well. Yeah,

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<v Speaker 1>that's Katie Han, And you know, it's been really interesting

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<v Speaker 1>to see where Han Ventures is going. They've also backed

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<v Speaker 1>some pretty big names in the space, including Autograph n

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<v Speaker 1>FT platform started by Tom Brady. So what we've got

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<v Speaker 1>is it sounds like a handful of really large players

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<v Speaker 1>that everyone is clamoring for who come from traditional venture investing.

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<v Speaker 1>And then we also have non traditional venture players who

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<v Speaker 1>are native to crypto. Can you say a little bit

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<v Speaker 1>more about that end of the market. Yeah, no, it's

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<v Speaker 1>very interesting. There's sort of a tense divide between crypto

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<v Speaker 1>native BC firms and generalist firms. Crypto native firms like Paradigm,

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<v Speaker 1>which has two point five billion dollar fund dedicated to

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<v Speaker 1>the space, which was at the time big that was,

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<v Speaker 1>you know, they had the biggest on until A sixteen

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<v Speaker 1>Z came in. But yeah, no, they believe they have

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<v Speaker 1>the specialized knowledge to really support their portfolio companies. They're

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<v Speaker 1>entrenched in the space. They're completely dedicated the space. They

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<v Speaker 1>also understand the philosophy driving you know, blockchain startups and

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<v Speaker 1>this idea of decentralization. So I've talked to investors, you know,

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<v Speaker 1>who are at crypto native firms and they have a

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<v Speaker 1>lot of resentment towards the Sandhill set. In Sandhill is

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<v Speaker 1>the part not in San Francisco, actually in Palo Alto

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<v Speaker 1>where a lot of these old school VC firms are based. Yes, yeah,

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<v Speaker 1>I know, and it's very interesting to see, you know,

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<v Speaker 1>how they sort of scoff at these firms that are

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<v Speaker 1>coming in that have been established for decades but may

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<v Speaker 1>not have like a true conviction in the space. It's

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<v Speaker 1>very similar to what we're seeing in other parts of

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<v Speaker 1>the crypto market where folks are like, oh, these Wall

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<v Speaker 1>Street dudes coming in and crashing our party. Is that

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<v Speaker 1>resentment of function of as you say, a lack of

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<v Speaker 1>conviction they think they're fair weather only, or is it

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<v Speaker 1>about the lack of technical understanding or domain exper tease. Yeah,

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<v Speaker 1>I think the lack of technical expertise is something that

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<v Speaker 1>the crypto native firms really resent about the generalist firms,

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<v Speaker 1>and they think maybe they don't do their proper research

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<v Speaker 1>when looking into projects from vests, that they're going more

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<v Speaker 1>for flash than the actual technology behind these platforms. It's

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<v Speaker 1>been very interesting with crypto native firms. They have these

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<v Speaker 1>research specific arms, you know, that can really provide technical

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<v Speaker 1>expertise to portfolio companies. But with firms like a sixtine Z,

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<v Speaker 1>we have seen that research on getting built out that's

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<v Speaker 1>really chock full of some impressive technical experts who can

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<v Speaker 1>provide support. So they're sort of rising to the challenge

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<v Speaker 1>posed by by these other other folks. One of the

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<v Speaker 1>other places we're seeing crypto investments is from big crypto

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<v Speaker 1>exchanges themselves, so coin based finance, they both have venture

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<v Speaker 1>capitual arms, Like, how does that work? Yeah, we've seen

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<v Speaker 1>some really interesting stuff coming out of these venture arms

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<v Speaker 1>that are part of these huge names in crypto like finance,

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<v Speaker 1>like coin based, like FTX. So these venture arms, you know,

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<v Speaker 1>they fall into that crypto native category. They have a

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<v Speaker 1>lot of money to play with typically and they're making

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<v Speaker 1>really some big investments in the space. So that's been

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<v Speaker 1>exciting to see. You know, these firms pop up again.

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<v Speaker 1>They have this knowledge, this expertise to really assess evaluate

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<v Speaker 1>projects and provide support to their portfolio companies. We're also

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<v Speaker 1>or are you starting to see specialization? So, for instance,

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<v Speaker 1>one thing I've observed with FTX is they tend to

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<v Speaker 1>make their investments in things that obviously support the Solana

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<v Speaker 1>ecosystem that they're closely associated with. They've been doing some

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<v Speaker 1>interesting things in gaming. They raised I believe it was

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<v Speaker 1>a hundred million dollar fund dedicated to cryptogaming. Are you

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<v Speaker 1>also seeing certain parts of the markets where you're like, oh,

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<v Speaker 1>this firm is really playing over here. Yeah, gaming is

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<v Speaker 1>such a hot area. You know, it's really drawing in

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<v Speaker 1>some big investors, Like you mentioned FTX Ventures, and you know,

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<v Speaker 1>it's it's really a hot button space. But there's also

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<v Speaker 1>a lot of pushback against these of nft ease and

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<v Speaker 1>blockchain in gaming from the traditional gaming companies, from traditional

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<v Speaker 1>gaming companies, from gamers themselves. You know, they don't understand

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<v Speaker 1>the point, like why do I need an n f

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<v Speaker 1>T in a game I know and love? Is this

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<v Speaker 1>going to be a super clunky, annoying game with bad

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<v Speaker 1>graphics exactly? You know? Is it just a finance platform

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<v Speaker 1>wrapped up and crappy graphics? You know, that's really something

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<v Speaker 1>that's talked about a lot, and that's something that both

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<v Speaker 1>those investing in gaming platforms and those building them will

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<v Speaker 1>have to overcome for it to take off. We'll be

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<v Speaker 1>right back with more of Hannah Miller's take on the

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<v Speaker 1>innovative ways VC is partnering with crypto start ups. A

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<v Speaker 1>lot of the crypto companies that are backed by VC

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<v Speaker 1>have had, shall we say, a challenging year. There have

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<v Speaker 1>been some massive hacks, there have been all different kinds

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<v Speaker 1>of exploits, there's been a ton of bad press. How

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<v Speaker 1>are vcs who may have been used to just being

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<v Speaker 1>like yep, that seems great and not doing that research

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<v Speaker 1>that you mentioned responding to this more challenging landscape. Yeah,

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<v Speaker 1>their roles are changing in the space. UM, They're going

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<v Speaker 1>to have to be prepared to bail out projects that

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<v Speaker 1>suffer massive security flaws. We saw that with Jump Crypto

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<v Speaker 1>and Wormhole. It's just something that they have to ask

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<v Speaker 1>themselves when investing in this space. How much am I

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<v Speaker 1>willing to pay to come in and be a white

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<v Speaker 1>knight and bail out my portfolio company. Are you seeing

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<v Speaker 1>any reputational risk, like are their crypto companies or that

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<v Speaker 1>are saying, hey, these vcs are associated with projects I

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<v Speaker 1>don't want to be associated with, or vice versa I have. Yeah,

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<v Speaker 1>I've actually seen sort of a hybrid investing model where

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<v Speaker 1>it's sort of traditional venture capital but it uses blockchain

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<v Speaker 1>and the investments are actually made using blockchain. The only

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<v Speaker 1>the white list certain that investors for a project white

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<v Speaker 1>list an approved list of vendors. Only those investors would

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<v Speaker 1>be able to put in money UM, and that's through

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<v Speaker 1>voting with crypto tokens. So you're seeing both more discernment

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<v Speaker 1>as in people are like okay, conscious be a free

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<v Speaker 1>for roll, but also they're using that crypto native governance

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<v Speaker 1>structure to make these kinds of decisions. Yes, that seems

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<v Speaker 1>unusual in VC and you know, in terms of I

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<v Speaker 1>don't think folks are kind of used to the equivalence

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<v Speaker 1>of shareholder democracy as it were coming to private capital. Yeah,

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<v Speaker 1>and that's why we've seen them use vehicles like decentralized

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<v Speaker 1>autonomous organizations to make these decisions. And at the end

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<v Speaker 1>of the day, they're like, all right, you have to

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<v Speaker 1>be okay with it because this is blockchain, this is

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<v Speaker 1>what we do. If you're not cool with it, then

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<v Speaker 1>don't invest. Speaking of things that vcs may or may

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<v Speaker 1>not be cool with, let's let's talk about ape coin

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<v Speaker 1>for a second. So what is ape coin and what

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<v Speaker 1>was the controversy as it related to governance and vcs. Yeah,

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<v Speaker 1>so ape coin, they did a drop not too long ago.

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<v Speaker 1>We were able to get it coin if you held

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<v Speaker 1>a board ap Yacht Club and f T one of

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<v Speaker 1>the biggest, most popular and most expensive collections Athlete and

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<v Speaker 1>there's also some spin off collections of that that you

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<v Speaker 1>can still get coins if you if you had those,

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<v Speaker 1>and a lot of the vcs were the ones getting

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<v Speaker 1>these massive amounts of epe coin tokens when they dropped

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<v Speaker 1>because they had invested in you Go Labs, which is

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<v Speaker 1>board apcot Clubs developer, And there was a lot of

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<v Speaker 1>controversy about this. This was supposed to be like a

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<v Speaker 1>really fun community where you know, people would get a

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<v Speaker 1>huge day. And what happens with board apat clubs. You

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<v Speaker 1>know Universe, I guess you know, there's a game coming out,

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<v Speaker 1>there's a restaurant, There's all this different stuff happening with

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<v Speaker 1>the project. So the fact that venture capitalists we're getting

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<v Speaker 1>massive amounts of ep coins and a huge say and

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<v Speaker 1>what happens with the project seemed to go against the

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<v Speaker 1>grain when it comes to the decentralization that underpins blockchain. Right,

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<v Speaker 1>So we've transformed from you know, if you have money,

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<v Speaker 1>you make money into like if you have crypto, you

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<v Speaker 1>make crypto. In this particular context, how have the vcs,

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<v Speaker 1>or have the vcs themselves responded to this avenue of criticism. Yeah, no,

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<v Speaker 1>I mean we've in them say like, you know, we

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<v Speaker 1>understand the philosophy here, We're not here to take over

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<v Speaker 1>these projects. A sixteen Z actually delicates out portions of

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<v Speaker 1>its tokens for different projects to things like student groups

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<v Speaker 1>and schools. So when you say delegates. That means they say, hey,

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<v Speaker 1>we have this amount of voting power, you take it

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<v Speaker 1>and do something with it. Exactly. They're not transferring over

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<v Speaker 1>like ownership the tokens, but that voting power. They're trying

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<v Speaker 1>to make it more decentralized than what they say. But

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<v Speaker 1>for some people in the space that's not enough. They

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<v Speaker 1>see these investors coming in referring it to as Web three,

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<v Speaker 1>and that they're the one is going to be taking

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<v Speaker 1>control of what is supposed to be space managed by users.

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<v Speaker 1>So I want to end on that note about the

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<v Speaker 1>tension between what folks call crypto and what folks call

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<v Speaker 1>web three. And when we talk about Web three, what

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<v Speaker 1>we're often talking about is something that Chris Dixon, who

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<v Speaker 1>is a venture capitalist who is associated with Andres and

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<v Speaker 1>Horrowitz or A sixteen Z, has identified as a way

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<v Speaker 1>for creatives to monetize their talent, their energies, their efforts

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<v Speaker 1>on the blockchain. Then there are a bunch of people

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<v Speaker 1>who are like, so, we don't understand what that has

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<v Speaker 1>to do with crypto specifically, none of this even necessarily

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<v Speaker 1>requires a blockchain. I mean, it got to the point

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<v Speaker 1>where they have been these like exceptionally petty billionaire feuds

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<v Speaker 1>on Twitter with people like Jack Dorsey formally CEO of

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<v Speaker 1>Twitter and now running block, you know, essentially fighting with

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<v Speaker 1>these different vcs about this ideological schism in crypto. Why

0:12:26.320 --> 0:12:28.520
<v Speaker 1>does any of this Matto, Yeah, it does matter. I

0:12:28.520 --> 0:12:30.360
<v Speaker 1>mean Web three is a catch all term that we

0:12:30.440 --> 0:12:33.360
<v Speaker 1>hear so often, and people use different definitions for it

0:12:33.440 --> 0:12:36.280
<v Speaker 1>and can make the space more cloudy and confusing. But

0:12:36.679 --> 0:12:38.960
<v Speaker 1>this is something that's coming up more and more. I

0:12:39.040 --> 0:12:41.760
<v Speaker 1>see projects themselves using the term web three. It is

0:12:41.800 --> 0:12:44.680
<v Speaker 1>something that we need to keep tabs on and basically

0:12:44.840 --> 0:12:47.440
<v Speaker 1>it's looking at you know, who's controlling the Internet, who's

0:12:47.520 --> 0:12:49.920
<v Speaker 1>benefiting from it In the future. Web three and my

0:12:49.960 --> 0:12:53.520
<v Speaker 1>mind refers to a decentralized version of the Web that's

0:12:54.000 --> 0:12:57.480
<v Speaker 1>free from you know, control of big tech giants, you know,

0:12:57.520 --> 0:13:00.240
<v Speaker 1>like we've seen currently. So it'll be interesting thing to

0:13:00.280 --> 0:13:02.959
<v Speaker 1>see what happens. What I hear is it's very very

0:13:02.960 --> 0:13:06.760
<v Speaker 1>early stages. You know, we're only like the way there

0:13:06.840 --> 0:13:09.720
<v Speaker 1>for potential. And at the same time, there could be

0:13:09.960 --> 0:13:14.120
<v Speaker 1>just this idea that it completely falls flat. Indeed, and

0:13:14.320 --> 0:13:16.439
<v Speaker 1>the idea of Web three being a decentralized version of

0:13:16.480 --> 0:13:18.760
<v Speaker 1>the Internet. The centralized version of the Internet was funded

0:13:18.800 --> 0:13:20.439
<v Speaker 1>by the same vcs we are now trying to sell

0:13:20.480 --> 0:13:23.320
<v Speaker 1>you on the decentralized version of the Internet. So wherever

0:13:23.320 --> 0:13:25.360
<v Speaker 1>there is a tech idea, there's somebody making money on it.

0:13:25.679 --> 0:13:28.280
<v Speaker 1>All right, Well, that was a very helpful episode and

0:13:28.320 --> 0:13:30.040
<v Speaker 1>I'm glad you were able to join us today. Thank

0:13:30.080 --> 0:13:33.040
<v Speaker 1>you for having me. You can find more of Hannah's

0:13:33.040 --> 0:13:36.280
<v Speaker 1>reporting on the Bloomberg terminal, on Bloomberg dot com and

0:13:36.400 --> 0:13:42.120
<v Speaker 1>on Twitter. She's at h G. Miller nine. On the

0:13:42.160 --> 0:13:44.720
<v Speaker 1>next episode of Bloomberg Crypto, we're going to talk about

0:13:44.760 --> 0:13:48.720
<v Speaker 1>crypto correlation, what it is, how it works, and what

0:13:48.840 --> 0:13:52.520
<v Speaker 1>that means when crypto prices and prices in the stock market,

0:13:52.840 --> 0:13:56.240
<v Speaker 1>a completely unrelated asset class seemed to be moving in

0:13:56.360 --> 0:13:59.559
<v Speaker 1>lock step. For this, you'll hear from Bloomberg Report to

0:13:59.679 --> 0:14:02.320
<v Speaker 1>Volta Handrick, who will join me to break this down.

0:14:04.480 --> 0:14:07.880
<v Speaker 1>I'm Stacy Marie Ishmael, and this is Bloomberg Crypto, a

0:14:07.960 --> 0:14:11.199
<v Speaker 1>daily podcast from Bloomberg and I Heart Radio. For more

0:14:11.240 --> 0:14:13.840
<v Speaker 1>shows from I Heart Radio, visit the i Heart Radio app,

0:14:14.120 --> 0:14:18.199
<v Speaker 1>Apple Podcasts, or wherever you get your podcasts. Email your questions,

0:14:18.240 --> 0:14:21.280
<v Speaker 1>comments or suggestions for the show to Crypto at Bloomberg

0:14:21.320 --> 0:14:24.160
<v Speaker 1>dot net, and you'll find us on Twitter at Crypto.

0:14:27.760 --> 0:14:30.800
<v Speaker 1>The supervising producer of this episode is Vicky ver Galina.

0:14:31.520 --> 0:14:35.600
<v Speaker 1>Associate producer is Thy Butler. Desta wonder At is our engineer.

0:14:36.000 --> 0:14:39.760
<v Speaker 1>Original music by Leo Sidran. Bloomberg's head of Podcasts is

0:14:39.760 --> 0:14:40.520
<v Speaker 1>Francesca Levi