Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
Speaker 1: and this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.
Speaker 1: It's Monday, June seven, California. Silicon Valley is both a
Speaker 1: place and a philosophy. It's hailed as v place for
Speaker 1: US tech startups to get funding and attract talent. Vcs
Speaker 1: or venture capitalists, are an integral part of this mythology.
Speaker 1: These are the people who provide the private capital billions
Speaker 1: of dollars worth, so tech startups can chase the next
Speaker 1: big thing. Despite the volatile crypto market, some of those
Speaker 1: vcs are still betting big on the potential of the blockchain.
Speaker 1: For the latest on this, Bloomberg reporter Hanna Milla joins
Speaker 1: me for a look at how crypto is influencing VC
Speaker 1: and vice versa. Hannah, thank you again as all it's
Speaker 1: for joining us on the show. Thank you for having me.
Speaker 1: So today we're going to talk about venture capital. I
Speaker 1: am delighted to be recording this episode literally in San
Speaker 1: Francisco on a week where there are as there always
Speaker 1: is a lot of tech and vcs in town. This
Speaker 1: is a place as part of you know the tech
Speaker 1: scene that folks in and out of the US we
Speaker 1: have heard about that has given rise to one of
Speaker 1: the biggest sources of funding for tech startups, many kinds
Speaker 1: of startups. We are primarily tech and increasingly crypto startups.
Speaker 1: What do our listeners need to understand about venture capital
Speaker 1: and crypto. Well, there's big money coming in. That's the
Speaker 1: first thing to understand. Venture capitalists are really excited about
Speaker 1: the space, and they've gotten their limited partners on board
Speaker 1: with this, and they're cutting really big checks to support
Speaker 1: crypto and web three startups. Unlimited partners are the people
Speaker 1: who say, yes, you can write this check, or you
Speaker 1: can't exactly or increasingly just like do a bank transfer
Speaker 1: for a very large amount of money. Yes. And when
Speaker 1: you say they're raising big, big money, like, give give
Speaker 1: me a sense of proportion here, what are we talking about. Yeah, Well,
Speaker 1: there was a four point five billion dollar fund, a
Speaker 1: record breaking investment vehicle that came just recently from Entries
Speaker 1: in Horowitz, which is a huge player in the space.
Speaker 1: This is just a massive amount of money coming out
Speaker 1: at a time when there's a huge market downturn for
Speaker 1: crypto crypto stocks, everything pretty much everything, So it was
Speaker 1: really fascinating to see that come up. It shows that
Speaker 1: there's still a lot of confidence that the space will
Speaker 1: overcome this. And and and Horowitz, they are obviously one of
Speaker 1: the older, people, say, more prestigious names in venture capital.
Speaker 1: They've been in crypto for a long time. This is
Speaker 1: not their first for a into investing in crypto companies,
Speaker 1: oh gosh. No. Yeah, they were an early investor in
Speaker 1: open Sea, which you know is the leading n f
Speaker 1: T marketplace at the moment. Uh. They've been backing really
Speaker 1: some of the biggest names in the industry. Uh. And
Speaker 1: they have this very large dedicated crypto team and just
Speaker 1: launched a research arm dedicated helping their portfolio companies. And
Speaker 1: of course, one of the people who was running that
Speaker 1: crypto fund went off and started her own recently as well. Yeah,
Speaker 1: that's Katie Han, And you know, it's been really interesting
Speaker 1: to see where Han Ventures is going. They've also backed
Speaker 1: some pretty big names in the space, including Autograph n
Speaker 1: FT platform started by Tom Brady. So what we've got
Speaker 1: is it sounds like a handful of really large players
Speaker 1: that everyone is clamoring for who come from traditional venture investing.
Speaker 1: And then we also have non traditional venture players who
Speaker 1: are native to crypto. Can you say a little bit
Speaker 1: more about that end of the market. Yeah, no, it's
Speaker 1: very interesting. There's sort of a tense divide between crypto
Speaker 1: native BC firms and generalist firms. Crypto native firms like Paradigm,
Speaker 1: which has two point five billion dollar fund dedicated to
Speaker 1: the space, which was at the time big that was,
Speaker 1: you know, they had the biggest on until A sixteen
Speaker 1: Z came in. But yeah, no, they believe they have
Speaker 1: the specialized knowledge to really support their portfolio companies. They're
Speaker 1: entrenched in the space. They're completely dedicated the space. They
Speaker 1: also understand the philosophy driving you know, blockchain startups and
Speaker 1: this idea of decentralization. So I've talked to investors, you know,
Speaker 1: who are at crypto native firms and they have a
Speaker 1: lot of resentment towards the Sandhill set. In Sandhill is
Speaker 1: the part not in San Francisco, actually in Palo Alto
Speaker 1: where a lot of these old school VC firms are based. Yes, yeah,
Speaker 1: I know, and it's very interesting to see, you know,
Speaker 1: how they sort of scoff at these firms that are
Speaker 1: coming in that have been established for decades but may
Speaker 1: not have like a true conviction in the space. It's
Speaker 1: very similar to what we're seeing in other parts of
Speaker 1: the crypto market where folks are like, oh, these Wall
Speaker 1: Street dudes coming in and crashing our party. Is that
Speaker 1: resentment of function of as you say, a lack of
Speaker 1: conviction they think they're fair weather only, or is it
Speaker 1: about the lack of technical understanding or domain exper tease. Yeah,
Speaker 1: I think the lack of technical expertise is something that
Speaker 1: the crypto native firms really resent about the generalist firms,
Speaker 1: and they think maybe they don't do their proper research
Speaker 1: when looking into projects from vests, that they're going more
Speaker 1: for flash than the actual technology behind these platforms. It's
Speaker 1: been very interesting with crypto native firms. They have these
Speaker 1: research specific arms, you know, that can really provide technical
Speaker 1: expertise to portfolio companies. But with firms like a sixtine Z,
Speaker 1: we have seen that research on getting built out that's
Speaker 1: really chock full of some impressive technical experts who can
Speaker 1: provide support. So they're sort of rising to the challenge
Speaker 1: posed by by these other other folks. One of the
Speaker 1: other places we're seeing crypto investments is from big crypto
Speaker 1: exchanges themselves, so coin based finance, they both have venture
Speaker 1: capitual arms, Like, how does that work? Yeah, we've seen
Speaker 1: some really interesting stuff coming out of these venture arms
Speaker 1: that are part of these huge names in crypto like finance,
Speaker 1: like coin based, like FTX. So these venture arms, you know,
Speaker 1: they fall into that crypto native category. They have a
Speaker 1: lot of money to play with typically and they're making
Speaker 1: really some big investments in the space. So that's been
Speaker 1: exciting to see. You know, these firms pop up again.
Speaker 1: They have this knowledge, this expertise to really assess evaluate
Speaker 1: projects and provide support to their portfolio companies. We're also
Speaker 1: or are you starting to see specialization? So, for instance,
Speaker 1: one thing I've observed with FTX is they tend to
Speaker 1: make their investments in things that obviously support the Solana
Speaker 1: ecosystem that they're closely associated with. They've been doing some
Speaker 1: interesting things in gaming. They raised I believe it was
Speaker 1: a hundred million dollar fund dedicated to cryptogaming. Are you
Speaker 1: also seeing certain parts of the markets where you're like, oh,
Speaker 1: this firm is really playing over here. Yeah, gaming is
Speaker 1: such a hot area. You know, it's really drawing in
Speaker 1: some big investors, Like you mentioned FTX Ventures, and you know,
Speaker 1: it's it's really a hot button space. But there's also
Speaker 1: a lot of pushback against these of nft ease and
Speaker 1: blockchain in gaming from the traditional gaming companies, from traditional
Speaker 1: gaming companies, from gamers themselves. You know, they don't understand
Speaker 1: the point, like why do I need an n f
Speaker 1: T in a game I know and love? Is this
Speaker 1: going to be a super clunky, annoying game with bad
Speaker 1: graphics exactly? You know? Is it just a finance platform
Speaker 1: wrapped up and crappy graphics? You know, that's really something
Speaker 1: that's talked about a lot, and that's something that both
Speaker 1: those investing in gaming platforms and those building them will
Speaker 1: have to overcome for it to take off. We'll be
Speaker 1: right back with more of Hannah Miller's take on the
Speaker 1: innovative ways VC is partnering with crypto start ups. A
Speaker 1: lot of the crypto companies that are backed by VC
Speaker 1: have had, shall we say, a challenging year. There have
Speaker 1: been some massive hacks, there have been all different kinds
Speaker 1: of exploits, there's been a ton of bad press. How
Speaker 1: are vcs who may have been used to just being
Speaker 1: like yep, that seems great and not doing that research
Speaker 1: that you mentioned responding to this more challenging landscape. Yeah,
Speaker 1: their roles are changing in the space. UM, They're going
Speaker 1: to have to be prepared to bail out projects that
Speaker 1: suffer massive security flaws. We saw that with Jump Crypto
Speaker 1: and Wormhole. It's just something that they have to ask
Speaker 1: themselves when investing in this space. How much am I
Speaker 1: willing to pay to come in and be a white
Speaker 1: knight and bail out my portfolio company. Are you seeing
Speaker 1: any reputational risk, like are their crypto companies or that
Speaker 1: are saying, hey, these vcs are associated with projects I
Speaker 1: don't want to be associated with, or vice versa I have. Yeah,
Speaker 1: I've actually seen sort of a hybrid investing model where
Speaker 1: it's sort of traditional venture capital but it uses blockchain
Speaker 1: and the investments are actually made using blockchain. The only
Speaker 1: the white list certain that investors for a project white
Speaker 1: list an approved list of vendors. Only those investors would
Speaker 1: be able to put in money UM, and that's through
Speaker 1: voting with crypto tokens. So you're seeing both more discernment
Speaker 1: as in people are like okay, conscious be a free
Speaker 1: for roll, but also they're using that crypto native governance
Speaker 1: structure to make these kinds of decisions. Yes, that seems
Speaker 1: unusual in VC and you know, in terms of I
Speaker 1: don't think folks are kind of used to the equivalence
Speaker 1: of shareholder democracy as it were coming to private capital. Yeah,
Speaker 1: and that's why we've seen them use vehicles like decentralized
Speaker 1: autonomous organizations to make these decisions. And at the end
Speaker 1: of the day, they're like, all right, you have to
Speaker 1: be okay with it because this is blockchain, this is
Speaker 1: what we do. If you're not cool with it, then
Speaker 1: don't invest. Speaking of things that vcs may or may
Speaker 1: not be cool with, let's let's talk about ape coin
Speaker 1: for a second. So what is ape coin and what
Speaker 1: was the controversy as it related to governance and vcs. Yeah,
Speaker 1: so ape coin, they did a drop not too long ago.
Speaker 1: We were able to get it coin if you held
Speaker 1: a board ap Yacht Club and f T one of
Speaker 1: the biggest, most popular and most expensive collections Athlete and
Speaker 1: there's also some spin off collections of that that you
Speaker 1: can still get coins if you if you had those,
Speaker 1: and a lot of the vcs were the ones getting
Speaker 1: these massive amounts of epe coin tokens when they dropped
Speaker 1: because they had invested in you Go Labs, which is
Speaker 1: board apcot Clubs developer, And there was a lot of
Speaker 1: controversy about this. This was supposed to be like a
Speaker 1: really fun community where you know, people would get a
Speaker 1: huge day. And what happens with board apat clubs. You
Speaker 1: know Universe, I guess you know, there's a game coming out,
Speaker 1: there's a restaurant, There's all this different stuff happening with
Speaker 1: the project. So the fact that venture capitalists we're getting
Speaker 1: massive amounts of ep coins and a huge say and
Speaker 1: what happens with the project seemed to go against the
Speaker 1: grain when it comes to the decentralization that underpins blockchain. Right,
Speaker 1: So we've transformed from you know, if you have money,
Speaker 1: you make money into like if you have crypto, you
Speaker 1: make crypto. In this particular context, how have the vcs,
Speaker 1: or have the vcs themselves responded to this avenue of criticism. Yeah, no,
Speaker 1: I mean we've in them say like, you know, we
Speaker 1: understand the philosophy here, We're not here to take over
Speaker 1: these projects. A sixteen Z actually delicates out portions of
Speaker 1: its tokens for different projects to things like student groups
Speaker 1: and schools. So when you say delegates. That means they say, hey,
Speaker 1: we have this amount of voting power, you take it
Speaker 1: and do something with it. Exactly. They're not transferring over
Speaker 1: like ownership the tokens, but that voting power. They're trying
Speaker 1: to make it more decentralized than what they say. But
Speaker 1: for some people in the space that's not enough. They
Speaker 1: see these investors coming in referring it to as Web three,
Speaker 1: and that they're the one is going to be taking
Speaker 1: control of what is supposed to be space managed by users.
Speaker 1: So I want to end on that note about the
Speaker 1: tension between what folks call crypto and what folks call
Speaker 1: web three. And when we talk about Web three, what
Speaker 1: we're often talking about is something that Chris Dixon, who
Speaker 1: is a venture capitalist who is associated with Andres and
Speaker 1: Horrowitz or A sixteen Z, has identified as a way
Speaker 1: for creatives to monetize their talent, their energies, their efforts
Speaker 1: on the blockchain. Then there are a bunch of people
Speaker 1: who are like, so, we don't understand what that has
Speaker 1: to do with crypto specifically, none of this even necessarily
Speaker 1: requires a blockchain. I mean, it got to the point
Speaker 1: where they have been these like exceptionally petty billionaire feuds
Speaker 1: on Twitter with people like Jack Dorsey formally CEO of
Speaker 1: Twitter and now running block, you know, essentially fighting with
Speaker 1: these different vcs about this ideological schism in crypto. Why
Speaker 1: does any of this Matto, Yeah, it does matter. I
Speaker 1: mean Web three is a catch all term that we
Speaker 1: hear so often, and people use different definitions for it
Speaker 1: and can make the space more cloudy and confusing. But
Speaker 1: this is something that's coming up more and more. I
Speaker 1: see projects themselves using the term web three. It is
Speaker 1: something that we need to keep tabs on and basically
Speaker 1: it's looking at you know, who's controlling the Internet, who's
Speaker 1: benefiting from it In the future. Web three and my
Speaker 1: mind refers to a decentralized version of the Web that's
Speaker 1: free from you know, control of big tech giants, you know,
Speaker 1: like we've seen currently. So it'll be interesting thing to
Speaker 1: see what happens. What I hear is it's very very
Speaker 1: early stages. You know, we're only like the way there
Speaker 1: for potential. And at the same time, there could be
Speaker 1: just this idea that it completely falls flat. Indeed, and
Speaker 1: the idea of Web three being a decentralized version of
Speaker 1: the Internet. The centralized version of the Internet was funded
Speaker 1: by the same vcs we are now trying to sell
Speaker 1: you on the decentralized version of the Internet. So wherever
Speaker 1: there is a tech idea, there's somebody making money on it.
Speaker 1: All right, Well, that was a very helpful episode and
Speaker 1: I'm glad you were able to join us today. Thank
Speaker 1: you for having me. You can find more of Hannah's
Speaker 1: reporting on the Bloomberg terminal, on Bloomberg dot com and
Speaker 1: on Twitter. She's at h G. Miller nine. On the
Speaker 1: next episode of Bloomberg Crypto, we're going to talk about
Speaker 1: crypto correlation, what it is, how it works, and what
Speaker 1: that means when crypto prices and prices in the stock market,
Speaker 1: a completely unrelated asset class seemed to be moving in
Speaker 1: lock step. For this, you'll hear from Bloomberg Report to
Speaker 1: Volta Handrick, who will join me to break this down.
Speaker 1: I'm Stacy Marie Ishmael, and this is Bloomberg Crypto, a
Speaker 1: daily podcast from Bloomberg and I Heart Radio. For more
Speaker 1: shows from I Heart Radio, visit the i Heart Radio app,
Speaker 1: Apple Podcasts, or wherever you get your podcasts. Email your questions,
Speaker 1: comments or suggestions for the show to Crypto at Bloomberg
Speaker 1: dot net, and you'll find us on Twitter at Crypto.
Speaker 1: The supervising producer of this episode is Vicky ver Galina.
Speaker 1: Associate producer is Thy Butler. Desta wonder At is our engineer.
Speaker 1: Original music by Leo Sidran. Bloomberg's head of Podcasts is
Speaker 1: Francesca Levi