ETHWarsaw 2023: VC Panel - Panel Discussion

we have four panelists that are eager and ready to share some knowledge and answer or maybe dodge some uncomfortable questions you can already start thinking about what you as Founders as Builders would like to ask VCS because usually it's the other way around because at the end I'm going to open the stage for uh audience questions and if you have something in mind that you are always afraid to ask during the peaching hours I suppose this is the environment that you can ask that it's payback time hey so with no further Ado uh I'm very glad to welcome you all at the early uh stage rounds tips and uh good practices panel with our VC guest over here my name is Marson I'm one of the co-founders of redstone oracles but also one of the co-founders of e foro like this event and I'm very pleased to H have such a noble group over here sitting next to me so we have truly diverse pack over here the guys are investing anything between $100,000 to sometimes even $3 millionar or maybe even more depending whether it's bar or bull market right guys they also feel it so I would like to kick off with a short introduction from each of you so maybe s from Lis C maybe you can start yeah sure so uh yeah my name is sh I'm part of lisc cap so lisap is a early stage uh blockchain and crypto VC firm uh we've been around for for some time uh we started late 2017 uh I joined a firm pretty much since the beginning uh we are quite generalists in uh in what we are deploying in in the space so we are not narrowing down to uh one particular vertical and what I'm doing day today at lcap is taking care of all the technical stuff so my involvement comes to uh doing technical due diligence uh jumping on calls with Founders uh as well as post fund raise um actively participating in the portfolio projects that we are uh investing in so that's a little bit about myself yeah can you hear me well yeah um hi all um Martin thanks for us having us much appreciate it uh I'm investor at Market one Capital early stage of VC coming from waro um we have under um under management 140 million Eur currently investing from 80 million EUR fund tickets up to2 million EUR preferred lead and or call it position and we invest in web to and web 3 maybe I will see time of of you know web four that's that's uh feel feel still fairly young um and we we focus on network effects right and this is our kind of um main narrative for anything web free related is that the Natural Evolution of network effects is for for is in blockchain um and that's pretty much it if you know okay sorry perfect uh I'm going to Eco my colleague and before introducing myself I want to thank Marchin and the amazing uh e for organizers for having us um I'm Blake I'm the partner program director at outlier Ventures outlier Ventures is remote first but London based we've been investing in first crypto than web 3 since 2013 so in many ways we are the ogs of the space but since 2019 our primary business model is operating accelerators we're aspiring to be the why combinator of the web free space since then we've been running multiple programs with different partners focused on different verticals from luxury fashion to infrastructure to defy to zero knowledge you name it we have it as long as it's tied to web free or The Wider con concept of the metaverse as an operating system and uh since then we became the biggest investor in web 3 by the deal count currently we have 2507 projects in the portfolio and I had the pleasure of running four accelerators with outlier Ventures two of them Falin base camps with protocol labs and two of them um with the farfetch group focused on using web free technology in luxury fashion so it's a great pleasure to be here today hi everyone my name is miow I'm representing ARA today where I lead Venture strategies uh we are one of what you would call multi- strategy asset manager in the space uh primarily the strategies today that we are best known for is our liquid fund called digital asset fun that has been a flagship actively trading these markets since 2018 primarily in liquid tokens uh then in October 21 we launched our Venture strategies which I lead and then with our sister nft fund launched the following year we kind of comprised a group spanning all the markets where they're liquid private and everything in between um again super excited to be here um returning to warsa thanks to our wonderful organizers uh who just you make it impossible to stay away um and once again wanted to give huge shout out to e forcer team and very excited to see what comes out of this hackathon in the past we actually did make free Investments and myself uh wrote an angel check from last year's Edition uh so super super Keen to see what comes out here nice it's really good to host you guys and see you for the next time like in the uh coming gears as well so one thing I'm especially proud having this panel is also having like free polish speaking people yours maybe you're going to learn yours as well I will try my best yeah but uh all of these guys are investing internationally so it's not that they are polish speaking and they're just close for this region it's truly like global scale investing so that's amazing to have such guest over here all right so now let's go to the first question the true one so imagine I'm a founder and I'm pitching you right now my team won a major prize at Eve warso hackaton and we have people people registering on our weight list already when should I think about my first precede round or maybe Engel round and what traction should I show for the first investment who wants to pick first I'm I'm happy to kick off um I would say try to build as much as you can without seeking funding just so the product is at a satisfactory stage to pass the due diligence um and try to keep your Runway lean and mean for traction my sweet spot is actually just some traction doesn't have to be much but what's important for me is that it validates your business model if it's a let's say B2B setup that would be clients if it's infrastructure that would be developers adoption but then I know the architecture makes sense it takes away a whole layer of risk for me as an investor and of course I think that goes without saying that I would love to see that there is a complete team and everybody on the team is incentivized to stick with it long long term and I think alignment of incentives is something I'm going to bring up a lot in this panel so just want to apologize in advance for repeating myself yeah I think I think it's interesting what you were saying but I mean a project that's coming straight out of a Heaton I mean how much like product Market fit can you already expect right like usually this is you know just like someone that wants to be a founder or like a group of developers that you know want to take it to the next stage so usually how how we are approaching it at Lis capap is uh you know just having like conversations with the founder like trying to grasp like okay what is the Future Vision of the product that this founder or Founders want to um uh want to bring alive uh and then based on that um yeah making basically making our investment decision because when we were talking about preed uh you can't really expect like uh any traction there right like it's just a Founder with a with an idea with a vision uh that that he or she wants to uh bring alive um so that's kind of how we are approaching pree when we're talking about you know maybe like a seat round uh or a little bit later uh obviously it will be great to you know like have a little bit of traction or at least product Market fit um so that's basically how how we are looking and assess assessing things at at LC yeah for me I think if you're just out just after hack and I think you should be talking actually to as many VCS as possible right because you might you might have Tech TI and you might have um you know Business Development skills what what not but I think it's quite Niche to have fundraising skills and and to be able to understand the VC ecosystem right um and ultimately this is brute reality that you need to fundrais from from some entity obviously there are cases of bootstrap companies that are super big uh but I think vast majority of companies uh whether this is Facebook Google or whatnot they were built with VC um VC man right so if you if you want to play this game you need to learn what are the rules of this game right and you can learn the the the rules of this game by talking to actors in this game right or NPCs um in this game right so um if you talk to and then I I think the skill is to filter what to listen to versus what to ignore right uh so that's how I would approach it to kind of round off some of the responses that we heard from from the panelist I firmly think of the early stage investing as people's business first uh while you might be fixated on particular product and technology that you're trying to underwrite and wrap your mind around as an investor fundamentally I'm looking at a team is a team complete are they in it is the heart really in it as many of you know uh hackathons are a lot of fun they're also addictive we often talk to hackathon participants that travel the world all year round hacking away without necessarily maybe committing to one project for a while and is a real commitment that I think we are looking for Founders they taking it to their heart uh and their subsequent ability to convince others to follow along on this journey is tremendously important so I think judging by kind of the Charisma the way they are presenting themselves and the rest of the team is probably one of first key criteria the second one unequivocally is storytelling uh once again many of us here come with a set of our biases our all kind of mental Frameworks about this Market about crypto at large and it is incredibly important for convincing and compelling Founders that we have come across in the past to really outline help us connect the dots and tell the story about the product the type of audience really hitting on some of the key points in order for you to kind of construct that message that lands quite well and eventually could potentially convert to having us cut to check at the end of the process plus one to to what Miho just just said I mean it's a surprise surprise that this is coming from a person based in US compelling narrative is Ultimate um I mean there's very nice saying from Don Valentine Original Gangster from of of VC uh founder of sequa that um that you know building a startup is a function of money flows as a function of of of storytelling right and I think that's the that's just kind of strengthening what what what Mi mentioned in this in this area that was his polish part I suppose that was talking not the American one uh before we continue let me ask who is taking part in the hackaton this weekend please raise your hand all right so I would assume it's like 50% of the audience so guys on Sunday if any of you win any prize Chase these people I mean like you have the whole right to chase them and then materialize what they've just said right or we will chase you I mean that that could be as well right yeah it could be as well right so then run away I mean the more you run away from the VCS they the more they like you right I was I was fundraising runs and sometimes it's true actually right okay um since we have a couple of more questions I would like to move to the next one which is in my opinion super important for people who will be structuring their fundrise soon so again sorry for a question but let me ask who has ever done a fundraising from the audience already please raise your hand okay okay quite a few more than I would expect but token rounds were a standard in 2021 and the first half of 2022 in crypto but for the past year early State Founders have scratched their heads around the tokens versus Equity versus mixed structures of the deal what's VC's preference now in that regard where do you see it moving and what tips do you have for funders how to navigate it as it is for today I can jump here since uh our fund is uh registered investment adviser uh that little acronym means that we are reporting to Uncle Gary at SEC and as many can uh appreciate there is uh such a thing as precedent and and precedent setting in at least the the common law of of us uh in and around what actually constitutes as a viable investment contract um and so as of recent uh this is really just last two months with the summary judgment in in a ripple case and why so much of crypto Twitter and uh pundits all over the world were talking about it is that that very summary judgment uh has had tremendous implications for investors such as myself with a a vehicle based uh on Shore in the United States and that is what used to be a very common practice and our fund really was set with an extremely flexible mandate to both do the traditional safe um safe agreements so with convertible notes for Equity all the way to essentially token warrants and and mix of of the two in between with that Ripple summary judgment essentially that token warrant that used to be a very standard practice is now really called in question uh as potentially being deemed as a security under register security offering uh which would put me in a cross sales and potentially us as a fiduciaries uh at looking at a jail time if it came to that so uh as you can probably appreciate where I'm going with this today uh we are very much open to discussing with all the founders that are currently structuring their offerings and trying to do in as compliant U manner as we can given kind of the guidance what that means in practice will definitely do a convertible note but rather than a token warrant uh which used to be kind of done in the past uh more of a boiler plate we will definitely go down the route of having a token rights agreement and uh for anyone with questions with regards to that happy to uh give you some opinions again not a lawyer uh I should have read a proper disclaimer here at the at the outset not an investment advice do your own research uh but it is definitely a consideration that's bleeding into the day-to-day of uh deal structuring for us yeah maybe for yeah like funds that operate outside of the US uh I would like to maybe add some perspective there like we have quite a flexible approach there so what matters for us and what has always uh been the case is like the the model needs to fit basically the stage of the startup where it's fundraising in right so I mean we have seen way too many projects that uh have been you know like doing a token offering for the sake of having the token and being like liquid very early on uh I mean if that's the sole purpose of doing like a token fundraise or fundraise in tokens it's definitely something that uh I mean we wouldn't invest in so um yeah basically bottom line what is um most important for us is that the structure that a startup is uh planning to raise in needs to make sense for uh the product that they are developing right and a lot of times especially in like early stage uh uh stuff that we are looking at like the the tokenomics or like a token model is not clear right like it's not clear how the product will evolve uh to something where a token could be incorporated and then we are yeah basically going back to the structure where like a lot of startups are planning to raise initially or some of their initial rounds in equity with then an uh an convertible not so a token warrant so that maybe later on if they are ready and if there is going to be a token that basically the equity can be converted then in um into the token that they are planning to launch so that's kind of how how we are looking at things and and are approaching um yeah which model makes sense for for startup very glad that I'm not reporting to Gary but a disclaimer is a good idea so not Financial advice uh at outlier Ventures we usually seek Double Exposure both to equity and token simply because at the very early stage you might not really know if the token ambition will play out the way you want it to broader in the market um we have seen investors and for our portfolio projects raising we have seen investors kind of drifting away from a simple agreement for future tokens and kind of flock to equity even the investors that previously had a strong preference for tokens and essentially engaging in a safe with a token warrant um simple agreement for future Equity with a token side letter that gives you a degree of exposure to token proportional to your Equity holding in terms of advice there is a big asteris here that you really have to think and you touched on it very well you have to think about what the value accurs in your business model because you're if you're offering me Equity but all the value of your business model acrs to the Token Network that Equity essentially isn't worth much so that that's a bit of a clause um some soul searching that you need to do before you pick the right instrument and finally also remember that usually a simple agreement for future tokens has a specified date by which you need to launch the network otherwise you might have to give some money back and in uncertain market conditions this is a big commitment to have a date signed on paper for a network launch I would approach the question from the perspective um that you don't need a token uh and try to satisfy the question what's the utility for and customer to have a token right um I think token Prov to be foremost speculative um instrument obviously I'm biased I invest only in equity so that that's kind of might be a bit bitter about tokens uh but but ultimately you you see plenty of of companies with tokens where the token um need is is fairly unclear right and I think it might serve for your for V virality for as I goto Market strategy to to drive adoption but uh most time than not it proves to be fairly empty adoption right um so so if you can survive without tokens do do this first uh and then if if there is a need for actual toen with actual um need satisfaction then then think about tokens yeah so my summary for this all of the feates is going to be from autopsy so I was raising my fans and what I remember no one wants to jail no no one wants to go to the jail right so everyone is a bit afraid like how to structure that and is playing sometimes on a th ice and one advice I would give to any founder that consider there is fundraising in the future start learning about these structures already start learning what's safe what's sftt uh like what kind of incorporations are viable ask yourself why we don't have that many crypto startups Incorporated in Poland understand why because there are reasons for that right so the earlier you learn start learning about that the less of a surprise it is for you when you're thinking about product you're thinking about customers you're thinking already about this money that you're going to make as a company and then you get in your face your first sft which is like eight pages and then you have to read it for the first time and you're like whoa whoa whoa whoa whoa I'm not signing up for that right so be ready for that when you start talking with VCS I would say from my autopsy I was I can already tell you from the h side I wasn't that much aware how much it differs from traditional Equity startups usually like in web 2 right but going forward in the conversation like you Source mentioned very important factor when it comes to only token deals which is liquidity when you have a token usually it's way easier to Simply dump it at one point when it's open in the market and and it's liquid so imagine a startup doing only token rounds and now closing the second race seed let's call it what Cliff investing should apply to Founders the preed investors so the previous investors and Seed investors the current ones how would you approach that topic uh yeah I would say I mean usually the founders have the the longest lock uh in the round and that's simply because they need to carry the project and the startup forward right so usually that's that's what we are seeing that's how we are helping basically um uh yeah startups that we are lead investor in like structuring their rounds as well um so that's that's definitely um uh something important there then with regards to you know maybe like a treasury fund like maybe some ecosystem uh funds um uh and then obviously the FC invest they obviously come uh come after that how that's usually structured I mean maybe from like a fc perspective like what we are seeing uh these days is that usually it's like a one-ear cliff with then like a one or two year like linear unlock so either that monthly or quarterly you have like some tokens that are unlocking and uh a lot of times like the startups are having like some sort of incent incentivized like mechanism whether it's like staking whether it's like participating in governance uh which will re reward basically like large or small token holders uh into the project as well to basically keep it keep it fluctuating in there right with regards to you know how we as a FEC then are you know like exiting maybe some of our position I mean that always goes into collaboration with the portfolio project and really depends on uh the market cycles that we are in right like if we are for example looking at like the current market conditions that we are in I mean let's be honest the it's still not where uh we would like to see it uh I'm not sure if it will you know like catch up like anytime soon with that regard as well so for us as a fc there's no reason to you know now sell anything uh uh because we are yeah kind of waiting for uh the market to uptrend and if if we are there in like let's say a new cycle then it's the time to basically start discussing with our portfolio projects like where is our festing and then whatever has been unlocked and uh is liquid in our fund uh we are then obviously like cre a strategy around um yeah what we want to exit which portion but that's always in collaboration with you know the startup or portfolio project uh itself in that sense so very Sound Logic uh and just to maybe plug some numbers in there just based on the best practices we're seeing in the market thanks to the scale of outlier Ventures and the fact that we're kind of everywhere um again as you said the funders need to be incentivized for the long term to stick with it so I would say roughly 36 months investing schedule with a 12 month Cliff um preed investor I would be expecting something around 24 months vesting schedule maybe six months cliff and then for a seed investor respectively 18 months vesting six months Cliff a question that often comes up is also advisors so advisers are somewhere in between uh in terms of that incentives alignment so for advisers I would say 24 months vesting schedule 12 months Cliff much like the fenders very specific but nice I like no that's good I mean very specific is also good because at the end of the day understand guys you have to put a date right and then there is a date and then you pray that someone will not dump or you you make it sound like D-Day I mean that's uh yeah for some projects it has been the D-Day right you guys know it like you can look on the coin market cap or whatever the on the charts and the story is like written over there right so I I really like being very specific as well so that you already start plotting in your head okay then happen this I have this much time and so on this guy can dump then we'll see what's going to happen because it's not that everyone jumps all the time but again not Financial advice just good rules of thumb sorry yeah no I I I think with us it really depends who at the firm you ask that very question and this is probably one of the trigger questions during our investment committees um our chief invest cust officer Jeff's answer to this very question is no lockups immediately straight to the market why because he's a liquidity operator and a trading Maven he wants the market to set effectly the most efficient way to price a projects that's why we don't let Jeff run our Venture strategy he's the dumper of the firm or like he he is uh you know liquidy Maxi uh I think that's how you would describe it um and so there is this fundamental tension and tension that I think as a founder as a builder in the space you have to recognize another element to I think the the figures that baj has just quoted that outliers keeping a wonderful database of um is that they are actually moving Target and they're responding to where are we are in the cycle and in the market um some of the numbers and and kind of the cliffs guidance that you've heard might not have been there you know say 24 12 18 even months ago we had some very significant events in this space that sometimes we don't like to talk about much uh but they not only led to some valuation reset but also stretch out of certain Norms so I would almost uh posit it for a lot of the US specific based projects we are seeing almost a return to kind of the golden Silicon Valley standards uh really mapping onto kind of the four years vesting with that one-ear Cliff being kind of like the the new normal but again it is very much like a moving moving Target based on where we are in the cycle and for us uh the one element that every team should absolutely consider it will uh draw out a very different type of investor to your round uh so what I think Marchin was also alluding to during probably redstone's conversations uh there is uh almost a distinctly world of two speeds in in the fundraising those investors that fundamentally will lead off with kind of an equity type of round and see tokens as an optionality and others that will actually very much push for for token and kind of some immediate or or at least medium term which I think in crypto means like what three months six months uh liquidity and that's the element that uh I want the founders that are beginning their fundraising journey to be extremely sensitive and awareof because um the different kind of uh investor you'll get early on will have significant implications on your later rounds and especially in the bur Market that we are at right now we are working through a several workaround Solutions where we are actually converting a lot of these token raises into Equity um because even the founders are like well I cannot manage that liquid token while I'm still figuring out my product Market fit yeah so I mean ultimately what you're looking for right I I think you should be looking for alignment between funders and investors right and taking an analogy of of whip 2 uh and you know golden star in silon Valley that investing tends to be four sometimes 5 years right um and uh so and that's being read done with every round right it's getting extended with every new investor I think that's also something to to remember that if you raise uh seed and you have five years vesting and when you race series B you still might have five years or four years or something like this of vesting right it's not that with five years you are done with vesting it depends on your most recent lead investor really right um so so this is first first first R of Tamp right alignment and I think the more than merrier when it comes to both vesting period and um and the lockup period right nice thanks a lot guys for this um for me like one of the bottom lines that I also try to remember is the founders are the last the founders are the last to cash out because someone has to keep building the project right like there are already projects out there mature enough so that Founders can already you know materialize some of their gains from creating the project but remember that it's rather a very long time from the beginning like from the moment you start a startup until the moment you see let's say the Fiat money out of your Equity it's a very long time but here let me ask the guys the question that they are not prepared for so that it's a bit more spicy so you touched upon a really important point which is bull and be market and liquidity of various part like various bodies on the market as well tell me about one investment of yours or your fund that you did the most cash out of not that you're the most proud because at the end of the day VCS have to make money right it's not that they are charity organizations tell me about the one that you made the most cash out of we are still U young VC so no comment I mean look uh I think it's a skill to to leverage bull markets to exit even when even if you see that everything's is up and right right and in next year it might be the double devaluation because at certain point the the Music Stops right whether this is crypto tax sector whatnot it tends to be it's it's cyclical right um and uh I think we we had a lot of lessons good ones and bad ones from from Market one uh with some deals we should exit much earlier I won't name I won't name them but our major allocations um and with the other ones that we should stick to we exited to too early right and I think that's a uh that's how you can see very mature VC it's to it's when this person understand cycle and is able to not look through the high but through the kind of what what this person is able to get paid um and if they deliver money to LPS this is ultimate goal of VCS deliver free plus X on money invested in from from certain fund yeah maybe to to add to that I mean it's extremely difficult whether you are like a VC firm or like a Trader or whatever to basically time uh or exactly sell at the top or making sure that you are not like exiting at the bottom right so I mean obviously and that doesn't matter like how experienced you are like if as a VC firm uh I mean it's just extremely difficult to to time basically your exits uh but that comes also to my point where um yeah I would to emphasize like timing is everything there right which means that right now in the current bare Market that we are in I mean people have been saying this on Twitter or on a on however you want to call it like uh on um that you know right now we are truly in a Builders Market which means that now is basically the time if you're planning as a Founder to bring basically your idea to uh to market now is the time to basically prepare for that right now is the time to create your MVP to put your first like fundraise round together because basically we as FC's and you guys as you know like uh potential uh new Founders are basically preparing for the next cycle when that will happen nobody knows right like can be one year out can be two years out uh but that it eventually will happen and the markets will uh you know catch up again uh I mean I I I'm a firm believer that uh that that's a given uh to come back to your question like uh yeah what was the most profitable uh investment of of lemis capap like obviously it's very hard to uh you know like uh put names out there but we have been doing uh I would say extremely well on investing into some of the layer one uh platforms like basically anything that has like an ecosystem uh tied to it is generally doing um yeah very very good in the market and the reason for that is that um um yeah these layer ones are like launching a token and this token is B basically being utilized by the entire ecosystem that's uh building on top of for example these layer one platforms so a little bit more generic no no specific names but uh yeah vertical wise like that's this suffice is very good at dodging this question right exactly yeah I was a little bit that's correct that's correct I can see these two guys right now like Neo from Matrix you know like doing this kind of like dodging the bullets let's see let's see how the other part will do about the question I I'll I'll I'll jump in uh I don't think it's particularly secret we we've been pretty public about it uh we had a great Fortune still um I would characterize as such to uh discover Sky Mavis uh very early on uh even before they actually launched a little little known game called axi Infinity that uh to to many uh could be attributed to to kind of the rise of the blockchain gaming and The Saga that that kind of followed uh launch of run and uh net and and kind of all the adjacent properties that that are currently built out there so as such we have entered this uh investment extremely early on uh engaged with the whole jho and the whole team uh from the earliest days of them going through very complex uh Act of navigating and changing to economics when the game is live uh if you want to talk about it on the side this is a saga and many sleepless nights for us this as a team trying to uh trying to patch this one up but certainly we were very open with that team about a nature of our vehicle that we have invested out of and kind of the liquidity obligations that we had out of that vehicle that was also one of the reasons that particular investment that was originally Warehouse inside of our liquid hedge fund why we have launched this private Market strategy there's a lot more aligned with essentially longer term holding periods um today and I think Miha was talking alluding to this a little bit we are all running Venture firms so this there is a very real business be behind it that we just kind of wanted to demystify it when you look at any fund represented here on the bench the life cycle of your deployment window when you're writing that a checks typically between 2 to 3 years on that on that time Horizon and then you have about 7 years plus maybe 3 years of extension let's call it 10 years of period to harvest that particular ular fund and return your funds to the investor now with that little math what you are realizing is after you have deployed most of your fund into the market there is going to be a big responsibility of you to being able to take the money off the table um and I know it's uh often time frowned upon there's a lot of crypto Twitter chatter about it but uh that is just the nature of doing business uh so you might as well uh if you're not necessarily ready or prepared for that kind of relationship kind of transactional um no matter no matter what you might want a bootstrap for a little bit longer and um but that is kind of like the price of essentially getting that early injection of a capital in in your journey nothing is free so any risk-free uh uh uh Investments out there like be very cautious there there is always price no free lunch outside of efor so um so I'm not sure if this is an example of like the biggest cash out um because we still hold a lot of those tokens but I think it circles back to the theme that we discussed of timing and this is an example of a perfect timing so when we launched the very first base cam the first edition of our accelerator um we brought in Justin Bannon the founder of bosen protocol the distributed Commerce um protocol and essentially Justin have been the best example of a builder somebody who's obsessed with solving the problem and you know even if you didn't support them with a single Pence he would still build it without you which is always a very good sign and we supported Justin in the middle of the bare Market um and frankly he just built like crazy and then when the token went live suddenly the Buran hit and we could like take some of our money off the table and I'm still very like impressed to this day because the other day we were trying to write a research paper about distributed Commerce and we started scouting for different established definitions online and it turned out there is only one established definition and this is by Justin Bannon and bosen protocol so definitely when we're in difficult market conditions right now I really believe this is a builder's market and I I would love to repeat the success case of Justin Bannon who just built through the bur and then made it big in the bull nice thanks guys for sharing Sam I mean I know it's not a comfortable question but I also the reason I'm I asked that is to show that VC's you have to understand them like one of course they are there for money right it's like they have to make a profit but these are also very experienced guys that try to navigate the founders on the waves of the market like B market bull market the token structure very interesting part is also like renegotiating the contract so you signed something for example during the bull market now is a burn market so you have to come to your investor and say yeah you know on the terms that we did like half year ago is not going I'm not going to make it anymore and then you have to reot renegotiate right so these are very interesting dynamics that all the founders should also be aware of okay so we have 20 more minutes and I would like to go to one of the parts of the title of the uh the whole panel so what are the most common mistakes from L stage Founders That You observe do you have any tips for these Founders to raise their first preed or preed or seed later I I think it's really about yeah being able to uh explain your vision and the product that you want to build with the startup that you're raising for like in a in an understandable way for whichever VC you're talking for right like this is the moment you take notes guys no so it's it's like how uh how I'm seeing it is that we are seeing way too often like an uh a very technically sophisticated founder that's for example not very good in like uh communication for us it's it's not necessarily a deal breaker so I want to uh put put put that out there but um uh we we see that way too often and a lot of FC's are then either not understanding what you know this this person is is trying to to build or basically communicating across uh and for us it's also could be an issue because for example if this founder wants to uh bring its product to to Market you need to be able to sell it right like technology by itself is not going to gain adoption and it's not going to basically uh gain market share for you you need to sell uh uh once your your product is out there to to like a broader audience so then we were stepping in and then advising at that point if if the product is interesting enough we still might write a check uh but then advising to maybe look for a co-founder who is you know better into uh basically presenting the vision uh uh of the product uh when we are talking specifically about uh mistakes um I think I mean one of the questions or one of the the main points that we assess when we are having conversations like early on with a Founder is like how merried is this founder to its idea and what is uh his or her uh willingness to Pivot uh uh and to adjust basically based on uh Market feedback or based on feedback from uh the first users in the MVP because what we like to see is that uh if a product like early stage uh doesn't get any traction after like an an x amount of time we would like to see this founder pivot to something else we would like to see uh this this uh project to uh experiment around and try different things instead of uh yeah really being married to uh the initial idea and uh I think that's that's definitely something um yeah that we value a lot uh and it's hard I mean I I understand if you are um yeah a founder and and you have spent like so many you know months on on building something and and researching on uh on your product to yeah completely sometimes shift like 180 degrees into a different direction it's hard right it's like your baby uh uh in the end uh but the willingness and the the the capabilities of doing that uh is I think a very strong uh strength for uh for a founder and and an early stage uh uh startup and that sense I really like that you made the point around communication skills because I think it trans Beyond fundraising it's also sales it's also hiring and if they're not strong communicators why would people kind of bet on them and follow their Vision Beyond just investors um in in terms of maybe the common mistake and then the reverse of it advice that would be a different approach do not just go out raising a madeup high number um that you took from the top of your mind the goal of those first early fundraising grounds as much as we want you to become rich as a funer the goal of those first runs is not to make you rich it's to get you enough Runway so you can deliver enough Milestones to actually fund race again and fundraise successfully so always don't think about how much I want to raise think about what Milestones I need to deliver on the product front traction front hiring front how much money I need for that how much runway I need for that and then calculate it back from then don't just try to especially in the current market don't try to shoot for the highest valuation possible because you found some bull market comparable and you want to like get a high valuation first of all in the current investors Market I wouldn't say high valuation close quickly and there are other smart funders out there who will lower their valuation just to get money on the table maybe less money just to control dilution and then they will essentially take your spot in that portfolio while you're just entertaining some super high valuation numbers that are not fit to the market dynamics big fan of uh simple and and simplicity uh I think kind of the the fa favorite framework there is kiss keep it simple stupid um really the moment you pitching uh and trying to tell your story what is the product what are you trying to do take a pause take a deep breath uh and try to really think of the shortest way that you can essentially relay your your great vision and ambition I know this probably one of the toughest toughest exercises for anyone that is writing in in kind of the syntax uh of a code you're trying to equally some of the best programmers in the field are trying to be really laser focused on optimizing on the efficiency uh as little lines of code as possible uh allows with greater audit uh allows for much better kind of scrutiny and honestly functioning these open source environments uh you get a lot more feedback on almost the same equivalent advice I would translate to to a VC pitch you want to be not kind of all over the pr all over the place you really want to come across as focus and if there are any follow-up questions leave it for after versus trying to kind of get it UPF front especially in your decks uh that that we have seen uh many uh that are just uh very hard for me at the end of a pitch to to understand where your product is where you going to lend Your Mark so try to help me visualize it and and kind of keep it simple for me on on kind of the reception um the the the point that uh waji just mentioned I think you really in in kind of the expectations management business to to to yourselves as a Founder to some of your employees uh but also eventually if you take us on one of us on board to to your investors and I would rather have a Founder that is being well rooted well grounded in kind of the expectations and the reality of this Market versus someone that perhaps overshoots in that early fundraising journey and uh setss really unrealistic lofty goals that they can't crush and smash it especially in the very early days I see too many Founders that want a lot of more ownership that don't want to kind of partically uh partake in this uh co-creating act which often times is how we are thinking of participating in your rounds uh so that's probably just some of the hot takes that come come top of my mind I mean couple of points from from my perspective so the first one I'll be just repeating after all of you guys the art and craft of Storytelling this is not something that you can discount um and I think especially in our region uh that that's an issue right uh we we struggle with with selling I think many of us think that of we oversell that it's kind of not elegant um and in us they don't care care right uh they sell every every day and I think if we can learn anything from us ecosystem whether this is web 2 web 3 or whatever Market is the ability to sell on a daily basis everything right um so so this is point point number one point number two I think funders struggle or are too optimistic about navigating through Market um and I very often you see that they don't understand their positioning they they they don't understand their forces um or forces dictated by the market um and this is quite simple on mission right this is not something that you need you need to to to to craft for years this is simple maybe not simple but this is market research right and this can help you long term right if you understand um you know why certain schemes or platforms are in use and why there is nothing de nothing newly developed um maybe because of distribution Network effects whatnot I think this ultimately helps you with your business and with your product and distribution right which leads me to the third point is that um ultimately business is product and distribution um and everything else is negligible especially in the first days and distribution will always trumpet product uh obviously product can help you with distribution because if you have 10x product it's just much much simpler to distribute right but distribution is the ultimately will always trumpet product from my point of view and I had the fourth point now I forgot it um just give me a sec we can get we can get back to it so you come to me later and ask for the fourth point that is like the mystery for us right now okay and then another surprise for you guys this one super quick as we don't have much time I'm raising my first precede you have to me give me the range of the valuation please do no matter the product like what's the lowest that you would invest and what's the highest in the first round I mean from my the fourth Point sorry no no no no no no give me give me the number okay so ultimately you have a function of time and valuation from my point of view right and you want to reach equilibrium of enough time spent on fundraising and you know not focusing on product or distribution um versus valuation right um and you're in the market that you don't need to find consensus on the on the demand side you're looking for one demand side actor that can lead the the round right so you can optimize for this and you should probably optimize for this but I would say especially in early stages optimize for time versus for valuation right uh for me I mean the the latest guidance from YC I think is to not raise above 20 million post money for YC companies which tend which tend to be overpriced can you repeat the number 20 Mill 20 million post money valuation US Dollars that's top and low I mean one 2 million it's that's low okay who else but Martin you got to give us like a little bit more here is there sector or sector agnostic I mean like there's probably a certain low valuation that it doesn't make sense to invest right I mean as a VC like sure I'll I'll I'll throw in uh I'll I'll give you say 1.2 on six uh money post which for for those that accurately kind of study the the trends in VC is a lot more than Brian chesy got when he got his first valuation when rbnb was valued at the measly $5 million so uh yeah I'm I'm a big believer of of of you marching so that that's my starting bid I'm I'm not going to 20 sorry I mean yeah it's it's it really it depends right it depends on the vertical it depends on the on the product but I would say like if we are really talking about like preed like five 5 to 20 post like so yeah kind of agree with you a little bit higher on the lower end but yeah yeah you can see he's not coming from the from the region right yeah so I would say you know at the preced stage um again dilution is kind of something you need to be mindful of so probably you shouldn't be relinquishing more than 10% of your company 15% is already like super risky territory espe so early so let's say if you're raising 1.5 at 15 posts that that's okay uh if it's getting to 20 probably I would pass on it it depends for a it depends right there is always exceptions to the rule and when it comes to the minimum the question I would be asking myself okay so let's say you're raising how much are you raising let's say you're raising 500k and then you your valuation is 2 million so you're selling pretty much like all of your stake that you have to sell so that's how I would think about the lower end valuations of course for us it's always better economics but if it means that if you raise sufficient money to build and it dilutes you in a way that you won't be able to get fundraising later then it doesn't serve anybody but this is marching he might never raise again hopefully yeah so as you can see the guests are very pleasant for me myself as well no like I really like to put them in some uncomfortable questions but now maybe we can go to the questions from the audience does anyone have a question there's a question there's the second one 5 minutes left yes and there goes the mic hi what are the um unspoken deal breakers SL Red Flags uh when a Founder pctures you uh their projects I want to emphasize emphasize on the unspoken ones because uh yeah I think I mean what is really like something that uh that is is a huge red flag is like a Founder that's uh Shilling returns so someone that's like you know saying like oh this is going to make this is going to be your next 50x you know or this is going to be your your next 30X it's like it's it just doesn't do it for us it doesn't add any value to the table as well so I would definitely say like if if if we are having a call or pitch deck uh where this is in there then we are like okay this is this is not for us gotcha Yeah couple of BZ buzzword come to mind uh risk free infinitely scalable what else we got uh I mean there's there's a lot of buzzword so for me actually the greater concentration of buzzwords the the less confidence I have um and I will push more for actually How Deeply the the founder understands um that that's probably kind of my my my litmos test with ever cycle you you you have different buzzwords right um I think you know when you DD the the company when you in the due diligence process with a with a certain company I mean sometimes um you you kind of observe that the funer is not full-time in this business this is very noo um if there is 1% of doing something else it's and it's not helping your grandmother uh this is red flag for us if there's any side hustle for a funer this is very real red red flock so that's one thing second one and quite often um especially in the quite common especially in the region is the is the broken cap table when you have some advisor early on that's for 20 30% that's just nonsensical uh for Market standards um yeah those come to mind so so I think that you're touching on the most important point which is the ultimate red flag and back in the day I tried to list those red flex and then I realized they all one thing actually it's the misalignment of incentives any case in which there are two co-founders but one founder is actually on a salary and if he reaches seron Milestones then he's going to get Equity um or you know there is an engineer on board and he's not on the cup table turns out he's the boyfriend of one of the one of the founders those things usually come back to bite and when people are aligned to kind of shoot for different goals in this example with a Founder who's being paid a salary until he reaches certain milestones his incentives are not aligned for the company to succeed his incentives are to kind of sugarcoat his value and hit those Milestones or pretend they will be hit and then you're kind of in dirty territory so again broken cup table or any seeming misalignment of incentives the second one would be misunderstanding or misrepresenting execution if they're telling you they worked very hard for like six weeks and they decided to change the name then yeah it's not really execution if they're telling you they're getting loads of likes on social media well likes don't pay the bills unfortunately um so I would say these are the two major red flags and many other smaller things you can actually pin under those umbrellas there's one more yeah um so you all mentioned story taring as a crucial skill is there any story that was so compelling that you remember to this day of companies we invested in or or just in general in general yeah I I can jump in uh sh which I don't often get to do because of my compliance team uh one of the least recent Investments that we have done uh we met the founders over a year ago before we actually committed to the to the round but their pitch kind of stuck uh with me to this day where they have uh very quickly hacked what you could only describe as like a human readable blockchain you can check it out at L scan.com and uh what what was particularly compelling about that live demo is that uh they were able to take me um as a potential newbie really almost roleplay in that very role um not knowing much about blockchain and then uh actually translating uh a pretty complex defi transaction uh right on spot and I just felt empowered there was like that more moment of magic uh which is very hard to forget and honestly anyone right now in their generation striving for kind of applications to come to this space should really should for uh moment where you just gasp for a second you're like wow I I won't forget that and so we didn't make an investment back there but we kept uh talking to the team and so only committed to them recently and they've launched last week okay I'm sorry I'm very sorry to C it but I got I got the red flag from the you know organizers uh but here we need to pause unfortunately one thing I want to tell all of you guys is that these kind of conversations usually don't have the guys opened up and they shared a lot of things that they usually Pro would probably wouldn't so now I would like to ask you for a very loud Round of [Applause] [Music]