# Post ICO: The Future Of Venture Capital @ TOKEN2049

- Channel: [TOKEN2049](https://streameth.org/token2049)
- Date: 2018-10-09
- Watch: https://streameth.org/watch/yt-mxle92jQkBY
- YouTube: https://www.youtube.com/watch?v=mxle92jQkBY

## Transcript

[Music] thank you very much so we're really excited to have this panel today and I have to say for everything that I've seen in this space over time I have to say that I feel really privileged to be sharing the stage with such a wealth of experience and really kind of foresight to be investing in the space of crypto it's no easy task to kind of take bets when you're not only managing your money but managing other people's money and the people that we have on stage today have done that and done that in spades and done it successfully so today's panel I'm really happy to be able to introduce a lot of my friends here David from mine works down from Emer go we've got Jason from Sora we got Peter from new alchemy and of course we've got Paul from Pantera before we start I want to have them just go down the line and talk a little bit about themselves maybe who you are where you coming from what kind of stuff you invest in and then I'll ask one special question is please tell me one recent public investment you made and why you made it David hi everybody glad to be here today I'm David Chang managing partner of mine works ventures we are a traditional VC based in Hong Kong and we love the crypto space and recent recent deals we have done mate a diem and also hybrid bulk great our goal is a bit unique were the venture builder for the Cardinal ecosystem so we focus on building startup ecosystem and also have a venture capital wing that were forming specifically for projects on card on oh hi Jason Fang from our ventures I used to work for from Bou she left you know I started the fun six months ago where a Cayman open-ended fund 100% crypto most our LPS are actually non crypto people so it's kind of like we're talking a lot of the old money recent investment we did let the round form Ithought IO which is started by a famous celebrity preneur in in Taiwan Jeffrey Jeffrey Huang he's like the CEO of largest one of the top live streaming app 17 and you're going public on the New York Stock Exchange hey I'm Peter versus long history in crypto from starting the Bitcoin foundation on through to new alchemy well can be started as a tokenization company and then we've layered on to hedge funds and a kind of a venture Growth Fund so we we look at companies from seed stage all the way up to I even post I see oh I'm oh recent investments in investment I like heir apparent which is a hip-hop music platform that's kind of us both the music studio and a Spotify killer it's run by the manager of Kanye West's label push of tea and some are Watson cool hi my name is Paul beretta Tackett of Pantera capital Pantera capital has been investing into blotching cryptocurrency investments since 2012 and we manage about a billion dollars we do both venture capital and I cos I focus on both venture capital I see rows in the early stage cycle and in terms of recent investment we invested into codecs and basically it's using the blockchain to put high value low friction items such as collectibles on there for transparency and ownership and using a token to sort of access that market cool just to participate my recent investment was in a company called Sala which is around the cyber security space so I want to start off you know what I want you guys to get from this panel is really to understand a bit more about the the crypto vc space get a bit more insight into how we look at things how we evaluate opportunities and why we make some of the decisions and some of the decisions we don't make and so I'm gonna start off with a frame and this frame is you know since we're talking about the future of I SEOs let's our future VC let's talk about the present and the recent past let's talk about exactly what does the past or the traditional style of venture capital equity investing look like and David I think you're probably the best person to start off with because you're you know you've really come from that and you're still in that space right so can you just set us a frame like how should we be thinking about traditional style of VC investing thank you John um like I said come in fortress plays we love the crypto critical space but we are limited by the traditional VC's mandate and only allowing us to have exposure into equity so to really bypass that and my works we start a new vehicle called blue ball capital with a JV with a traditional VC also called Kobe partners to tackle this so we are trying to apply the institutionalized process of VC like such as FDD financial DDA leo DD and company DD into IC investments so we at least have the investment process to IC meetings to deploy our capital into tokens got it and Paul I mean you also I think when you first started at Pentair you guys had your kind of exposure friend your Bitcoin fund but you're also doing a lot of equity investments as well right yeah that's correct so can you talk about how you were evaluating you know but again the kind of traditional process for deals that you were doing investing in equity investment process yeah I think it's it's pretty similar and that's why I you know I myself focused on both venture and icos and a lot of venture funds are doing both venture and I SEOs in terms of deal sourcing finding deals from people that you really trust and and referrals from proposed companies I mean that remains the same and of course trying to back strong teams and strong teams means that you know serial entrepreneurs guys that have you know already had experience in the space that they're now trying to tackle or guys that have raised venture capital funding before and you know know what to do in terms of building company the right way with the right governance some of the differences that emerge looking at token structures versus venture capital is the mechanics itself I mean looking at for a token deal and does this token is it really needed what happens if we move the token does that product to technology still function and what really drives the value of that token over time and you know how sort of strong and sustainable that is and then of course looking at the the deal itself understanding lockups to understanding liquidity provisions to understanding even the different types of tokens you know is this really a security token is this a security token and now how does that affect things around regulations etc yeah that makes a lot of sense Peter from your perspective I mean I also want to understand you know when you're evaluating token investments in particular right because you're you you primarily invest in token so you also do equity we we almost only do tokens great so when you're looking when you're actually evaluating token investments what is it that you're looking for do you agree with a lot of what Paul is saying in terms of the factors or what what's what's the the kind of key factors yeah obviously we look at teams we look at the business model we look at the token mechanics I think I mean there's some really interesting questions that aren't solved yet about how much of the value of these companies is going to reside in the token layer and how much on the cap table and you know I think I'd be actually curious to hear what you guys think about this I mean the like some of our some of our portfolio companies get in a situation where they use the token raise to force like a Series A at a high valuation you know they're they basically can say guys I'm gonna have 50 to 100 million dollars unrestricted funds on my balance sheet in eight weeks so if you want in now is the time and and you know I think I all that I think is really interesting and so we're like we're kind of keeping an eye on that part of the process like it does that go nonlinear like how rational is that you know anyway so we think a lot about that kind of stuff and Jason how do you think about the kind of token your business what are what are the factors that you most that most make you say yes or no when it comes to token investments we're actually so this I feel feel right so most of the ice he'll use cases you see now are essentially just use case you see from watching in equity investments two years ago so realistically we don't spend too much time on evaluating if it works or not where as long as these people at the team has the experience I'm building in that industry we let them do it what we do for for most of our oil company is post management and kind of Community Development it's a token right so essentially the more people you have on board the stronger community the stronger price and the higher the growth right so we partner with a lot of existing foundation so we partner with quantum foundation and Patrick dies our advisor so we leverage a lot out there community the Asian community exchange relationship with our portfolio company we also work with we have our own token too so we have a Sora foundation and we work with for able to indirectly work with a lot of crypto people influencers for example we have box mining he's a pretty big youtuber on in Asia and we have a partnership with those guys too and those guys are definitely way more experienced than in in growth and reddit and in these community than anyone else in the PC space and I think this is the value add for phase 1 and phase 2 and in phase 3 which is the the use case and partnership that's where our traditional LPS come in so our LPS are mostly third generation billionaires from Taiwan Hong Kong Macau and those guys will usually come into our investment co-invest with Sora ventures and so they'll have incentive to work with them got it Darren how about you what is the what is the most kind of common if you're anything I mean everybody here probably says no much more than they say yes when it comes to to kind of being pitch for an investment I mean what is it what's the kind of main factor for you when when you say no to investment what do you hope that this startup could have that they don't have that would make you say yes well I think we're looking at due diligence not so different from traditional VCS which is team attraction and and and use case and market so a lot of people are raising on on very very lofty promises of products that they haven't built and I usually that doesn't exist so I forgot to mention our most recent investment it's track SIA tracks here that Co they're focusing on tokenizing invoice financing and they're focusing on the fast-moving consumer goods between Europe and and China so it's it's a large market it's a huge it's a simple problem that can be solved you can open up access to these investments through tokenization and it's very simple it's not it's not just a promise but they have traction they have they have customers jihun i'm wondering could we talk about how venture funds never trade their portfolio company stock but token funds can like liquidity yeah yeah yeah sure I'm just curious to hear how you guys are approaching that I mean I was thinking like codex did something really good where they gave they give really investors like a better price the longer they're willing to lock their tokens is that if that's what I think that's what mark told me so I how are you guys approaching that I mean like there's other rules in the States like there's a max number of trades a venture fund can even make I think per year sure well let's just kind of like make sure everybody understands what we're talking about here when you're investing in tokens like and in the presale which probably most of us are doing and not in an IC o---- there are deals which happen which specify well you might get such-and-such a discount and in exchange for that potentially you'll get such-and-such lockup which means that you're locked in to your position and while people at the IC o---- can train on date you know as soon as it's listed we're actually restrictive and obviously the idea there is that you get to you you get discount but you give up the quiddity on the other hand from a fun perspective that liquidity is quite of is quite different is quite a big difference than the VC so for you guys that are kind of understanding this side of it I mean it's important to get that now it's not even you know event like a you know a venture oriented token fund is really probably a hedge fund technically like it's you know anyway so yeah well let's start with you so how about you do you trade we do trade your positions or we definitely do we were mostly buy-and-hold so we're not like actively trading our portfolio company tokens but well we we do take positions yeah and I think our portfolio companies in general probably don't talk to us enough about that like they they're thinking often they're thinking I mean they think about the token value but they also have their cap table and so yeah I I'm not sure they track they track good as well as they should Paul what about you do you guys trade or do you buy and hold only yeah I think for us I mean we're we're buying hold I'd say that you know I'm not gonna say that we never trade I think there's a few different a few different points where we do trade I mean if there's a token that goes up and thousand max it's probably not prudent for that one position to be most of your entire portfolio so you probably wanna take some off the table or if you're fully invested out of the fund if you want invest in a new deal then you probably have to take some off the table somewhere right or you know if a company you know over time I think this is actually something that I've heard from other venture capitals so in the United States is actually becoming very common for VCS coming to these pre-sales verses I'm not sure about you know outside of the United States if it's as common but with VCS you know they do want to buy and hold for a certain amount of time but you know when a company pivots or hits an inflection point where they're not doing as well and this is hopefully after maybe two or three years then I think from what I've heard they're gonna really consider selling and actually acting more like a head chef that's sort of a dream for a venture for a VC guys like teams melting down you know but I mean even even isokinetic I actually for me I would love to say that I'm just you know buy and hold until I die right you stick with the startup no matter what but the reality of it is that I have a responsibility to the people who are whose money on managing and that's really not visible to a lot of the startups that we have a responsibility to them too and if you're holding you know if 80% of your portfolio is in one token because that token you know went crazy then you know there actually is a responsibility to balance but that's a hard conversation to have with the startup because there's a there's a loyalty and there's there's a desire to be kind of stick with them how do you deal with that I mean when you're when you're having those conversations with so coming from trattoria fund we have limitation on exposure like we'll never have an 80% exposure in one position so what's a normal kind of exposure limit maximum wanna fund is about ten to fifty percent what is that cost or I mean my cost I cost yeah and in a nutshell we are long-term holders where is equity or or tokens we would believe in the long game so a fun life is seven years yeah even through our side vehicle blockchain we expect at least seven years as well out of token investments yeah Jason do you trade for so I think that's a actually I think that really depends on the jurisdiction you're in I guess most of us here represent the US deals mostly but I were agent-based so I see kind of like audios around Asia and more specifically I'm more familiar with a lot of Chinese do too and Chinese are very very different from the US deals we're also whereas in the u.s. deal I would just buy and whole if it's like a 10% 20% friends and I was I wouldn't even best because I could like in my finest six six month long up but so I would just try to do a long-term investment for in China for sample I would do the opposite I would try to I would try to again the best deal no vests and then when when I get listed I'll just dump it and God has been so if you don't dump it someone else will dump it right so such a defensive measure even exactly but so what the startups what do you say to the startups or how do they how do they feel about that they feel great no they feel great because you think about it you're making it money for your investors right so like oh I'm definitely better on you again right so and then after that don't be in this hibernation mode for a long time where they have to get this this new market this new community but different different strategy it's a different place a different market that's how Chinese investors you know I'll do it and that's why there is super super liquid I think I want to be an LP but I'm not a hundred percent sure I think I do Darren how are you thinking about this I mean these are the moral qualms you get you you have an immediately liquid secondary market that's mostly liquid a relatively liquid and you have new moral and potentially legal qualms I'm very much into self-regulation by the industry also because it's tokenized and it's on a blockchain it's completely transparent so for example I mean everyone here has built some reputation and if you are the person that's going out and dumping you're dumping your tokens to make a quick flip you know everyone will take your money for a certain time except in China I think it's important to highlight if for those of you are starting I cos the relationship with these token buyers in some ways you know the funds have a lot more power than a traditional venture investor would have like like we can often we often hold many days worth of average daily volume trading volume of these tokens and could could really set the price and so I've seen some of my clients clients and/or portfolio companies get into a situation with like a kind of a whale that took a lot of an early and it's it's you know they're not happy like you you have to work with them in a way that as a younger entrepreneur you might not be used to you know VC is unhappy okay what do you what are they gonna do you're gonna work it out yeah so I think that's different yeah I definitely think there's a lot of dynamics and in the in the crypto space which you just wouldn't necessarily see in the VC I mean I can't I at least in the past two or three months I've had multiple deals where the starter came back to us and said we've been offered you know the entire round by a Chinese investor to take the entire know 30-40 million dollar round and I'm always telling that's that's crazy I mean if you don't take that deal you're you're basically working for them and you have to really have a lot of trust but is it something that you've seen before well listen I think as a community to mature and as I seal investors again more and more sophisticated processes will be in place similar to IPO market I think there needs to be a lock-up for institutional or presale investors plus green shoes and my can making capacity to stabilize price this must be done for us as a community to grow and eventually this will happen that's why in IPO market there are book runners they're banks stabilizing these prices what are the other mechanisms that you guys can identify that will help to smooth out this market and or do you think that it will ever be smoothed out or do you think it's just gonna stay this kind of wild where it's it's a bit you know it does feel a little bit like the Wild West we're making up the rules as we go along is it about liquidity is it about regulation is it about kind of concentration of jurisdictions where do you think we start to kind of you know balance anybody I liked a.m. and had a good method where was a voluntary lockup so post post IC o---- everybody had their tokens and as it happened they raise enough money kind of in their very first round to launch their project so they had a huge amount of tokens left over like like 5060 percent and they said they basically said we're gonna put those tokens in a smart contract everybody who locks their tokens in will share pro-rata all these spare ones and the lock for founder's was three years but voluntary for founders and one year for for non founders I I thought that was cool because you could kind of like people could pick their poison they could keep some liquidity if they wanted and they got hugely rewarded does it happened most people locks like 90% locked and that made sense I think that was so I think there's probably a lot of room for innovation still out there in this space how about the the regulatory side or whatever well what do you think would uh would help smooth it out yeah you know I agree I mean I think whether it's similar to the IPO market where there's a lock up at the end I think in Silicon Valley we're seeing a lot of equity deals that also you get tokens on top of and I think we'll also see multiple rounds so I think that gives entrepreneurs more discipline there's gonna be milestones that they have to hit before raising their next round and I think that's very different to what we're seeing Asia where it's like 30 to 50 million dollars right away so there are there are structures around governance there's structures around milestones and I think you know even though we're not gonna wait you know 7 to 10 years before an IC o---- it's gonna be definitely accelerated but you know I think that will at least give a better relationship between investors and also the entrepreneurs well I think there's even more hurdles to jump through like some of our companies are tokenizing and even our accountants don't have procedures to book these tokens they don't know which line item on a balance sheet to be booked on yeah yeah there's a lot of financial infrastructure to build for traditional money let's look forward for a second if you were you know talking to one of your potential or one of your portfolio companies are our potential portability updates you wanna invest in what is it that you tell them in terms of kind of sale design or structure what is a kind of ideal scenario for you as an investor which you think would give them the most kind of fundraising potential but at the same time probability to succeed as a project and as founders how do you kind of design that what are they what are the factors to success you think maybe I update recently with the equity deal and we actually added a few line items to the term sheets and shoulders agreement stating that any future talk issuance will be provided given back to equity shareholders so this is one way to you know to shared economics Darrin I think it's flexible the problem with one of the big problems I see with the space is there's perverse mechanisms entrepreneurs can raise they can get all their money up front they can not lock their tokens and they have immediate access to a huge pool of liquidity and both in their tokens and in the race and they don't have an incentive to do necessarily anything so I like the idea of controlling controlling your first raise actually what do you really need to build your product and maybe holding some of that capital back because it might work out better for the team in the long run got it Jason I think that really depends on every product I think every project it just depends because some project boy they they would have a really large community already and some some just require a lot of community and for that reason their structure to be more you know more open they're willing to give out more token whereas some is if the businesses are more kind of like business orientated then realistically they don't need that many people there so slightly there so the model will be slightly more centralized and I think the most important part is when you do any form of token structuring you got to understand that this is gonna be a long-term thing so so you can't all you can't you can't like give out all tokens from day one you definitely have to do it slowly and you have to look you know you plan it for maybe like one year two year ahead of time Peter yeah we're seeing eye I guess we're seeing some trends so it's turning into venture rounds like how we see it so there's tends to be seed round which is like largely around a little bit of tech proof getting out in the marketing community marketing side and then I think the good entrepreneurs are like trying to get hotly-contested a rounds that where they can kind of vet out who they want for their big pre round before an Icee oh one thing compared to a year ago as you guys know to a year a year and a half ago the thinking was at the public capital the ico part would provide most of the money I think nowadays it's mostly that's happening earlier and the the ice the public part is to create some market liquidity so that's a difference great well yeah I think the way to think about it would be on the flip side I mean who do you want as your investors what type of getting again like Jason mentioned case-by-case basis if you are maybe an infrastructure platform layer protocol then you just want to maybe just raise from anybody you know cut investors but if you are an enterprise company you may want to raise some VCS because they have a lot of relationships already so VCS tend to like equity round so equity plus maybe some sort of token bonus on top of it and then I think the second thing is you know how is the market doing right now I think it's better to raise less and perform and have more operational capital by actually providing higher token value so that's gonna be depend on how the market is got it but all right sorry that is one thing some entrepreneurs are missing upfront is like you want to have enough demand that there the markets created after the tokenization you don't to suck it all into the tokenization we're out of time but one last word from everybody if you if you feel so inclined what is it that you wish for you know the startups out there who are either kind of constructing themselves or planning their sales what is it that you wish for them to know or to kind of take on board for me it would be play the long game you know most ICO or most startups don't succeed so that means that a lot of this this process is a relationship game build good relationships over time so that even if this doesn't work out you can restart you can you know have those relationships to persist I think it's have a close to you're working product before you approach investors and to showcase something before we just instead of just pure idea stage great when you're raising you know the token sale is actually part of a user acquisition strategy and your investors may actually be using the token it's a great way to build an ecosystem and you have incentivize participants so be very smart about where you're targeting your presale Jason yeah I in general I think you just gotta really pick the right investors and you gotta understand their their incentive and kind of like their motivation to work with you I've kind of go different I think the reason we're all here fundamentally is that Bitcoin was successful at keeping things decentralized so I would I think like don't let money get in your eyes but remember like this just turns into traditional finance if you're not working to create a decentralized infrastructure platforms yeah let's say take your time you know I think in the past people have just rushed out there just to try to you know beat the market you know accelerate with the market and you know take your time in terms of product take your time in terms of learning from other entrepreneurs they've done it before and educate yourself and take your time and build a great set of advisers so that you have the right mentors especially as you go through different hurdles great thank you very much for your time thanks to all the Boston panelists great discussion [Applause]