Between2Chains B2C020: Exploring Seed Stage Venture Investing in Digital Assets ( w/ David Nage )

Episode Summary

May 11 2021 . 53 MIN

B2C020: Exploring Seed Stage Venture Investing in Digital Assets ( w/ David Nage )

David Nage, Principal at Arca, joins host Peter Hans this episode to explore seed-stage investing across the digital asset landscape. Everything we’ve discussed on Between2Chains thus far has been about liquid public token markets, but David has a history of investing in venture and early-stage companies in digital assets, both professionally and personally. They look at trends, sectors, and company lifecycles, how it all differs from traditional investing, and more.

For Our Listeners :

Show Notes

David Nage, Principal at Arca, joins host Peter Hans this episode to explore seed-stage investing across the digital asset landscape. Everything we’ve discussed on Between2Chains thus far has been about liquid public token markets, but David has a history of investing in venture and early-stage companies in digital assets, both professionally and personally. They look at trends, sectors, and company lifecycles, how it all differs from traditional investing, and more.

Content Notes

  1. Hans and guest David Nage discuss the following topics during the interview:
  2.  An overview of Nage’s experience in the asset class
  3. The new phase of crypto we’re in where we’re seeing real robust networks and real value being accrued
  4. Digital assets, the energy consumption narrative, and ESG investing
  5. Seed-stage markets and how Nage views early-stage investing, disruption, and relative value in the digital asset space
  6. Tokens, venture equity, speed of monetization, momentum, and loss ratios
  7.  Acquisitions in the digital assets space
  8. Which sectors Nage sees opportunity in for early-stage investing, including NFTs
  9. The virtual FO256 Digital Assets Conference on May 25, 2021. 






Welcome to The Real Vision Podcast Network.



Hi, this is Peter Hans and welcome to Episode 20 of between two chains. Today I'm joined by David Nage, and we're going to explore seed stage investing across the digital asset landscape. Now everything we've explored thus far in between two chains has been about liquid public token markets. But David has a history of investing in venture and early stage companies in digital assets, both professionally and personally. We're going to look at trends sectors and company life cycles and how it differs from traditional investing. I hope you enjoy the episode next.



Before we get going, we want to remind you that Jeff Dorman is the co founder and chief investment officer of ARCA funds, and Peter Hans is ARCA funds and managing director. The commentary and opinions expressed in this podcast are solely those of the podcast participants and do not necessarily reflect the opinions of ARCA funds or its affiliates and are subject to change for any reason without notice. Any discussion of investments or investment strategies within this podcast or for informational purposes only, and not to be construed as a recommendation to buy or sell any particular investment, security, digital asset or strategy. Investing in digital assets involves a high degree of risk and volatility, including the risk of the total loss of principal. And now enjoy the show with your host, Peter Han's.



Hey, David, welcome to between two chains. How are you doing this morning?



 I'm doing good. Peter, thanks for having me.



My pleasure is long overdue.





Yes, we, we have the obviously the pleasure of working every single day, and you've had a successful podcast now coming over the last six months or so. So um, but we're finally getting some time to actually talk about stuff.



Yeah, absolutely. I'm happy that you were my guest. Before I was ever your guest. I'm not sure I'm qualified to be a guest on your podcast?



 No, I think we'll get you online. Eventually. You were a founder. And so you do qualify to come on my show.



That's true. That is That was a founder. I don't know if it qualifies me. But that's that's a fair point. So why don't you give everyone kind of a little bit of background on yourself where you come from, and then your, your kind of experience in this in this asset class, because it's a space that you're, you know, as close to an expert, as anyone is, you know, in terms of in terms of there being actual expertise in this in this nascent asset class, and just you know, how you think about it,



I like to call myself an idiot expert. So, you know, there's just, there's no real experts in this yet, you know, as our colleague, Jeff Dorman says, you know, there's no, you know, Warren Buffett of the world who has had 40 50 60 years of experience, and so I have about four or five. And so, you know, I'll consider myself somewhat experienced, but there's a lot more to learn every single day. But myself 20 years in finance, half of it was an asset management. last 10 years is working for a multibillion dollar family office doing early stage, direct investments, the family really had a kind of a prevalence for what they define is more mission driven investing. And so we were very early supporters of things like carbon capture, there were a few very large families, including the gates family that supported this endeavor about a decade ago before people even started thinking about it.


And so we supported that we supported a lot of these things that were more mission driven. And then in 2015, we got exposed to digital assets visa V, one of the first Bitcoin funds, the actual investment was unbeknown to me, was done by one of the the stepsons of the family. And it led me to kind of spend six months of my life really in deep diligence on distributed decentralized systems, which are the underpinnings of Bitcoin and everything else that we're seeing today. And actually led me to spend time learning how to code just because, like you and everyone else who listens there, I don't like to not understand concepts. I tried to dig deeply into them and understand them. So I can answer my own questions. And that led me to really understand that there is a world out there that is larger than just Bitcoin, that there is a world that is being built that has significant opportunities for change in socio macroeconomic systems. And that led me to really spend a lot of time investing in the space as well to visibly the family. And in 2018, I had a coming to moment where I said, this is where I see massive growth, massive opportunity for change. And so I left the family office, and I'm moved to review lots of different funds in this base. Unfortunately, they did not have the prowess of a Jeff Dorman.


 And folks that we have at our firm, they didn't understand risk, they didn't understand the concept of fiduciary responsibility to the extent that we do. And I started to write a lot. And that writing got caught on Wall Street Journal and coindesk other places. And then I started my own podcast, as you alluded to. And that was really just a way for me to dig deeper into this and understand it, and to kind of flesh out ideas. And, you know, eventually, what I started to see was that, during this time, too, we were kind of coming into this phrase that people denote as crypto winter. Now, Peter, you and I know that we don't like the term crypto, it's actually we call this digital assets, but it was denoted as crypto winter. And this was after the 2017 kind of hype bubble phase, if you will, where Bitcoin went parabolic to 21, or $20,000, you had a lot of retail coming in trying to catch the wave, and then it kind of crashed.


 But during that crash, you started to see all of these companies out there that were funded, because, you know, effectively, they were in this, this phase, this hype phase. And they kind of went quiet, but they were building, and they were building some things that have now become very important in this new kind of phase Iran, where we're seeing real robust networks, and real value being crude.



Interesting, you know, one thing I want to go back to and touch mine, just because it would be interested to hear the the take is, you know, when you talked about the family office you worked for and kind of mission driven investing, which I think, to me would be somewhat synonymous with ESG. And investments in, you know, I guess, a Bitcoin fund and this kind of ecosystem. Was that something that that they are you viewed as, as ESG qualified, because there's a there's a narrative going around right now about, you know, obviously energy consumption, which I think is a little



it's ridiculous,



chill, but, you know, I'm curious, did that pass the mandate or fit in somehow?



It really was not viewed there wasn't this? Bitcoin is dirty Bitcoin is going to destroy the earth Bitcoin is this large energy suck? None of that really kind of hit in that in that timeframe? I think what you've seen now is the attention at that moment in time in 2015 to 16, there really wasn't a lot of attention. There was articles, and there were some attention on Bitcoin, but not to the extent that you have CNBC reporting on it every hour. And so, you know, there wasn't that kind of amount of exposure. And I think what's happened over the last few years as it has gotten more exposure and has grown larger and value, that you now have those that are trying to attack it.


 But back then No, it wasn't, it really wasn't something out there, that was problematic. And, you know, if you look at a lot of the research out there from coinshares, and others out there, majority of the mining that happens, especially with Bitcoin, those miners are incentivized to find the lowest cost the lowest kilowatts per hour. And majority speaking, they try to find coal locations next to hydro next to nuclear. If you look at the the mayor of Miami, he actually just opined about what happened here in New York, where New York is trying to put a three year moratorium on mining, because they want to look at the environmental impacts. And they may or hammy basically said they want to mind come down to Miami, you can call okay, right next to our nuclear plant. And so you're starting to see over the last few years that those miners and those mining operations are locating next to clean, renewable energy. You see that down in Texas to where you are.



Right, but I guess even independent of the issue, there's the there's the energy consumption narrative. And then I and I happen to agree with the, you know, incentive to eventually driving to increase investment into more sustainable energy sources. But, you know, I think and and maybe this also wasn't prevalent back then. But, you know, I think now there's a, you know, an ESG element, you know, probably not environmentally, but But we, you know, just kind of the overall structure around how a digital asset or token can benefit a, an individual. Yeah, whether whether it's from a governance standpoint, or just from a, you know, profit sharing monetization standpoint, that that, you know, it almost democratizes investing beyond kind of traditional equity and debt. I mean, there's that, I guess, I guess my question is, did you guys view it back then as something that fit into the ESG bucket, or was it just kind of more opportunistic?



it was more opportunistic. And that's also because the DAO, if you will, the decentralized autonomous organization, or the the decentralized governance procedures, and opportunities really weren't as prevalent. It was first kind of seen in 2015. But it didn't work very well. And it kind of went into cells that kind of went away this notion of a DAO. And now, what you're seeing correctly, is that there are ways for those that want to not only participate in the network, and help build the network, but also have that economic incentive. You know, you and I, you know, we talked about, you know, the idea of those that were, you know, basically working for Lyft, or Uber or Airbnb, they're doing the work of the network, they're creating the value, they're out there driving the cars at two o'clock in the morning, they're out there, setting up the houses, so people can use them, you know, on their their vacations.


And when those companies went IPO and public, those use those network providers, those participants that are creating the value didn't really see the economic incentive there, they didn't see the value being accrued to them. And so with digital assets correctly, as you say, what you're saying now with DAO is, is that the network participant, who is building the value, who is creating the value, who is creating the opportunities, and the utility, now also has the ability to be economically incentivized,



Right, no, absolutely, I think it is a Yeah, for all the attention focused on the energy consumption side and look at pretty much everything uses energy. There's not enough focused on what the economic benefits are to, you know, the portion of the population that doesn't normally receive economic benefits from from our financial system. So one thing, you know, I think, I think, is really interesting. And one of the reasons why I really wanted to have you on the show was, you know, we spent a lot of time talking about the more public facing markets, you know, exchanges and tokens that you can purchase and trade and exchanges.


And that's certainly where, you know, I gravitate towards, you know, some like Jeff gravitates towards. But, you know, I think one thing is that intrigues me about you is you're looking kind of more earlier, seed stage, whether that be personally for a long time professionally in the past, and then and then potentially coming full circle here, potentially, again, in the future. So how do you view early stage investing in the digital asset space? Because, you know, one could argue even even though, you know, the public markets are still early stage investing in a lot of cases.



Yeah, in early stage venture here in digital assets, it's what we're seeing is several different trends and several different narratives. You know, what we've been seeing a lot of is this notion of web three, where you had the hardware error in the 80s, you had the internet era in the 90s, you had the network era in the 2000s. And now you have this new era coming in with what we define as web three. And so how do you actually review those opportunities? What are they? What are those opportunities right now. And some of those opportunities include things like just the mere idea of indexing data, you know, when we all run a Google search, right now, we're not really understanding that there are seven or eight or nine different processes that are happening instantaneously, where all of that query is going to different locations that are centralized.


And so this idea of of web three and search, how do you actually do that? Do you need indexing, you need query, you need the ability for file storage, things like Dropbox that we use every single day, you know, Dropbox and the decentralized version of Dropbox has been iterated on for the last few years. And we're starting to see that actually come to fruition. But the difficulty there is how do you actually get a distributed network, other participants out there to actually provide that storage. And so the incentive models have been very difficult to kind of coalesce and think about and actually get to work over the last few years. But you're starting to see that come to fruition now. So web three is a really big one. And if you look at it from a vendor perspective, that's pretty, not easy. But there's a total addressable market there, you have to think about it that over 70% of the population around the world uses some form of the internet, especially on their phone every single day. So you have a huge total addressable market there.


So from a vendor perspective, you know, one of the things that from a classical venture perspective to a digital asset venture perspective, is looking at the total addressable market of the actual space that's, you know, being disrupted potentially. And a lot of this is disruption. This is not, you know, Steve Jobs coming out on on a Dass and basically saying, here's the iPhone, which has never been around before. This is looking at current paradigms, whether it's web three, whether it's finance, whether it gaming, whether it's lending, these are all concepts and paradigms that we currently see today about what's happening in digital asset venture is that those companies and projects and founders are looking at ways to use the underpinnings of Bitcoin or ethereum, or other different platforms to create new companies that way. And so it's really looking at disruption, it's looking at relative value, you look at certain sectors and segments of markets, especially on public markets. And you see kind of sizing there. And then you also look at total addressable markets. So it's not too dissimilar from what you would see in traditional venture. But again, the the notions and the concepts are huge, because these companies and projects are looking at uprooting things that we've been using for 20 plus years. And so there's a lot to evaluate. But the areas that we're really going to be looking at especially, are just the continuance of decentralized finance, you know, our firm has done a fantastic job with investing in decentralized finance and DeFi. But what's happening is that there's a next evolution of DeFi, which I call fixed income 2.0.


A lot of what's happening in fixed in DeFi is very similar to what we've seen in bonds and traditional markets, you have yield, you have lending, you have covenants, you have all sorts of things that are very similar to the to the fixed income bond market, but are happening in DeFi. And what we're seeing is that the first phase of DeFi started to really take place about two years ago. And now it's maturing, you're starting to see the large market caps, and projects like compound, Ave, etc. And now you're starting to see this new phase, where you have companies like teller finance, that are promising the capacity and the ability, potentially, to decentralize Piko. So people out there around the world who don't have a credit score, who want to be part of the capital markets, can actually now be part of the capital markets using their real world data, meshing it with blockchain capacity. And then you have companies out there like saffron or barn bridge or condo that are now looking at the liquidity pools and DeFi and saying, well, we can actually create tranches of that very similar to what you would see in traditional markets. And you could have double A rated, you can double A's double B's, you got C's, and you can actually look at the tranches of that capital and see where the opportunities are. So this is the next iteration of DeFi that's happening right now, that is happening on early stage and more of a venture stage that is eventually in the next year or so going to be much more prevalent in the liquid markets.



Okay, so that's that that's a good segue, because because I think the understanding and you know, you know, to an extent, the way I've always looked at it was, you know, the the digital asset of the token was always a way of, in essence, bypassing the traditional venture markets, right, you can put out your white paper, you could do an ICO, you could do a raise, and you'd have your token trading, really to just kind of bootstrap your, your, your your growth. But it seems more recently, and by this, I mean, within the past, you know, couple of years, it seems like more companies are starting to, you know, seek traditional venture investors. And it helps that there's, you know, a number of smart ones out there, and then perhaps down the road, issue a token and either issue it on top of the existing capital structure or fully decentralized and essentially take out the the equity round. So, so what why do you think we've seen that, that change? And do you think we'll ever will ever go back?



Hmm, yeah, what happened in 1718? Was, everyone became very familiar with the Howey test.



What the what test? I'm sorry,



 The Howey test



Explaine that to me



the Howey test is effectively how you determine if something is a security or not a security. And it was based off of a test of a, I believe is a, a farm down in Florida. And they were, I think, was an orange farm. And they were raising some money, but they didn't actually have the farm there yet. And so it was deemed the the certificates that what they were selling were deemed securities because the actual farm wasn't there yet. I think that's the story. But effectively, the Howey test is a is a proxy that's been used over the last few years to determine if a asset in digital assets is actually a security or not. And the way that I really like it, I think it was Giancarlo from the SEC that said this about two years ago or three years ago. If you have a laundromat, and that laundromat has the machines or dryers, it's already there, and you're selling a token there so the user can wash their clothes for cheap or dry their clothes for cheaper or just have some sort of benefit. That's fine. That's not a security because they have laundromats already there. But if you're selling an asset, if you're selling a token, and that laundromat is not currently built, you don't have the washers and dryers, and all the other stuff, that's a security.


And so what you started to see is that during the Ico phase of 1718, you had those that were built that were selling something, but they didn't actually have their platform there. And so what happened is founders and teams started to really use more traditional venture and bootstrapped, they raised equity, traditional venture equity. And they started to actually build their platform. And then they iterated to create a liquid digital asset component to it, that drives the network further. So they started to change the dynamics of that fundraise, because, again, a lot of the the vintage and 1718 really were, in some cases in violation of the Howey test. And so this is a way to build, again, in a more compliant fashion. Again, there's a lot of, you know, gray area, as you've had, you know, people on your show, talking about the regulation of digital assets, you know, everyone is trying to figure it out without having that clarity. But again, what we're seeing today is this use of equity, to effectively bootstrap and build a minimum viable product, something that's out there that can be used, and then having that digital asset component to really drive the network further to have that kind of decentralized version of the network.



Right. Yeah. So that mean, I guess, so that's interesting. So it's really it really, a lot of it stems from the risk of having an unregistered security sale. And, you know, with your laundromat example, I mean, it sounds almost like that, you know, the way you were describing the token is would basically be like as a rewards or a loyalty or some sort of discounts of services, which is, which is, which would, to my, to my knowledge and understanding would not be considered a security. And then, you know, if you have a case, like I think, like, you know, we talked about this talk so much on this podcast, but this was a good example, where, you know, started as a centralized entity, and then with the token was a decentralized entity. Obviously, that wasn't a sale it was it was it was an airdrop.


But that said, you know, even a decentralized entity would not be considered a evil, even if I guess once started as a decentralized entity, which I'm not sure you can fully do, or do effectively, it would not be considered a security sale because one of the measures for security sale requires that there be a centralized beneficiary economic beneficiary of that of that security sale and in a decentralized case there wouldn't be?



and what you're seeing too is William Hinman, again from the regulatory body about two or three years ago, opined about those that's a pretty, you know, infamous kind of opinion, where he looked at a theorem, they looked at aetherium. And they said in 2015, when they did their ICO that was effectively a security, it was an unregistered security. But what's happened over the last five and a half to six years is that it has morphed into a decentralized and distributed network where it is no longer that. And so they started to discuss the capacity of something being one centralized in the beginning of its infancy, to a decentralized opportunity, or decentralized asset that is no longer deemed a security. And so this is again, this is, as you know, a lot of what we're dealing with in this asset class is building from scratch. If it's not just from the back office, and the accounting and the taxes and the fundamentals, traitors, it's to this, there's a lot of this that was actually just kind of happening on the fly, because there's so much interest because there's so much energy towards the space. And so things are just happening very organically. And then we're having to try to figure out, what is it what is it? What is it actually doing?


And so that was really important that opinion, because again, it gave a roadmap to a lot of founders, the majority of founders, and actually on my show, when I talk to founders who are building things, before I even record with them, I say, well, what's your title today? Is it founder is it president is it CEO, and the majority of them over the last, you know, six to 12 months have just said, co founder, no longer CEO, anything like that, they're moving much more towards the founder, where they have a foundation, they have a decentralized body of governance, like uniswap, that has been driven by that token. So this is really the roadmap. And so for early stage venture, what we're seeing is that again, we'll have equity rounds, a seed or early stage equity round, but that equity, what they have done is that they will have a conversion. And that conversion will be to a liquid digital asset. When they hit a certain milestone, they go from what we call a test net, where they're just working through the kind of the the bugs in the code the functionality to a main net And so when they're in test net, and they've raised that equity, they'll be working through the mechanisms. And then there'll be that conversion when they hit main net, where it's actually now that liquid asset component kicks in, where it's now a tradable asset on the market.



Interesting. And how does that structurally typically work, because they know if you're in a more traditional venture round, it's eight IPO's, you've locked up, you know that you're locked up, or you might, you know, exit on the IPO? You know, which would be obviously disclosed when you do one of these conversions. So I guess one is that is that the typical type of investment you would look at either privately or professionally, one that would be kind of a decentralized conversion? Or do you already prefer to kind of keep the equity stack? In addition to the token? And, you know, and then and then what is it, you know, what is the liquidity look like, compared to regular venture?



Yeah, this is where, you know, this world of venture might kind of kick the snot out of traditional venture, because the monetization and liquidity events might typically, and we're seeing this already in the last two years are happening faster than they happen in traditional venture. So again, you have this equity component that that converts to digital asset. And typically what happens is they'll raise equity. And then within roughly 6 to 12 months in milestone, they will have that, as I said, that transition from a testing environment test net, to a main net, and so on, on occasion, you know, on a probabilistic occurrence, you're going to see that equity convert to a liquid digital asset anywhere between 12 to 24 months. And so that will be in terms of what we see in traditional venture much better for the investor out there, because you're going to see more monetization and liquidity.


Now in terms of when we get to that liquidity event when that when that conversion happens, there are different markets out there, there are otcs, there are market makers out there, a lot of what happens is that, you know, again, it will be in some form of an ERC 20 token, or what we define as a voucher that is moving from the kind of early phase to that now live digital asset that's now on uniswap, or another different exchange. So there are exchanges out there, there are OTCS out there, there are market makers aren't there, there is now infrastructure to actually take on that, that one's private equity that is now converting to liquid digital asset. And so we didn't have that a few years ago, we didn't have the infrastructure behind it to really support a lot of that, in traditional venture, if you had an asset, or if you were a family office or an institutional investor, and you had a direct investment, he had a private investment. And you know, you could potentially be looking at anywhere between five, seven and 10 years of a lock of not really being able to monetize that.


And then all of a sudden, in year four, you really need to have a liquidity event, something happens, you maybe you need to buy something, maybe something from material standpoint, or your family happened. And so you would have to go to a secondary broker to potentially, you know, basically sell that asset to somebody else. And so that secondary broker would take a large Vig on that. And obviously, you would not be, you know, really benefiting from the full kind of exposure and accretion in that asset. And so this is, again, you know, a different body of work here, where we're happening and venture in digital assets, where it doesn't necessarily have that longevity, it doesn't have that period where you have that dry kind of period where you don't have any kind of exposure to liquidity. So this is really where it's a big, big benefit to investors, because the monetization and liquidity events really seem to be happening much faster than in traditional venture.



Got it, Interesting. And, you know, so I have Jake Brockman on from coin fund a couple weeks ago, and, and he made a really interesting point, I thought about, you know, one of the other differences between this and traditional venture was, you know, just kind of loss ratios. And, you know, I've been in startups before and found them and, you know, it's it's very difficult and you're still reliant on kind of like that next round of funding. And, and there is no, there is no market kind of like the token market to raise to raise capital from so is that is that in your mind one? Do you I guess, agree with that, where you just hit can have potentially, you know, far fewer losers? Because it seems like you're very focused on the speed of the monetization compared to traditional venture. And at the end, one thing I got from Jake was really just kind of like the the tighter bands and the lower loss ratio, what are your What are your thoughts on that dynamic?



I wouldn't agree with that. I think the old vendor, you know, kind of the same traditional ventures he made 10 investments and one of them basically returns back the fund. And you know, you might have you know, four of them basically failing and then you have another few that go on to raise another round. Sure. Why I think that's, that's different in tradition and digital assets, I'm sure. Again, you know, the, the idea is that you start a company or project, whether it's in deify, whether it's an NFT's, whether it's in gaming, whether it's in web three, etc, you start that as an equity based kind of project, and then you launch, you move it towards launch of a liquid digital asset. Now, it might not necessarily be the best thing since sliced bread, it might not be the next aetherium, it might not next, it might not be the next uniswap.


But the idea is that momentum. And so whereas in, you know, traditional venture, you have zombies, you have companies out there and a portfolio that got $20 million in funding, but it's a zombie. Now it hasn't really been able to launch. It's not incentivized necessarily, because they've gotten that in funding. In digital asset venture. I think one of the big shifts is the incentivization of founders and teams to get to that launch to get to that liquid digital asset component. And that's really different because they are pushing to actually have a tradable asset. Whereas in traditional venture, they're not really pushing for that they're pushing, they strive to have an IPO to have a buy someone acquire them. That could take a long time. And that's the founders really acknowledged they need they want to get to that milestone of having a tradable illiquid asset. And so that's a big differentiating factor.



You're listening to our show between two Chains with your host, Peter Hans.



Interesting, so it seems like you're an admin, maybe even in kind of digital assets venture. there's kind of two schools of thought, as well, because you have your you know, you have your more, it sounds like what you're talking about is kind of seed stage to token and there kind of is no A B, C, follow on. But you know, you have an Andreessen who's raising a billion dollar fund. I mean, you can't put a billion dollars to work and the companies you're talking about that's more like the BlockFi coin basis, the companies that yes, they're in the digital assets ecosystem, but they're not issuing a token as part of their exit strategy. They're looking for the more traditional C D series A B, I mean, BlockFi just raised what, three and a half billion. And, and the endgame there is either some sort of very large acquisition or, or, or an IPO. Right, so but that's not the type of you're looking for more than doubles, maybe occasional triple, whereas they're looking home run or strikeout.



Right, exactly. And, you know, we also have the benefit of of the firm that we've built, where we can effectively take the founder that project from a equity bootstrapped, you know, MVP, to that liquid tradable asset. And we actually have the infrastructure to handle that we can help them facilitate that we can look at their tokenomics, we can help them design those tokenomics. And then we can bring them all the way through to that actual liquidity event. Whereas other VC's don't have that component, they don't have that other arm of their business that really can Shepherd those founders through we do. I will say, though, that we will be making investments in this fund. In other companies that might not necessarily have that liquidity parameter, we're going to be focusing more on the ones that do have that liquidity parameter. But we also are in a stage in this in this ecosystem in this asset class that is highly acquisitive. You've just seen over the last few weeks, some very large acquisitions. Just yesterday, you saw bego being acquired by by galaxy digital by Mike Novogratz, his firm for $1.2 billion.


And you've seen other firms out there being acquired you start calling base acquire to go in the last year to help them build their prime brokerage business, which is now a part of their overall structure. There's a lot of acquisitions that are happening here. And just another one you saw calling base, again, acquire the analytical company skew about two days ago, there is a lot of acquisitions that are happening here. And you see the large companies like the coin bases of the world out there that have that are now publicly traded, and others that might go public in the next, you know, 6 to 12 to 24 months that have that that capacity to acquire, they're funded, they're making revenue, they know that they need to add to their, to their platforms. And so we're dealing with a highly acquisitive, internal asset class and an internal ecosystem.

But you also have an external situation where there are firms out there like Morgan Stanley, JP Morgan city, etc, etc that are starting to I understand that this is not going away, that they need to have offerings for their institutional clients. And if they don't have the internal capacity to do that, they're going to start to acquire. And so this is, you know, another place where you're going to start to see acquisitions over the next 6 to 12 to 24 months, not just from internal ecosystem, but from external. So not only are we going to be focusing on that liquidity feature in digital assets, but we're also going to be looking at companies that potentially get acquired.



Right. So as you look at investing in this space, and very early stage investing, what do you see multiple paths to potential monetization? Are you really meaning meaning kind of the the the acquisition? Or are you really looking at basically, the the token offering as the source of liquidity? Primarily?



I think, you know, if I was, you know, to kind of gauge where we're going to be, I'd say 60-40-60, where that has, you know, the capacity to go for that monetization through the liquidity event. And in creating a liquid digital asset, and the other 40 might be through acquisition. I think that's really where we're gonna see this kind of play out. You know, it was great that Coinbase obviously went IPO. It was a huge event around the world, and I grew and drew a lot of attention to the asset class. But what I think is going to happen is that versus doing an IPO. And I think we talked about this internally, as a firm to for the last few years. Coinbase could have actually, you know, had a liquid asset, alleged liquid digital asset, coin, you know, for instance, which could have obviously traded on exchanges, and digital assets, and could have had that liquidity feature as well, too.


And so, you know, I definitely think that this notion of IPO or spax, even though spax now seem to be cooling down, you know, a few months ago, there was a lot of kind of hype that a few of the projects in the space, like a BlockFi, or an anchorage would potentially go public visa v spax spax seem to be on the kind of the back burner now live, but they seem to be cooling down after that period of exuberance. So I definitely think that there are companies in this space that are even mature, that might look at the adaptation of digital assets to actually create that liquidity for not only their investors or current investors, but for new investors that want to actually participate. One of the things that we talked about all the Diane Keaton's you know, is that we feel that the digital asset is going to be the third leg of the cap stack of any company out there publicly or private equity, they have debt. And we feel that, you know, very profoundly that digital assets will be that third leg that is non diluted, and actually further incentivizes their users and their their clients to participate.



Right. No, I mean, look, I think with regards to Coinbase. And this is something Jeff and I have talked about a lot, I think it just, they were never going to issue a token in the United States at this juncture, just because it makes a lot of sense, if you're not going to be a 50 to $100 billion company, right? If you have, if you have investors and management, even employees, like your incentive is to, is to drive as much value for you know, yourself and for the investors, which in this case is an IPO. The token I think comes into play, if you're buying it percent of the companies who aren't going to be going based or don't have those aspirations, like maybe an anchorage does, or a crackin does or a BlockFi does. Until we get some regulatory clarity around, you know, how these tokens are governed how their custody, you know, what market participants could get involved, then I think, you know, Coinbase is clearly leaving the door open for a token that could potentially be structured much like finances, but there's just not the regulatory framework to be able to do that if you're of a certain size.



Yeah, like a uniswap. Doesn't need to go IPO they already have.



No there's there's no one to benefit from the IPO. Right? They, you know, did they made that decision, right? uniswap said, Okay, we're not, we're not, we're not going to compete with Coinbase, right? We're not trying to be the, you know, the, the NASDAQ of, of digital assets, and just kind of be this massive conglomerate uniswap is doing what it does very well and fits into an ecosystem. And so they they are a candidate to to have a token, a decentralized and have that token represent 100% of the stack. That's probably going to be one of the bigger ones, I would guess in terms of that being the only aspect of the cap stack.






It's interesting. It'll be very interesting to see how this evolves. So what do you what are you interested in terms of sectors and you know, in terms of early stage, early stage investing in this space, you know, we talked a little bit about, you know, lending, borrowing, DeFi infrastructure, talked a little bit about web three. You know, where else where else do you see a lot of opportunity,



You know, NFT's is an obvious one. And not because of people selling a $69 million piece of art at Christie's, if anyone's been following the space, you know, NFT's have been around since 2017, with crypto kitties was one of the first events there. And what people are starting to understand is that NFT's are not some digitized JPEG, that what NFT's actually provide is this ability to track provenance. And to be able to have audibility, and obviously transparency and immutability with an asset on the internet, like we've never seen before. Like, for instance, I always like to say is that if you go to GoDaddy, and obviously, this is not just, you know, a disparaging thing about GoDaddy. But if you're going to GoDaddy, and you buy a website, you don't own that website, that it's just you're leasing it basically, for a year or two years or three years, you don't own that. And so what NFT's provide is actual ownership of assets that are online.


And so this is a major, major narrative that is probably going to go similar to what we saw with DeFi, where DeFi ran very hot, and May June July of 2020. And then kind of simmer down a little bit, and that has resurrected. And that's probably what's going to happen with NFT's. It's running very hot right now. And it's going to continue to do so. But then there's probably going to be a little bit of a cooling down period. And that cooling down period is going to be super interesting, because that's when you're going to start to see some real real great building, you're going to see infrastructure and things that have not been brought to the market yet. And what we've started to see with NFT's is I thought was really interesting is that you had this amalgamation of NFT's and DeFi where you have platforms like a, you know, ours aura, which uses the the capacity to create an open market for NFT's but also uses the elements of AMMS, automated market market makers that we've seen DeFi. And so this is a place where I definitely where we spend time in terms of infrastructure, in terms of actual places where people can buy and sell, and transact on NFT's and continue that provenance. In addition to that gaming is a sector that I think is going to create a huge wave of adoption for digital assets, you have 3 billion gamers around the world who play some form of a game every single day. And what's been really interesting there is that for the last few years, like my kids play fortnight, you know, it's a money sock, you have these ideas of v box on fortnight. And so with v bucks, it allows the user the player to buy a new scan or a new sword or something of that nature. But you don't own that asset.


You don't own that, that piece of digital component. And so if you stop playing the game, if you no longer want to interact with the game, it's not yours, it's actually epic. And so what's happening with blockchain based gaming is there's this move to what we call pay to play effectively what we're seeing and legacy to play to earn, where you can actually play these blockchain based games on Native digital asset to that game. And actually the ownership of those assets, whether that's a player or a skin, a sword, whatever it may be, and then transported to other games in the blockchain universe, this is going to be huge, and people are just starting to learn about it. Gaming in the blockchain space has gone through several iterations in 2014, and 15. I always had to say it was more like Atari 1982, with Donkey Kong, pixelation, not really great interfaces, you had to use meta mask, and all sorts of different and kind of incorporations. And now you have designers from Ubisoft and EA coming into this space, designing beautiful games that are highly immersive. And so this is really going to be a place where we're going to spend a lot of time to.



In the gaming space. So I guess what, what is the benefit of owning the asset versus, you know, I mean, I guess you would own an asset in something like fortnight, but I mean, other people could own the same asset, versus owning the asset that's potentially or is one of a kind.





Yeah, the ownership actually allows you, if you no longer want it, and you want to sell it for monetization, you can go to open sea or other exchanges out there and sell it. Whereas in traditional gaming, you can't do that.



Okay. Okay, that's, that's actually really interesting. And in terms of game play, you know, one thing that one thing I've heard a little bit about is just kind of, I guess, because these are a little bit more robust and complicated and unique elements and the aspects of the of the NFT that you, you know, potentially sacrifice in actual, whether it's gameplay graphics speed, how is that? How does that look?



It's changed dramatically over the last few years. You rightly so I think the first few years in 16 and 17. It was much more like card games, like D&D type of games online. It was much more kind of betting and gambling type of casino games not really that exciting. And now you're starting to see other games out there coming out. You know, one of our obviously one of our cars in the portfolio is xe infinity that is building the the Pokemon the Pokemon Go. And Pokemon GO has hundreds of millions of players around the world that are using this. It's immersive. And you can do battles. They are there's characters, there's development, it's a story, it's a plotline.


And so you're starting to see story and plotline and development, and beautiful landscapes that are what we're typically used to seeing right now. But again, this idea is that if you, you know, get to the next level, or you beat a, you know, a boss or something like that, you can be monetized or incentivized with a native digital asset. And so that could be, you know, something that, again, if you build up a war chest, you've really done very well in the game, you can go to open sea, or some of these other exchanges, and you know, do something else with it, or you can go to uniswap. And effectively, you know, exchange it for eath, or for something of another asset that you want to, because you have ownership of it.



It's really compelling. It's definitely I mean, it's, it's mind boggling, and a lot of ways you know, where we've, where we've gone, I think it could actually be really impactful for sports games, you know, because you remember playing like, NHL and mat and all that stuff as a kid, and it's like, you know, Madden 94 would come out, then you'd stop playing in Madden 95 would come out like you could, and especially once the college games came out, like the ability to actually have those teams, customize them move down, you know, take them to the next season and stuff like that could be really cool.



Yeah, if you got to like a 99 performance level, or something like that, and 94. And then you had to go to 95. Again, to get started, whatever it was, you know, kind of the base, Imagine being able to port that those same qualities and characteristics. So the next one, because again, you have put sweat equity into that you've played the game, you've you've immersed into it, you have dedicated time to it.


And what legacy games have done is basically say, Okay, great, now do it again. Because again, they want you to spend $65, on the next game, you know, the next year was, you know, a tweak here or there or adding, you know, you know, Bo Jackson is a legacy player where it wasn't before and 94. And now it's a 95, they try to find a way to get you in to pay that $65. And so with this, it's like, Okay, well, you can port it over, you can enjoy it again. And we're going to continue to incentivize you to play and to to win and to be a part of it, by an asset that we have. And so this is something that again, 3 billion people around the world, and then you don't even we've just started to see the advent of leagues, obviously, you know, eSports has become a huge part of the last few years of your during code, it's been a little bit more difficult. But, you know, eSports, especially from a family office perspective, is there any institutional investors and family offices that are listening right now, you have probably participated in eSports over the last few years, I know you have. And so this is a space where again, you're starting to see eSports, enter into blockchain based gaming, that is going to bring a next level to this that really the legacy games can't even compete with right now.



Yeah, I mean, it's, it's, it's, I really think it's gonna be huge. Very, very interesting. so little time we have left. One thing I think, is really cool that you do you do for the space in terms of kind of bridging the gap between traditional investors and this new asset classes, you put out an event every year? called FO 256? Why do you let everyone know kind of what it is? Because now that it's virtual, you know, it's you we can we can serve a lot more people than we can when it's in a in a single location. So what do you give a quick plug for that and let everyone know.



And I have to say, first and foremost, I hope next year we can actually do it in person. That would be obviously it's great to have it virtually. But to be able to obviously see people in person is something that I hopefully look forward to. Maybe a hybrid of some sort May be a hybrid of some sort. But fo 256 was a event I started in 2018. Because what I saw was in this space, you had a lot of these conferences that started in 16 and 17 18, that will charge an investor $2000 $3,000 to attend. And then we'll charge the speaker 10 15 $20,000 to attend and speak and present their opportunity.


And so what you started to see was more of a selling environment, and are focused on return on investment than actually a learning environment. And so I wanted to change that. I made it open source basically I said in 2018 I actually sent out a tweet, around July of 2018. I said, this is not working. People are not learning. They're not getting motivated by what's happening here. And so let's change it if anyone wants to be a part of it, let me know. Immediately that went viral and I got 1000s of requests not only from investors in the space, but founders. And then I pinged you know that a few 1000 family offices, and the first one, we had about 160 family offices attend with some of the best investors in the world. And they actually learned they actually saw some large companies like fidelity, and then they saw Goldman, that are part of this ecosystem now.


And so this has progressed, where we keep it, you know, for a group out there that are trying to learn about digital assets, that are trying to review it either as a family office or an institutional investment, kind of idea and allocation. They're trying to see what's happening here. from a regulatory standpoint, we're touching on that again, this year, because, again, a lot of people have been asking about the regulation side. So from a regulation standpoint, and then to institutional panel, where we have, you know, firms like Morgan Stanley, and we have the Boyd and we have others out there. And then we're going to go into again, the investors that have space from a more liquid capacity, and then more of a venture capacity. And then we're going to talk about things like ESG and like we talked about at the beginning of the show, and NFT's. So it's a great way for people to learn about what's happening here in the ecosystem, what's happening here in the asset class, and the maturity and the type of people that are actually participating now to build you know, basically what I say is they're building the future of you know, for today, now, and so this is something really great it's free, and they can go to our our on our site to learn more about it and register for it.



Yeah, great and Real visions on Raoul Pal is, is speaking as well as as a keynote.



Yep, we're having a nice fireside chat in the morning we're going to talk about global macro and how global macro what's happening global macro from an inflationary standpoint, and from a market capital structure camp standpoint, has really created this, this this story in this narrative, why digital assets are becoming so important as you build out your capital allocation program for your for your office or for your for your firm.



Awesome. Well, thanks, David. Why don't you share before we sign off just where people can learn more about about you and and, and your journey into this space?



Well,they can find me on Twitter @DavidNage happy to always talk to people on Twitter, DMS are always open. And of course, you can also reach me on our company's website And you can find me there linked, there's a link to my LinkedIn, you can always reach out to me on LinkedIn as well, too.



Awesome. Well, this was a lot of fun, David and yeah, I'm really excited for you to, you know, kind of take this venture into, into venture investing. That really was truly no pun intended, but, but I'm really, really excited at some of these opportunities that he'll be uncovering and see a lot of the truly symbiotic investment opportunities between what you're doing and what you have to do. And it's really exciting. So thanks for joining me.



Thank you, Peter, for having me. Appreciate it. It's great job.



All right. Take care, buddy.



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