Transcript
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I started working in China, you know, one of
the first things I did was try to figure out
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who are the top firms.
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You know, what are the best brands?
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One of the things I quickly realized was the
best brands in the space were the groups that
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did the most deals.
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Like, they were the ones that the most
entrepreneurs interacted with.
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They were the ones that most entrepreneurs
talked about, but they were not necessarily the
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groups that had the best returns.
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I think the same thing is, like, true with
crypto.
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What we care about as an LP is, like, does the
VC have good judgment?
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Do they pick the right things that are
ultimately successful?
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What we're looking for is, like, just picking
the best managers.
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And when we add a new manager, we very much
want them to be, like, complementary to the
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portfolio.
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Right?
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So there's, like, little overlap in the deals
they've done historically with our existing
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managers.
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They're areas of, like, competitive advantage
or differentiation.
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It's generally true that valuations go up much
faster than risk goes down.
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Tell me about how you go about differentiating
whether a manager is actually sophisticated or
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just knows how to talk the talk.
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Drew, I've
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been really excited to chat with you.
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Welcome to 10X Capital podcast.
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Hey, David.
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Thank you for having me.
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It's great to be here.
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It's great to have you.
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So what is Crosslayer Capital?
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So we are a fund to funds.
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We are a 100% focused on the blockchain space.
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We primarily invest in closed end venture
funds.
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And, you know, today, there's more than 300
funds dedicated to crypto.
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And so we strive to pick the very best funds.
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Why is that that there doesn't seem to be that
many crypto fund of funds?
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It's it has such a volatility to it and and
also historically a great return.
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Why aren't there more crypto fund of funds in
your opinion?
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I think they'll come over time.
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I mean, I think we're still pretty early days
for the space.
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And so I think as more allocators and others
recognize the value of of a fund of funds and
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the value of the crypto space and how kind of
important it is as a wave of technology that
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we'll see more of them.
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To me, it was an obvious opportunity to build
one.
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I I don't know why there's not more of them.
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So you invest in both emerging and established
managers.
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Tell me more about your strategy.
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The space today, there's hundreds of funds.
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Many of them aren't that institutional, so you
can kind of just, like, weed them out fairly
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quickly.
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In terms of the groups that we consider, like,
tier 1, they've kind of been around for some
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time.
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They have a track record.
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And so what we do is identify the groups that
we think are really the best, but then have
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kind of a capital base that meets the
opportunity.
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What's most attractive is getting in early
stage investments.
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So you wanna be pre seed, seed, and not in kind
of later stage rounds at really high
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valuations.
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We kind of invest across all vehicles, but the
bulk of our capital is gonna go into, like,
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closed end funds that are kind of managers that
are dedicated to space, that are kind of have
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built out operations, are kind of institutional
managers.
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And just to define, a closed ended fund is a
private equity type vehicle where you have
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investment period and you have DPI as positions
come back in.
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Open ended fund being similarly to a hedge fund
where you're investing in tokens and they get
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marked on a quarterly basis.
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It's clear that there's alpha in the closed
ended fund where these are very hard to access
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early stage rounds in crypto, the precede and
seed rounds.
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Where's the alpha in the open ended funds?
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Is it access?
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Is it thesis driven?
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Is there some kind of liquidity or trading
aspect?
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The first thing I would say is these are just
wrappers.
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Right?
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So they they're just a structure.
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And the actual investment strategy and approach
within these funds, it can actually be
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identical in each case.
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I mean, you tend the venture tend to be more
oriented towards private investments, and the
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open ended tend to be, you know, more liquid,
as you say.
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But it's interesting when the a lot of the
crypto funds initially were all open ended
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funds.
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And the reason for that is a lot of the assets
in the space are tokens, and they are kind of
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evergreen in nature.
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Right?
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They're not they don't have, like, a finite
life in a traditional sense.
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So a lot of that shifted just because it the
structure is problematic in that the space is
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highly volatile, and you can have funds can be
way under their high watermark for periods of
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time, which is not great as an investor.
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You can have the GP, you know, taking a lot of
money off the table over time, you know, which
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is not great.
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When we're the venture fund, you're very much
aligned.
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Like, the GP makes money when you make money,
when you get a distribution.
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And so there's, like, much stronger alignment
there.
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In terms of alpha, on the venture side, it's
just about identifying companies, startups,
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protocols early on that have, you know,
significant potential and that will be kind of
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an important part of the ecosystem or
infrastructure stack or consumer app or
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something.
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And you kinda drive your alpha from from
identifying early and being right.
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On the liquid side, it's not actually that
different.
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So what's what's interesting about the crypto
space is you have a lot of they call them
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projects, but, like, projects that will launch
a token.
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And they they launch it pretty early in their
life cycle, so they're not these are not mature
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businesses.
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You know, like, this is 2, 4 years from being
started.
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And so they're still very much like early stage
companies effectively.
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And there is alpha in identifying the ones
that, in the in the same way you might look on
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the venture side is, like, the ones that have
significant potential, the teams that you think
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are kind of executing well.
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And so for the groups that on the liquid side,
there's kind of the, you know, beta side of it,
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like buying, you know, maybe Bitcoin and ETH or
Solana.
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But then the alpha side is identifying these
smaller cap tokens that you think have
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tremendous potential.
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And just because something launches doesn't
make the nature of what they're what it is like
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that different.
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It's it's not the same as tech where, like, you
know, in tech, you have Uber going public 10
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years later.
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Like, it's a sign of, like, maturity for that
company.
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Yeah.
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But for for yeah.
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Crypto is very early.
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It reminds me of portfolio managers that focus
on microcap public securities just because
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they're public.
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They might not be heavily covered, and there
might might be alpha there.
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One other comparison.
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I, before when I was at McKenna, I used to work
on, like, biotech.
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Like, I did both kind of private side and the
public side.
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And you had, like, you know, these companies
going public.
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Right?
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Preclinical phase 1.
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They're, like, still, like, early stage
companies, and some of the best managers are
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ones that could, like, move across the cycle.
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Right?
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They they're sort of cross markets.
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And I think the same thing is true in crypto.
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Like, you know, we want, like, these small
funds that can do the early stage, but we also
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for the some of our larger funds, we want them
to be able to both do the liquid side and the
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private side.
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A lot of LPs privately tell me that they would
invest in the crypto asset class, but they're
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concerned about some of the shady characters
and some of the misalignment, people having
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different wallets that they don't disclose.
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How do you diligence your alignment into the
GPs that you invest in?
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The space is maturing.
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I think the best practices in the space have
been kind of improving steadily.
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But in terms of alignment, I mean, we think of
alignment as, like, one of the most important
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things.
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You know?
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So in terms of private investments, like, I
think the better firms, like, especially
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registered investment advisers, like, they
don't really make personal investments in
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crypto space, certainly not in the private
side.
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So no private, like, investments whatsoever in
the crypto space.
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I think the best practice is actually not to
make investments in, like, smaller cap tokens
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either.
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The firms are kind of buttoned down, like, have
a compliance officer.
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They're you know, just like you'd see in in the
traditional, like, tech side, like, you have
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people monitoring all their personal trades.
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And that's very much like best practice in the
space.
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There's certainly lots of firms that I think
are not acting appropriately.
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And so we we try to, like, weed those out.
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You know, sometimes we're talking to founders
and we hear about, you know, situations about
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firms asking for certain personal allocations
and things like that.
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And so, yeah, we we were very conscious of that
and and very much wanna avoid any firms that
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are, to kind of participate in those practices.
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It's intuitive that in a more opaque industry,
you would want their DPs to be more regulated.
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What percentage of your portfolio roughly is in
RIAs or US domicile?
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Like
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Most of our firms are actually registered.
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You know, the venture exemption does not work
for investing in in token assets.
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So if you are investing purely in private deals
and some of those launch tokens, you can get
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away without being registered.
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We do have some firms that are not registered.
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A much higher percentage of the firms that
operate in the space are registered investment
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advisers relative to traditional venture.
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You spent nearly 15 years on Makena Capital,
which is a $24,000,000,000 OCIO, outsourced
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chief investment officer.
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What did you learn on McKenna that you bring to
cross layer today?
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I spent much of my career at McKenna.
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I started there about 9 months after McKenna
launched.
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It was a a spin out from the Stanford
Management Company.
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So it was, you know, very much followed, like,
the endowment style approach to investing the
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David Swensen model.
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You know, I started the route undergrad.
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I spent a couple years kinda doing investment
operations, and then I spent more than a decade
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on the VC team there.
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In terms of lessons learned, I mean, I think 2
of the important lessons I learned is, 1,
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alignment is one of the most important thing.
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Like, how is the LPGP structure structured?
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Are there, you know, dynamics around it where
you just have divergent interest?
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And I think, you know, I've definitely learned
some lessons there in terms of the alignment is
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just one of the most important things.
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The other would be that, like, track records
are backwards looking.
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And it's not that track records aren't
important, they are.
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But you have to kinda know what you're looking
at and not use them kind of as not to
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extrapolate forward.
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So those would be 2 lessons learned.
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I think the the other thing I would say is I, I
did have the opportunity there to build mini
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sub portfolios, like, within venture.
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So, like, the first one was, you know, I worked
on, building out the VC portfolio in China and
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then eventually biotech.
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And then, of course, I I did crypto as well at
McKenna.
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Some of the things I learned there, like, that
I think are relevant to Crosslayer.
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You know, like, when I I started working in
China, you know, one of the first things I did
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was, like, try to figure out, okay, who are the
top firms?
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Like, what is, you know, what are the best
brands?
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And, you know, one of the things I quickly
realized was the best brands in the space were
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the groups that did the most deals.
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Like, they were the ones that the most
entrepreneurs interacted with.
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They were the ones that most entrepreneurs
talked about.
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But they were not necessarily the groups that
had the best returns.
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And I I I think the same thing is, like, true
with crypto.
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Like, I often talk to a founder who would tell
tell me about their, like, VC firm that they
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like the best.
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And they're not, like sometimes those firms
are, like, groups that just have bad returns.
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And it's just one thing that, like, I think
about is just like what founders optimize for
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and what, like, as an LP you wanna optimize for
are different things.
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Tell me a little bit more about that.
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What we care about as an LP is like, does the
VC have good judgment?
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Like, do they pick the right things that are
ultimately successful?
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A founder, you know, they might care about the
firm's brand.
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They might care about the support services or
how that company that VC firm might be able to
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help them build their company, which is, like,
important for the founder, but it's not
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important for us as an LP.
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And, like, to the extent that we care about
value add is to the extent that, like, it helps
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that firm source new deals or that it gives
them a reputation that gives them an edge in
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the market.
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But to the extent that it doesn't do that or
that they, like, don't have good judgment, it's
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just not that relevant.
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And so I I think value add is, like, one of
these things that everyone's, like, oh, what
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what's the value add of this VC firm?
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00:10:25,319 --> 00:10:27,399
And, you know, we don't necessarily care that
much.
228
00:10:27,399 --> 00:10:29,559
I mean, I I think it's it matters.
229
00:10:29,559 --> 00:10:32,220
If it is their source of differentiation, then
we do care.
230
00:10:32,360 --> 00:10:36,165
But it's not there's often, like, you know,
we're in one firm that I think does very little
231
00:10:36,165 --> 00:10:37,764
value add, but they're just really good.
232
00:10:37,764 --> 00:10:40,404
I wanna double click on your VC China strategy.
233
00:10:40,404 --> 00:10:43,764
So you mentioned that your first step was
getting a lay of the land.
234
00:10:43,764 --> 00:10:44,565
How did you do that?
235
00:10:44,565 --> 00:10:45,605
How long did it take you?
236
00:10:45,605 --> 00:10:46,485
Who did you talk to?
237
00:10:46,485 --> 00:10:47,250
Walk me through that.
238
00:10:47,409 --> 00:10:51,649
The first thing I did is just there was the
more notable firms in the space, so I just got
239
00:10:51,649 --> 00:10:52,450
connected with them all.
240
00:10:52,450 --> 00:10:54,769
And so I think the first step was just, like,
meeting managers.
241
00:10:54,769 --> 00:10:56,529
It's not so different than we've done in the
crypto space.
242
00:10:56,529 --> 00:11:00,370
It's, like, try to meet all the relevant firms
that are, like, kind of have the biggest brands
243
00:11:00,370 --> 00:11:01,590
that people all know about.
244
00:11:01,684 --> 00:11:05,445
And then from there, you try to meet, like,
some of the more emerging firms, the newer
245
00:11:05,445 --> 00:11:10,565
firms, and you just try to build, like, a kind
of a list of who's operating the space, what
246
00:11:10,565 --> 00:11:12,245
their experience is and track records.
247
00:11:12,245 --> 00:11:16,404
And then, you know, when I started, there was
one investment, maybe 2 investments in China at
248
00:11:16,404 --> 00:11:16,950
that time.
249
00:11:16,950 --> 00:11:21,750
It was kind of the end of when you had, like,
these US firms, like, you know, with a IC in
250
00:11:21,750 --> 00:11:23,910
Palo Alto, like, approving deals in Beijing.
251
00:11:23,910 --> 00:11:27,269
You know, obviously, that was, like, a horrible
model that, like, didn't really work that well.
252
00:11:27,269 --> 00:11:31,029
But and partly just because, like, the ICs had
no idea, like, what was actually happening in
253
00:11:31,029 --> 00:11:31,485
China.
254
00:11:31,485 --> 00:11:34,605
The firms that did the best were, like like, a
US firm that had, like, an independent,
255
00:11:34,605 --> 00:11:38,924
basically, operation IC in China or, like, the
groups that were, like, specialized that were,
256
00:11:38,924 --> 00:11:41,245
like, you know, had were kind of domestic born.
257
00:11:41,245 --> 00:11:44,365
Not so different than, like, what's happened
with crypto, which is, like, you know,
258
00:11:44,365 --> 00:11:46,384
initially, you had firms in the US.
259
00:11:46,490 --> 00:11:49,850
You know, they would, like, hire a junior
partner to do, like, crypto deals, but then the
260
00:11:49,850 --> 00:11:52,889
rest I see, like, had no idea, like, actually
how crypto worked.
261
00:11:52,889 --> 00:11:54,730
And it just didn't really work as a model.
262
00:11:54,730 --> 00:11:58,750
And then you saw those, like, that talent,
like, lead those firms, start their own firms.
263
00:11:58,924 --> 00:12:01,964
And, like, the groups that were, like,
dedicated to space have, like, done better.
264
00:12:01,964 --> 00:12:05,324
And partly, there's, like, the volatility of
asset class, which is, you know, like, if you
265
00:12:05,324 --> 00:12:08,524
don't have a dedicated pool of capital, it's
been very difficult to, like, invest in the
266
00:12:08,524 --> 00:12:10,464
space, like, especially in the through the
cycle.
267
00:12:10,524 --> 00:12:10,605
But
268
00:12:10,845 --> 00:12:15,529
But after your experience on McCona, you spun
out to do cross layer in a way you, again,
269
00:12:15,750 --> 00:12:18,870
wanted to map the market of the crypto venture
market.
270
00:12:18,870 --> 00:12:20,410
How did you go about doing that?
271
00:12:20,549 --> 00:12:23,029
I started investing in crypto at McKenna.
272
00:12:23,029 --> 00:12:24,629
At McKenna, we met some of the early funds.
273
00:12:24,629 --> 00:12:28,335
Like 2015, we probably met one of the first
funds being raised in the space.
274
00:12:28,715 --> 00:12:33,195
We kept meeting funds all the way until, like,
kinda 2019 when I got approval to start
275
00:12:33,195 --> 00:12:33,835
investing in the space.
276
00:12:33,835 --> 00:12:37,674
So there was a long period of time there where
I was interested in the space, was meeting
277
00:12:37,674 --> 00:12:38,715
founders in the space.
278
00:12:38,715 --> 00:12:42,509
I started with, like, a, you know, a deck and
started convincing the private equity team
279
00:12:42,509 --> 00:12:44,110
initially, then, like, the larger IC.
280
00:12:44,110 --> 00:12:48,350
I wrote, like, a long thesis on it, and
eventually just, like, got that support and
281
00:12:48,350 --> 00:12:50,430
approval to move forward in the space.
282
00:12:50,430 --> 00:12:54,750
And so it wasn't till 2019 that that happened,
but then I spent, you know, several years at
283
00:12:54,750 --> 00:12:56,595
Makena mapping the landscape.
284
00:12:56,595 --> 00:13:01,075
So by the time I left to do Cross Layer, like,
you know, we'd already done a handful, maybe 8
285
00:13:01,075 --> 00:13:02,134
investments at McKenna.
286
00:13:02,355 --> 00:13:05,795
So we we done a number of investments, and then
we've kinda already mapped the space.
287
00:13:05,795 --> 00:13:09,590
But in terms of how we mapped it there, I mean,
the space is still pretty small back then.
288
00:13:09,590 --> 00:13:10,789
There wasn't, like, that many funds.
289
00:13:10,789 --> 00:13:13,210
I mean, it's really exploded the last couple of
years.
290
00:13:13,350 --> 00:13:13,669
I don't know.
291
00:13:13,669 --> 00:13:15,910
You know, we started with the the more
established firms.
292
00:13:15,910 --> 00:13:16,230
There's a
293
00:13:16,230 --> 00:13:19,750
handful of allocators that were interested in
the space, and so we'd all talk to each other
294
00:13:19,750 --> 00:13:23,024
and we'd all share different names of firms
that were we met with.
295
00:13:23,024 --> 00:13:25,345
And, you know, and then we kinda slowly kinda
made a list.
296
00:13:25,345 --> 00:13:28,865
And even then, we would, like, look at
PitchBook and see, okay, who's doing these
297
00:13:28,865 --> 00:13:29,105
deals?
298
00:13:29,105 --> 00:13:33,585
And then try to reach out, like, if we saw a
name that we haven't seen met and try to reach
299
00:13:33,585 --> 00:13:34,919
out to that firm and meet them.
300
00:13:35,079 --> 00:13:39,799
What lessons did you you met 50 managers and
more before you made your first investment.
301
00:13:39,799 --> 00:13:41,659
You you proceeded to make 8 investments.
302
00:13:42,120 --> 00:13:45,639
What were some of the early mistakes that you
made at McKenna that you corrected when you
303
00:13:45,639 --> 00:13:46,459
started Crosslayer?
304
00:13:46,759 --> 00:13:50,304
We started with, like, the larger firms in
space that had the best brands, which I now
305
00:13:50,304 --> 00:13:53,024
don't think is, like, that relevant, but
that's, like, where we started.
306
00:13:53,024 --> 00:13:55,264
Partly too, like, we just didn't know the
crypto space that well.
307
00:13:55,264 --> 00:13:55,345
Right?
308
00:13:55,345 --> 00:13:57,904
We're still trying to figure it out, still
understand, like, what mattered.
309
00:13:57,904 --> 00:14:02,704
We invested in one of the firms that we thought
of as, like, one of the more, like, crypto
310
00:14:02,704 --> 00:14:03,899
native firms in the space.
311
00:14:04,059 --> 00:14:08,059
But I think the integrity of the firm and the
founder, like, wasn't that high.
312
00:14:08,059 --> 00:14:09,820
And the alignment wasn't good.
313
00:14:09,820 --> 00:14:11,180
We did an open end fund.
314
00:14:11,180 --> 00:14:12,379
It was not a great experience.
315
00:14:12,379 --> 00:14:17,075
And so I think now we're, like, very careful
about open end funds, and we're also very
316
00:14:17,075 --> 00:14:18,595
careful about the people we partner with.
317
00:14:18,595 --> 00:14:19,955
And nothing went, like, horribly wrong.
318
00:14:19,955 --> 00:14:24,674
We made money off that investment, but it just
there was a lot of things that we're did not
319
00:14:24,674 --> 00:14:25,735
like about that experience.
320
00:14:25,794 --> 00:14:29,554
But another one that, like, just seems so
obvious, but I think sometimes you gotta, like,
321
00:14:29,554 --> 00:14:30,929
learn lessons for yourself.
322
00:14:31,169 --> 00:14:36,370
We backed a fund where, like, some of the GPs
had involvement in the crypto space, in DAOs
323
00:14:36,370 --> 00:14:37,110
and protocols.
324
00:14:37,169 --> 00:14:41,809
And at the time, we thought it would, like,
provide, like, unique deal flow and access, and
325
00:14:41,809 --> 00:14:43,350
it was part of their secret sauce.
326
00:14:43,625 --> 00:14:47,625
But the reality is just, like, was bad
alignment, and several GPs end up leaving.
327
00:14:47,625 --> 00:14:51,304
And we kinda knew, like, there's, like, this LP
playbook, like, you only back people that are,
328
00:14:51,304 --> 00:14:54,184
like, a 100% focused on managing the capital
you're giving them.
329
00:14:54,184 --> 00:14:56,584
You know, we kinda made an exception there and
never again.
330
00:14:56,584 --> 00:15:01,240
Is there ever a time that you can invest into
GP that's not full time on the strategy?
331
00:15:01,240 --> 00:15:02,759
We would be very cautious about that.
332
00:15:02,759 --> 00:15:03,160
I don't know.
333
00:15:03,160 --> 00:15:06,379
I like, there's been lots of firms that have
kind of incubated started companies.
334
00:15:06,440 --> 00:15:07,800
I think you'd just be very careful.
335
00:15:07,800 --> 00:15:11,960
Like, a lot of times you have, like, founder
economics going to, like, the GP that are not
336
00:15:11,960 --> 00:15:13,019
the same as LP.
337
00:15:13,445 --> 00:15:15,065
It gets very messy very quickly.
338
00:15:15,125 --> 00:15:17,365
Obviously, there's situations where that can
work.
339
00:15:17,365 --> 00:15:20,964
It's not something that, like, we would or
let's just say we'd be very cautious about it.
340
00:15:20,964 --> 00:15:25,445
We generally want the team focused, like,
especially the the key members of the GP to be
341
00:15:25,445 --> 00:15:27,544
a 100% focused on managing the capital.
342
00:15:28,059 --> 00:15:30,620
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343
00:15:30,620 --> 00:15:34,159
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344
00:15:34,379 --> 00:15:38,620
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345
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346
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347
00:15:42,855 --> 00:15:46,875
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348
00:15:47,014 --> 00:15:48,154
Thank you for your support.
349
00:15:48,774 --> 00:15:52,695
You've mentioned to me that in crypto as an LP,
it's really important to understand where
350
00:15:52,695 --> 00:15:56,215
there's divergent interest between the general
partner and the limited partners.
351
00:15:56,215 --> 00:16:00,449
Give me some examples of some non obvious times
when there's divergent interest between GP and
352
00:16:00,449 --> 00:16:00,949
LP.
353
00:16:01,089 --> 00:16:04,449
One of the reasons we like emerging managers is
you have very clean, like, alignment.
354
00:16:04,449 --> 00:16:09,009
Like, an emerging manager is very focused on
making that fund a success, and they have no
355
00:16:09,009 --> 00:16:11,110
other products, no other, like, fee streams.
356
00:16:11,605 --> 00:16:16,245
And we're I think as funds get bigger and they
add different products and they have, like, a
357
00:16:16,245 --> 00:16:20,965
junior team that maybe has gone become more
senior and they need to kinda allocate capital
358
00:16:20,965 --> 00:16:23,524
to them, that's not necessarily in the LPs
interest.
359
00:16:23,524 --> 00:16:26,565
And so that that would be a little more of the,
like, the subtle one, but I think the most
360
00:16:26,565 --> 00:16:27,065
common.
361
00:16:27,170 --> 00:16:30,769
I always liked the idea of accelerators because
they're kind of they see a lot of companies
362
00:16:30,769 --> 00:16:31,410
coming through there.
363
00:16:31,410 --> 00:16:34,149
They have a lot of visibility into the teams
that are operating.
364
00:16:34,210 --> 00:16:35,910
They're kind of building new products.
365
00:16:36,210 --> 00:16:38,690
But oftentimes, like, the alignment's bad.
366
00:16:38,690 --> 00:16:42,070
Like, they're just the economics kind of are
not the same.
367
00:16:42,129 --> 00:16:46,985
And, you know, the the fund almost kind of
becomes this, like, fall on capital that's, I
368
00:16:46,985 --> 00:16:48,745
wanna say, like, the prop up those companies.
369
00:16:48,745 --> 00:16:51,945
But the interest of the Accelerator and the
interest of the LP just are not the same.
370
00:16:51,945 --> 00:16:55,800
Especially with emerging managers, we wanna be
with funds that where you have, like, somebody
371
00:16:55,800 --> 00:16:59,480
that kinda has a chip on their shoulder and is,
like, highly motivated, wants to win, but,
372
00:16:59,480 --> 00:17:01,580
like, also doesn't wanna build an empire.
373
00:17:01,639 --> 00:17:01,879
Right?
374
00:17:01,879 --> 00:17:05,320
Like, we don't want that kind of, like, empire
building mentality, like, within the fund.
375
00:17:05,320 --> 00:17:06,220
AUM building.
376
00:17:06,440 --> 00:17:06,680
Yeah.
377
00:17:06,680 --> 00:17:09,080
We don't want them to build lots of AUM, lots
of products.
378
00:17:09,080 --> 00:17:10,855
Like, that's just not in our interest.
379
00:17:10,855 --> 00:17:13,974
And, like, especially with a new fund, if
they're, like, talking about multiple products
380
00:17:13,974 --> 00:17:16,535
before we launch 1, like, that's not a good
sign for us.
381
00:17:16,535 --> 00:17:19,974
You mentioned when we last chatted that you
gravitate towards groups who have a clear
382
00:17:19,974 --> 00:17:23,160
framework of what is interesting and that go
after that systematically.
383
00:17:23,160 --> 00:17:24,680
What's a good example of that?
384
00:17:24,680 --> 00:17:28,519
One of the more recent things is, you know,
we've kinda had this thing like Bitcoin 2.0,
385
00:17:28,519 --> 00:17:32,360
which is basically, like, trying to make
Bitcoin more productive, where you're, like,
386
00:17:32,360 --> 00:17:35,640
smart contract platforms or wallets or
different things are kind of being built on top
387
00:17:35,640 --> 00:17:37,000
of Bitcoin to make it more productive.
388
00:17:37,000 --> 00:17:40,794
Like like, some people were early to that
thesis, and they maybe they published on it,
389
00:17:40,794 --> 00:17:43,035
and they were kind of at the front end of that
wave.
390
00:17:43,035 --> 00:17:44,875
Like, now it's like a consensus view,
basically.
391
00:17:44,875 --> 00:17:48,394
But, you know, groups that were actually
thoughtful, maybe they invested in a bunch of
392
00:17:48,394 --> 00:17:49,855
pre seed deals in that space.
393
00:17:49,994 --> 00:17:51,674
Maybe AI crypto is like another one.
394
00:17:51,674 --> 00:17:53,615
Like, that's kind of a hot theme right now.
395
00:17:53,670 --> 00:17:58,390
You know, one of our managers published a piece
on AI crypto, like, before chat GBT came out.
396
00:17:58,390 --> 00:18:02,009
Like, they were clearly, like, intentional
about this being an interesting category.
397
00:18:02,549 --> 00:18:04,789
And they've researched it and they they wrote
about it.
398
00:18:04,789 --> 00:18:08,390
And, like, it's very obvious that they weren't
they're not just, like, reacting to, like, the
399
00:18:08,390 --> 00:18:11,794
hype of the day or, like, the themes that, you
know, that are popular now.
400
00:18:11,794 --> 00:18:14,755
A lot of times, like, to be in those pre seed
deals, like, you need to put a stake in the
401
00:18:14,755 --> 00:18:16,355
ground, like, in a sub theme.
402
00:18:16,355 --> 00:18:19,875
And that's how you kind of meet groups that
are, like, building that space, interested in
403
00:18:19,875 --> 00:18:20,454
that space.
404
00:18:20,880 --> 00:18:24,799
And we think it just generally results in,
like, a more, you know, intentional framework
405
00:18:24,799 --> 00:18:26,980
that results in, like, kind of a better
outcomes.
406
00:18:27,200 --> 00:18:32,160
When you're making idiosyncratic bets like AI
and crypto or Bitcoin 2.0, how do you think
407
00:18:32,160 --> 00:18:33,460
about portfolio construction?
408
00:18:33,680 --> 00:18:36,644
So most of the firms we back are generalist
firms.
409
00:18:36,644 --> 00:18:39,445
So there's been, like you know, there was a
period of time where you had, like, all these,
410
00:18:39,445 --> 00:18:43,525
like, DeFi dedicated funds, but they've all
kind of broadened out just because it was,
411
00:18:43,525 --> 00:18:46,325
like, too narrow focus and DeFi kind of went
through a rough patch.
412
00:18:46,325 --> 00:18:49,605
And and so for us, like, we might do more
specialist funds at some point.
413
00:18:49,605 --> 00:18:51,945
But at this point in time, most of the funds we
back are generalist.
414
00:18:52,159 --> 00:18:55,059
But most of them have like, they might be in 1
or 2 ecosystems.
415
00:18:55,279 --> 00:18:59,200
And so if you wanna, like, kinda capture the
market, you know, if you're in 1 manager or 2
416
00:18:59,200 --> 00:19:03,279
managers, like, you're not gonna capture it
because, like, people the the space is too
417
00:19:03,279 --> 00:19:05,039
broad to, like, have expertise and everything.
418
00:19:05,039 --> 00:19:07,825
So for us, we're not necessarily choosing
ecosystems.
419
00:19:07,825 --> 00:19:10,884
What we're looking for is, like, just picking
the best managers.
420
00:19:10,944 --> 00:19:14,625
And when we add a new manager, we very much
want them to be, like, complementary of the
421
00:19:14,625 --> 00:19:15,025
portfolio.
422
00:19:15,025 --> 00:19:15,184
Right?
423
00:19:15,184 --> 00:19:18,865
So there's, like, little overlap in the deals
they've done historically with our existing
424
00:19:18,865 --> 00:19:19,365
managers.
425
00:19:19,609 --> 00:19:22,430
They're areas of, like, competitive advantage
or differentiation.
426
00:19:22,730 --> 00:19:26,190
You know, as you say, like, maybe they they
are, like, prominent in the Solana ecosystem,
427
00:19:26,330 --> 00:19:28,570
and maybe we don't have that much exposure to
Solana.
428
00:19:28,570 --> 00:19:30,830
So they're, like, complementary to our
portfolio.
429
00:19:30,970 --> 00:19:32,570
And so we think of it more that way.
430
00:19:32,570 --> 00:19:36,674
It's not like we're trying to, like, kind of
have strict, you know, targets for different
431
00:19:36,674 --> 00:19:36,835
things.
432
00:19:36,835 --> 00:19:41,174
It's more like, let's just make sure that,
like, we're backing kinda independent thinkers
433
00:19:41,315 --> 00:19:45,154
that kinda come from different parts of the
ecosystem or operate in different parts of the
434
00:19:45,154 --> 00:19:45,654
ecosystem.
435
00:19:45,954 --> 00:19:50,430
So for us, it's, it's more about, like, kinda
having fairly concentrated position of kinda
436
00:19:50,430 --> 00:19:51,390
high conviction managers.
437
00:19:51,390 --> 00:19:56,029
And there's not, like, a target for, like, this
much emerging managers or this much, like,
438
00:19:56,029 --> 00:19:56,930
Solana ecosystem.
439
00:19:57,070 --> 00:20:00,830
Just to play devil's advocate, why even have
established managers in your fund?
440
00:20:00,830 --> 00:20:02,269
There are flywheels to venture.
441
00:20:02,269 --> 00:20:02,509
Right?
442
00:20:02,509 --> 00:20:06,794
Like, people do 1, like, over time, people,
like, learn and get better over time.
443
00:20:06,794 --> 00:20:07,294
Right?
444
00:20:07,595 --> 00:20:10,634
2, groups that are really good do have some
lasting power.
445
00:20:10,634 --> 00:20:10,794
Right?
446
00:20:10,794 --> 00:20:12,474
Like, they've built, like, a really strong
team.
447
00:20:12,474 --> 00:20:12,974
Persistence.
448
00:20:13,515 --> 00:20:13,755
Yeah.
449
00:20:13,755 --> 00:20:14,494
There's persistence.
450
00:20:15,000 --> 00:20:18,119
There's a flywheel to brand and sourcing, and
these things matter.
451
00:20:18,119 --> 00:20:21,079
And so, you know, like, we're very conscious of
the established groups we're backing.
452
00:20:21,079 --> 00:20:22,839
We're not, like, blindly backing them.
453
00:20:22,839 --> 00:20:23,000
Right?
454
00:20:23,000 --> 00:20:27,000
And, like, we definitely believe that, like,
most firms have a life cycle.
455
00:20:27,000 --> 00:20:29,144
They they can only be exceptional for so long.
456
00:20:29,224 --> 00:20:32,285
And so over time, the team grows, the strategy
changes.
457
00:20:32,424 --> 00:20:36,424
You know, the dynamics around it just make them
less competitive or they just AUM has grown to
458
00:20:36,424 --> 00:20:38,984
a point where it's just harder to, like, keep
those returns consistent.
459
00:20:38,984 --> 00:20:43,224
So we do see, like, a natural cycle of, you
know, emerging managers coming to our
460
00:20:43,224 --> 00:20:43,724
portfolio.
461
00:20:44,119 --> 00:20:47,320
We're gaining conviction in them, making them a
core check, backing them for a number of years,
462
00:20:47,320 --> 00:20:50,920
and then expecting that over time that most of
them aren't gonna be these, like,
463
00:20:50,920 --> 00:20:52,440
intergenerational, like, firms.
464
00:20:52,440 --> 00:20:52,600
Right?
465
00:20:52,600 --> 00:20:53,900
That that they will be discontinued.
466
00:20:54,279 --> 00:20:58,934
Is top quartile and crypto similar to venture
and that it's an access class and that there's
467
00:20:58,934 --> 00:21:01,194
more LP interest than GP capacity?
468
00:21:01,815 --> 00:21:07,115
Or is it still nascent in a way that you could
access a perennial top quartile funds?
469
00:21:07,414 --> 00:21:10,954
When we started Crosslayer, there was a number
of funds that were overprescribed.
470
00:21:11,335 --> 00:21:13,380
And And so this is, like, the beginning of 22.
471
00:21:13,380 --> 00:21:16,759
But as the market kind of fell apart,
basically, no one's oversubscribed.
472
00:21:16,819 --> 00:21:20,099
There's been one fund oversubscribed in the
last year that I know.
473
00:21:20,099 --> 00:21:22,099
Like so, generally, everyone's open.
474
00:21:22,099 --> 00:21:26,944
And it's partly because, like, post FDX,
there's just, like, was no or very little LP
475
00:21:26,944 --> 00:21:28,065
money coming into the space.
476
00:21:28,065 --> 00:21:29,585
And so and it it still remains true.
477
00:21:29,585 --> 00:21:31,505
Like, we're seeing a wave of funds being raised
now.
478
00:21:31,505 --> 00:21:33,684
They're all being raised at much smaller sizes.
479
00:21:33,984 --> 00:21:36,865
So I would say that access will be relevant
again in the future.
480
00:21:36,865 --> 00:21:38,880
But, like, right now, it's not really about
access.
481
00:21:38,960 --> 00:21:39,940
It's mostly open.
482
00:21:40,160 --> 00:21:43,140
Sounds like a good time to get a toehold in
some of these franchises.
483
00:21:43,359 --> 00:21:43,940
Oh, absolutely.
484
00:21:44,000 --> 00:21:46,740
Almost pretty much any fund that you wanna get
into, you can get into.
485
00:21:46,799 --> 00:21:49,200
The harder thing is, right, like, it's just the
judgment piece.
486
00:21:49,200 --> 00:21:49,440
Right?
487
00:21:49,440 --> 00:21:50,559
Like, which are the best funds?
488
00:21:50,559 --> 00:21:54,000
The selection part, I think, is is still, like,
difficult for a lot of groups.
489
00:21:54,000 --> 00:21:59,055
And if you're only backing 1 or 2 funds, people
tend to go for, like, just a very large kind of
490
00:21:59,055 --> 00:22:01,535
established brands that kinda have the most
institutional feel.
491
00:22:01,535 --> 00:22:05,055
But in most cases, we don't think those are,
like, the ones that are gonna generate the best
492
00:22:05,055 --> 00:22:05,555
returns.
493
00:22:05,694 --> 00:22:09,480
You mentioned when we last chatted that you
gravitated towards managers who are there
494
00:22:09,480 --> 00:22:10,859
before rounds come together.
495
00:22:11,079 --> 00:22:12,039
Tell me about that.
496
00:22:12,039 --> 00:22:16,359
One of the most attractive return profiles is
to be in a pre seed deal for something that
497
00:22:16,359 --> 00:22:18,519
works out and in a small fund.
498
00:22:18,519 --> 00:22:23,505
So, like, what we really care about is what is
our look through ownership in in investment.
499
00:22:24,045 --> 00:22:28,065
And so what happens with smaller funds is we
get much higher look through ownership.
500
00:22:28,285 --> 00:22:32,605
And so a pre seed deal can return a fund, and
it can be meaningful for us within a small
501
00:22:32,605 --> 00:22:33,105
fund.
502
00:22:33,244 --> 00:22:35,884
And so the dynamics around that are are quite
attractive.
503
00:22:35,884 --> 00:22:38,349
And so that's one of the reasons we wanna be
pre seed.
504
00:22:38,349 --> 00:22:44,430
The other reason is I think it's it's generally
true that valuations go up much faster than
505
00:22:44,430 --> 00:22:45,390
risk goes down.
506
00:22:45,390 --> 00:22:50,775
And so you can have, like, a pre seed round to
a seed round, and you could see a 3 x markup.
507
00:22:50,835 --> 00:22:51,075
Right?
508
00:22:51,075 --> 00:22:54,275
And it might be, like, 8 months later, 12
months later.
509
00:22:54,275 --> 00:22:57,575
I don't and oftentimes, it's not, like,
significantly derisked.
510
00:22:57,795 --> 00:23:01,875
And we often think, like, we're just better off
getting more ownership in those pre seed
511
00:23:01,875 --> 00:23:02,375
rounds.
512
00:23:02,434 --> 00:23:05,559
And the reason it's just not more common is if
you're a large fund, it's just you know, you
513
00:23:05,559 --> 00:23:07,080
can get more dollars to work later.
514
00:23:07,080 --> 00:23:09,900
But if you're in small funds, it's it's a
significant advantage.
515
00:23:10,119 --> 00:23:14,839
And then the last thing I would say is goes
back to, you know, we want managers that are
516
00:23:14,839 --> 00:23:15,339
intentional.
517
00:23:15,480 --> 00:23:20,644
And I think precede is much harder to do
because you actually have to, you know, go out
518
00:23:20,644 --> 00:23:22,484
and source them and or not even source them.
519
00:23:22,484 --> 00:23:27,365
Like, you have to have a view on a different
subsector and then be kind of milling around in
520
00:23:27,365 --> 00:23:31,779
that area to find founders that are also
interested in those categories to be there
521
00:23:31,779 --> 00:23:33,059
before the round even comes together.
522
00:23:33,059 --> 00:23:36,500
And so for us, it's a sign that someone's,
like, an independent thinker, that they're a
523
00:23:36,500 --> 00:23:39,779
leader if they're actually there before a round
comes together.
524
00:23:39,779 --> 00:23:42,579
I'd also say, like, we also talk to founders,
like, okay, how did they source it?
525
00:23:42,579 --> 00:23:43,460
How did you meet them?
526
00:23:43,460 --> 00:23:45,045
You know, where did that relationship start?
527
00:23:45,125 --> 00:23:47,465
And it's oftentimes, like, someone's interested
in the category.
528
00:23:47,684 --> 00:23:51,205
They're meeting 1 founder, and then that
founder might be, like, oh, there's this other
529
00:23:51,205 --> 00:23:52,644
guy that's also working on something.
530
00:23:52,644 --> 00:23:53,684
You should connect with them.
531
00:23:53,684 --> 00:23:58,085
And and so it's just we'd like it because it's
it's the most attractive return profile, and it
532
00:23:58,085 --> 00:24:01,829
requires, like, groups that are, like, very
intentional about, what they're investing in.
533
00:24:01,829 --> 00:24:02,150
Right?
534
00:24:02,150 --> 00:24:05,910
As opposed to, like, the seed or series a,
which are kind of widely shopped around, you
535
00:24:05,910 --> 00:24:10,150
have lots of VCs that are just waiting for
deals to come to them and then, like, assessing
536
00:24:10,150 --> 00:24:11,589
them on an ad hoc basis.
537
00:24:11,589 --> 00:24:15,730
Given the extreme volatility in crypto, which I
believe is more volatile than any asset class
538
00:24:15,730 --> 00:24:18,095
in the history of asset asset class in the
history of asset management.
539
00:24:18,474 --> 00:24:23,835
Do you end up optimizing around a larger
portfolio given that you could capture some of
540
00:24:23,835 --> 00:24:27,134
the idiosyncratic upside while also derisking?
541
00:24:27,355 --> 00:24:31,589
Or do you use a similar portfolio strategy as
you would for an early stage venture fund?
542
00:24:31,909 --> 00:24:36,089
We think time diversification is the best way
to manage risk.
543
00:24:36,150 --> 00:24:38,390
You wanna be invested over many vintage years.
544
00:24:38,390 --> 00:24:38,890
And
545
00:24:39,190 --> 00:24:39,929
How many?
546
00:24:40,069 --> 00:24:43,750
We actually started out with thinking, like,
we'd be a 2 year, but I think a 3 year for us
547
00:24:43,750 --> 00:24:45,269
is, like, what we're gonna do going forward.
548
00:24:45,269 --> 00:24:48,035
Like, especially as a fund of funds, you have
significant diversification because your
549
00:24:48,035 --> 00:24:50,215
investment dollars might be under 4 or 5 years.
550
00:24:50,355 --> 00:24:53,555
And so there's just no way we're gonna, like,
miss over that period of time.
551
00:24:53,555 --> 00:24:55,414
But with venture, you wanna be steady
allocators.
552
00:24:55,475 --> 00:24:55,715
Right?
553
00:24:55,715 --> 00:24:56,835
Because it's hard to know.
554
00:24:56,835 --> 00:25:00,630
Like, even if it's the top of the market and
things feel very bubbly, you don't know which
555
00:25:00,630 --> 00:25:04,150
funds, you know, are gonna then be invested in
the bear market in a better time.
556
00:25:04,150 --> 00:25:06,710
Like, we backed a number of funds, like,
beginning of 22.
557
00:25:06,710 --> 00:25:09,190
And, like, some of those funds are gonna
absolutely crush it, because they've they've
558
00:25:09,190 --> 00:25:10,730
been invested in a great time.
559
00:25:11,029 --> 00:25:16,045
And so I think that the trick is, like, not to
over commit when things are, like, frothy and
560
00:25:16,045 --> 00:25:19,805
just be steady allocators in the venture side,
and then be opportunistic, you know, when
561
00:25:19,805 --> 00:25:21,644
things are, like, at the bottom of the market.
562
00:25:21,644 --> 00:25:25,565
The big mistake a lot of LPs make, right, is,
like, you know, there's a lot of hype around
563
00:25:25,565 --> 00:25:25,724
it.
564
00:25:25,724 --> 00:25:30,390
It's exciting, and and people invest money kind
of at the wrong time, and then and they don't
565
00:25:30,390 --> 00:25:32,230
allocate in the bottom of the market.
566
00:25:32,230 --> 00:25:35,990
And then and so, like, steady allocations is
really important to invest in the space and
567
00:25:35,990 --> 00:25:37,690
time diversification to manage volatility.
568
00:25:37,750 --> 00:25:42,710
Tell me about how you go about differentiating
whether a manager is actually sophisticated or
569
00:25:42,710 --> 00:25:44,444
just knows how to talk the talk.
570
00:25:45,804 --> 00:25:46,044
Yeah.
571
00:25:46,044 --> 00:25:49,565
I mean, this is the lesson I learned at
McKenna, which is, like, it's so easy to be
572
00:25:49,565 --> 00:25:52,605
kind of drawn to people that are very
articulate and well spoken.
573
00:25:52,605 --> 00:25:57,505
And just because they're articulate doesn't
mean that they have, like, independent views.
574
00:25:57,565 --> 00:26:02,470
And I think part of the problem is, you know,
most of the decisions we make are on imperfect
575
00:26:02,470 --> 00:26:07,049
information that, you know, we don't like,
we're looking at an unrealized track record.
576
00:26:07,190 --> 00:26:11,529
We're looking at team changes that where the
outcome of those changes aren't totally clear.
577
00:26:11,794 --> 00:26:17,075
And so it's it's very easy to kind of over
index, I think, on people that are articulate.
578
00:26:17,075 --> 00:26:18,275
So how do we deal with that?
579
00:26:18,275 --> 00:26:19,794
One is just, like, be conscious of it.
580
00:26:19,794 --> 00:26:24,674
And the other is just to make sure we kinda
validate our thesis and not on the margin kinda
581
00:26:24,674 --> 00:26:27,359
being, like, kind of pulled because we're,
like, oh, they're just very compelling.
582
00:26:27,359 --> 00:26:28,559
And and be, like, well, okay.
583
00:26:28,559 --> 00:26:29,839
What have they actually done?
584
00:26:29,839 --> 00:26:31,679
How do we think this portfolio is actually
doing?
585
00:26:31,679 --> 00:26:33,839
And kind of just try to be more fact based.
586
00:26:33,839 --> 00:26:36,399
It's also that, like, it's not that someone
that's very articulate can't be a great
587
00:26:36,399 --> 00:26:36,720
investor.
588
00:26:36,720 --> 00:26:37,519
They absolutely can.
589
00:26:37,519 --> 00:26:38,880
It's just that, like, it doesn't And they are.
590
00:26:38,880 --> 00:26:39,279
Right?
591
00:26:39,279 --> 00:26:41,365
A lot of the best investors are articulate.
592
00:26:41,504 --> 00:26:43,024
It's an important skill for raising money.
593
00:26:43,024 --> 00:26:45,825
So it's hard to be, like, a GP that can't raise
money.
594
00:26:45,825 --> 00:26:49,504
But I think you often see, like, a partnership
where somebody is, like, the more articulate
595
00:26:49,504 --> 00:26:52,784
one and raises the money and the other person,
you know, is this kind of one of the
596
00:26:52,784 --> 00:26:54,325
significant, you know, investors.
597
00:26:54,544 --> 00:26:54,849
Do Do
598
00:26:54,849 --> 00:26:56,869
you have issues with that as an LP?
599
00:26:57,169 --> 00:26:57,409
No.
600
00:26:57,409 --> 00:26:57,569
No.
601
00:26:57,569 --> 00:26:57,730
No.
602
00:26:57,730 --> 00:26:58,129
Not at all.
603
00:26:58,129 --> 00:26:59,730
I mean, we like different skill sets.
604
00:26:59,730 --> 00:27:01,269
It's like CEO and CTO.
605
00:27:01,649 --> 00:27:02,049
Absolutely.
606
00:27:02,049 --> 00:27:05,970
I mean, we like when we see 2 GPs and they're,
like, very complimentary in their skill set, I
607
00:27:05,970 --> 00:27:07,009
think that's that's great.
608
00:27:07,009 --> 00:27:11,464
Like, it it can be you know, sometimes you have
somebody that's, like, visionary, but like not
609
00:27:11,464 --> 00:27:12,184
in the weeds at all.
610
00:27:12,184 --> 00:27:16,024
And then you have like someone else's like very
detail oriented, like things like that, like we
611
00:27:16,024 --> 00:27:16,904
definitely appreciate.
612
00:27:16,904 --> 00:27:19,384
We certainly won't back like teams that haven't
worked together before.
613
00:27:19,384 --> 00:27:20,984
Like that's just like, we just won't do it.
614
00:27:20,984 --> 00:27:24,820
But I think groups that have like a history of
working together, complementing each other, I
615
00:27:24,820 --> 00:27:26,680
think that I see that as a very positive sign.
616
00:27:26,820 --> 00:27:31,220
We spoke earlier in the interview about the
persistence of crypto returns similar to
617
00:27:31,220 --> 00:27:31,539
venture.
618
00:27:31,539 --> 00:27:36,340
There's a University of Chicago study that more
than 50% of funds that are top quartile
619
00:27:36,340 --> 00:27:38,599
persistent top quartile in venture capital.
620
00:27:39,075 --> 00:27:42,674
In crypto, when is it more likely that funds
persist in top quartile?
621
00:27:42,674 --> 00:27:46,835
And what are some signs that a fund may
depreciate in terms of their performance?
622
00:27:46,835 --> 00:27:53,169
I think that's difficult in the crypto space is
you had a lot of funds from the 2017 to 2018,
623
00:27:53,309 --> 00:27:57,169
19 period that have done exceptionally well,
just absurdly well.
624
00:27:57,470 --> 00:28:01,069
And I'm not sure that period of time is that
relevant to going forward.
625
00:28:01,069 --> 00:28:01,230
Right?
626
00:28:01,230 --> 00:28:03,009
It was just like a less competitive time.
627
00:28:03,390 --> 00:28:06,029
There was a lot of just a lot of things people
invested in.
628
00:28:06,029 --> 00:28:06,589
They all worked.
629
00:28:06,589 --> 00:28:09,734
They all launched and were successful and had
very high valuations.
630
00:28:09,795 --> 00:28:11,154
I mean, some of them are now failing.
631
00:28:11,154 --> 00:28:15,394
But but from a just a fund return perspective,
it was a unique period of time.
632
00:28:15,394 --> 00:28:19,714
And so when we look at funds now, like, we we
don't place that much weight on some of those
633
00:28:19,714 --> 00:28:23,230
early funds just because it was just a very
different time period.
634
00:28:23,369 --> 00:28:27,130
In terms of things that we look for that
whether returns will persist, you know,
635
00:28:27,130 --> 00:28:30,109
obviously, it's just like, are they are they
raising a lot more capital?
636
00:28:30,169 --> 00:28:32,990
And then as a result, is the strategy changing?
637
00:28:33,130 --> 00:28:36,109
Are they moving kind of more upmarket, which is
very common?
638
00:28:36,169 --> 00:28:39,515
I think there's elements of, like, what what
are the GP's motivations?
639
00:28:39,515 --> 00:28:43,195
Like, some people make a lot of money, which,
you know, in crypto, sometimes it it happens
640
00:28:43,195 --> 00:28:43,934
really quickly.
641
00:28:44,075 --> 00:28:46,555
And I think some people, it just doesn't
matter.
642
00:28:46,555 --> 00:28:46,795
Right?
643
00:28:46,795 --> 00:28:49,355
Like, they're just still so driven and focused
on what they're doing.
644
00:28:49,355 --> 00:28:52,960
And other people, it just changes the dynamic,
and they're just you know, they have more of a
645
00:28:52,960 --> 00:28:54,740
team and other people are making decisions.
646
00:28:55,200 --> 00:28:58,720
And so we care a lot about, like, you know, who
are the decision makers and how are things
647
00:28:58,720 --> 00:29:00,740
evolving as firms grow and and build.
648
00:29:00,799 --> 00:29:03,279
So I think GP motivations, fund size, strategy
drift.
649
00:29:03,279 --> 00:29:06,775
I mean, those are some of the the, I I guess,
the big things in terms of whether we think
650
00:29:06,775 --> 00:29:09,035
they'll be as persistent over time.
651
00:29:09,335 --> 00:29:12,454
You know, and it also it's like because it
depends also, like, what their competitive
652
00:29:12,454 --> 00:29:12,934
advantage is.
653
00:29:12,934 --> 00:29:16,214
Like, if it was, like, they they kinda had
dominance in the ecosystem and then their
654
00:29:16,214 --> 00:29:19,575
brand's, like, less relevant in the ecosystem,
you know, that might be another sign that, like
655
00:29:20,055 --> 00:29:21,575
you know, we often look at a fund too.
656
00:29:21,575 --> 00:29:23,240
Like, are they leading checks?
657
00:29:23,380 --> 00:29:24,599
Are they getting good ownership?
658
00:29:24,660 --> 00:29:24,980
You know?
659
00:29:24,980 --> 00:29:28,420
So if they're doubling their fund size, like
but they're not their ownership numbers aren't
660
00:29:28,420 --> 00:29:30,440
that good, like, that would certainly be a red
flag.
661
00:29:30,500 --> 00:29:31,480
That's a bad sign.
662
00:29:31,539 --> 00:29:36,355
I've had some crypto friends say that every
bull market has almost completely new winners
663
00:29:36,355 --> 00:29:38,454
when it comes to investors and entrepreneurs.
664
00:29:39,315 --> 00:29:44,595
Is there, like, this very high high half life
to influencers in the crypto market, or is that
665
00:29:44,595 --> 00:29:45,575
a slight exaggeration?
666
00:29:45,954 --> 00:29:48,434
I think we're gonna see more persistence over
time.
667
00:29:48,434 --> 00:29:52,380
I think the one thing that might change is,
like, a lot of the money has been made in
668
00:29:52,380 --> 00:29:52,880
infrastructure.
669
00:29:53,579 --> 00:29:57,099
And so you've had people that are, I think,
very good at the infrastructure side.
670
00:29:57,099 --> 00:30:01,659
And if we start to see, like, consumers start
to take off, like, you probably see a different
671
00:30:01,659 --> 00:30:03,839
set of managers that, like, dominate consumer.
672
00:30:03,980 --> 00:30:08,835
You know, just like in the last cycle, we had
kind of NFTs and other things, kind of some of
673
00:30:08,835 --> 00:30:11,794
those platforms like, the the people are
backing those are just different than a lot of
674
00:30:11,794 --> 00:30:12,934
people are backing infrastructure.
675
00:30:13,315 --> 00:30:15,875
There's a lot happening in, like, the deepened
space, the decentralized physical
676
00:30:15,875 --> 00:30:16,835
infrastructure space.
677
00:30:16,835 --> 00:30:18,194
There are some managers focused on it.
678
00:30:18,194 --> 00:30:20,595
There's some managers that are certainly a lot
more dominant in it.
679
00:30:20,595 --> 00:30:24,319
I think, certainly, you have, like, the Solana
ecosystem has, you know, really kind of risen
680
00:30:24,319 --> 00:30:25,119
to prominence now.
681
00:30:25,119 --> 00:30:29,119
And so I think, you know, it's very possible
that we see some breakouts on the Solana
682
00:30:29,119 --> 00:30:32,240
ecosystem and, like, some groups that are,
like, closer to Solana ecosystem.
683
00:30:32,240 --> 00:30:38,355
So, yeah, I think there is some truth to that
you will see a greater dispersion of groups.
684
00:30:38,355 --> 00:30:41,474
Like, you'll see some rotation in the groups
that do really well every cycle.
685
00:30:41,474 --> 00:30:46,835
A lot of institutional LPs continue to be on
the sidelines when it comes to crypto funds.
686
00:30:46,835 --> 00:30:52,179
Some of them have embraced Bitcoin, Ethereum,
Solana, but they're still reluctant to go into
687
00:30:52,179 --> 00:30:53,159
the asset class.
688
00:30:53,380 --> 00:30:58,659
What are some key pieces of advice you would
give a foundation, endowment, pension fund as
689
00:30:58,659 --> 00:31:01,159
it comes to entering the crypto asset class?
690
00:31:01,220 --> 00:31:06,265
For most institutions, it's best to look at the
space like venture, right, so that it's part of
691
00:31:06,265 --> 00:31:07,244
your venture portfolio.
692
00:31:07,625 --> 00:31:12,744
And because your existing manager set is not
gonna capture this opportunity, like or and if
693
00:31:12,744 --> 00:31:16,424
they do are doing a few deals that, you know,
it's not the the deals you necessarily wanna be
694
00:31:16,424 --> 00:31:22,400
in, that it's important to make allocations in
the space to venture and that it should be part
695
00:31:22,400 --> 00:31:23,539
of your venture program.
696
00:31:23,600 --> 00:31:25,680
And I think it's sort of what we did in
McKenna.
697
00:31:25,680 --> 00:31:28,845
We like, even if we did open and fund McKenna,
like, it's all part of Venture.
698
00:31:28,845 --> 00:31:33,005
Like and the reason for that is it's we see it
as the highest risk asset class, and we see it
699
00:31:33,005 --> 00:31:33,825
as technology.
700
00:31:33,884 --> 00:31:34,125
Right?
701
00:31:34,125 --> 00:31:37,345
Like, this is you're investing in startups in
the technology space.
702
00:31:37,404 --> 00:31:39,664
It fits nicely, like, in your venture
portfolio.
703
00:31:40,044 --> 00:31:41,565
You know, Bitcoin's sort of a different thing.
704
00:31:41,565 --> 00:31:41,804
Right?
705
00:31:41,804 --> 00:31:45,650
Like, it's this idea of, like, digital gold,
and, you know, it might fit somewhere else in
706
00:31:45,650 --> 00:31:46,210
your portfolio.
707
00:31:46,210 --> 00:31:49,329
But it it's very different than, like, I guess,
what we're focused on, which is, like,
708
00:31:49,329 --> 00:31:53,970
productive assets, like, things that are gonna
be applications and services, you know, built
709
00:31:53,970 --> 00:31:54,609
on blockchains.
710
00:31:54,609 --> 00:31:59,174
And I think that very much is, like, a venture
opportunity that most allocators should have in
711
00:31:59,174 --> 00:32:00,154
their venture portfolio.
712
00:32:00,295 --> 00:32:04,154
What are some of the regrets that you have from
the first couple years of Crosslayer?
713
00:32:04,615 --> 00:32:05,974
We're pretty happy with, like, what we've done.
714
00:32:05,974 --> 00:32:07,534
Like, I think you we bought a bunch of
secondaries.
715
00:32:07,534 --> 00:32:09,914
I think in hindsight, I would have bought,
like, even more.
716
00:32:10,039 --> 00:32:13,240
Like, we're good with opportunistic stuff, but,
like, I kinda wish we were, like, did even
717
00:32:13,240 --> 00:32:13,559
more.
718
00:32:13,559 --> 00:32:18,039
Like, it was just, like we certainly as the
market kinda got we're kinda depth of the
719
00:32:18,039 --> 00:32:19,640
market, like, it it impacted us.
720
00:32:19,640 --> 00:32:19,799
Right?
721
00:32:19,799 --> 00:32:23,159
Like, I think there's certainly, like, lessons
learned in just the psychology of it.
722
00:32:23,159 --> 00:32:26,634
And, you know, I think we've remained active,
but, like, we should have been, like, more
723
00:32:26,634 --> 00:32:27,134
active.
724
00:32:27,515 --> 00:32:28,954
But I think it's true for a lot of groups.
725
00:32:28,954 --> 00:32:32,234
Like, you kinda have this feeling of, like,
okay, like, like, it's hard to invest in a
726
00:32:32,234 --> 00:32:34,335
declining market, like, that just keeps
declining.
727
00:32:34,474 --> 00:32:36,654
Like, it's just, like, a tough thing to do.
728
00:32:36,740 --> 00:32:37,940
So just to double click on that.
729
00:32:37,940 --> 00:32:39,619
So you're seeing your portfolio go down.
730
00:32:39,619 --> 00:32:44,440
In retrospect, you should have bought more in,
essentially, dollar cost to average the dip?
731
00:32:44,740 --> 00:32:45,380
It is interesting.
732
00:32:45,380 --> 00:32:49,275
So, you know, like, we were, like, quite
aggressive early on doing funds.
733
00:32:49,275 --> 00:32:52,634
And then, actually, there was very few funds
raised for, like, a year period there.
734
00:32:52,634 --> 00:32:55,755
So we it wasn't like there was actually a ton
of, like, venture opportunities to do because,
735
00:32:55,755 --> 00:32:58,894
like, there was no capital to be raised, and so
no one was really raising capital.
736
00:32:58,955 --> 00:33:03,690
On the opportunistic side, we were thinking
about putting on more, like, beta exposure or
737
00:33:03,690 --> 00:33:05,309
investing more in open end funds.
738
00:33:05,369 --> 00:33:08,970
But what we realized was, like, some of the LP
secondaries, like, had significant liquid
739
00:33:08,970 --> 00:33:10,809
exposure, and we could buy them at huge
discounts.
740
00:33:10,809 --> 00:33:12,329
And so that's, like, where we focused our
energy.
741
00:33:12,329 --> 00:33:14,329
It was, like, let's just we bought several of
them.
742
00:33:14,329 --> 00:33:17,144
We bid on 1, a large one as well that we didn't
get.
743
00:33:17,224 --> 00:33:19,065
That's where we focus our our energy more.
744
00:33:19,065 --> 00:33:24,025
To your point, like, if we, we should average
in more, like, especially the one open end fund
745
00:33:24,025 --> 00:33:24,744
that we're in.
746
00:33:24,744 --> 00:33:28,585
We're we're up significantly on that fund now,
but, like, we should average in right at the
747
00:33:28,585 --> 00:33:29,065
bottom too.
748
00:33:29,065 --> 00:33:33,339
It's just hard, like, once you see something
decline 50%, to, like, buy more of it.
749
00:33:33,339 --> 00:33:36,399
On that note, this has been a really
illuminating podcast.
750
00:33:36,619 --> 00:33:39,759
Thanks for jumping on, and I look forward to
continuing the conversation in person.
751
00:33:40,059 --> 00:33:40,299
Yeah.
752
00:33:40,299 --> 00:33:40,779
Absolutely.
753
00:33:40,779 --> 00:33:41,019
No.
754
00:33:41,019 --> 00:33:42,380
Really appreciate you having me on.
755
00:33:42,380 --> 00:33:43,899
It's been great to, chat with you.
756
00:33:43,899 --> 00:33:44,588
Thanks so much.
757
00:33:46,028 --> 00:33:50,048
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