We are presented by the way by grayscale investments, im brian chung and uh thrilled – to be introducing this next panel to talk about the importance of venture capital in the crypto space. So for this weve got a fantastic panel. We have pantera director of portfolio development, franklin bai, along with blockchain capital senior, associate kenja shah thanks so much for joining us on this lovely afternoon. I want to start off this kind of uh panel by talking about the investment universe, its very different now than it was in say: 2015. 2017, 2018. Even 2020. Uh. There are mature companies, there are startups, there are scams, theres diamonds in the rough, so i guess kind of just to get the vc perspective on things. Is the field right now harder to navigate from a vc perspective now than it was in the past? I want to start with kenjo and then maybe right after that i will go over to franklin, yeah, absolutely um, i would say in the past you know three years weve seen um. You know, proliferation of just companies that are building in this space, and so i think, just having a handle on the sector today requires specialization um in some of these sub sectors, so whether thats, focusing on dows or nfts or d fire, whatever it may be, um Were definitely starting to see the the space become a little bit bigger than you know, any one individuals um ability to kind of track it, and then i think the other piece thats really um.

The biggest change is the amount of late stage growth that weve seen on a lot of later stage, financing activity and the um addition of a lot of generalist, venture capitalists that maybe were not playing as big of a role in the market and are entering in. In a pretty meaningful way, franklin yeah, i think one of the biggest differences between now and say, 2017 or 2018 – is that you know its its sort of that old. Saying that you know we tend to overestimate technology and new technology in the near term and oh and underestimate it in uh the long term and i think, thats exactly what we saw between now and the past cycle of icos and of new token projects or new Uh smart contract platforms that were just really in the early stages of launching back in 2017 now were seeing all those really come to fruition were seeing things like ethereum polka dot solana actually have real developer activity, see decentralized finance really grow into a massive alternative financial System with real cash flows – and i think thats part of what kindle is talking about, which is that were seeing a lot of traditional venture capitalists now get excited because theyre really seeing these things become tangible, uh millions of users who are not only investing into crypto Assets, but actually using them to manage a part of their portfolio or to uh use new platforms in web 3 and in gaming that were really just ideas back then.

Well, you know franklin you bring up traditional vcs and whats interesting. Is that a lot of traditional vcs, not all of them, but a lot of traditional vcs, try to stick to a thematic approach to where they fund and what companies they ultimately pick? But as you just kind of outline theres, so many different kind of corners in the crypto space right now, when you think about d5 nfts dows, for example, so at least from your perspective, are you trying to stick to one theme? Are you saying, hey lets just stick to nfts right now, for example, or is it easier to kind of hit all of these types of spaces at once, because theres overlap, because it seems like a lot of these are kind of branching off seemingly by the day? Yeah its interesting, you know when we look at the ecosystem. Now it really has become a universe of sub universes youve got nfts as sort of the most consumer facing application. Today, youve got decentralized, finance or d5 really speaking to those who are looking at this. As more of a fintech evolution – and i think what were seeing now is that being part of this ecosystem as an investor, you really need to develop a team that can tackle all these things. It really isnt just one monolithic space anymore, and so what that means is that you need the type of experience of investing into consumer technology, what it means to launch to the mainstream and as well as the um sort of evolution of the financial system.

Today and what that means in terms of having experience from wall street or experience from growing a fintech platform, and so all those things are folded in now, but at the same time you know were still in a place where this ecosystem hasnt fully merged with our Traditional one um youll be able to invest across the whole spectrum when it comes to exchanges, payment, processors, custodians, all, the way to decentralized applications, all those really full together because theyre still all working with each other um, not working with the traditional system. Just yet. Okay same question: there i mean: do you feel, like you have the know, how in house and your team to kind of wrap your hands around all these new emerging technologies? Do you need to have a different approach to looking at a dow project as opposed to a d5 project? Yeah? Absolutely. You know, i think weve historically taken a generalist approach to the market and now what were finding is investment team members have their um specialization in areas that they really do a double click and deep dive into um, but also really acknowledging the fact that a lot Of these different sub sectors do overlap, and so um from an investment team perspective. Its really important to not only have like deep coverage of every individual sub sector, but also a broad understanding of how the market is moving and how some of these things might be interrelated. Um – and you know i think, of um crypto venture capital as being highly specialized in the sense that you know you kind of need to be doing this 24 7 going down the rabbit hole, and that was true three years ago, and it is even more true.

I think today, well kendra i mean you talk about the idea of uh. You know having to always be on your toes in this space being on 24 7., but is that just competition among crypto vcs or are other traditional vcs also hopping in the space where you know they might be considered crypto vcs as well? What does the competition in the space look like if a bunch of people are trying to gun for the same company to fund the same project? Yeah i mean i, i definitely say that it has become increasingly competitive. I think everyone today is um still sort of determining what their value add is going to be in the venture landscape um. The way that i tend to bucket it is that there are some crypto native services that venture capitalists are offering, and then there are some more traditional services, and so a lot of the crypto native services require um some sort of expertise in governance or more on The engineering side being able to work alongside some of these protocols and help them with their token design or with their infrastructure or whatever that might look like, and then some of the more traditional services could could look a little bit more. Like you know, business development or recruiting or whatever that may be, and so in todays landscape. I think theres room for both its just really about figuring out what your value add is going to be whats your niche and then doubling down from there, because theres certainly a great deal of competition out there.

Yeah go ahead, go ahead, yeah. The other thing id also add to kendras answer. There is that um, you know, really comes down to conviction and community um. You know on the conviction side, weve seen that in bull markets, a lot more capital flows into the space from folks who arent focused on it. 24 7, like kinjal, said, and you know that really starts to uh change when we hit the harder parts of the market when things are difficult and prices are down so being able to show that you have that long term. Conviction really matters to the founders that were investing in and on the community side. It really is about participating being part of the actual community and these decentralized networks, rather than you know, the sort of uh traditional approach of showing up at the board of directors meeting. Once a quarter reviewing the financials and then hopping off to your next call, yeah and thats. A really interesting point you bring up is that its the community that many times allows you to get plugged in with some of these projects that you could end up finding. As a very attractive opportunity, but at the same time i guess there is a little bit of a a caution that you might need to have there, because you want to make sure that youre not funding a project just because theyre, a buddy or a friend right, Is there a lot of that going on in the vc space as well that uh, you know, maybe some people need to be a little bit more uh kind of thoughtful of when theyre going into the space its a great question.

You know, i think, theres a pretty tight knit community across the whole ecosystem, but it really because of its because of shared values its not because of the personal relationships – and i think, whats interesting about you – know, sort of what were seeing on the valuation side is That its a um, its a somewhat frothy market that were seeing and a lot of that is because uh were seeing um non specialized venture capitalists coming into the space. Who may not fully understand uh what it means to invest in the early stages of a of a token project or um, a new decentralized network um, and sometimes that may end up uh being a challenge in the long term for these companies to deal with. So you know when it comes to thinking about whether to invest what valuations to invest in it really is a multi dimensional analysis. You know its not a simple calculus of hey the bigger number we can hit uh the the better outcome. Uh well find in the future. Now kendra uh franklin just talked about a frothy market right now. How do you approach your toolbox, given some of the valuations that youre, seeing out there, i mean its pretty obvious that capital is out there. You can find it, but are you kind of tweaking your approach to things, because you know you might have an m a uh tool in your back pocket that you could use for a certain deal or a spec or a partnership or a joint venture? How are you approaching the current market uh with things that are beyond just handing a bunch of cash over through seed funding? Yeah? Absolutely, i think, um.

You know this is probably one of the most exciting times for our portfolio blockchain capital. Where were starting to see a lot of interesting partnership opportunities, um growth opportunities, just you know a lot of interest that we previously were not seeing from entities outside of the crypto space um and so were definitely thinking very strategically around. You know where some of those relationships might um be seated today that you know could be potentially beneficial over the next few years, um and also just taking in valuations. Amongst the macro backdrop, so really trying to you know, find a risk adjusted way of looking at the market. Today there are some instances where evaluation, you know might be inflated for a particular reason or um might be. You know relatively under flayed under inflated, and it really just depends on a case by case basis, but having that macro zoomed out view of you know, were in a bull market understanding the amount of attention and capital that is being thrown on. You know within this ecosystem um and what that could mean for our portfolio and where we want to double down uh kendra as a follow up to that. Are there other types of intangibles that you also look for beyond valuation, because one important point to bring up is just diversity in the space as well right, female lead, minority, led ventures that oftentimes need a little bit more air in the space here? How does that factor into the types of financing decisions that you make as well to make sure that next you know, the future generation of leaders in this space will also be a representative, a coalition of people.

Absolutely this is an area that i spend a lot of time, thinking about um. You know three years ago, when i started taking founder pitches, it was really difficult to come across female founders, or at least it just wasnt happening as much and so im being very intentional this year – and you know, the entire firm is being intentional about how we Can um, you know, find more female founders or diverse founders across the ecosystem. I host office hours monthly for any female founders in in the space and also, you know directly – am involved in a dow called komarabi thats investing in female founders. So you know, as we see the space mature, i think, the more intentional we can be about how we build it. Its going to you know, result in better outcomes and thats, something that im in particular focusing on and franklin. I want to ask about the regulatory aspect of all this as well, because uh crypto uh, we, which we talked about earlier in the show with michael sonnenshine, is definitely still a gray area for the vc world is uh regulatory uh barriers, a big factor when it Comes to where you choose or can or cannot, invest in, i think for us its a space that we pay a lot of attention to, but ultimately were really optimistic about the regulatory landscape for crypto um. You know when you look at the us. In particular, all of the regulatory agencies have actually ruled pretty much in favor of crypto assets being an asset class of investors having access to them in a way that is at par with any other asset class in their portfolio, and i think theres still maybe some Uncertainty for the sec around specific transactions or specific projects, and for them its really a fact.

Finding phase right now to understand whats been going on what really constitutes fraud that should absolutely be expelled from the system and and punished. But you know for the asset class. More broadly um its actually been great progress so far, um and when you think about regulation from a global perspective, uh its an even better picture um. You know there are a lot of countries that are welcoming crypto into their ecosystems, whether its in south korea or latin america, and so were really uh interested in investing into those areas, because crypto is going to happen. If it doesnt happen in the us, its going to happen abroad and eventually make its way back here, so its really, the impetus is on regulators, legislators, but also us, as investors, be able to articulate that and understand that. The other thing that ive mentioned is that you know one of the undersold narratives is that the us is probably best positioned to succeed in a world with crypto um, open global systems have benefited the us more than any other country in history, uh, open global trade Or open financial systems, the us is probably the one that wins the most there and so crypto really is something that can be great for the us, the global aspect just so important. Unfortunately, we do have to leave the conversation there, but a fantastic panel discussion again with pantera director of portfolio development, franklin bay, as well as blockchain capital senior associate kim joel shah.

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