E152: The Peter Thiel Mistake This Crypto VC Won't Make

One of my favorite things about investing is it's really like psychological warfare in some ways.

Truly, it's like everyone says, you know, you have to run into the building when it's on fire.

And that's really easy to say.

It's like whoever has the willpower and is measured enough to think through those times, that's the person that runs in and does it.

And so a result of this is we're always in the lookout for like, what are things that just don't really make sense from a crowd psychology perspective?

And it's a lot like software investing actually, or just traditional venture investing.

And that we want to be back from founders that have unique insight, have unique ability to execute, and they're playing a sufficiently large market with potential for remotes to create sized programs.

You were a star associate at Insight, a $90 billion fund.

You were crushing it when we first met.

You decided to leave that and start Portal Ventures.

Why did you decide to start Portal Ventures?

I started Portal Ventures in early 2022.

It's something I'd been thinking about for a long time, though.

I started getting into into crypto during the DeFi boom.

And as time went on, it dawned on me that this was not just a new, no, it wasn't just Bitcoin.

It wasn't just a new product.

It was an entirely new asset class.

And as I saw that, I started pitching more crypto deals at Insight.

I got my start at Insight after spending a couple of years at Goldman, and I was helping invest across software, internet, fintech.

And I started pitching crypto deals.

The crypto deals that most excited me, though, were typically A, early stage and B, B, token deals.

And the reason for that was I saw these protocol business models effectively.

I started Portal because I saw the emergence of a new asset class.

It's a new asset class because it's a business that de-risks in different manners than software does.

Volunteer is different.

The way you think about sourcing is different.

The return profile is different.

The liquidity is different.

The list goes on and on.

If you look throughout history, new asset classes emerge, new asset managers emerge.

Like there's a reason Blackstone is not the world's best venture capital fund.

And so I have limited reason to believe that the world's best venture funds will be the world's best crypto funds.

So I left to start.

I raised about 40 million for fund one in early 22 with the support of the managing directors at Insight to run at the mission of being the preeminent first check-in crypto investor in the market.

I saw a lot of managers in crypto grew over time.

And that meant where they made the majority of their money, they were no longer playing.

And that's ultimately where we wanted to play.

You want to be the first check-in to a new crypto protocol?

Tell me about the advantages and disadvantages of being the first check-in.

Yeah.

You know, it's my favorite area to play.

I'll start with that.

It's my favorite because of some reasons just related to you get to see a business and a founder transition from really an idea to a scaled protocol.

It's making money and trading in the billions of dollars of valuations if you're lucky and successful.

The biggest advantage is it's the game selection that you're playing.

Investing in general is all about game selection.

You have to choose the games that make sense.

And when you're investing at the first stage with ownership that makes sense relative to fund size, what you have to do is you have to believe that you can pick something that's going to be in the right order of magnitude of outcomes.

When we think about investing, we're playing a game of backing founders with conviction before anyone else is around the table, like making a deal before it's a deal, being the first money in.

Then if it's a billion plus outcome, it typically returns the fund.

So that's what we're hunting for.

That's something that we feel comfortable betting on.

at the end of the day, especially in an asset class like crypto, which is so volatile and so tricky to actually have precision on.

So the overarching benefit is it's a game that we not only like playing, but we think is the optimal risk reward and the most profitable for the industry today.

The biggest risk is obviously that it's incredibly volatile is an industry that moves, I would say, every 12 to 18 months with a complete turnover, which is to say the pace at which you become irrelevant is about 12 to 18 months in crypto if you are not constantly reinventing yourself.

And what that means is if our job is to stay at the head of the pack, ahead of the trends, we're constantly reinventing ourselves.

Every year, you have to figure out what's exciting, what's new, and what does the game look like to actually build interesting crypto business.

That manifests in a lot of ways.

One obvious example is just where we source, for instance.

The big funds can source from early stage funds like us.

And we hope that doesn't change.

We hope that we can be a great source of deal flow for the world's best mid-stage crypto funds into perpetuity.

But when we look for talent, you know, the reality is sometimes in the past, we would find talent at universities.

Maybe it was with Katrina, my business partner's work at Penn Blockchain, and that still is a good source of talent, but it could be universities.

Increasingly, you're seeing crypto actually attract a lot of traditional founders, and so you're seeing spin-outs from Stripe found a lot of great crypto businesses.

But if you go even further back, sometimes you found the best crypto founders just at a meetup in Berlin, for instance.

Our business, in terms of how are we sourcing, how are we finding the talent that we're backing is one example of things that are just constantly changing that we have to constantly reinvent.

If the entire industry is reinventing itself every 12 to 18 months, how do you go about creating a portfolio of investments and what principles stay the same and what changes every cycle?

It's a really good question.

It sounds a lot like software investing actually, or just traditional venture investing, in that we want to be backing founders that have unique insight, have unique ability to execute, and are playing in a sufficiently large market with the potential for remotes to create sizable outcomes.

Like that's the core of it at all times.

The way that we actually execute on that though, typically a very thesis-driven approach.

Every quarter, Katrina and I sit down and we say, what are the theses that we're most excited about?

A thesis could be related to an end market.

So it could be related to Bitcoin, for instance, as an end market.

A thesis could be related to a technology.

No, it could be related to a new encryption standard or a new technology that allows you to create a deepen network, for instance.

Or it could be related to a business model.

We've done deep dives into different distribution mechanisms effectively.

Through that process, we then try to get world class on the thesis that we're running out.

So we reduce the scope of the investable universe.

And in doing that, we go really, really deep in specific theses.

The process of doing that then helps us figure out, okay, where is the best talent for this?

You know, the Bitcoin founders that we backed don't actually come from the same talent pools as, for instance, the real-world asset founders we backed.

We're the first check into a protocol called Arch, which is smart contract programmability on Bitcoin L1.

Arch has raised two rounds after us.

It's becoming really the dominant player for programmability on Bitcoin L1.

There we found the founders through Bitcoin Angels and KOLs.

It was referred to us from them.

You know, the founder's background is he previously ran a shoe company, a sneaker company, and got really deep into the category.

That looks very different than Plume, for instance, which is an RWA L1, so real-world asset L1.

Much more of a regulatory focus, very different go-to-market.

For Plume, Chris, the founder, sold a company to Coupa in the past, and he looks a lot more like a traditional Silicon Valley founder that ultimately got really deep in crypto, became quite crypto native, and could build something special.

So that's the process from there.

If we go deeper though, into then what do we do to fill a portfolio with that?

What we do is we say, I want businesses that can be really fundamentally valuable.

We find those businesses based off of theses.

We then want the output to be typically a portfolio of no fewer than 30 assets with no less than 5% ownership.

And it all comes down to the, like, what do you have to believe math?

Our job at the end of the day is to produce outsized returns for.

our LPs.

We construct a portfolio where if we have a couple of assets that are multi-billion dollar outcomes, we're happy with our fun math.

And that's ultimately the game that we want to play with what crypto is today.

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How do you get smart on a specific thematic bet that you're trying to make?

And how do you operationalize from deciding this is something you want to focus on into finding the top teams in that space?

We think about this all the time because if we're doing our job of becoming world-class on a specific thesis, typically the deals come to us and typically we can make quite sophisticated decisions and the portfolio works.

So then the question becomes how do we make sure that we're finding the things to actually double down on and how do we make sure that we're getting smart on them.

The first step is we're constantly compiling lists of ideas and theses that we might want to dive deeper into.

That's a growing document that we keep internally.

Every quarters we have capacity.

We say what do we want to go deep on this quarter?

So we pull from that list.

And the way that we prioritize is we say, is this both

something A that is sufficiently large such that we could create a sizable number of investments off the thesis.

So it's not worth spending three months getting smart on something that can lead to one investment for one to 3% of the fuck.

We need to really be able to express this thesis.

The second, though, is we say, is there something that's happened from a technology perspective, from a market structure perspective, et cetera, that makes this actionable?

And those two are ideas that we developed by doing post-mortems at the end of the day.

So we've been doing thesis work for a long time.

And what we found was there were some theses that were better than others.

So we actually created a rubric for evaluating our theses in hindsight.

The ideal outcome is a thesis that is both correct and highly actionable.

And so our Bitcoin economy ecosystem or Bitcoin economy thesis fell into this camp.

We early on in early 2023 believed that Bitcoin, as it continued becoming more dominant, would have a need for more capital efficiency and more programmability.

And we went really deep over that thesis for six months.

We were probably three quarters ahead of most venture funds in this category.

So we could put our chips on the table at low prices with high ownership before others came in.

And it was a thesis that we could really express in a lot of different ways.

We made four or five investments off of this thesis.

The second category is a thesis that's correct, but not very actionable.

And so that's good, but at the end of the day, it's not the highest ROI on our time, which is our scarcest asset.

So that's something where we made a few bets and we feel good about them, but there weren't many ways to express it.

The third would be a thesis where we're just not correct or it's not actionable.

And those are effectively the same to us.

So that's kind of how we think about operationalizing it.

We're constantly doing retros to see are there new things that we should add to this framework such that we can keep getting better and better at finding what's next.

We're three quarters ahead on this Bitcoin economy thesis.

How did the idea come to you?

How did you decide to advance it?

And walk me through your process.

Thank you for listening.

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One of my favorite things about investing is it's really like psychological warfare in some ways.

Truly, it's like everyone says, you know, you have have to run into the building when it's on fire.

And that's really easy to say.

It's like whoever has the willpower and is measured enough to think through those times, that's the person that runs in and does it.

And so a result of this is we're always in the lookout for like, what are things that just don't really make sense from a crowd psychology perspective?

And that helps tip us off sometimes on things that could be interesting to explore.

And so at the time that we were looking into the Bitcoin ecosystem, the Bitcoin economy, just before that, people said, Bitcoin will never be anything more than digital gold.

No one wants to use their Bitcoin for anything.

Everyone just wants to hold Bitcoin and not do anything with it.

And I'm like, that's weird.

Like, I don't think everyone falls into that camp.

Sounds a little black and white thinking.

And I started asking some people because I was like, I'd actually like to get yield on my Bitcoin.

I started asking friends and I started asking whales, like, what would you actually like to do with this very large asset?

So you talk to the customer and you realize, oh, okay, like, not everyone wants to do things with their Bitcoin, but like, it's certainly not.

no one.

Then you look at this and you say, okay, it's an asset that's trillion dollars at the time.

And it seems consensus within the crypto world that this is going to be parity with gold at a minimum.

So this is going to be a $10 trillion asset.

You say, okay, if 10% of the holders of this asset want to do something with it, that's a $1 trillion asset base off of which you could earn fees for loans, off of which you could earn transaction fees for sending it.

You could do a lot of different things with this.

And so then we said, okay, you know, I think that it's worth evaluating, like, there's a customer that has a need.

How do we dig in and say, what's that need?

And so that's what we did.

One of the biggest things that we found was a lot of Bitcoin holders want to be able to maybe take out a loan against it, but they don't want to bridge it away from Bitcoin.

They don't want to bring it to an exchange all the time.

There's certainly people that do want to do that, but there's a very large portion that just doesn't want it to leave the Bitcoin L1.

And for that population, there was no sufficient answer.

at the time.

There were some ways of actually creating pseudo-smart contracts, but they weren't perfect for technical reasons we could go into on Bitcoin L1.

But it was expensive and it was really slow.

And the Arch guys had an interesting thesis around how they could use a new innovation in Bitcoin.

So, back to like, there needs to be a market structure change with the taproot upgrade and inscriptions to effectively inscribe the state into the Bitcoin chain.

So, it's technical, but effectively they found through this upgrade that there's a new way to create more efficient smart contracts on Bitcoin.

And we, we were the only institutional investors to have the conversation there.

We just realized that they were the smartest team in the space and we were able to offer them conviction before anyone else would take them seriously.

You fast forward to today, you know, multi-coin to the second round at the moment, and they're going to hopefully go liquid and hopefully it'll be a multi-billion dollar outcome in the next few years.

So that's kind of start to finish how we've thought about these things.

You had this thesis on a small part of the market that you expected to grow very, very fast.

And you wanted to see that there's a big enough market size.

So if you were right, the last thing you want to do is be right and the market is small.

That's a lot of brain damage and that, yes, you are technically correct, but it doesn't really do anything for your fund or it's not, it still ends up being a bad investment.

So you have to run it through those models.

And then once you realize that this thesis made sense, then you went about finding the right player that would execute on that thesis.

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That's right.

And then, of course, it turns into how do we help them?

be successful.

So how do we get our hands dirty in day one?

It's a result of going so deep on that thesis.

I have an asset, and that asset is unique insights and knowledge.

And so when we're backing founders, it's typically not just that the founder has a unique insight.

We typically also have a complementary unique insight.

And they're most definitely always smarter than us on this front.

You know, that we wouldn't be backing them if they were.

There are often strategic things that we can provide input on that help actually change the success of the company.

There's this framework in startups, the 500 mistakes that a seed company makes, that's the same 500 mistakes.

But now, if you take that down to crypto and then you further take it down to L1, Bitcoin, startups, and you have this really valuable insight to deliver to them on exactly the problem set that they're working on.

That's right.

And another thing that's really interesting in crypto is you can de-risk projects by just bringing some of the right people in.

Because crypto is very dependent on getting the right partners and bringing the right people onto the network.

Like at the end of the day, we're building these networks.

And so in the past, it was like, okay, this concept of community.

I don't think of this as like, you know, it's not like some NFT community is what's making or breaking the project, but we can help bring in angels where maybe it's someone that's really plugged into institutional Bitcoin holdings, for instance.

Therefore, they're close to the customer, the Bitcoin whales, and the institutions holding Bitcoins.

As a result, they can just actually help connect Arch with the customer a bit more.

And that's really helpful.

So, we try to be quite helpful on the insight from day one, and then just bringing like world-class angels and partners into the project when it's most, I like the Keith Rabway framework of its most liquid in the early stages.

When it's most liquid, we input a lot of help.

And sometimes it feels like we're almost like a third co-founder in a way for that initial period.

Where the thesis is most liquid, it's the thesis, but also the product.

Like, because we're investing typically when there's nothing but an idea.

And so very often we back founders and there isn't a deck.

You know, it's very often that we're talking to founders about an idea that we're excited about.

They're excited about the idea and they're considering building something.

And we say, oh, why don't we invest?

They're often not raising actually when we're doing it.

So a stat that we go on often is on 70%

of our deals to date have been proprietary as defined by we were the only institutional investor around the table or we preempted the first round before it happened.

And that's something I take from Insight actually, as we draw a parallel there.

Insight is world class at creating proprietary opportunities.

They're doing it in growth stage software, though.

And so proprietary looks very different from pre-C in crypto.

But we still take this framework of like when you can create proprietary opportunities, that's a source of alpha and that's our job.

There's this idea that if you invest at a very early stage and you're investing with four other funds, somehow it's more de-risked, or it's not really de-risked.

It's the same level of risk.

You just maybe have a false sense of security.

I strongly agree with that.

And sometimes it's actually even more risky because it's kind of like the tragedy of the commons.

Like

we really like going on the roller coaster with our founders.

We never feel it to the same extent, of course, because we have a diversified portfolio.

They're working on one thing, but we find it to actually be helpful because it's just like it means that we're invested.

We have skin in the game.

And so if there are four other investors around the table, no one's feeling it like you are.

Like we don't want to see something that we led fail.

But at the end of the day, if there are a lot of people around the table,

there's not the same ownership.

Conversely, if it's a huge success, it returns your entire fund.

It's a big thing.

What percentage of your theses die and how quickly do they typically die?

You know, there have maybe only been one or two theses that have, quote, died.

Talk to me through the process and the funnel of your thesis.

Give me percentages.

I don't have the exact percentages.

I'd have to go back and

cut numbers on that front.

We just have a notion that tracks all of this.

I can speak, though, to a couple of theses that didn't make it through.

The first would be a thesis that Katrina was working on a couple of years ago in MEV, which is, think of it as pay-for-order flow effectively on blockchains.

MEV is a huge profit pool in crypto.

And we looked at that and we said, okay, we should consider having exposure.

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Just something in the MEV space.

At the time, the biggest MEV play was a business called Flashbots, which was MEV on Ethereum primarily.

We went deep.

Katrina published this very thorough report on the state of MEV, who the players are, how it works, what the supply chain looks like within the supply chain, who's best positioned to capture value.

What we found was at the time, if you weren't invested in Flashbots, that it just really didn't make sense to bet on anyone else.

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They were the biggest fish and they were going at the time it looked like they were going to vertically integrate and they're just boring, was it going to be space for other winners?

That's changed a bit with the Solana landscape, but that's a thesis that we got to the end of.

We said, okay, there's just nothing to do here.

Like there's no way to act on it.

And that's when we then, in one of our post-mortems, this is the one where we looked at it and we said, oh, what did we get wrong?

We got wrong that there was no change in market structure at the time.

It's like it was a big profit pool, but someone found out earlier that it was a big profit pool.

Someone built a business that was capturing that profit pool.

And that's very impressive.

And we weren't in the business.

And that's okay, but like we shouldn't try to chase something that doesn't have a market structure catalyzing new opportunities.

So that's one example.

Another example is I spent a lot of time early 2024 digging into DeSci, decentralized science.

It's a really interesting idea.

The concept is one concept, for instance, you have a lot of IP that doesn't have the most efficient fundraising markets.

It's because science is not very well financed.

It's not an efficient market.

And so there were founders saying, what if we try to fix that using the benefit of crypto, which is new capital markets, new ways of raising, new ways of financing?

and apply it to DeSci.

And so I went deep on the space and ultimately what I ended up finding was that there just wasn't anything that was actionable.

Like

I actually spit out from that one and there are three or four ideas that if we find the right founder, I'd love to incubate.

We actually like we have them written down.

It's like we want to work with someone that's world class on an idea like this.

But the projects that were being built, we just didn't think were going to produce the venture scale outcomes that we wanted.

Or there were sometimes the projects were just like doing too much at one time.

You had a fund one.

It was very successful, but I'm sure you may.

So tell me about some of the learnings from fund one and how you applied that to Fund 2.

Yeah, the biggest lessons from Fund 1, and I'd say there's one thing that we did really right, and there's one thing that we change for Fund 2.

The thing that we did really right was we were not afraid to act with conviction in ideas that were very unpopular or invest at times when others were really not deploying.

And so there are a handful of feces and companies that we got excited about.

that just couldn't raise.

And we thought we really had conviction and we did it.

And we were not just early and contrarian, but we were right.

We also invested during time periods where the market was silent.

A company in fund one that I think is going to be one of our fund returners, we wired capital to the founder the week after FTX collapsed.

And, you know, other founders in the space were like, no one's doing anything.

Like, deals are getting pulled.

We're at a standstill.

And we were like, we believe in what you're building.

We think you're building something generational in DeFi.

And of course, we want to back you.

So we feel really good about just acting with conviction and doing it right.

What we would change on this front to double down on it though, is there were times in fund one where we backed something and we had conviction, but it wasn't happening and it wasn't moving as fast as we thought it was.

And we kind of questioned that conviction.

What we actually should do in those times is double down and say, okay, if we're right, we should probably put more chips into this company.

And so there are, you know, call it three or four companies in fund one that this applies to, where I looked at the market and I looked at them, for instance, struggling to raise a next round.

And I said, this is weird.

Like, I'm pretty certain that we're right on this.

Nothing's changed on the thesis, but the market's not getting it.

We had a really interesting opportunity where we could have doubled down, not a material step up on valuation and really increased our ownership.

Now, these companies will still return the fund, I think, with where they're trading, but you'd really inflict the meth.

And so then that raises the question of

how do we get around that?

which is where we wanted to carve out more capital in fund two.

So when we jumped from 40 to 80, part of that was so that we could double down on our winners.

And we've actually doubled down on two companies already in fund two.

We led follow-on rounds into them.

We're very excited about both of them.

And we feel good to have that capability.

The second lesson that we learned was learning to pay up occasionally.

When I started the fund, it was a time when deals were flying left and right at $100 million for the first round.

And so naturally, we were very adverse to paying up.

We said, this just doesn't make sense.

The reality is there were a handful of deals that we could have done where maybe the first round was at 50 or at 60.

And it just, it never traded below that.

And there are some of those companies which are already liquid and would have returned the fund.

A lot of our, rather, the vast majority of our anti-portfolio, with maybe a few exceptions, are because we didn't pay up.

So that raises the question of when should we do that and what's reasonable.

How's crypto investing like biotech investing?

The way that we think about these founders and these protocols, for instance, like we're thinking on probabilities sometimes.

It's like a blue chip crypto native founder typically has a higher probability of success.

And that's one of the components that looks similar to bio.

So if you think about biotech investing, think about how do you actually value these companies.

The way you do it is you say, okay, based off of these stages, like based off of stage one, stage two, et cetera, et cetera, what is the probability of success or the probability of getting to the next stage?

And then what's the cash flow available based off that?

And you apply a discount rate.

When we think about these founders, the more successful or blue chip crypto native founders typically have a higher probability of getting to the next stage or building something successful.

And we think in stages.

So unlike software investing, where when you're doing a series a you you want to see x million dollars of revenue you want to see them scaling that's not the case in in crypto so crypto de-risks based off of stages take an example like you can look at solana you know for solana you you start with a an idea a hypothesis that turns into a technical document that outlines how you would transform this idea into something that you could build you then build it you have like a test net you have a working prototype effectively but it's not live because it still would have issues.

Then you get a working prototype out.

You launch your main net effectively.

And your next step is you have to acquire applications and users and capital.

And then eventually, way down the line, once you have applications and users and capital, your revenue just hockey sticks.

And we've seen that happen with Solana over the last one to two years.

Their revenue just absolutely hockey sticked.

Then the question becomes, what's it worth before that?

happens?

Like, should we be, is it useful to value these on revenue in those early stages where that would imply an incredibly low valuation?

And the answer is no, that wouldn't actually be useful.

That would result in you underpaying for things that are valuable.

For that, we look a lot to just biotech and we think a lot about, okay, when we're investing in a protocol, what are the probability gates that they need to go through?

If it works, how big is the market?

What's the rate that we need to get paid on that?

Then you can kind of think with that framework to say, okay, what's a fair valuation to pay for something?

It's like biotech in terms of different milestones, like pre, like phase one, phase two, phase three.

Yeah, or like pre-clinical trials or before the drug's been synthesized, for instance.

So some of your biggest reservations about fund one are not backing into your winners before there were consensus in the market.

How do you know that's one of those opportunities versus just a bet that you made wrong?

What are those early signals?

It's a really good question, and frankly, something that I think every investor is always working to get better and better at.

Because investing, it's all about alpha.

And then one of the hardest things is actually, sometimes the hardest thing isn't finding the alpha, but it's knowing that this actually is alpha and that you want to act on it.

For us, the way that we think about it when we can't get the social validation and for our preseeds, we never get social validation is the thing.

There's just something different about you make the bet and you watch it play out and you still stand strong as opposed to making the bet with just straight conviction.

And it's a muscle that requires training.

So what we find to be the most valuable in doing that is we go back and we read what we wrote at the time of investing.

And we say, okay, is the team shipping on this timeline?

Is the team still running at this?

If they pivoted slightly, are they pivoting because they failed?

Or are they pivoting because they actually created an even more interesting insight?

If I had to boil it down to one thing, though, it would be the pace at which they're shipping.

I think if the team is shipping and moving and hiring well, it's iterating and iterating and iterating, and the thesis stands strong in that it wasn't invalidated by anything in the market.

That's that's a position where we would say, okay, let's let's double down.

Where I think you can go into trouble is if the thesis, you feel the thesis is still correct and that the market hasn't invalidated it, but for whatever reason, like the team's just not shipping against it.

And so said another way, it's often rare that a thesis would be invalidated so quickly, such that you believe something at the pre-seed, and then 12 months later at the seed, it's invalidated because the thesis is wrong.

It's usually related to execution or the unique insight as opposed to the categories.

How quickly are they?

Iterating.

Iterating solves many problems.

It's this compounding force that continues to compound quarter after quarter.

And after 10 years, you have a world-class company.

If you have a world-class team and you have fast iteration, you have a world-class company.

Does it make it easier for you to have stronger conviction given that you're not a solo GP, you have a partner?

and talk to me about the interplay between you and your partner and how you look at these high-conviction contrarian bets.

It definitely is helpful.

Katrina joined about two years ago

and

I at Insight, I saw in the IC room just these heated debates.

You know, sometimes there'd be yelling matches, sometimes it would be very data-driven.

It was, it was always different, but like there was a lot of friction in that room.

Devin and Jeff are just world-class barring partners.

They just, they go at each other and that's where the magic happens.

And so we certainly find that we're able to make more contrarian high-conviction bets because of the big debates that we have internally.

We try to really encourage debate.

I'd say generally speaking, if we're not debating and we're not disagreeing, we get concerned.

If we are, sometimes it can get quite heated, but we look to that and we say, okay, we're making.

a good decision.

Like we're getting to the bottom of it.

Friction is positive.

I would say the biggest benefit really is that you're forced to argue argue something.

You know, it's one thing when you're a solo GP to talk to peers who don't really have a skin in the game and debate with them or to write your logic down in a memo and, you know, work through it with yourself, or maybe like to argue with Chat GPT on it, whatever people do at this point.

But it's another thing when there's someone that's heavily incentivized in the financial success of your fund saying, I think you're wrong, prove me.

And in that process, you start to realize like, oh, do I actually believe this?

And if you do, you get really excited to leave the deal.

We also don't believe that we need like full consensus is another concept we have internally.

And this

I take from just some of the better investors that I've seen.

And so, you know, if we're really heated on something and it's below a certain threshold of a percentage of the fund and one person's convicted, the other person still doesn't buy it, the outcome is good luck.

I hope it works.

And I prefer that outcome to I'm not on board.

I think you're wrong.

Because when we look back at the deals that have done best, they've often been the deals that have been most debated.

And so I won't name the companies that we just mentioned, but a subset of those companies, for instance, we had heavy disagreement on, where one of us wanted to do the deal, the other didn't want to do the deal, and both of us are thrilled that we did it.

You have this strategy of surviving over several decades and you apply this to the crypto space.

Talk to me about that strategy and what are your main drivers behind it.

Crypto is a secular trend.

I think the protocol business model is equivalent to the software or internet business model.

If we zoom out and we look at software and what it did to the world, software was three things.

It was new products, you know, like Salesforce is a new product that's not possible without software, obviously.

It was a new business model in the sense of it's very high gross margin and can achieve 30 to 40% EBITDA margins at scale because of the capital efficiency.

And it's a new asset class because the way these things scale, the way that they de-risk, the way that you value them is totally different.

Protocols are similar.

I think protocols are businesses and product, rather, products that are created by networks of computers.

Protocols as a business are businesses that skew towards near-zero fixed costs in the long run.

So, if you think about Solana, again, if Solana doesn't produce blocks, Solana the protocol does not have operating expenses.

The Solana Foundation has operating expenses, but the Solana Foundation does not need to exist for the ongoing success, rather, for the ongoing existence of Solana, the protocol.

So, it's businesses that near or asymptote towards zero fixed costs.

As a result, it's a new asset class as well, because the way it de-risks is different, the way you value them is different, their income statements are different, et cetera, et cetera.

So I think that's going to create trillions of dollars of market cap, that being protocol business model.

I think there are going to be very large businesses with near zero fixed costs created and enabled because of tokens and blockchains.

And if you believe that, you believe there's trillions of dollars of market cap creation and the industry is going to mature over the coming decades, you say, what's most interesting to do?

What's most interesting to do is just to build an enduring firm.

It's to figure out how do you stay alive for that whole story and how you deliver exciting returns to your investors along the way so that you can do that with the ups and and downs.

I don't think that's straightforward.

And I don't think that's straightforward because of how volatile the industry is.

The characteristics that made a $5 billion outcome three years ago are very different than the characteristics that make a $5 billion outcome today.

And I expect them to be very different from the characteristics that make a $5 billion outcome in the next few years.

You see these massive speculative run-ups and these massive speculative crashes.

There's no consensus on how you should actually value these assets yet.

In software, you're betting on the inputs.

You're saying, is this a market that I think can support a large outcome?

And if it can, I think the public equity markets are going to value it in a a certain way.

In crypto, there's not consensus even on how these assets will be valued if they are successful.

And so there's a lot of risk.

And for us, we say, okay, just survive.

And if you survive, you build a franchise where you build 10, 15 funds into the future.

You're in a really good position at that point because venture is a business that has real compounding returns to success.

Incumbents have huge benefits because ultimately, great deals beget.

great deals.

When you back a great founder, that founder is typically in a network that leads to other great founders.

And when you have a reputation of being the first money in to great projects, there's a stamp of approval.

You know, like people want Sequoia's money.

People want benchmarks money.

And so we look at that and we say, okay, we're early enough to this industry where we can build something that looks like a benchmark or a USB specific for crypto over the decades to come.

Let's focus on doing that.

And to focus on doing that, it's about game selection then.

So this goes back to the first point we made, which is because of how volatile it is, we want to be at the pre-seed.

We think it's really hard to act with precision in this industry right now.

I think it's really hard to to invest in something in an $800 million valuation and underwrite a 3x case.

If you invest in something at 800, like it could be trading at 200 in two years and it could be trading at 10 billion in two years.

Like it's quite hard.

And so we say, okay, let's just play a game right now where we have a size of fund that makes it such that with the ownership we're getting, if a handful of our companies are multi-billion dollar outcomes, our math works and we're thrilled.

And that doesn't preclude our companies from being $10 billion outcomes.

You know, like we're backing things that we think can be decacorns, of course, but we don't need that to happen for us to be successful and for us to survive.

And so it just, it makes us a bit long-term, long-term greedy.

Some LPs will say the days of the 10, 20, 30x fund are over.

The amazing opportunities in the crypto market are over.

Why should LPs still care about the asset class?

There are a few reasons.

The first is

venture returns are commoditizing.

So every asset class, asset classes are products at the end of the day.

And as products are created and the markets created, margins on that product and that business compress.

And that's no different for the asset management industry.

Crypto is a relatively new product that still has the potential for outsized returns.

It's highly risky, but it has the potential.

Where does that potential come from?

It actually comes from all the risks that I just described, which is to say, if you think you have alpha on understanding how these things will be valued, you've alpha on finding the best founders, given how often it's changing, and you've alpha in the form of information asymmetry, that you understand something others don't understand, that can produce outsized returns.

It's hard to produce, you know, the 2017, 2018 2018 vintage funds,

but I think you still can produce materially outsized returns relative to traditional venture, which is an asset class that has been increasingly commoditized.

That's the first thing.

The second thing is I think one thing that's durable in crypto is the liquidity profile of these assets, which is to say if you're investing in pre-seed software businesses, you know, you get your money out in 10 to 15 years if the company is successful, unless there was a huge acquisition early in the company's life.

In crypto, you know, there are a handful of companies where we were the first money in one to two years ago, and the asset will be liquid in one to two years.

In fact, there's a company that we put money into in Q4 of 23 that went liquid at north of a billion dollars in the past quarter.

And now we have a lockup on these.

That's something that's different versus traditional equities.

Like there's an extended lockup for a couple of years or a few years.

But even so, that puts you at a timeline to liquidity of potentially call it three to six years for pre-seed seed investing with asymmetry.

We're not a group that's going to sell just because it's liquid, but we certainly aren't afraid to take chips off the table if we think that the company is really approaching its terminal valuation.

And I think that's a really interesting product for investors.

And that's something that's just durable in the asset class.

The last cycle has been really dominated by Bitcoin.

Do you see that trend continuing in 2025, 2026?

There's a really interesting dynamic happening in the market.

So if we look at prior cycles, what historically happened in the market structure was Bitcoin increased in value largely because of the market structure changes from the happening.

So, supply decreased, which drove price up.

As that happened, it created a wealth effect in crypto.

So, everyone that owned Bitcoin said, Wow, my portfolio is up 3x.

I might as well go further down on the risk curve with that capital, printed money in the crypto ecosystem.

And then you had these investors that were predominantly crypto investors say, Okay, I'm going to push money into the long-tail of assets because the floats were so low on them, it drove alts, so alt coins up pretty aggressively.

So, it was all a flow-a-float dynamic.

What's happened this cycle is Bitcoin's been leading, but it's a different pool of capital in Bitcoin, actually.

And so it's a lot of individuals still, yes, but it's a lot of institutions.

And that's exciting for Bitcoin.

But what does that mean?

It means, you know, if an institution all of a sudden goes 3x in their Bitcoin holdings, their answer is not, hey, let me take that money and move it into a like high-risk, high-reward asset that I don't actually understand the fundamental value of.

And concurrent with that, retail, the group that historically had that wealth effect, they said, I also am actually not going to put these into traditional altcoins as like the speculative investment product.

They started putting them into meme coins because they got results higher.

So it was, it was like, if it was speculation, they said, why not just speculate to the extreme?

Why not just speculate in something that's going to go up and down in days and the multiples are higher?

And what that did is it left this dearth of capital pursuing fundamentally valuable tokens.

And to answer your question, Bitcoin's been dominating largely because of the same cycle dynamic that happened in the past of the have an income, supply decreases and continues to increase with the institutional adoption and it increases.

But alts haven't gotten a bid because of that market structure.

The question becomes, okay, when will alts get a bid?

And the answer is they'll get a bid when they start being fundamentally valuable.

There are a handful that are, is the reality.

There are a handful that are producing really impressive revenue at scale right now.

You could argue the quality of revenue, you could argue the derivability of the revenue, but they're impressing, like creating revenue at scale.

There just aren't a long list of assets that are doing that.

And the reason there aren't is back to our point earlier in the conversation is founders historically didn't have to do that.

If the market did not demand founders to create intrinsically valuable businesses, they will not create intrinsically valuable businesses.

But now the market's demanding it.

And that actually makes it a very exciting time for me to think about investing.

Because specifically at the pre-seed seed, you have these founders that are saying, I want to build something of value.

I have to be thinking about how is this going to be profitable?

Why is an investor going to wanna buy this down the road?

Because the trade of just launch a project, have a token, make money, like that, that trade doesn't work anymore.

And that's a much healthier market structure.

So to answer your question, I don't really know on the office cycle.

I think it's going to be very divergent.

I think there will be some that really impress, but I don't think you're going to see everything move up as you previously had because of the market structure.

That's healthy.

And then also it's creating very healthy behaviors at the pre-seed seed.

So we're really excited to invest into this environment.

What do you wish you knew before founding portal ventures?

The biggest thing I wish I knew was

when you have conviction, don't just double down, triple down.

I think it goes back to that point of finding alpha is really hard.

And when you have it, triple down on it.

And that's not to say triple down blindly either.

There's a real nuance to saying, okay, this is my thesis and this is how I'm going to express it.

So I wish if I could go back in time, I'd say like spend a lot of time thinking about what your conviction is, having a high confidence interval that when you express it, it translates to being right on your thesis.

If that is an efficient flow, just triple down.

It's been Peter Thiel's biggest regret as an investor, and that is not doing Facebook Series A after he did the seed round.

Evan, appreciate you jumping on the podcast and look forward to sitting down in real life soon.

Thanks for listening to my conversation with Evan.

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