20VC Should Large Crypto Funds Give Money Back to LPs What Will the Next Generation of Crypto Funds Look Like What Should Happen with FTX; Who Should be Held to Account The Future of NFTs & What Happens to Opensea w Nick Tomaino @ 1confirmation

In this episode of 20 VC, host Harry Stebbings interviews Nick Tomaino, founder of One Confirmation, a leading seed-stage crypto firm. Tomaino, previously involved with Runer Capital and Coinbase, shares his insights on the venture landscape, particularly criticizing the oversized funds raised without unique insights, relying on brand and FOMO from institutions. He discusses the potential of NFTs as a transformative business model for creators, aligning incentives between creators and supporters, and stands firm on his belief in their future significance despite current skepticism. Tomaino also reflects on his investment in OpenSea, learning from both its success and his conservative initial investment. He touches on the importance of timing, skill over luck in his career, and maintains a principled, albeit sometimes dogmatic, approach to investing and the crypto industry. The conversation also delves into the FTX scandal, the memetic nature of human desires, and Tomaino's vision for One Confirmation to continue pioneering in the crypto space.

• Excessive capital raised with no unique insights, relying on brand name and institutional FOMO.
• Concerns regarding whether funds will return capital or continue to accrue management fees while delivering poor returns.

"Way too much money was raised. People raised billion dollar funds that just had no unique insights. But they had a brand name and access to institutions and institutions just had fomo and wanted to deploy."

This quote highlights the issue of overcapitalization in the venture capital industry, where funds are raised based on brand and access rather than unique insights, driven by institutional fear of missing out.

• Harry Stebbings introduces Nick Tomano, founder of One Confirmation and former Coinbase employee.
• Nick's notable achievement includes a 5.13x cash return to LPs in six years.
• Discussion of the recording platform Riverside and its benefits for podcasting.
• Arising Ventures' success story with Upcounsel.
• Secureframe's compliance automation platform.

"This is 20 vc with me, Harry Stebings, and joining me in the hot seat state is Nick Tomano, founder at one confirmation, one of the best seed stage crypto firms in venture."

Harry Stebbings sets the stage for the podcast episode, introducing Nick Tomano and his credentials in the venture capital and crypto space.

• Nick's early interest in the internet and sneakers led him to Bitcoin.
• Discovered Bitcoin through a Wired article about Silk Road.
• Joined the Bitcoin Talk forum and was drawn to the community's shared belief system.

"In some ways, I think I'm kind of unique in that sense, where when I first heard about bitcoin, it was this wired article talking about this magic Internet money that was being used to buy guns and drugs on Silk Road."

Nick shares his initial exposure to Bitcoin, which came from an article that discussed its use on the Silk Road, sparking his curiosity about the digital currency.

• Nick left Coinbase due to not fitting in with the corporate environment.
• Venture capital as a career path where he could excel.
• The decision to start One Confirmation was based on his knowledge of the crypto space and desire to support founders.

"I got pushed out. And at the time, that was very painful. Probably one of the lowest points in my career, I would say, because I believed so much in the space and the company."

Nick discusses the challenging moment of leaving Coinbase, which, although difficult, led him to identify venture capital as an area where he could be successful.

• Nick leveraged his personal brand and belief in crypto to raise funds.
• His time at Runa Capital and other personal projects like a newsletter and an event helped him build credibility.
• Emphasizes the importance of timing and being at the right place.

"I didn't have any really rich friends. I had built a strong personal brand while I was at Coinbase, and I think that helped a lot."

Nick explains how he raised the initial $26 million for One Confirmation, attributing his success to his personal brand and involvement in the crypto industry.

• Nick attributes 90% of his success to skill, including determination, grit, and self-belief.
• He acknowledges the role of luck but emphasizes the importance of creating one's own opportunities.

"I feel like I made my own luck in a lot of ways. I feel like I had a lot of bad luck that I persisted through. It was my determination and kind of grit more than anything."

Nick expresses his belief that while luck plays a role, his success is largely due to his skill and determination.

• Nick shares a personal setback when he lost all his Bitcoin due to a phishing attack.
• He used the experience to motivate himself to achieve greater success in the crypto industry.

"I basically got fished. I got an email saying that Coinbase updated terms of service. I clicked the link to try to update the service log into Coinbase to do so, logged into Coinbase with my password. Boom. The hacker got into my account and drained all my bitcoin."

Nick recounts a significant personal loss due to a phishing attack, which became a turning point for him to persist and grow in his career.

• One Confirmation's first fund was $26 million, considered large for a first-time fund manager in venture but small in crypto.
• The fund size was a strategic decision based on the landscape of venture capital and crypto at the time.

"Yes. So our first fund, which was launched in 2017, is 26 million. At that time in venture for like a first time fund manager is big, but in crypto is actually pretty small."

Nick explains the reasoning behind the size of One Confirmation's first fund, positioning it within the context of the venture capital and crypto markets.## Fund Size and Strategy

• Nick Tomano emphasizes the importance of starting small and being disciplined, especially for early-stage crypto investments.
• His first fund was $26 million, aiming for 20-30 investments with initial investments between $500k and $1 million.
• Subsequent funds grew in size, with the second fund at $50 million (2019 vintage) and the third at $130 million (2021 vintage), alongside an $80 million NFT fund.
• Despite the increase in fund size, the strategy remained focused on early-stage, bleeding-edge crypto investments.

"I have such a small fund, I thought it was important to start small and be disciplined, particularly because our focus is very early stage, kind of precede seed."

This quote highlights Nick's commitment to a disciplined investment approach, focusing on the early stages of crypto projects despite external pressures to increase fund size.

• Nick's fund experienced lower loss rates compared to the industry, with no complete losses ("zeros") in their investments.
• The disciplined approach has been maintained even with larger funds, continuing to focus on early-stage investments without changing the strategy.
• Nick criticizes the trend in crypto where hype leads to undisciplined fund growth and deviation from core strategies.

"We've stayed very disciplined and focused on what I just enjoy doing, which is like bleeding edge crypto. So in the first 122 investments, we haven't had any zeros."

This quote underscores the success of maintaining a consistent investment strategy and the unique achievement of having no total investment losses in their portfolio.

• Nick's funds are not limited to equity or tokens; they are practical and flexible, investing in both equity and significant amounts of Bitcoin and Ethereum.
• The impressive 5.13x distributions back were mostly from equity investments, contrary to the common practice in crypto VC of profiting from private token deals.

"We're not religious about anything, really. We're very practical in terms of the private stuff that we did."

This quote reflects Nick's pragmatic approach to investing, not being dogmatic about the type of investment but rather focusing on the practical aspects and potential returns.

• Nick criticizes certain practices in crypto VC, such as the manipulation of token prices and the exploitation of retail investors by some venture capitalists.
• He highlights the FTX scandal as an example of such malpractices, where the exchange and its investment arm engaged in unethical token promotions and investments.

"A lot of you weren't paying attention. Silicon Valley invested hundreds of millions of dollars into FTX. FTX was doing exactly this."

Nick points out the lack of attention paid to the problematic practices of FTX and similar entities, which ultimately harm retail investors.

• Nick advocates for venture investors to publish their returns, criticizing the focus on fund size and press over actual performance.
• He believes that the industry's emphasis on prestige and fund size is misleading and that performance should be the true measure of success.

"To me, it's one of the fakest parts of venture capital."

This quote expresses Nick's view that the venture capital industry lacks transparency and honesty about performance, which he believes should be the primary metric.

• Nick predicts that few crypto funds will be raised in the near future, expecting more scrutiny and due diligence from limited partners (LPs).
• He anticipates that the performance of crypto funds will become a more critical factor for institutional investment decisions.
• Nick also suggests that the FTX scandal will lead to a more cautious approach from investors and LPs.

"It's going to take. One thing is hopefully LPs are going to get a little smarter and do more diligence and not just deploy like crazy into fund managers that don't really have any unique insights or defined strategy."

This quote conveys Nick's hope that LPs will become more discerning in their investment choices, focusing on managers with genuine insights and strategies.

• Nick discusses the "fraud of perception" in the crypto industry, where the reality of a company's operations differs significantly from its public image.
• He expresses a desire for accountability among all parties involved in amplifying the FTX scandal, including politicians, regulators, and investors.

"It was a fraud of perception, which they all played a role in."

Nick emphasizes that the FTX scandal was not just financial fraud but also a deception regarding the company's perceived success and integrity.

• Nick is positive about the potential of NFTs, seeing them as an excellent business model for Internet creators.
• He believes NFTs provide a way to align incentives between creators and their supporters, offering ownership and shared success.

"It aligns incentives between creators and their supporters."

In this quote, Nick highlights the core advantage of NFTs in the creator economy, which is the alignment of incentives through shared ownership and investment in a creator's success.## Creator Business Models and NFTs

• NFTs represent a new, investable asset class for global participation, offering a powerful combination for creators.
• Skepticism exists around the need for creators to sell parts of their business or future earnings.
• NFTs may not solve problems for every creator, especially those already successful with existing models.
• NFTs are particularly useful for Internet-native creators without established business models.
• Music NFTs could incentivize growth at early stages by leveraging fan support and memetic spread.

"It's the new asset, investable asset class for anyone in the world to participate in." This quote highlights the global investment potential of NFTs, framing them as a new asset class.

"I don't need to sell you a part of my future." This quote expresses a creator's skepticism about the necessity of sharing future earnings with investors through NFTs.

"It does solve the problem for a lot of creators that are creating content of any kind." This quote acknowledges that while NFTs may not be a universal solution, they do address issues for many creators.

"What NFTs are really useful for is for these kind of new Internet native creators that don't have an existing business model but maybe have some true fans." This quote identifies the target demographic for NFTs: new, Internet-native creators seeking to monetize their content.

"That's a use case that I think is quite interesting." The speaker sees potential in the use case of music NFTs for early-stage creators, suggesting a new way to engage with fans.

• The concept of memetic desire suggests that people's preferences are influenced by others' desires.
• Renee Gerard's theory of memetic desire explains the popularity of figures like Taylor Swift.
• Skepticism exists regarding whether popularity is the sole driver of people's preferences.
• There is a debate about the balance between memetic influence and inherent preferences, such as the chemical reactions to music or chocolate.

"That really hasn't blown up yet, right? Is music NFTs and the idea of giving an incentive for the music to grow at a very early stage because music itself is very memetic." This quote introduces the idea that music's memetic nature can be leveraged through NFTs to incentivize early fan support.

"This is exactly what Rene Gerard has written a lot about, this idea of memetic desire." This quote introduces Renee Gerard's theory, which posits that desires are often imitative in nature.

"Humans are fundamentally memetic." This quote asserts that imitation is a core aspect of human behavior, influencing our preferences and desires.

"There is a chemical composition to the chocolate, which triggers chemicals in your brain that you need and want more of it." This quote argues for the inherent appeal of certain experiences, such as the chemical pleasure response to chocolate, countering the idea that all preferences are memetic.

• NFTs are seen as a significant future asset class, with marketplaces like Opensea serving as important on-ramps.
• There is a belief that even if NFTs only succeed in the art world, they will still be substantial due to the emergence of crypto-rich collectors.
• The potential for NFTs extends to dynamic, on-chain content, in-game assets, and music, indicating untapped markets.
• Opensea's success is tied to the broader adoption and significance of NFTs in the coming years.

"Opensea, as the kind of on ramp into NFTs, is a massive business." This quote reflects the speaker's belief in Opensea's strategic position as an entry point for NFT trading.

"That's the lens which I view. A bullcase for NFTs." The speaker expresses a bullish outlook on the future of NFTs, considering their potential applications and appeal to new wealth demographics.

• The speaker values independence of thought and contrarian perspectives.
• Personal upbringing and mental strength are credited for the ability to resist memetic influences.
• The speaker acknowledges the balance between being principled and open to new information.
• Being too dogmatic or rigid in one's views is recognized as a potential flaw, particularly in the fast-evolving crypto space.

"I've just always thought about things a little differently and wasn't really influenced by what people thought." This quote reveals the speaker's natural inclination towards independent thinking and contrarianism.

"I'm not constantly trying to get approval from anyone, really." The speaker emphasizes a sense of mental strength and self-assuredness that steers away from seeking external validation.

• The speaker reflects on the balance between principles and adaptability to avoid dogmatism.
• Personal wins and losses are seen as learning opportunities that shape mindset and decision-making.
• The speaker discusses the importance of reassessing one's frame of reference to stay relevant and effective.

"So there are all these things about it that, from my perspective, are tourist." This quote shows the speaker's initial skepticism towards certain projects, like Solana, due to perceived lack of authenticity.

"I'm constantly, you know, trying to reassess my frame and make sure that I'm not missing things because of that." The speaker acknowledges the need for continual self-evaluation to ensure that personal biases do not lead to missed opportunities.## Investment Perspectives on OpenSea

• Nick Tomano and his firm led the investment round in OpenSea during its early stages.
• At the time of investment, OpenSea was not considered a "hot deal" and convincing LPs (Limited Partners) to invest was challenging.
• The general Silicon Valley perspective on NFTs was skeptical, but Nick's user perspective guided the investment decision.
• Nick reflects on the importance of conviction in investment decisions and being more aggressive when you believe in the thesis.
• OpenSea's valuation has since decreased significantly.

"f off the main creators website just made a lot of sense for me, and that was why we invested. And at the time, they came out of y combinator, but it wasn't a hot deal at all, actually." "Interestingly, I would say it's also openc because when we invested, we only invested 500k initially." "Yeah, I would say down significantly, clearly, but, yeah."

The quotes underline Nick's investment rationale for OpenSea, the initial investment amount, and the current valuation status. It highlights the importance of conviction and the potential downside of investments.

• Nick discusses the strategy of involving LPs in deals as a way to build relationships, but acknowledges that it may not always be the best decision for maximizing returns.
• He reflects on the challenges of having conviction in investments as a first-time fund manager.
• The conversation touches on whether to sell investments across rounds or in one go, with Nick indicating that they invested more on the way up and sold during the "big way up."

"Our mandate was checks between five hundred k and a million." "But at the end of the day, when it comes to generating returns for lps, which, again, is what we're trying to do in venture, it's like, that was not the optimal decision for that."

These quotes highlight the investment mandate of Nick's fund and the trade-offs between relationship building with LPs and focusing on returns. It also touches on the timing and strategy of selling investments.

• Nick is interested in investing in new and lesser-known funds that have high potential upside.
• He is an LP in Pronomos, a seed fund by Patrick Friedman focused on creating new jurisdictions on the sea for innovation in various sectors.
• Nick also mentions his investment in 1789 Capital, a venture fund with an America-first approach and an investment in Public Square, an alternative to Amazon.

"So pronomos is the idea that you can create new territories within countries the government of the country could carve out new laws for." "And 1789 I view as kind of this anti sequoia that's very much focused on kind of America first, mostly growth stage, but some kind of series A type funds."

The quotes provide insight into the investment thesis behind Pronomos and 1789 Capital, highlighting the focus on innovative governance models and an America-first strategy in venture capital.

• Nick expresses his fondness for NFTs and user-owned brands, citing CryptoPunks as his favorite consumer brand.
• He appreciates the strong community and potential for the brand to develop interesting projects over time.

"Cryptopunks is effectively a user owned brand. There's not a ton that's been done with the brand yet, other than just, there's 10,000 of these eight bit pixelated characters that all have different traits."

The quote reflects Nick's belief in the value of community-driven brands and the potential for NFTs like CryptoPunks to evolve into influential consumer brands.

• Nick expresses a desire to dine with Rene Girard and discuss his frameworks in the context of current global issues.
• He believes understanding Girard's frameworks could catalyze peace in the world.
• Nick recommends starting with Girard's book "The Scapegoat" and watching his interviews to gain insight into his ideas.

"I'd ask him what he thinks of what's going on right now in the world in a lot of ways, whether it's in us politics, whether it's in the Middle east conflict, and how his framework applies to us politics, Middle east conflict."

The quote indicates Nick's interest in applying Girard's theoretical frameworks to contemporary political and social issues, suggesting the potential for broader awareness and understanding to foster peace.

• Nick had a strong conviction that prediction markets would be significant in crypto, allowing for global liquidity around information.
• He invested in an early crypto project called Auger, which has not yet succeeded as anticipated.
• Despite this, Nick maintains his belief in the potential of prediction markets and has not given up on them.

"One of my really strong convictions within crypto is that prediction markets are going to be massive." "It hasn't worked out yet in a big way. So that's, I guess, what I've been wrong about to date."

These quotes reveal Nick's initial belief in the transformative potential of prediction markets and his acknowledgment of their slow progress, reflecting the difficulties of market timing in venture capital.

• Nick aspires for crypto to be more important in the world and for One Confirmation to continue being a leading investor in innovative crypto products.
• He envisions billions of people using crypto and wants to maintain the firm's edge as investors in new and emerging areas within the crypto space.

"I really kind of want to be doing much of the same that I'm doing now, but I just want crypto to be much more important in the world, and that's kind of the lens if we've invested in a lot more products that broaden crypto to many more users."

The quote encapsulates Nick's long-term vision for One Confirmation, aiming for a future where crypto has a more significant impact and the firm continues to invest in cutting-edge crypto innovations.