20VC Why Crypto Is The Biggest Disruptor To Hit VC In A Decade, The State of Crypto Today & Why Investing In Decentralized Platforms Requires A New Mental Model with Boris Wertz, Founding Partner @ Version One Ventures

In a crypto-centric episode of "20 minutes VC," host Harry Stebbings converses with Boris Wertz, founding partner at Version One Ventures, about the burgeoning field of cryptocurrency and its impact on venture capital. Wertz, with a history as COO of Abe Books and current roles at Andreessen Horowitz and Ether Capital, delves into the early stages of crypto, likening the current state to the Internet's infancy in 1995. He emphasizes the potential for decentralized platforms to disrupt traditional VC models, with a significant portion of value accruing at the protocol level, monetized through tokens. Wertz also discusses the learning curve for VCs new to crypto, stressing the importance of understanding the technicalities and actively participating in the space. Despite the hype and concerns of a bubble, Wertz believes that a hybrid of centralized efficiency and decentralized trust will prevail, and that native crypto projects are likely to be more successful than retrofitted ones. He advises VCs to adapt and engage deeply with this transformative technology to avoid being left behind.

• Harry Stebbings opens the show, acknowledging the redundancy of introducing the podcast's title.
• He welcomes listeners to the 20 Minute VC podcast.
• Harry mentions his Instagram handle and the show's focus on crypto due to listener interest.

"I'm not quite sure why I always start with this is the 20 minutes VC. Highly likely if you clicked on the show, you knew that this was what you were clicking."

Harry is questioning the necessity of introducing the podcast's name, given that listeners are already aware of what they are tuning into.

• Boris Wertz, founding partner at Version One, is introduced as a returning guest.
• Version One is recognized for its portfolio, including Coinbase, AngelList, and others.
• Boris's background includes being COO at Abe Books and his involvement with Andreessen Horowitz and Ether Capital.

"Show today with a friend and second timer to the show in the form of Boris Vertz, founding partner at version one, one of North America's leading early stage funds with a portfolio including the likes of previous guests, Coinbase, Angel List, Shippo, Top Hat, Polychain Capital and many more incredible companies."

This quote introduces Boris Wertz and highlights his connection to notable companies in the tech industry.

• Movidium is presented as a platform for brands to connect with creatives for video and digital content.
• Wonder Capital is advertised as an opportunity to invest in solar energy projects with financial returns.

"Producers and marketers looking for the best creatives can get a shortlist from Movidium's account managers in hours tailored to their project's needs."

The quote explains how Movidium facilitates the connection between producers, marketers, and creative talent.

• Boris shares his journey from entrepreneur to venture capitalist.
• He discusses his experience with Abe Books and its sale to Amazon.
• His transition to investing included angel investments and collaboration with other VC firms.
• Boris founded Version One Ventures, focusing on companies with network effects and has recently pivoted to crypto investments.

"So I started as an entrepreneur in 99 Internet 1.0, build a marketplace for used, rare, out of print books. We built that up over the years and then sold it to Amazon in 2008."

The quote provides insight into Boris's entrepreneurial background and his successful exit with Abe Books.

• The conversation shifts to the current state and hype of the crypto space.
• Boris reflects on the history of Bitcoin and compares the current crypto environment to the early stages of the internet.
• The financial markets for crypto are discussed in relation to the Internet bubble of the late '90s.
• Concerns regarding the mix of smart and "dumb" money in crypto investments are addressed, with potential long-term effects on the space considered.

"Yeah, it's kind of interesting. I think a lot of people consider 2017 like the breakout year for a crypto, where everybody started talking about it, especially around icos."

Boris notes the increased public interest in crypto during 2017, marking it as a pivotal year for the industry due to the rise of ICOs (Initial Coin Offerings).

• Boris provides historical context, comparing the crypto hype to the Internet bubble.
• He notes the technological stage of crypto is similar to the emergence of the Netscape browser in the '90s.
• Financially, the crypto market is seen as more advanced than the Internet was at a comparable technological stage.
• The potential for a bubble burst in crypto is acknowledged, with speculation on its market cap compared to the Internet bubble.

"It's kind of something I'm always trying to think about in terms of historical context. Right. And I think there's, on the one hand side, technology wise, we feel like it's 95."

Boris is drawing parallels between the current state of crypto technology and the state of the Internet in 1995, suggesting that crypto is at an early technological stage.

• The mix of experienced and inexperienced investors in crypto is discussed.
• The possibility of investors getting burned and its potential harm to the crypto space is considered.
• The historical nature of investment bubbles and their inevitable casualties are acknowledged.

"There's a huge amount of smart money in the industry. There's also a lot of maybe dumb money people that don't have sometimes the knowledge to invest in the space quite so well."

Harry Stebbings expresses concern over the varying levels of investment knowledge in the crypto space and the potential consequences for those less informed.## Decentralized Platforms as Disruptors to Venture Capital

• Decentralized platforms present a new business model and technology.
• Value is expected to accrue at the protocol level, monetized through token business models.
• ICOs (Initial Coin Offerings) have democratized investment opportunities, posing competition to traditional VC funding.
• Administrative changes are required for VCs, such as managing private keys instead of stock certificates and adapting limited partnership (LP) agreements for token investments.

"I think right now, I think everybody, a lot of people are convinced that decentralized platforms have a different business model besides also being a completely different technology."

This quote emphasizes the belief in the unique business and technological aspects of decentralized platforms, which are distinct from traditional models.

"Now suddenly this is opening up through icos. And in theory, every single person could invest in these token projects very early on."

This quote highlights the disruptive nature of ICOs in the investment landscape, allowing widespread public investment in early-stage technology.

"Now we suddenly have a private key of a token, which is very different to store, to manage, et cetera."

This quote points out the operational changes VCs need to consider with the advent of token-based investments, such as the management of private keys.

• VCs need to invest time in understanding the complex and evolving technology of decentralization to avoid being left behind.
• There is a perception that the space is too complicated and risky, which can deter VCs from engaging.
• Conviction in the long-term potential of the technology is crucial for dedication to learning and investment.

"I think the biggest thing is really spend time in it."

This quote suggests that a significant investment of time is necessary for VCs to comprehend and adapt to the rapidly changing technology of decentralization.

• Starting with key resources like Satoshi's white paper is crucial for foundational knowledge.
• Participating in telegram groups and engaging with the community can provide insights and updates.
• Hands-on investment, even small, is recommended for practical learning and experience.

"I think a few things. I mean, first of all, there's a few key resources that I would read and kind of get into and certainly starting with Satoshi's white paper on bitcoin."

This quote advises beginners to start with foundational documents like Satoshi's white paper to understand the basics of crypto.

"And then last but not least, I think important to just start investing."

This quote encourages active participation through investment to gain practical experience in the crypto space.

• Understanding technical details in white papers is crucial for protocol-level investments.
• Evaluating the team, community-building, and long-term platform development are also essential skills for successful crypto investing.
• A binary view that focuses solely on white papers is too limited for the broader aspects of crypto investing.

"First of all, I think it's super important, especially if you can invest at the protocol level, to really understand the technical details of a white paper."

This quote stresses the importance of comprehending the technical aspects of a project through its white paper for informed investing.

"At the same time, I think there's many more aspects to successful crypto investing than just the white paper."

This quote acknowledges that while white papers are important, other factors like team evaluation and community engagement are also crucial for success in crypto investing.

• VCs may struggle to maintain focus on traditional sectors while adapting to the crypto space.
• Experience in traditional internet models aids in company building and supporting entrepreneurs, which remains relevant in crypto.
• Vertically focused crypto funds might have an advantage due to their dedicated attention to the space.

"Can you really maintain very different investment focus areas?"

This quote questions the ability of VCs to juggle traditional investment sectors with the new and distinct area of crypto.

"But clearly the vertically focused crypto funds have a certain advantage of having like 100%, 10% attention on that space."

This quote suggests that specialized crypto funds may have an edge due to their singular focus on the crypto sector.## Engagement with Entrepreneurs in Crypto Investments

• The increase in investors participating in ICOs and crypto raises could potentially reduce the engagement and help from investors to entrepreneurs.
• Smart entrepreneurs are shifting back to privately negotiated rounds, which offers multiple advantages.

"Yes, but I think what we've seen over the last six to nine months, which is really interesting, that a lot of the smartest entrepreneurs are going back to privately negotiated rounds, at least for the first step."

The quote highlights a trend where entrepreneurs in the crypto space are preferring privately negotiated investment rounds over initial coin offerings (ICOs) as a first step in fundraising.

• Privately negotiated rounds allow entrepreneurs to build their company, protocol, and team away from the public eye.
• They enable the acquisition of committed investors rather than numerous small investors through an ICO.
• Entrepreneurs have the opportunity to deliberate on their token model and distribution strategy.
• This approach is akin to preparing for an IPO, where a more mature company is necessary.

"The first one, it just gives you time that is not in the public eye to build your company, build your protocol, build your team."

This quote explains the first advantage of privately negotiated rounds, emphasizing the private development time for the company and team.

• Telegram's ICO is notable due to the platform's large user base and the presence of crypto enthusiasts.
• The success of incorporating crypto into an existing platform versus building a platform with crypto in mind from the ground up is debatable.

"The biggest question will be, and that's, I think a question that is relevant for many projects is what is more important, kind of native crypto approaches. Right. And so building a protocol, a platform, the grounds up with crypto in mind, or a proven ability to ship product at scale."

This quote poses a critical question about whether it is better to build a crypto platform from scratch or to incorporate crypto into an existing successful platform.

• Ground-up crypto projects are likely to be more successful.
• Entrepreneurs with experience in building companies and platforms may find starting from scratch in the crypto space to be the most interesting and successful approach.
• There are challenges in retrofitting crypto into existing platforms, especially at scale.

"I personally believe that native crypto projects will most likely be more successful."

Boris Wertz expresses his personal belief that crypto projects built natively with crypto in mind are likely to achieve greater success.

• There are only a few truly interesting crypto projects, and the number is growing.
• Building a portfolio with crypto experience now can offer a competitive advantage in the future.
• Both generalist and specialized crypto funds are building credible brands and investing in significant projects.

"I think what is happening right now is there's only a handful of really interesting projects. I think they're growing very quickly, the number of those, and there's a bunch of funds that are kind of going after it."

Boris Wertz discusses the current landscape of crypto projects and the competitive pursuit by various funds to build a strong portfolio.

• Traditional LPs (Limited Partners) are showing interest in learning about and participating in crypto investments.
• Most crypto fund investments have come from family offices, high net worth individuals, and venture capitalists seeking to learn.
• Institutional capital is considering how to get involved, with mixed funds being an easier entry point.
• As the sector matures, there may be less volatility and increased investment from traditional LPs.

"I think there's a bunch of institutional capital that are sitting at the sidelines and thinking about how to get involved in crypto for them, probably being part of kind of what I would call mixed funds. So Internet and crypto funds like version one. Andreessen Horowitz USV it's probably easier to wrap their head around right now."

This quote discusses the cautious approach of institutional capital towards investing in crypto, suggesting that mixed funds might be a more palatable initial investment strategy.

• Boris Wertz recommends "Shoe Dog" by Phil Knight as an inspirational read for entrepreneurs.
• The book tells the story of Nike's founding and highlights the challenges of building a company with limited access to capital in the past.

"So I just read shoe dog from Phil Knight and just an amazing story of a crazy entrepreneur, a passionate entrepreneur that, against all ods, kind of builds nikes with his group of what he called misfits, equally crazy and passionate people."

Boris Wertz shares his recent reading experience and recommends "Shoe Dog" for its portrayal of entrepreneurial spirit and the journey of building a company like Nike.## Required Crypto Reading

• Boris Wertz emphasizes the importance of staying current with rapid developments in the crypto space.
• He recommends reading a white paper every week and highlights the "Token economy" newsletter by Stefano Bernardi and Yannick as a valuable resource.

"I'm trying to read a white paper every single week. I think when I think about to stay up to date on all developments, and it's just developing very rapidly, I think. Token economy is a newsletter by Stefano Bernardi and Yannigru is a really great one, and I would definitely read that."

This quote underscores Boris's commitment to continuous learning in the fast-paced crypto industry and suggests the "Token economy" newsletter as a key resource for others interested in the field.

• Boris Wertz shares a personal story from the second half of 2016 when he experienced a dry spell in investing for seven months.
• This period forced him to reevaluate his investment focus, leading him to develop an investment thesis around Ethereum as crypto 2.0.
• His renewed focus on crypto was both a response to a challenging phase in his career and a pivotal moment that shaped his future investment strategy.

"I had not done an investment for seven months for version one. I just didn't find anything that interested me. And it was one of these low lights in an investor career... it really forced me to look at crypto again... And that really launched our investing in crypto and what we've done over the last 18 months."

Boris describes a transformative experience where a period of inactivity and frustration led to a significant shift in his investment strategy, specifically towards the crypto market and Ethereum.

• Boris acknowledges the inherent pressure investors feel to make new investments, especially early in a new fund when there are no investments "in the bag."
• He notes that while there is some relaxation once a few investments have been made, the pressure to perform and show results persists.

"I think you partly always have a little bit that pressure. Especially, I feel like at the beginning of a new fund, you feel like there's nothing in the bag."

The quote reveals the psychological pressure on investors to deploy capital and the increased ease once initial investments begin to show promise.

• Boris offers his perspective on the debate between centralized and decentralized platforms.
• He believes the future lies in a hybrid approach that leverages the efficiency of centralized platforms and the trust of decentralized ones.
• Boris is excited to support teams that embrace this balanced approach.

"I actually believe that truth is really in the middle, that centralized platforms are amazing for efficiency, decentralized platforms are amazing for trust."

Boris shares his belief that neither centralized nor decentralized platforms alone will dominate, but rather a combination of both will lead to the most successful projects.

• Boris Wertz, with an external perspective, sees Silicon Valley as the epicenter of innovation but criticizes its tendency to overlook the negative side effects of technology.
• He calls for a more balanced view of technology's impact to ensure broader acceptance and the opportunity to solve significant problems.

"I think we just need to have a more balanced view, otherwise we will not get the mainstream to embrace technology and we'll not be able to get the chance to solve problems."

Boris urges for a recognition of the negative consequences of technology, suggesting that a more balanced perspective is necessary for technology to reach its full problem-solving potential.

• Boris shares his admiration for the innovation and startup-like approach of Andreessen Horwitz, where he serves as a board partner.
• He is impressed by their willingness to experiment and innovate within the venture capital industry.

"It's amazing to see how it's really being run like a startup that is continuously trying to develop new ideas and test new ideas."

The quote emphasizes the dynamic and experimental culture at Andreessen Horwitz, which Boris finds inspiring and instructive.

• Boris discusses Version One's investment in Coinbase's series D round, which was later than their typical investment stage.
• He expresses confidence in Coinbase's potential to be an iconic company in the crypto space.

"So we invested in Coinbase late last year... But we really thought that Coinbase can be one of these iconic companies of the crypto."

Boris explains the decision to invest in Coinbase, highlighting the firm's belief in the company's future significance within the cryptocurrency industry.

• Boris Wertz and Harry Stebbings exchange thanks for the conversation.
• Harry Stebbings promotes following Boris on Twitter and invites listeners to join him on Instagram.
• The podcast episode concludes with promotions for Movidium and Wonder Capital, highlighting their services and inviting listeners to engage with them.

"And I want to say again, and a huge thank you to Boris for giving up the time today to come on the show and what exciting times ahead for him and Angela with version one with the new investing thesis."

Harry Stebbings appreciates Boris Wertz's participation and teases future developments with Version One's new investing thesis.