Early-Stage Investing in ReFi with Maex Ament (Crane Earth)

Even if we are a little bit in a carbon winter and in a crypto winter, as you said, I still would say the majority of projects, half of the projects that Philipp and myself see at Crane Earth or as angels in the last 3, 4 months is still in the carbon space, carbon financing, carbon trading, retirement, MRV, digital MRV. It's the majority of projects. So when we talk refi, even in this winter environment, it's still carbon.

Welcome to the Regeneration Report. Regeneration will be funded. My name is Matthew Monahan, and in this series, we're exploring the intersections of regenerative finance, technology, and our living planet. Created with MaEarth, you can find all of our conversations and more at maearth.com.

Thanks for joining us.

Today's guest is Maex Ament from Crane Earth. Maex is an accomplished repeat founder who's now raising a VC investment fund in the Web3 impact space. In this conversation, Maex shares what he's seen across the refi landscape, why he believes carbon credits make sense on-chain, and why this market will persist despite recent challenges. We go into Crane Earth's strategy and investment thesis, and also talk about things like tokens and regulatory considerations. This discussion took place at the Refi Summit in Seattle in May 2023. Let's dive in.

Maex Ament.

Today we are here with Maex Ament.

Maex is the founder and partner at Crane Earth. Thanks for being here, Max.

Thanks for having me.

What is Crane Earth?

Crane Earth is an early-stage VC fund in London, and we invest in the intersection of Web3 and climate, or Web3 and impact. So wherever Web3 decentralization is used to have a real-world impact, that's our scope, our focus.

Nice. And we had a great conversation with your co-founder, Philipp Stelic, when he was visiting New Zealand. and he talked a bit about the, the background of the projects that you guys have been working on together for quite some time. In this conversation, really excited to go deeper into what you're seeing in the Web3 space and what's motivating you around this focus for Crane Earth. But before we go there, we'd love to, yeah, maybe hear a bit of the journey. How did you come into this field and maybe starting from the beginning of the entrepreneurial side? Yeah, a bit of your background.

So it might be a little bit overlap with what Philipp already shared because we know each other for 20 years and did all this shit together pretty much. So, but I'm a little bit older than Philipp, so I started earlier. Started my career at SAP as a software engineer, built SAP's payment program. So SAP, for those who don't know, is a big German ERP software company for corporates. So I built their payment program. After a year and a half, realized corporates are not my thing. Like working there. Had a first startup in the accounts payable space, bootstrapped. Philipp joined that startup. We sold it in 2006 when Philipp and myself already were in San Francisco. And yeah, after that, a few failed attempts. We did QR codes in 2007. Nobody cared about QR codes in 2007. There wasn't even an iPhone that could read them, so that didn't go that well. And then we built a company called Taulia, supplier financing. Where we go to the big guys, to the Home Depots, to the Apples of the world, to the Intels, and finance their supply chains. So their suppliers that wait typically 60, 90 days for their money, we help those suppliers to get money earlier. We did the opposite of bootstrapping, so raised, I think, $300 million of venture capital over several rounds. And fun fact, we sold that company a year ago back to SAP, where I started my career back then. But Philipp and myself already left about 5, 6 years ago and created a blockchain protocol for real-world assets called Centrifuge. And there we left as well a few years ago and focused more on investing in Web3, other areas, and more recently the last 12 months, 18 months, very much in Web3 and impact. And out of this angel investment came the fund. That's pretty much the story.

Great. Yeah, perfect encapsulation and summary. And so what does kind of real-world assets and impact— let's unpack those terminology. What do those words mean?

Yeah, let's start with real-world assets. I mean, only in crypto real-world asset means something, right? I mean, if I talk to a banker, a trad-fi person, like, it's an asset, right? Obviously everything is a real-world asset. So it's just an asset. So I kind of like the term, but Just to clarify, the real-world asset is something that you tokenize. Where you take it from the real world here, like an invoice, a mortgage, like anything that exists digitally in the real world, you bring it on-chain, you tokenize it. That's a real-world asset. And it— there's some implications as well, or some carbon credits could be a real-world asset, right? They exist in the real world, the verifiers certify them, or the gold standards or whatever. And you want to bring them on-chain, you want to tokenize them. Well, it becomes then a real-world asset on-chain. And why are we doing that? Well, we think we can do beautiful things with them on-chain. We can finance them, we can trade them easier, we can build financial instruments around those real-world assets as soon as they are on-chain. And we don't need the legacy payment system, the legacy finance infrastructure for that. That's in essence the real-world asset definition.

Right, right. And then what about impact?

Well, impact is anything— yeah, those are good questions. Pretty broad term, right? Um, and, uh, our investment thesis when, when we talk about impact is we looking for Web3 projects that— for project startups in that leverage Web3 to bring impact value into the real world. That could be money. It very often is in, in form of climate financing, project financing. Um, that could be using Web3 to scale a project that does have an impact in the real world. So in general, real world impact means for us something that is not just for the sake of Web3, like I build an exchange to trade more ETH, to do this leverage to buy more Bitcoin. Yes, we need all that. Don't give a shit about it personally. I like that those infrastructures exist, but to get money and impact And value back into the real economy, into the hands of project developers, small, medium businesses, employees that wait for their money. That's what I mean with impact and impact in the real world.

Right, right. And so you're starting a fund in this space, Crane Earth, early stage venture fund. And I guess implicit in that is that you're making a bet or that you have a belief or a thesis. And what I'm hearing so far is that one of those, the components of that thesis is that moving things on-chain is kind of a macro characteristic of what's happening. Can, you know, especially for someone who still doesn't have that basic point of view that we're going through this tectonic shift of moving things on-chain, can you explain, you know, why do you feel like that's important and why do you think it's, you know, either the future or important to be part of the future? Yeah.

And so, by the way, I think moving things on-chain is just the first step. Originating things on-chain will be the end stage. But let's be real here. This is not next year. This is not in 10 years. This is a long-term play that where things, an invoice again, my favorite business thing, an invoice will at one point not originate in an SAP system or QuickBooks. It will be in an on-chain environment. So we don't have to bring things on-chain anymore. But let's be real. Everything is still in the meat space in the real world. And so why do we want them on-chain is your question, right? What's the plus here? Well, I think there's a couple of things that make objects and business easier on-chain. There's a typical, we don't need all those middlemen anymore, right? And this is a problem if you finance, specifically in finance, there's dozens of parties in the middle that take a little bit, a basis point here and another basis point here for insurance, for payment agent, for you pick it, dozens of reasons. Well, we can have that on-chain and smart contracts and the visibility to be on-chain, just solve that, or at least reduce it. Makes it cheaper for all parties involved. And that means as well, um, you can have smaller, smaller facilities. So you don't need hundreds of millions of facilities because everybody takes a little bit. You can have small facilities to lend to people. Um, that's one thing. And the carbon markets, maybe— why do I firmly believe, or like truly believe, that it makes complete sense to move them on-chain or have them on-chain in the first place? Uh, you There's a million reasons. One of them is transparency, like the good old blockchain pitch of everything is there, visible, immutable. It's kind of cool to have that of carbon credit, specifically if we know that 95% of the non-on-chain ones are bullshit. So seeing that actually, okay, the carbon credit came out of this and there's this fucking tree that we planted, it's pretty amazing. So like, I believe that specifically in impact or in climate, is the primary use case of a blockchain that I saw. And that's why we're so excited about Crane Earth.

Got it. Yeah, I agree. I mean, I think that like there's the disintermediation, so removal of lots of inefficient intermediaries, all clipping the ticket. That's obviously results in speed. It results in lower costs and just more efficiency. And then there's the transparency that you just mentioned. It's like, by having this shared ledger system or chain or blockchain, we have a greater degree of programmability around transparency and sort of find where things originate to learn about the lifecycle. And, you know, this affects finance, but also affects supply chains, affects all sorts of business functions. And like, you know, our whole world and global economy has so many of these different pieces that are trying to work together. It's almost like we can't imagine what types of unlock will exist as we start to use more of a shared system. Are there any other aspects of the on-chain environment that you feel are really exciting?

You mentioned it before, like the programmability. And it sounds a bit cheesy, but the programmability of values. So you have that money, that internet money, and you can actually code into it what should happen with it. And a very basic example is that in a certain carbon credit, you That guy gets sold at one point, it's on-chain. Well, a portion of it, a meaningful portion goes actually back to the communities that were responsible to create that carbon credit, to plant a tree, to create the solar panels. You build that into smart contract, it's not changeable, it's immutable again. It's automated, nobody can change it. I like that a lot. I like that a lot that this is there, it's visible for me. I know that I invest in this carbon credit, I buy it. A few basis points, a few percentage, 20%, whatever the number is, goes to the people that are responsible for making it happen, to the stewards. Kind of cool.

Yeah. It sounds like you're thinking a lot about carbon credits. We're at the Refi Summit in Seattle right now. There's a lot of talk about carbon credits. That's true. It also feels, you know, we were joking last night, like this is somewhat of the winter, so to speak, season for both crypto as well as kind of carbon credits. I mean, just a couple of days ago, the Veras CEO stepped down. You know, we're seeing kind of a lot hesitation from larger buyers in the carbon credit markets, wondering about the integrity of the credits. There's just a lot of, yeah, I guess doubt and reflection happening in the carbon space right now. Curious, you know, where do you stand in terms of thinking about the legitimacy of a carbon credit market? And then maybe we can dive into kind of the opportunities that we're seeing. Yeah.

I mean, one aspect is even if we are a little bit in a carbon winter and in a crypto winter, as you said, I still I would say the majority of projects, half of the projects that Philipp and myself see at Crane Earth or as angels in the last 3, 4 months is still in the carbon space, carbon financing, carbon trading, retirement, MRV, digital MRV. It's the majority of projects. So when we talk refi, even in this winter environment, it's still carbon. Why? There were a couple of questions, I think, or at least a couple of flavors. Why do we believe that carbon needs to be on-chain? We picked a few, but the most important one is there is no real infrastructure out there yet. If we forget about Web3, there's nothing. There's some fax machines, some Excel sheets, and some consulting companies. That's the carbon landscape. And I know there's a few startups that would disagree, but that's how I see the world. So I think we have a fucking responsibility to build it on the right foundation. And the right foundation is, for the reasons we stated before, Web3. Decentralized, immutable, transparent, less middlemen, all that good stuff. So that's why I'm still bullish, even if we are in the winter, that this is the right way. And what is missing in the carbon space right now, the buyers don't have trust. The buyers just after the Guardian and the Zeit, the German Die Zeit articles, they don't trust them anymore. I do believe that we can bring that trust back by providing carbon credits with quality that are transparent and I see where it comes from. What had been done there? I think Web3 will create that trust and will enable buyers to comfortably buy again.

And just taking a step even further back, like what has your process been of getting comfortable with the even idea of carbon credits as being the ecological solution?

I see. I see. Look, I mean, not a climate expert. I came into that field. I want to get into the field for a long time and never saw the opportunity. How? And then 2 years ago when Toucan and Flow Carbon happened, there was like a natural wow moment for me. Now I have the opportunity to actually be where I need to be and want to be. That said, I mean, generally speaking, we cannot reduce emissions fast enough. We want, and even if we stop, I think, emitting today to zero, which is obviously not happening, we need in addition a carbon removal strategy. And I do believe one of the best ideas, concepts is carbon offsets, carbon credits. Is it perfect? No. Uh, can we make it better? Can we get to the almost perfect state, hopefully, with Web3 and some other technologies? I think so. Um, but I'm not a— there's a lot of philosophical discussions on carbon credits, whether they can be, should be traded or retired immediately. Not my discussion, not the expert on that, I will admit.

Got it, got it. Okay, so looking at carbon credits and Web3, you know what, we, we've kind of established the base idea here of, okay, it makes sense to move them on-chain.

Yes.

Specifically now, like, what are you seeing as opportunities or gaps in the market?

Yeah. So I think to touch on it a little bit, the moving on-chain is one thing, but it reminds me a lot on what I did in fintech for years. It's like you had to play with the banks, you had to play nice with them, and it's painful. You just, you still, you're still building on top of their Archaic systems, you're at mercy of their APIs, file systems or whatever nonsense that they provided. And it's very similar in the carbon market. There's Verra, there's Goldstandard. I'm not trying to shit on them. I think many of them try to do a good job. But still, there is some blocking. Where I'm going to is, yes, we need an in-between step of bridging, of bringing the carbon, the existing carbon markets on-chain. But I see more and more projects popping up that like do it originally on-chain. They have their methodologies, they have their processes, and they become a registry on-chain directly. So we don't need to bridge and tokenize anymore. Everything happens naturally on-chain. I think that's the end state. And it's what we discussed with finance will take decades. I think with carbon markets, because there isn't a lot yet, I think we're there in a few years. We don't need a Veras anymore.

So you are imagining that the origination of carbon credits happens on-chain rather than needing to bridge the existing incumbents.

I will, I'll see that. Yeah.

Yeah. And that origination, I mean, are there, are there, is it as simple as like Vera just going, oh, okay, well, rather than storing it in this Excel sheet, we're going to start storing it over here on Ethereum. But like, how much different is that shift of process for the originators to move their paradigm into the on-chain environment.

There's work that needs to be done. I mean, the whole MRV process needs to shift on-chain, at least the results of it documented. But other than that, I don't see it as a huge step. And I'm quite frankly not sure if the Veras have the right incentives to move it on-chain. But yeah, I'll see enough non-Veras building the Vera replacements right now.

Got it. And let's talk maybe a bit about MRV. So measuring, reporting, verification. Obviously, like, we need to verify the outcomes in order to create legitimacy to say, yes, that, you know, sequestered so much carbon, so therefore there's a credit that is legitimately issued. What are you seeing across the MRV landscape?

So, um, we did like Open Forest Protocol is, is one project that we love where, um, Well, it's about planting trees. That's what it boils down to. And then verifying that those trees are actually planted and grow. And they do that, yeah, by having a decentralized network of planters, obviously, and validators using a mobile app, take pictures, measure. But then as well have validators, again, decentralized that go like physically there and validate certain things. They use satellite data to combine it and it's all stored on-chain. I think in their case it's the Near Protocol. I personally don't care what blockchain it is. So that's a great project that I love. I started some discussions with a pure MRE protocol, not yet necessarily Web3 enabled, that specializes on blue carbon, like mangroves in that particular case, which I find interesting. I do believe some MRE is interesting in the tech area when it comes to enhanced rock weathering or other areas. So we see quite some specialized startups in that space. Agriculture is as well something which has some powerful impact. So yeah, those are some places we see.

Yeah, it feels like the technology around sensors and the ability to streamline some of the reporting and verification standards here are all percolating from many different directions.

Exactly.

Soil sensors or satellites or ocean or DNA or like, I mean, there's just so many many things that are kind of coalescing to bring us greater degrees of precision and robustness of being able to observe our natural world. And then now it's a question of coordination across all of these fragmented areas and how do we create incentives. And it's like, hello, this is what blockchain is for. Exactly.

It has a name on it, right?

Yeah.

That's what I think. And you brought up a good thing, I think, on the carbon markets, which we see as well. There was a lot of talk over the last few years on that. It's finally happening. It's not just about the carbon credit. It's not just about how much, uh, we sequestered. It's about the additionality, like, or additional benefits that are around, like an ecological benefit framework is discussed. What biodiversity impact? What is the soil quality? How much water does the land hold? Stuff like that gets— it's not there yet. You cannot buy those things, or maybe you can, but not, not easily. But like a carbon credit that has those attributes on it, like, uh, a 5 out of 5 on biodiversity and, um, Those things happen right now. I'm really excited to bring again all those different MRVs technologies together and scale it worldwide.

Yeah. Yeah. What, what many people refer to as co-benefits.

Co-benefits.

I'm curious, do you think that we are going to move into a world where there's lots of different types of carbon credits and some of them have like premium carbon credits because they have you know, other biodiversity or water co-benefits? Or do you think that we're going to move into a world where there's kind of like a narrow view of carbon credits and then there's like biodiversity credits or water credits that kind of sit in that we end up with this plurality of ecological credit classes?

I do not know the answer. I'll kind of as an investor, but as well intellectually take a bet on both. I think I think it will definitely happen on the carbon credits itself with the co-benefits. Part of some groups that discuss that and create a framework. So that's cool. That's awesome. Yeah. I do believe there will be— and there's plastic credits already. There's renewable energy credits. There can be soil credits. Will there be biodiversity credits? It's a little bit harder to imagine in a biodiversity world. It's solvable, but it's not as fungible, biodiversity. Yeah, I killed a species here. I cannot just offset it by buying a biodiversity credit for saving some ants. And no disrespect to ants, but you get my point, right?

Sure.

It's very different to combine it, whereas a ton of greenhouse gas is a ton of greenhouse gas. So the fungibility on biodiversity is a little bit more complex, I guess, than it is in other areas. So not sure how that will be solved, but I know people work on that.

Yeah, yeah, totally. And I'm glad to see so much open discussion relatively speaking, like it doesn't feel to me like in these environments with Refi Summit that people are unaware of going beyond carbon. Like I think that there's just a recognition that we haven't, we don't have carbon figured out and that's where all of the momentum is. And yet it's still like very early days in terms of really getting the infrastructure and the markets in place. And so yes, there is focus, but it's not hopefully at the expense of thinking about the entire ecosystem.

Agreed.

Is that how you're feeling as well?

Yeah, no, no, I hear. Cool.

Okay, so with Crane Earth so far, I know you guys are still just very early days, but have you made any investments and can you talk a little bit about how you're constructing the portfolio?

Yeah, yeah, sure. So it's a $30 million vehicle that we aim for and slightly different maybe to other $30 million funds, specifically in the refi space, which aren't a lot. We want to lead. So we feel what the space needs are some investors that do the dirty work, that spend some weeks on the due diligence, set the price, work with the team, and get the deal done. So we want to do some— our strategy is to do 15 to 20 investments over the fund lifecycle. We did already one. Our first closing is coming up. So we had to warehouse, and we did one first investment. It's a protocol and happens to be in Madrid, which where I live, but just a coincidence.

In Madrid, you said?

Yeah, in Madrid, Spain. That's where I live right now. And the founder is an ex-Yarn developer. And he created a protocol to spin up debt facilities on-chain. And why do we believe this is somewhat related to refi or our Crane Earth thesis? Because one of the major issues that we saw in my Centrifuge days, but as well over the last years as investor, is that we're not getting enough money into certain areas, into the climate space in that case, into project developers to plant trees, to build solar panels, project finance, whatever it is. And why is that? Because it's too expensive to set up a debt facility. So it needs to have a certain size. It needs to be $100 million to be exciting for the Goldman Sachs of the world. And so it's like a $500,000 need that a project has. You're just not getting it financed. You do have the money sitting there, family office that want to do it, but just the setup cost is too high with $100 grand. So having something with, for a few thousand bucks, you can set up a debt facility small and then start investors pouring in and get the money to someone we feel is a super powerful enabler for climate financing.

And these debt facilities, are they on-chain?

They're on-chain. They're hidden. I mean, hidden, not purposely hidden, but abstracted so it's easy for the lender and the borrower. To work with it, but the infrastructure is actually built on-chain with all the efficiencies we discussed before. Transparency, no middlemen, and so on. So that's where the company is called Fence, fence.finance.

Cool. And yeah. Nice. And does it, is it, obviously these aren't going to be collateralized debt facilities. So what is the process in which trust or credibility is established?

There is relatively, that part is relatively traditional.

Yeah.

But automated. So it's a technology play, but at the same time it's a legal play to get SPVs in that case like spun up really, really, really affordable and really fast and really cheap. So there is this very traditional put the assets in an SPV in the good old meat world and finance them that way.

Yeah, makes a lot of sense to me because we do see that a lot of projects, reforestation projects, regenerative agricultural transitions, renewable energy, like they need some additional startup capital or initial debt facilities. And because of the current limitations of the system that favor economies of scale, the result is that a lot of these smaller projects don't get funded. And it typically is larger corporates or people that can afford all of those lawyers and banks and so forth that actually get funded. And so, yeah, infrastructure like this, I think, could bring more to the edges.

And I mean, it's one of the promises of what we did Centrifuge as well, right? To have infrastructure and Centrifuge to allow smaller investors as well to chime in and be able to invest and not just large ticket investors. And again, have smaller pools of capital for music royalties, for our first carbon pool was just a million bucks where, well, who in the real world in the trad fire does a million dollar pool for anything? Or they don't call it pool, they call it whatever facility. So yeah, that's— That's the whole premise of real-world assets and carbon financing as a special case.

Yeah. So, you know, Crane Earth, very, you know, clear thesis around refi, regenerative finance, you know, the Web3 environment and curious, like, what's the receptivity you're finding with LPs? Are people understanding this space? Is there more money coming? Is it kind of a crypto winter freeze? Like, where are we at?

I mean, there are LPs where as soon as the word Web3, crypto, or whatever comes up, it's like a no. I got encouraged a few times to actually drop it from our pitch. And no, I'm not fucking doing that. That's what I believe in. That's what I can. That's what we're good in, Philipp and myself. And by the way, I mean, I'm not here pretending that Web3 will solve our climate crisis. That's not the pitch. But Web3, like other technologies, Web3 will help us accelerate scale. And find solutions for the shit we're in. So that's our thesis. And so if an LP doesn't believe in that, I'm not trying to convince anybody. No, it's just a short conversation and then maybe in the next life. And there are some of them. Web3 is just a no-go, complicated, and FTX and the environment of crypto and Web3. Still, by the way, get that every few weeks, a pushback on how blockchain's hurting the environment. All right, um, other than that, it, it, it resonates quite well if, if we present it as one of the tools. Like AI will help with, uh, pharmaceutical research and gazillion other things. AI Web3 will help with a lot of things, among them our climate crisis. Um, and that resonates quite well with investors. The truth is things take a little bit longer. We are not in the best environment to raise a fund as an emerging first-time manager. So would have expected, uh, after we closed our anchor LP in, uh, in, in February, beginning of February, that things move faster? Yes. But these are the days.

So I can understand. Sounds like an entrepreneur turning into a VC and being a bit impatient as well.

Kind of, yeah. I can kind of use the list. It's always hard work to find a lead, like in the VC/founder world. But once you have a lead, typically it's easy to fill. That's not right now. That's not in the LP world, I learned.

Yeah.

That's okay. It takes time.

And it does seem like there's a lot of climate tech financing, funding pools of capital that have been emerging in the last few years for large-scale infrastructure projects. And so how do you differentiate yourselves or see the universe? Is there a lot of bleedover overlap between kind of climate tech and this kind of space?

Look, I mean, it's a pretty unique intersection. I mean, you see that at this event we are today, there is not that many experts that know Web3, like not just from an investment perspective, but from a builder perspective. There's not that many VCs or wannabe VCs, I still struggle to call myself a VC, investors that come from a builder background. More so in the US, in Europe, we don't have that many like Philipp and myself that built 5 companies, a few of them in Web3. So I think that's one differentiator. Like we're really deep in Web3, we understand it. We understand how to build companies. We understand the TradFi world as well, which is important because we build fintech companies. We understand the corporate world as well. We built for, with, against, and now part of SAP, which is the biggest corporate software company in the world. So I think that separates us and differentiates us like quite substantially from other investors.

Yeah, I would say from an entrepreneur founder perspective, you're kind of like an ideal archetype of a venture capitalist because you have a builder and understanding of what it's like to to be in the entrepreneur seat and you have real domain expertise and then now you're also bringing capital to the table. Exactly. Yeah. And we shared an investor, you know, with your previous company and my previous company with Matrix Partners actually. Oh yeah, right, right, right, right. And we had Josh Hanna on our board and on the journey for a long time. Josh is a great guy. He's kind of the ideal VC as well. And part of the reason we all got along so well was because he was an entrepreneur who then went over to venture capital.

Exactly. That's right. So he was helpful. He understood the troubles we go through. So yeah, that's a little bit what we plan on doing and do already with our angel portfolio.

Yeah. Yeah. So if an entrepreneur is thinking about starting something in this field and wants to reach out, I mean, not only just practically, how do they do that, but also like how would you advise them to approach a position or you know, kind of make that kind of pitch or exploration with you?

I mean, for us, it is a differentiator is that there needs to be some sort of Web3 angle. And I get a lot of inbound today where there is not even a Web3 angle planned. That's just something there's better investors for whatever pure MRV or just pick something. It's not our superpower. So if someone wants to work with us, at Crane Earth, there got to be a heavy, at least a plan. I mean, some companies, some projects still build very Web2-y, but have in mind to build the Web3 angle later. We need to see that. We'd love to see that, love to understand that. Other than that, I don't know what else I can recommend. As early as possible. That's one thing we love. Like, PowerPoint is fine. That doesn't mean we would immediately invest. Sometimes it makes sense to work together and get some first traction going. But we like early. We like pre-seed, we like friends and family, we like that stuff.

Nice. Yeah. And do you have any points of view about structuring the financial arrangement with founders? How does that differ in this Web3 paradigm? Because you're bringing the potential of tokens into the equation. You mean like traditionally a Series A might take what, 20, 30% of the cap table in exchange for the check that they write. Pretty clear, right? And now what we have is kind of like the equity of the company that might be raising money. But then you also have like the network, many of these projects that are launching tokens, and those tokens are not always clear in terms of what the securities regulations are even going to be, or they're well in advance, you know, something far off into the future. And so how do you— yeah, like, how is it different in this paradigm?

So, so I don't know if I have a super answer here or perfect one. I'm just sharing a little bit what we did at Centrifuge in 2000, what was it, '17? Like really early, 6 years ago, we raised a very traditional seed round from great investors, Blueyard, Mosaic in Europe, and Semantic Inflection, Web3, Web2 investors. And we, token side letters didn't exist back then, right? Which we see today. But we had a little of a, a statement in our investor rights agreement that at one point there will be a token and we'll figure it out together. Obviously there was some legal language around, but actually fairly simple. We'll figure out together how we convert then your equity into the resulting token if there is a token. Um, that is not enough. The second thing I would encourage you is to make sure you pick the right investors that understand that, that you trust, that you can work with. Like, I mean, If I'm investing in a startup, I, and it's so early stage, it is not clear how the token will look like. It's not clear what the ratio should be between the equity, how many tokens everybody should get. So the only thing I can say is like, look for an investor that understands that there will be a token, is okay with it, and where there's trust between the founders and the investors that this conversation will be done in a way that makes sense for all parties. And then obviously, one given, even if there is a token coming out, there got to be a lockup. Similar to the equity takes longer to be liquid, you need a token lockup defined. But I like to define those things along the way if you have the right investors. And that's a big if, I will admit.

Yeah. Yeah. And I guess I'm a little bit like skeptical that this is going to work out as well for a lot of Web3 founders because it seems to me like we don't have a lot of exits, clearly, or IPOs in the Web3 space to draw upon. So a lot of the investors for the last several years are either basing their returns on token returns or on still future hopes and dreams, right? But we don't have like very clear— there's not a lot of M&A, there's not a lot of exits. That's true. So it does seem like we're a little bit schizophrenic of, are we thinking that this is going to be like traditional technology companies where the equity of the companies are what really are going to provide the returns? Or are we moving into a token paradigm where the tokens are the returns? And, you know, maybe, maybe the founders are getting best of both worlds because it does seem like a lot of people are trying to take two scoops, right? They're increasing the surface area of financial capture. You can invest in my LLC or my C-corp over here on the equity side. And oh, by the way, I have a token and I have this much reserve for the team and so forth. But ultimately that money somewhat dilutes, right? Like the total value capture has to then now sit in two buckets. And so, yeah, I'm curious how you think about that.

And I don't believe in that actually. I mean, I believe what you said, but I don't believe that it's the right strategy. So I'm a little bit like, I understand as an investor, I want the insurance of having equity in a company. But if it's clear that this project is building something that will result in a token network or whatever for scale, whatever the reason is that there's a token and there are many, I understand the investor perspective of having equity in a company in case the project pivots or issues a second token or whatever the insurance policy gives you. But there got to be at some point in time a decision between the two. I do not believe that it's helpful to have equity in a company and at the same time token in a token network both are live because very likely they're conflicting priorities. Like there's a for-profit, maybe there's some consulting stuff often going on ahead those situations and completely different incentives than maximizing here the token and scaling the token network. So I do not believe that the same parties should hold equity and token in the same project. I just don't think that works. Yeah, we closed actually Centrifuge. The equity doesn't exist anymore.

Oh, cool.

So we literally migrated over and there is no company.

Yeah, I think that, I think that I'm, that's what I'm basically trying to say as well. I do think that, yeah, making a choice is, is cleaner and better. And especially since the token will often have mechanisms of value sharing with users or other stakeholders. And that's part of the beauty of tokens, right? Whereas traditional Web2 companies, they didn't share their equity with the users on the platforms, right? I don't have any equity and upside in Facebook, right? That's right. Whereas in the Web3 world, I can potentially participate in the overall value creation by having tokens as a user of some new Web3 social network. And, but if we split the two value capture mechanisms out where there's equity in the company and then there's the token, then you now have kind of conflicting incentive structures, right? Exactly. And of course, if the investors over here on the equity side, um, then that means less for the users and the stake— the other stakeholders of the ecosystem.

I do understand the investor view though, and I still got to get used to being one of those. Um, I mean, there were many, many projects that had pretty big fuck-ups by issuing just a second token, weren't happy with the first token, and then investors were out of luck because you got that first token, but the new one It's just not yours or just got portion of it. If you at least are in the equity, you can control somehow the issuance of the token.

Totally.

So that I understand this game as an insurance policy. I still don't like it.

Yeah. So it's basically just at a developmental level coming in, in the equity of the starting legal structure makes perfect sense. Correct. But then working towards, if there is a roadmap towards token, working towards kind of the migration of that equity. Into a shared token incentive alignment pool with all of the stakeholders. Exactly.

You make a choice at one point and don't hedge all the time.

And how concerned are you about the current regulatory landscape being in the United States very unclear about how to do tokens?

Very. I'm not a lawyer, not a regulatory expert. I always was fortunate enough to have some co-founders around me that were deep in that stuff. I am looking what happens in the States right now. I feel actually some of the startups that I advised or angel invested in the last few years, I always push them to have some, not a subsidiary, but of the headquarter move to Delaware. Feel a little bit bad right now for some of those because it's very unclear. It's very hostile as we all know. I don't know where it will end. Politically, it's unfortunately on the wrong side for me personally, the ones that favor crypto. So it's very difficult where the US will end. I'm hopeful though, about Europe in that context. So Europe has a little bit clearer regulations or coming regulations, some of them actually acted on that give me as a founder or as an investor clearer guidance what I can do and what I can't do. So at Centrifuge, we always, because it was unclear, played very conservative. And I feel in Europe now, we know pretty much what's possible, what's a stablecoin, what isn't, what's the security. But when it comes to the US, I don't know where this will end. It's just not looking good with the SEC being unclear and pretty much every other body being not helpful. It's not a climate where, as a founder, As a founder, I wouldn't found right now in the US. No, I would wait. It hurts me.

Yeah, it is painful as an American citizen to see the brightest—

The brain drain.

Yeah, folks in this space.

I'm a citizen myself, US, so I'll feel you. It just hurts me to see that everything— I'm European too, so kind of win a little bit. It's like in soccer when I see Germany, France, and the US, I have like 3 horses. But it still hurts me to see people leaving whatever, San Francisco, New York for Asia for somewhere because it's just clearer for them. It's easier to build something there.

Yeah. And I guess, I mean, it remains to be seen because it does feel like San Francisco is somewhat reclaiming its place in the technology ecosystem with AI.

It does.

It seems like all of a sudden, you know, we're back to San Francisco with the AI ecosystem. But I am curious like what, other places you see emerging as hotspots within Web3 for talent?

Yeah. So Berlin for a while, pre-COVID, I would say was definitely such a place. COVID, people left and all over the world. Portugal is pretty dense. So Lisbon is quite nice. Madrid, not so much. I tried to change it a little bit and attract some founders there. There's talent in Madrid. Just no crypto mindset. But yeah, Berlin, still a little, Lisbon, Asia, I'm not an expert. I mean, obviously, there's a lot happening there, but it's not my area of expertise or superpower there. But I think Singapore could be a winner. Yeah.

And when you come to the States, is it mostly New York and San Francisco?

It's mostly San Francisco, sometimes New York. Yeah, those are the places. Yeah, I lived 12 years in San Francisco, so that's why it's natural to visit friends there and then do business. But yeah, it's mostly, mostly San Francisco.

Got it. Great. Well, are there any other thoughts or reflections on the Web3 space more broadly and kind of the moment we find ourselves in 2023? We're here at the Refi Summit. Yeah, I was just curious, any other commentary?

I don't know. I mean, we talked a lot about carbon. I mean, refi is broader than carbon. Briefly touched on a couple of areas. So quite excited to see those areas, whether this is renewable energy on-chain, whether this is biodiversity, whether this is even boring stuff like traceability on, on, on supply chains, moving them on, on public ledgers. So I think there's a lot in refi happening that's outside of carbon. I just want to clarify that, and we're excited about that.

Great. Any final words or messages?

No, um, let's keep building. Let's keep doing cool shit. I would love that.

Awesome. Thank you, Max, for being here.

Thank you.

Cheers.

I hope you liked that conversation with Maex Ament. I thought it was interesting what he said about assets not just moving on-chain, but really originating on-chain. I also appreciated what he shared about when there is a token, focus focusing on value accrual there rather than splitting it with company equity. And of course, it's always sad to hear about the brain drain from the United States in the entrepreneurial community due to regulatory uncertainty, but hopefully we can see more constructive approaches soon. To learn more and engage with Crane Earth, go to craneearth.vc. You can also check out our conversation with Philip Stelic, co-founder of Crane Earth. There's a link in the show notes. You can see all of our discussions at maearth.com. Please like, share, subscribe, and I invite you to join our community Discord as we explore these intersections of regenerative finance, technology, and our living planet. Thanks for tuning in, and I'll see you on the next one.