Maex Ament (Centrifuge) on Raising & Surviving in a Bear Market

Coming up on Bridging the Gap.

Having a marketing strategy is key, but what is often confused, and I feel some founders or some projects maybe made it a little bit too easy, is confuse a good marketing strategy with just having a community, just having a great Discord channel, having many likes and Twitter followers. Those things are nice to have, but it's not making or breaking again the startup.

Welcome to Bridging the Gap, a Web3 podcast dedicated to uniting the perspectives of visionary founders and forward-thinking investors, covering the world of decentralized technology and discovering the stories, challenges, and breakthroughs responsible for defining the future of the internet. Bridging the Gap is created and hosted by the VTVL team, a Web3 token distribution and investing platform. Check us out at vtvl.io. Today's guest is Maex Ament, angel investor and co-founder of Centrifuge and previously Talia, which was acquired by SAP. Backed by Coinbase Ventures, Galaxy Digital, and other leading VCs, Centrifuge tokenizes real-world assets and allows users to borrow against them. Users can take any real-world assets such as mortgages, invoices, and carbon offsets and finance them on-chain. To date, Centrifuge has over $120 million worth of TVL, with the platform growing exponentially on a daily basis. Let's dive right in. Hey, Max, thanks so much for joining us today. How are you doing?

Hey there, thanks for having me. I'm doing good. How are you guys doing?

Yeah, we're doing great. Me and Vivian are both really excited to have you on, and I think it should be quite an interesting conversation. The first topic I wanted to cover is raising in a bear market. You're obviously an experienced founder and have substantial knowledge raising from investors. Even looking at Centrifuge's Crunchbase, you've raised multiple rounds throughout 2018 all the way to 2022, including a raise in the depths of the bear market in 2019. From your experience, what were the key differences when raising in these different market conditions, and were there any lessons learned about adapting when raising during different market cycles?

Yeah. So I mean, to be fair, the team that built, was building Centrifuge, that's not our first venture, our first startup. We had a few companies before outside of Web3, to be fair, but still some experience. So I guess in some sense it was easier for us to raise money even in a bear market because we were serial entrepreneurs. I think I just want to be clear that whatever I say, might not be 100% applicable to everyone else. Nevertheless, I mean, I share or try to share some of the learnings. Happy to do so. And the second thing is that maybe one thing that we did different than some others in end of 2017 when we started and then closed the round in 2018 when really the first bear, not the first one, but the 2018 bear started, well, we chose to work with a mix of very traditional investors like Mosaic and Blueyard. Those were our lead investors that invest in SaaS companies and fintech, but as well a little bit in crypto, and then combined that with some crypto investors. And I think that helped us then in 2019 when we raised the, like, call it a seed extension maybe, to actually get some inbound, some interest. Easily from not only crypto investors, because crypto investors were maybe a little bit careful at that time. So I just want to preface that and share that situation. It was slightly different. But I mean, yeah, lessons learned, what doesn't work anymore, what's different now. I mean, I remember a year ago as an angel investor, you had to decide pretty much on the spot if you invest in something. And often VCs that I spoke to and that I'm affiliated with had to do the same. Like fast decisions because the startups, the projects, the protocols were just able to create FOMO. Like, this is the timeline. In 2 weeks the round is closing. Be in or be out. Here's the SAFE or the SAFT or the side letter or whatever it is. They're just not working anymore. So I met still a few founders that try to create those timelines and milestones and deadlines. And although I'm a fan of process in fundraising that doesn't work anymore. He's just like, okay, we close next week and then there's a 4-week of term sheets, whatever. That shit doesn't work anymore. FOMO, the FOMO creation from the founder side is unfortunately out. Again, exception is you're 5-time whatever founder and doing something in climate right now. Yeah, maybe, or in AI for the next few months, that will still work. But other than that, I think The FOMO thing doesn't work anymore. And then, I mean, you read that in every freaking blog. Just not sharing any super insights here, but what founders these days need to understand, the only thing that matters is really survival. So whatever it takes, delay hires, cut burn, just live another day so you can actually increase your traction, increase your metrics, talk to more investors, convince them. It really is about survival. So cut down the cost and as well, leave the ego at the door. If you have to go lower in your valuation, either lower than your previous round or lower what other startups raised 6, 12 months ago, then so be it. Then just raise for a $5 million cap instead of the $15 million that we had or the $20 million that we had a year ago. So I think that those are some obvious ones. And the one thing I actually realized, and I realized it for myself as well on the other side, raising right now my own fund, I think we have to get used again to no as an answer. Like, no, I'm not interested in your startup, and no, I'm not investing, and no, I'm whatever it is. Like, the nos. I had a few in the last few months on a few occasions with other startups and founders. And I'm realizing that it's a tough one, specifically for folks that lived in, I don't know, '21 and '22 only, or '20 and '21, let's say, and just got yeses and yeses and yeses. So we got to get used to the nos. It hurts to get rejected, but the earlier we get used to it and take it as a motivation and inspiration to do better next time, the better will be. Yeah, so there was a lot of stuff. I'm not sure. Again, nothing super exciting, I guess, just obvious stuff.

Yeah, that makes sense. Thanks, Max. I mean, just digging into that a bit, you said, you know, do whatever it takes to survive. Um, given you, you've sat on both sides of the table now as a founder and as an investor, have you seen, since FOMO isn't working as much, what are the founders doing in terms of adapting their fundraising strategy or survival tactics in, say, this time, uh, this version of the bear market?

Yeah, yeah, yeah. I mean, uh, there's, there's a few things. So let's start on the, on the burn. I mean, whatever you can cut, uh, in terms of salaries, just do it. Um, meaning letting people go that are not necessary, not, not crucial to the growth. Um, carefully looking at your engineering team. Is it really needed right now? Can we do with less here? So really just on a really people-cutting-cost perspective. We all love conferences in crypto and it is necessary to go to them because that's just how it works, that's how the community works. And maybe later we talk about this weird word community. But in general, I would say pick a few conferences, not 12 a year that many did, like it was a monthly thing, but pick the one or two that actually really matter, where you know from other founders that they mattered. And it's not just the cost of the conference, like the hotel, the flight, it's the time as well that you spend at a conference. Yes, we can argue again, it's good for networking and you make valuable contacts, but on the flip side, it's very often a freaking week that you as a CEO, you as a founder, um, are not doing anything else. But let's be honest, uh, if you're in a conference, you're in a conference. There's side events, there's everything. Nothing else gets done, um, other than the conference. So that's, that's very often a week not wasted, but spent on something which I would say, uh, does not help with survival necessarily. Um, and then, I mean, if, if you have believers in the team, if you hire the right team, they believe in the mission, they believe in the, in the protocol, in the project. Talk to them, convert some of the salaries into, depending how you structure it, into equity or token promises, options, and extend your runway with that. Those are some of the things we did.

Yeah, that makes sense. Seeing as you're touching upon converting salary into equity or tokens, last year was obviously a bit challenging for projects launching their tokens. We saw a lot of people delaying their TGs or delaying their token launches. Um, where do you think we're at now at the beginning of a new year? Do you think the tides have turned? Do you think we're still heading towards the bottom? Like, what are you observing?

I don't know, the honest answer. Pretty excited about the last few days seeing, seeing Bitcoin and ETH and a few others, uh, um, uh, going in the right direction, but I, I'm not, I, this is different this time. I have a feeling. So whatever we predict in crypto, there's a, a whole macro outside of crypto, and I'm not economist, so whatever I say is probably complete bullshit. Uh, but there is definitely a world outside of crypto that is not in favor of, uh, startups of fundraising of, uh, yeah, of the economy in general. And so it's impossible for me to predict whether, um, it makes sense to wait with a token launch. I don't know of a lot of projects that actually said, damn it, it's right now, January is over, February, March, we launch our token. I don't know a lot of them that have made actually that decision yet. As a matter of fact, I don't know a single one that goes out now with a token launch. No.

Okay. Yeah, that's fair. Why did you mention that, you know, community was a weird concept?

Yeah, I think if there's a vibrant community, there's a How would I say that? I'm a big, big fan of general marketing. It's one of the most undervalued and underestimated things when building a company is to do marketing right. Specifically being a German, not easy for us to think about sales and marketing. So it's a dirty skill almost, but converted when I lived in the US for many years that sales and as well marketing good marketers are actually making or breaking a company. So don't get me wrong when I want to say now about community, just generally having a marketing strategy is key. But what is often confused, and I feel some founders or some projects maybe made it a little bit too easy, is to confuse a good marketing strategy with just having a community, just having a great Discord channel, having many likes and Twitter followers. And what the fuck do I know? Those things are nice to have, but it's not making or breaking again the startup. It's not making buyers of your whatever service it is, of the token usage, of the token. I don't believe that. So I'm concerned that some founders, some project leads in protocols over-index and overemphasize the community aspects and building the community and fostering the community, whereas just thinking about real marketing and real sales and real go-to-market. That's why I'm a little bit, yeah, and it's maybe controversial and I'm not making friends by saying that, but it's just something I would like to emphasize specifically probably in the bear market.

Yeah, that's quite an interesting take. I guess during a bull market you see a lot of different projects getting quite a big user base or community of some sort. To some extent, that community probably comes from a retail crowd that is trying to speculate on a token or various other incentives the project may be offering. However, obviously when the bear market comes, you have way less of that as token prices are generally down and sentiment is overall much worse than it was during the bull market. So my question is, do you have any rough examples you can give of marketing tactics that you've seen Web3 projects utilizing right now which are actually working and having success in the bear market?

I can try. Um, so I mean, the same what I said about the conference attendance. Um, there's a few things. Let's discuss marketing. So when it comes to conferences, um, as old school as they are, and maybe I'm talking here a little bit more about, uh, B2B or enterprise crypto if you want, meaning, uh, where, where the usage is more not on the retail investor. I think the same, what we just discussed about attendance for individuals is true as well for a protocol or project to pick fewer but the right events and make a big freaking deal there. Whether this is through a side event, which we at Centrifuge and other companies I work with did very successfully, whether this is through a larger presence questionable whether this is sometimes through a speaker engagement. But I think less is more, less conferences. But then rather, if you spend that money, spend it right as a project on the right one or two conferences that you picked. Maybe it's, I don't know, Mainnet in New York, if that's your crowd. Maybe it's permissionless and maybe it's Consensus, whatever. I just really not qualifying any or criticizing any of those, but just pick one or two and go with them. So that's one thing because yeah, they work. I mean, if you look for institutional investors like we do at Centrifuge, then there is a conference for that where you just show up and then you meet with the bankers and insurance companies and whoever is your potential buyer, investor, or customer if you want. So old school, but still works. People show up there. We started doing a lot in the side events, by the way. I wanna emphasize that like little tiny side events curated where you get a few people in a room and on a panel. I think that is a powerful thing that I see in the real world asset space, but as well in the refi climate space done quite successfully with companies I work with, including Centrifuge, obviously. And then, I mean, PR done right. Just be consistent with your messaging. And talking to the journalists, they always look for good stories and it's way more valuable to have a good coverage from some of those outlets than tweeting all day or having a great conversation in Discord. Again, unfair here, a little bit controversial, but I don't think that gets you real usage to have millions of Discord users talking about your token. And chilling it. So those are some basic things that we applied. So having a proper marketing function is a starting point for a project. I had a head of marketing or a CMO or whatever you want to call him or her is a starting point rather than having a community manager. Not saying community manager is not valuable, but I think I would prefer a marketing manager and then having a community manager afterwards.

Yeah, definitely makes a lot of sense, uh, to some extent just because the Web3 space is still fairly small. I guess you can leverage a lot of these different events, finding the most relevant ones for your project and interacting with the inner community of those events, especially if you're in the B2B, uh, niche and you're not focusing as much on the retail crowd. Going away from marketing and going back to raising, if you're a Web3 startup, probably like a younger project with a small team that's just getting an MVP going or starting to build out their idea. How do you figure out your valuation when you don't have any substantial metrics to show? And do you have any advice for newer founders who could be in a similar position?

Yeah, my first answer is that I don't mean it in a really bad way, but who cares? Like, I want to build a startup. Um, it's my first round, I assume I'm raising, uh, or you think about raising. So I mean, how much money do I need to build what I want to build? And I'll just go from there. That would be my first assessment, not looking what had been a year ago, the valuation. I mean, secondly, it had always been the way, just we are a little bit spoiled from 2021, I guess. But I do believe unless you raise from angels, that if you speak to VCs, you get actually a pretty good feeling what the valuation would be that the venture investor, the venture capitalist would buy. So what I'm saying is that maybe again, old school, but let the VCs, ideally multiple of them, set the price. And the more interest there is in your project, the better the price will be. That's how I did it or tried to do it in the past. So that's one. And then obviously you can compare yourself with with competitors. They're always competitors. And derive if you have to, if you do an angel round, if they ask for a safe and a cap, then get your cap slash valuation from peers or competitors. But again, I wanna emphasize that it's one of the things that I hear quite often from founders I work with, by the way, Web3 or not Web3, it doesn't matter, is what should be the valuation? How much should I dilute myself? How much, in, in this round. And, and I don't know if that's the number one discussion we should have right now. Again, it's about getting this baby off the ground, and it's about not dying and running out of money. Yes, we don't want to delude ourselves as founders so much that we're not incentivized anymore. I understand that, and I've been there myself. Um, but, uh, I, I believe, again, using the word here, it's a little bit over, over-indexed on the We need the right valuation. So we, uh, it needs to be as high as possible. So the founders are not disadvantaged and they're motivated for the next 10 years to run this project. I don't think it's that important.

Yeah, very fair. And you also indirectly answered my next question regarding how much equity you should give up when raising in the context of whether cash or equity is more important. I guess this is fairly obvious, but Based off of what you said, I guess it's more of a balance between having enough capital to sustain yourself and your team while also not completely diluting yourself and thinking a bit more long-term.

Look, I, I cannot buy food with equity. Uh, I, I, so yes, I understand that. Again, we don't want to dilute ourselves too much. We need to stay motivated. We need to have enough left for the next rounds. Clear. But number one priority is to keep that baby running. And to keep that baby running, we gotta feed, we gotta feed the employees. We gotta pay rent, we gotta fly to those conferences that we discussed, and we gotta hire that marketing person. So that costs money. So I need cash. That's my number one priority. Don't get me wrong, I'm not saying here it doesn't matter and dilute yourself like crazy and give the company away as a gift. That's not my point. But I think we are spoiled from 2021 where All right, maybe a 12% or 13% dilution. That's not the fucking topic right now. The topic is, do I have another month to live? Can I build this baby or go back and work for, I don't know, JP Morgan again? I think this is the discussion we have right now. So yeah.

Yeah, 100%, Max. I want to move away from fundraising a little bit and just look at the current climate through a different lens. So obviously there's a lot of Debbie Downers out there talking about how the bear market is full of doom and gloom. But often the builders say, you know, there's a positive spin to this. There's a lot less noise, distraction, and some positives of this current climate. What's your view of this? Is there sort of any potential opportunities of having a bear market that you think founders should be paying attention to?

I think there are. I mean, in the pre-seed. So starting right now in the pre-seed area, still a lot of deals are done. Maybe again, not the $15 million valuation, but if you're passionate, um, uh, about building something, I do believe it is actually, and if you're a good founder, right? I mean, passionate and if you're hardworking and talented, uh, then I do believe it's very doable to raise a pre-seed round right now to actually get your startup off the ground because money still needs to be deployed. And in a pre-seed, it's a founder bet. So those are still done. So I actually like and did a few startups in bear markets. Centrifuge to some extent at one of those times, but the previous one as well, Talia, a company that we founded in 2009, was just right after the financial crisis and it had some advantages. So There was less companies being built. That meant you had more attention from some of the investors. It was easier to find co-founders. That was not the case for my companies because we were already a team. But for other companies I work with, it is easier to find the right co-founders. If you struggle, I mean, 2021, it was impossible to find a co-founder CTO. That is now again feasible. Generally hiring, that's known as well. Generally hiring is now not the hundreds and hundreds of thousands of dollars per whatever engineer, but it's back to somewhat reasonable numbers. Not everywhere, but in most areas and most projects. And then maybe more on the, yeah, not so, is it positive or negative? It's a neutral thing. If you are, Right now, a startup project protocol, M&A opportunities in both sides exist now because yeah, just, just many are tired of a bear market and giving up. So there might be an easy merger that you as a startup can do with someone else, bring on. And if you're a little bit later stage, right now, if you want to land your startup, it's doable as well to find a willing buyer. Not maybe for the price from last year, but it's, it's, it's a more active M&A market, I would say.

Yeah, that makes sense from a deals perspective, especially. How about from like a product development standpoint? I know there's a lot of hype around, you know, ZK, ChatGPT, anything AI at the moment. But for you, what are the sort of like 2 to 3 key areas that you think any builder within crypto should be focusing on refining and getting better for? More adoption in this space.

Yeah, I mean, I'm, I'm like super deep and all committed in, in refi right now, regenerative finance. And why is that? Well, first of all, because we fucked up this planet, and anything we can do to, to solve climate change, um, is, is probably a worthwhile cause. Um, but besides that, refi is for me the definition of why we did crypto the last 5 years. So why, why did we do all those DeFi protocols, those tools, why are they around? Well, to do something that has real-world impact. And what is real-world impact? Well, something that benefits projects that develop nature-based solutions around carbon credits, projects that create solar panels. So using tools from Web3 to finance things, that's what we do at Centrifuge, for instance, using the transparency and the real time of blockchains and crypto and Web3 to create markets that are ideal in price finding, like for carbon credits. Those are the things I'm really excited about right now because I see the real world impact on the things that we built over the last 5 years. And that includes, by the way, the tooling that we built in DeFi, DAO tooling, cap table management, vesting. That's all needed. For, for those DAOs that now operate, for instance, in ReFi. So I think I'm actually super positive. I see those things now nicely coming together. It was a little bit too much casino for me in the last 2, 3 years, and now we see that casino actually breaking away and instead the same tools being used to get money into the real world.

Yeah, that's definitely very interesting. Uh, I also personally think that Web3 needs to progress more towards providing more real-world use cases, whether that's refi or tooling or something else completely different. One thing I wanted to dig into deeper— we already talked about product development, what founders should be focusing on, and community— but one specific thing I wanted to pick your brain on is how existing projects that already have some sort of existing use case which is valuable to users, how should they maintain visibility during the bear market? We already talked about how in bear markets you get declining sentiment and less overall users in the ecosystem. So how should a project maintain its visibility and interest for users during a bear market? And what are some strategies to do that?

Yeah, well, I mean, it's probably— it depends a lot, the answer, on the type of project, your audience. But some of the things is, I mean, use the time. You will not get, like in DeFi, you probably not get to the user numbers that we had a year ago. So don't even try to get there. Um, so things that you do instead is focusing on some key users and make them really, really successful. Successful, maybe money-wise. So instead of having hundreds of thousands of users that do a certain thing, you have a few hundred, uh, you focus on them and understand precisely, you use the time to understand precisely how you monetize. In some areas in enterprise, if you sell to corporates, yeah, maybe it's not about selling to every corporate on this planet. Maybe it's this one. Who do I pick? Let's pick a bad guy. Selling to Shell or to BP and understanding exactly why Shell buys carbon credits and how you can maximize them, that, and how you can leverage such an anchor client then for marketing purposes. So those are some areas like go a little bit smaller, a little bit more focused. And then generally speaking, focus as well. There was a— and it's still the case, unfortunately, I see that in pitch decks— is getting now back to focus. So what really matters, what really my users want, and what can I do? And not just building what is possible to build. So everything. So focus on the core elements of my protocol, of my product. Where I know it benefits my users and someone will pay for it eventually. Pay meaning one way or the other through a token or through a credit card.

Yeah, that definitely makes a lot of sense. Another thing I wanted to ask you about, because you're a crypto OG, you've been around since 2017 or so, I believe. So you've definitely seen your fair share of market cycles. And I just wanted to get your thoughts on the differences between the 2018 bear market and the 2022 bear market. Uh, just for context, I think in the 2018 bear market was, uh, definitely a lot quieter. I think that sentiment was also a lot lower and we didn't see as many raises or new projects spinning up. However, in the current bear market, it does feel a little bit different. Even talking to VCs, it does still seem they are funding projects and there are still projects raising. Uh, it does feel a little bit different than before which I guess is good and shows that there is some progress in the market. But I just wanted to get your thoughts on it specifically.

Well, let's start with the German side in me. This is not just a crypto winter. This is a fucking winter, a proper one. We talked about that before. '18 was slightly different, right? In '18, it was mostly crypto that had issues around crypto, most of the things. Did work quite okay. This time we have a freaking war. We have supply chains that are fucked up. We have still COVID. We do have, uh, different debt bubbles that, uh, about to burst. Um, and, and, and the stock market, uh, the tech is actually, uh, equally bad as a, as, as the token prices if you look at it. So there's not a lot of good right now. Um, so that's, that's a huge difference. Again, I'm started with my German side in me. If I now pull out another side, maybe the American side in me, you are 100% right. In '18, there wasn't a lot of discussions of investors just paused to put the pause button on crypto, period. Right. That is different this time. I do see, as we discussed before, pre-seed and seed rounds be done. I even see some As and Bs if the projects are valuable, if the founders are great. So that is somewhat different. I think it just stems from the fact that between '18 and '22, and I don't have the numbers, but probably you could find it out. How many more wallets do we have? How many more users in Ethereum, for instance? And there's other metrics. How many more people are exposed to crypto? It's an order of magnitude different in those 4 years. So there is just more push. From, from, from the users, from the VC community, uh, from speculators and from some institutions as well. Many of them paused and pulled back, um, but there's other institutional, uh, capital that is actually still pushing into crypto. Um, so I'm happy to see that that was not the case 2018 at all.

Yeah, I definitely agree, and it is good to see that in a global recession slash bear market we're still able as an industry to fund some projects and keep going. Final question from our end, uh, this is a bit more general and there probably isn't one right answer to this because it is situational. I wanted to get your thoughts as a founder and when you're running a project, what is the importance of being aware and prepared for regulatory changes during a bear market? Uh, as a Web3 founder, it definitely seems you need a certain toolset that could be different from the Web2 world, and you definitely need to be able to be adaptable. So I just want to get your thoughts on how founders should be preparing for regulatory changes, depending on obviously their jurisdiction and project niche and the different legalities around it.

Yeah, I don't know if there's a difference between a bear and a bull market when it comes to regulators. I mean, obviously what pushed us to some extent, at least into this bear market, in the crypto world besides macro, with the Terra, the Celsius, and now the FTX fuck-ups. So, and the result of that will be more regulations. So we need to be prepared for that. I hope, and nobody knows, but I hope the regulators understand that this was not a crypto or Web3 issue or DeFi issue, but on the periphery to the meatspace, to Web2, to the real world. So I hope the regulators understand it. I kind of doubt it though, to be honest, that this is understood. And so we need to be prepared. But again, I don't think if you go into crypto, you need to be aware that you play in an area that is still not well defined when it comes to regulations. There might be changes, there might be jurisdictions that change their mind. And you need to adapt to that. So I, to answer your question, I don't think there's a difference necessarily between a bull and a bear to be prepared in crypto. The only slight difference is that what brought us into this bear to some extent will cause more regulations. Yes, that's fair.

Yeah, I agree. And I also really hope that regulators can understand the difference between on-chain protocols, whether that's DeFi or some other projects and more centralized entities like what FTX FTX, Celsius, and those other types of projects that went under worse, since I think it's definitely a fundamental difference that needs to be understood. But anyway, I guess we can wrap up. Max, thanks so much for your time. Just before we let you go, we're stealing an idea from the UpOnly podcast where we ask everyone we bring on to share one piece of advice that they'd give based on their experiences. It could be advice for a new founder that's just getting started, or even an experienced founder, do you have any piece of advice that you'd like to share?

And it's not the general advice I give to every founder, but just because I had a few conversations around that topic, I think there's a book that every founder, whether they want to sell their company or not, just nice to read. It's a 2-hour read and it's called The Magic Box Paradigm. And I think there are some lessons in there and some structures of How to set your company up to, well, whatever you wanna do with it. You wanna be a big company, an IPO, or you wanna be acquired at one point. It's just top of mind right now because there were a few discussions. So Magic Box Paradigm. It's a fun, quick read. Again, nothing earth-shattering new, but a good summary of some tasks that a founder should implement.

Awesome. Thank you so much, Max. We really appreciate your time. It was very insightful, and I think there's a lot founders can learn from this conversation.

We'll talk soon, and thanks for having me.

Thanks, Max.

Thank you for listening to Bridging the Gap. If you enjoyed, be sure to leave a rating and follow us. Our website is vtvl.io. Max's and VTVO socials are also available in the podcast description.