Raising Crypto Unicorns | Andy Tang

In my opinion, catching the next crypto unicorn is a fool's errand. I think if it's already a unicorn, that means it can't be caught. So my keynote is to help you identify a unicorn early, and then an idea of how to raise it. So that phone in your hand is as powerful as a mainframe computer from 30 years ago. Okay? It's as powerful both in terms of computational power and communication bandwidth. Based on hand-waving argument, you can start seeing that phone in your pocket is really a server, right? So we basically, each one of us has a server, right? So we can start, you know, function as a server, run applications, you're essentially a node, and that's what powers blockchain. So, I have a thesis that as time goes on, what happens is that the blockchain adoption is actually similar to internet, but it's internet squared, right? So, the 2 components are your computational speed and computational power, or the communication bandwidth, right? So, that quadratic relationship allows this particular application to spread a lot faster than even the internet. So to identify a unicorn, how many of you attended one of these schools? These are all, you know, so-called Ivy League schools. These guys, if you think about identifying talent, they're very good at it, okay? And specifically, I show you how they prove they're good at identifying talent, right? They continue to draw from the top, you know, students from the world. But what's interesting is that if you wanna think about a function of a school, right, the function of school is to recruit talent, right? And then in theory they add some value and the talent becomes even more talented, right? You have to start thinking about the 2 different components, identifying talent and then adding value to the talent. So I'm partnered in 2 funds. Classic venture fund, Draper Associates, and then Draper Dragon Fund, cross-border China-US. We also have a crypto fund. I also run Draper University. So this is a school, the stats we have, right? There's a lot of, there are a lot of numbers, but the number I want you to look at is the 2,700. So we track our students not by salaries they receive after school, But in fact, we track by how many jobs they create, right? So that's how we measure value-add. So I try to look at our portfolio and figure out how we identify talent. I look back at, you know, last 15 years of my investments, probably made 50-some investments, you know, traditional venture-backed companies. And what I found was very interesting. I had probably 90% of the founders I backed are either technology or domain experts from that space, if not 100% technical. The second thing I noticed that these founders are mission-driven. So that's something we always look for. They wanna do something because they feel like something needs to be changed. Any parents in the house? I'm gonna keep asking this question until I get more people to respond. World-changing opportunities. You know, when you were a kid or when you at least watched TV, watched movies, they said you could be anything you wanna be. Right? So that's actually for real. We are looking for that kind of people, that kind of people thinking they could do anything they want to do, right? Anything you could do, anything you could, you could be or do anything you wanted to be, because essentially what that described to me is a transformative idea that has a big market, has a big outcome, and that makes the math work for an early-stage venture capitalist who takes lots of risks. It's all about risk-adjusted return. Last one's ability to navigate unforeseen challenges. Again, you see this in kind of the parenting landscape of helping your kids figure out what to do instead of telling them what to do, right? Because when you have 2 people and a piece of paper, oftentimes the plan changes. So when we invest in early-stage entrepreneurs, I don't think I've ever seen a business plan that, you know, when we receive it and then we compare that when we exit, it doesn't change at all. Typically it changes at the first board meeting, right? It's called the first board meeting shock. So, and that's okay because you do want people to be able to adapt, right? You want a good captain. These are our graduates from Draper University. These are just on the blockchain side, so you probably recognize some names from Qtum to BitBounce to Datawallet, and then we also have a dual that's working with government to try to create a free tax zone for crypto companies, right? One of the biggest challenges for crypto companies is no one wants to domicile them, right? So, you go to weird places like Zug or, you know, Singapore, but we want to create more of these crypto-friendly governments around the world. So now that we talk about identifying talent, how do you— or identifying a unicorn, how do you raise a unicorn, right? Again, parents in the house? All right, reluctantly. Be a consultant, not a manager, right? So what we do is we try to make sure we give our companies a lot of space, let them do their thing, because they're the entrepreneurs and we're the investors. They should know a lot better than we do. Second thing, founder support. What we find is that we actually see more support between the founders themselves, right? Especially on the blockchain side, because there are so many new things going on. There's under our portfolio about 30 crypto companies. They form a network and help each other out. And that actually beats a hub and spoke, we helping them. So we also believe in creating winners, right? So we pride ourselves in identifying unicorn early, but inevitably sometimes we make mistakes. Even when we do make mistakes in not sort of finding the best opportunity, we have ways to help them become successful, right? We wanna plug them into our, partner network, which I will talk a little bit about. Finally, last 2 points. You know, we have a large portfolio of companies, and we continue to take those companies from the equity side and encourage them to move to the blockchain side. Just to talk a little bit about my investment thesis on the crypto side, I kind of break them into sort of 3 main areas. The one on the right probably is the easiest to explain. So, these are what I call the blockchain precursors. I would invest equity in companies that has nothing to do with blockchain, but I see a vision of that company going into blockchain. So that typically would take, you know, 18 to 24 months for them to, you know, get listed. And then on the token and the equity side, so the blockchain space, we kind of split that into 2, infrastructure or support services and applications. So I think blockchain is still very early in its development, So, there's still a lot of work that needs to be done on the infrastructure side. Think of this as intranet 1997, 1999. You have lots of communications equipment opportunities, Juniper, Cisco, Extreme, Foundry, all these companies, they need to sort of happen in the blockchain space to make the infrastructure faster. At the same time, we, we always need applications on top. And then around all of that, you need media companies, you need exchanges, you need service providers for for the whole ecosystem. So, we're active investors in all the above categories. So, this is just an overview of our portfolio. Last year, we were in 2 of the top 3 ICOs globally, Tezos and Telegram, and in China, we're in 2 of the top 5, VeChain, Qtum. And on the equity side, we're in Coinbase, you all know, and Ledger, they've just shipped a million hardware wallets. The most active, and they're also the leading custody service provider for institutional investors. And this year, 2018, we have invested in a few early-stage companies. Actually, Uconnect, sponsored by Silicon Valley Insight, is one of our investments. Ultrain, it's a public chain, but former Alibaba team. Oasis out of Berkeley. Quarkchain, former Google team. Tanta, permission-based blockchain out of China. So, these are kind of the, what I see as the next group of new unicorns we have identified, and we want to push them to that next stage. So, one of the things that we pride ourselves is the Draper funds are around the world. There are 22 of us, and that's actually one of the key things how we help our companies. We believe blockchain is a global movement. If you look at blockchain white papers, typically it's a United Nations. You see companies, founders from different countries, and they work in a distributed fashion, open source, and our fund has been this way since 2000. One of the things I spend a lot of time on helping our portfolio is to develop exchange partnerships, and we also believe in this idea of a distributed partnership model. In other words, imagine a world full of cryptos in 20 years. What has to happen is there has to be a transition from fiat to crypto, Right? Today, fiats are very distributed. When you go to Europe, they use euro, you know, there's Australian dollars, when you go to, you know, China's RMB, when you have Japanese yen. So, you actually, by definition, you need to have onboarding mechanism for new users based on local fiat currency, right? So, that is the anchor for our exchange strategy. Right. So specifically in the US, we're very— so we're either investors or partners in all of these exchanges listed, right? So we have a longstanding relationship with each one of them. Essentially, I only send them my best deal and they know that. So any deal we send to them gives them a bit more confidence that it's a legitimate team that's gonna be around for a while. They're here to, you know, change the world. So we basically have relationships with these exchanges from in the US, China, Korea, Japan, Australia, down to Latin America, and we recently also invested in an African exchange. So we cover all continents. And I just want to talk a little bit about why I think exchanges are so important. In the old model, you know, so after my engineering job in business school, I spent some time on Wall Street. And our typical process was we would look for companies that have already been in business for a while. You know, they've gone through, you know, founder bootstrap for a couple years and then go through the venture ABCDEFG, you know, rounds of financing. And then you do a mezzanine round and then you take them on a roadshow, you charge them 7%. So that whole process is, you know, close to 10 years. But what I see the paradigm shift is that you have a project, you have a founder, you know, you raise a round of equity from early-stage venture, and then you go ICO, and then you list on the exchange, right? So, it's actually quite a lot more efficient. So, what you really have is exchanges are so important in our ecosystem in that it ensures our relationship with the end consumer or the end investors. So, that's why we spend quite a bit of time cultivating these relationships, and I call it the new Wall Street, because I think at the end of the day, They control that relationship with the end investor, and it's a good thing it's actually not monopolized, you know, it's fairly distributed. In addition to exchanges, our blockchain companies, this is all through our, just our battle experience, this is what they need. Oftentimes wallet is a big challenge for them, especially user-friendly wallets, you know, tools like search engine like Etherscan, Banking. If you're a crypto founder, you raise money, a lot of these US banks just don't want to bank you, right? And we have a good relationship with Silvergate. You know, discovery on the internet today is still, you know, CoinMarketCap is still the de facto discovery engine. So we have a good relationship with them. So our goal really is to help our founders. If you identify a unicorn, the easiest way for them to fail is when they get distracted, right? They typically come with a good idea, But if they're spending time trying to get a bank account, trying to figure out how to get their coins listed on CoinMarketCap, or, you know, focus on non-core functions like wallet, this will actually cause them to fail. And our goal is to basically take all of our portfolio and provide some centralized services. Last but not least, none of us would exist, would be here 10 years from now if we don't have customers. I think we're in a grace period right now, okay? You call it honeymoon. But eventually we need to create revenue. I don't care who you are, right? We've seen this movie many times. We've seen this in internet, we've seen it in clean tech, we've seen nanotech, we've seen it in shared economy. At the end of the day, it's all about revenue. It's about profitability. So crypto out of the Draper Funds probably is 10% of our portfolio. In other words, these 50 crypto companies we have as our portfolio company, we have 450 companies that have nothing to do with crypto. And these companies on a daily basis sell to these Fortune 500, you know, companies. And basically we have created this network of customers that we want to bring to our crypto companies. And that is really, I think, the key to make crypto companies successful. At the end of the day, you need customers. Lastly, any parents in the house? All right, so I mentioned, sort of kind of sidestepped a little bit, my 2 kids. You know, you could tell this is a first world problem. Which kids would have frowned when they were sucking on smoothies? You know, when I was a kid, I was drinking from tap water, and on a good day, we'd get boiled tap water. So I mentioned quite a bit about You know, our strategy in working with our portfolios, right? So I'll just mirror that with parenting advice, right? The first one, and I didn't make this up, it's over the years I kind of collect this from, you know, various places. Be a consultant, not a manager. Very important, okay? Sibling support. I think, you know, I always tell my kids, one day we're not gonna be around, so it's you two have to help each other out. So as a venture fund portfolio, you can't rely on us, but but you gotta rely on our breadth of portfolio CEOs. They help you a lot more. You can be anything you wanna be. Gotta dream big. You know, small idea, not interesting to pursue. Self-regulation versus parental control. If we always tell our kids what to do, it fixes the problem right away, it doesn't fix the longer— it doesn't help them in the long run. So what we really try to do is get our CEOs to think, for themselves and to navigate the tough waters ahead. And we can never predict what's gonna happen, so we look for the people who kind of almost look for these challenges and then, you know, embrace them with open arms. So with that, enjoy the rest of your conference and have a good time. Thank you very much. Thank you.