venture capital

Journey to Accomplice Blockchain

Last week, we announced Accomplice Blockchain — I’m psyched to share this news and continue focusing on partnering with entrepreneurs democratizing access to the digital and financial systems.

Unlike the traditional path taken by many of my college classmates (I-banking →private equity →(b-school) →private equity), my professional journey and path to crypto with the Accomplice team has been anything but linear. Here’s really how it all went down:

  • 2010: gifted Bitcoin on USB stick.

  • 2013: exposure to crypto as store of value.

  • 2015: made first crypto vc investment.

  • 2017: joined ConsenSys Ventures as part of founding team.

  • 2018: Accomplice Blockchain.

The USB Stick

Jamie was my best childhood friend — and we were into different things during our high school years. Jamie built computers and read about the latest technical breakthroughs while I played squash and focused on getting into a top college. My senior year (2010), Jamie mentioned this thing called Bitcoin and shortly thereafter handed me a USB stick with $20 worth of Bitcoin. I shrugged, thanked him for the odd gift, and quickly moved on to something else.

Two years later, I received a text from Jamie: “Yeah, so remember that USB stick I gave you? You should probably try to find it…”

To this day, I have no clue where it is. I’ll let you know if I ever do.

Venezuela & Bitcoin as Store of Value

I spent the summer after my junior year of college interning at a small startup in San Francisco. My roommate was from Venezuela, and still had family there. The Venezuelan economy was in complete disarray and amazingly, he had used Bitcoin to move his family’s money out of the country and relocate to Miami.

Up until that point, my impression of Bitcoin was that it was being used for illicit activity, specifically on darknet marketplaces, like Silk Road. Hearing and seeing my roommate’s story made me realize Bitcoin’s immense potential as a global store of value.

1st Crypto Investment

I realized pretty quickly that to be competitive in venture capital as a young person, I needed to focus on one or two specific industries or technologies. For me, that was blockchain/crypto (and also machine learning). My thesis for the space was dead simple: if Bitcoin was going to become world-changing, the traditional system (regulators, governments, banks) needed to know what was going on.

I spoke with a dozen or so companies until I met Michael Gronager and Jonathan Levin from Chainalysis. After our first conversation, I knew these were the guys. Michael and Jonathan are special entrepreneurs, and they kindly offered Converge an allocation in their December 2015 Seed round. They’ve gone on to do some pretty incredible things.

Around the same time, I had read Ethereum’s whitepaper — I was fascinated by the concept of adding logic to payments. As Ethereum went from whitepaper to launch, the ERC20 standard was born, and borderless crowdfunding alongside permissionless transactions were driving crypto to be a global phenomenon.

Joining ConsenSys

As many others have articulated, it’s nearly impossible to rescind from the crypto rabbit-hole once you dip your toe in. It was early 2016, and I was all in.

A few months later, I heard that ConsenSys was thinking of starting a Venture Capital arm — I jumped at the opportunity and joined the founding team at ConsenSys Ventures out in San Francisco. Investing full-time in the crypto space was a thrilling experience, and I met some of my best and most brilliant friends while at ConsenSys.

I was fortunate to have worked closely with a number of internal and external companies including Metamask, BlockFi, Vault, RocketPool, and Quantstamp.

Accomplice Blockchain

I had my first couple of encounters with the Accomplice team, then Atlas Venture, while I was at Converge in Boston. We were in similar circles and every few months, I would stop by their Cambridge office to talk through what I was seeing in the space. These guys were the antithesis of “lazy VCs”, were loved by their entrepreneurs, and had such incredible passion for their craft — I’m humbled to now work alongside this group.

The Accomplice ethos is simple, but powerful: we have entrepreneurial DNA, we are focused on building high-conviction in companies from their earliest days, and we go shoulder-to-shoulder with entrepreneurs.

Accomplice has immense trust from its companies and entrepreneurs, and the community — embodied in crypto through close ties with portfolio companies CoinList, Republic, Hashgraph and individuals like Naval Ravikant, Andy Bromberg, Mike Viscuso and dozens of others.

In my mind, the most compelling part of Accomplice is its deep domain expertise in crypto-relevant areas like cybersecurity, privacy and scaling consumer adoption. Some of Accomplice’s portfolio companies include Carbon Black, Veracode, AngelList, Recorded Future, DraftKings, Hopper, and Pillpack.

Jeff Fagnan, whom I will be working closely with at Accomplice, announcedAccomplice Blockchain on Halloween, last week. To quote his post, “contrarian thinking is our lifeblood, which means we will indeed be fabulously wrong at times. But we will be wrong with the highest degree of conviction, authenticity, and transparency. Just like the entrepreneurs we back.”

In the past couple of months, we have been aggressively pursuing partnerships with entrepreneurs who are building web3 and democratizing access to global financial and digital systems. And we are not stopping anytime soon.

If you are building this vision, hit me up on Twitter or at ash@accomplice.co.

-ash

Token M&A? ICO Exits Could Get Messy

Today, entrepreneurs are flocking to the green pastures made possible by token sales, a relatively new way to bring capital into an early-stage tech company. In fact, ICOs and token sales have outpaced traditional venture funding, not only for blockchain companies, but for all companies, according to Goldman Sachs.

Given this traction, it's easy to dismiss the cryptocurrency and token markets as a bubble: Peter Schiff and Howard Marks have each voiced their concerns in the space.

However, there is enormous value in issuing tokens, and there are reasons token sales are booming.

These include:

  • Entrepreneurs can bring in millions without embarking on the typical months-long fundraising roadshow. (Legendary VC Fred Wilson even believes there is a paradigm shift happening.)

  • Introducing tokens often incentivizes token owners (potential users) to contribute to the network, as they now have a vested interest in the network's success. In this sense, tokens are a solution to a network's chicken-and-egg problem.

  • Token sales make a company sexy again… Holding an ICO is a sure way to get media attention in 2017. (On the flip side, they may bring the wrong type of investors to the table).

  • Companies are now able to raise their seed, A, B and C rounds with pre-revenue traction, and can focus exclusively on building the network and recruiting, rather than fundraising.

As a venture investor at Converge focused on crypto and blockchain businesses, I am curious how tokens will affect an acquirer's decision-making. Blockchain company buy-outs, even those without their own tokens are not yet a norm, although we've seen small acquisitions – SkryMediachainCryptoWatchBitnet and CleverCoin.

Before retrofitting an M&A framework and jumping into the logistics of how a corporate might purchase company X with blockchain tokens, it's important to know that many of these tokens are governed via a separate entity: i.e. a foundation, often based overseas (exampled below).

Additionally, tokens offer unique properties: some pass the Howey Test (and are considered securities), many are offered via a foundation (not the company), some have immediate utility, while others may not be distributed for months to years following the token sale.

Wary of cryptocurrency FoMO (fear of missing out), corporates are having conversations on how they might acquire a tokenized blockchain company.

Corporates may want to acquire a company for the team, for the large open-source development community, or simply because the corporation finds the build-your-own token process overly cumbersome.

But, while interest is there, corporate M&A teams do not have a status quo to rely on.

Here are five possible viewpoints:

  1. Company has value, tokens are irrelevant

  2. Company has value, tokens seem interesting

  3. Company does not have value, tokens are important to our go-forward

  4. We don’t know which has value, but we want to own it all

  5. This is going to be a regulatory, compliance nightmare — let’s sit this one out.

Scenario 1: Company has value, tokens are irrelevant

"We want the company, we don't care about the tokens."

The company owns the patents, the team is superb, but the M&A team does not understand why tokens are necessary for the business or how the tokens merit a high price.

For diligence, the M&A team will try to acquire the company, and ignore the tokens. Just in case, this team will check token sale documents to find out corporate structure of tokens (i.e. was it the C-corp or foundation which issued the tokens?), details on how the team is compensated and token distribution plans. If acquiring tokens is absolutely necessary, the number of tokens issued will likely have a material impact on the exit potential.

If the token market cap is high, and many of these tokens have already been issued, it will be a stretch to see a deal proposed, let alone done.

Scenario 2: Company has value, token has value

The team is great, the technology is great, the protocol makes sense and the team taps into its valuable network of users.

In this instance, there may be an existing relationship between a company and corporation exploring an acquisition. Because most of the activity happening in blockchain is experimental, or the product isn't as far as long as market cap, I think we won't see any corporate pay full equity price plus total outstanding price per token.

The structure of tokens were issued will significantly impact the acquisition price.

Scenario 3: Company does not have value, token does

This company got very lucky in being first to market, but the team is just not up to snuff – maybe there are even signs of fraudulent or malicious activity.

If the market position, developer community and technology are superb, corporates may take an active approach of buying tokens in the wild or even the outstanding tokens.

This is going to be the last strategy an M&A team wants to present to its C-suite.

Scenario 4: We don't know which has value, but we want to own it all

This is the FoMO scenario.

Whatever the reason might be (i.e. a corporation is under pressure from its shareholders and board to develop a blockchain strategy, executives realize they have no one internally who understands blockchain), price sensitivity becomes an afterthought, and the M&A team makes a bid to buy a blockchain token C-corp, alongside outstanding tokens, at current price per token.

Depending on the token acquisition strategy, this scenario could cost billions for the corporation. Biggest question for corporate is what happens to tokens in the wild? And will those token holders remain loyal? Or flock to a competitive blockchain system?

An existing company (say, gambling company Betfair) may shell out $100 million (not $1 billion) for something with regulatory advantages. Companies are clueless about peer-to-peer betting services – let alone blockchain.

Scenario 5: This is going to be a regulatory, compliance nightmare – let's sit this one out

Today's sole corporate strategy for token and C-corp M&A.

The M&A team and C-suite find the landscape difficult to follow, and are worried about losing millions on token volatility, or even how they would go about acquiring token network. Because pricing and acquisitions will be so complex, many corporates will sit on the sidelines and let their competitors dictate price, or may make their own play at the 11th hour.

In this vein, corporates may (Scenario 6) explore potential acquisitions, and ultimately release their own blockchain token, similar to what Kik is doing through Kin Interactive.

Corporates, especially public companies, will drift to Scenario 5 for the next few years, or decide that tokens have immense value and issue their own.

For all of the entrepreneurs thinking of issuing tokens, it's important to understand the downside risk maybe even more so than the benefits of bringing in extra capital. Take the long term view. Ultimately, how would you articulate the value of tokens to your potential buyer?

Other areas corporate M&A teams will analyze, not include above: Who powers the network? Miners?

As entrepreneurs, investors and corporates, we will need to think outside of traditional corporate M&A in the web 3.0 era. If you have thoughts on how tokens affect M&A, come to Boston Crypto's upcoming event, or get in touch (details below).

Ash is a venture capitalist at early-stage investment firm Converge, and led the firm's investment in blockchain startups Chainalysis and Enigma. He also runs Boston’s blockchain group, Boston Crypto – hosting a discussion on tokens September 5th. Please join if you’d like to discuss more.

Follow Ash on Twitter here: @AshAEgan and @CryptoVC. This article was originally published in Coindesk - thank you to Maia Heymann, Ty Danco and Justin Gage for reviewing this article.

A VC’s Metric-Driven Reflection on Bostech

In the venture capital business, there’s really only one way to measure how good you are: realized gains. Beyond realized gains, performance measurement is composed of various metrics — a portfolio of high potential companies, unrealized gains, strong co-investors, and a diverse network are good metrics to quantify and measure performance.

I have found tracking my interactions to be helpful and informative, especially for managing and engaging a deep network. You can do the same thing, and here’s the template I use. Looking at the past year’s worth of data, I’ve made some observations: the first half of this piece are data driven insights, complemented by anecdotal learnings.

What the Data Said:

  • Seed/Series A investing requires interacting with a huge number of companies. VC investing ‘conversion funnels’ vary by team size, focus, location and stage. We have three full time investors, and the past year investment stats showed: communication with 1250 startups > one of the three investors spoke with 400 companies > all three met with 60 companies > Converge made 11 new investments. At the top of the funnel, that translates to some form of communication with four companies per day.

  • Deal-flow comes from everywhere. Connections to startups range from friends, entrepreneurs, other vc’s, service providers, Converge Venture Partners, to family members. NYC, SF and Boston were the top three geographies by a significant margin but the data shows innovation from Austin, LA, Toronto and Denver/Boulder as well.

  • Vertical driven sourcing feels similar to enterprise sales. As an investor, you can now narrow verticals and identify players through databases like AngelList, ProductHunt, CBInsights and Mattermark and also through good relationships with corporate venture arms and accelerators. The less predictable methods to find companies are stage driven sourcing and location driven sourcing, or purely relying on inbound dealflow. My vertical driven (i.e. fintech, insurancetech, infrastructure) Startup ‘Target List’ contains ~300 companies, sorted by communication (email exchange, phone call, 1st meeting, invested).

Startup (Vertical) ‘Target List’

Startup (Vertical) ‘Target List’

  • Similar companies start at similar times. In many cases it’s an obvious regulatory change, or there is a technological breakthrough, but sometimes it’s purely metoo-ism. If I’ve seen two or three startups working on similar problems in a short time period, odds are there are another half dozen or so.

  • The majority of companies born in Boston had either academic roots(students, grad students, PhD’s) or were founded by ex-employees of large tech companies (Akamai, Carbon Black, Hubspot, Wayfair, etc.).

Note: Measuring ROI in time spent sourcing is difficult to judge. Doubling down on sources makes sense with a vertical driven approach, but the venture capital industry is unpredictable in nature.

Anecdotal Learnings:

Boston’s Tech Scene is Beginning to Find its Mojo.

Still learning to boast about itself as an innovation hub, Boston spawns amazing software companies from Vertical SaaS (Help Scout*, Yesware, Smartvid.io*), to Cybersecurity (Threatstack, Bit9), Big Data (Podium Data*, Clearsky Data, Bedrock Data), Healthtech (Pillpack, RunKeeper, Careport Health*), Travel (Freebird, Lola, Wanderu) Artificial Intelligence (Jibo, Talla*), amongst others. In 2015, Massachusetts doled out $4.3B to MA-based tech companies, an encouraging sign for Boston innovation and startup growth (CBInsights).

* Converge VP portfolio company

Be Intentional Building a Network.

Beyond meeting people through affinities, at events or through mutual friends and the Converge network, I’ve looked to introductions as a game-changing outlet to expand my network. To build a network that keeps giving, it’s important to help others build their networks: spend time introducing entrepreneurs to vc’s who might be a better fit, make intra network connections from vc’s to vc’s, and help entrepreneurs through introductions to potential customers/hires/partners.

Regardless of who the introduction involves, getting a opt-in from both parties is a must. Valuable introductions can be hard work, but helping others grow their network will help everyone in the long run.

Because network building needs to be intentional, I did some quick research on introductions over the last year. The data was extremely volatile, where some weeks had more than 50 introductions compared to other weeks in the single digits.

Through some of these introductions, amongst other avenues, I’ve made some awesome friends, and try to bring these groups through beers, breakfasts, or other events.

Helping is the gift that keeps on giving.

Staying humble, and continuing to challenge oneself is a great way to combat hubris, but there’s nothing more satisfying than helping entrepreneurs.

Many of tomorrow’s leading companies are being built by students coming from Boston’s universities — I love working with students at Harvard, MIT, Northeastern, Boston College, and other schools. Many of these entrepreneurs have inspiring ideas and collegial approaches.

From the data driven and anecdotal insights, some forward looking observations are:

1) Understand where one provides the most value. This is an ongoing learning process, but have found a sweet spot in hires, market strategy, customers, or simply connecting dots within my network.

2) We live in a software, data driven world; leverage it. As an early stage investor, software is your life — time management, productivity, tapping into a network are imperative for network driven investors. I use Pocket, Buffer, Zapier, SocialRank*, Help Scout* Mailchimp, Yesware, Sunrise, Full Contact, Evernote and more on a daily basis.

3) There’s always more to do. Be selfish with your time, and save room to reflect. The “work hard, play hard” mentality is the best way to turn your life into a hamster wheel. Take a step back; there’s probably a more efficient way to do it.

4) The startup/VC market bet is long. Building a strong network does not happen overnight, it takes time to build street cred in your interest categories.

Bostech is at one of its most exciting times in history: GE chose to move its headquarters here, startup funding remains healthy and growing, and the ecosystem is hungry to get some wins. To the Boston tech ecosystem and as I used to say to my squash teammates: “lesgo baby”.

Until next time,

Ash