339: Brooke Pollack On The Blockchain VC Landscape

Brooke Pollack is the Founder and Managing Partner at Hutt Capital, a blockchain venture capital fund of funds and direct investment firm. In this conversation, we discuss the institutional LP world, how a traditional due diligence process works, common mistakes fund managers make, and the current blockchain VC fund landscape. =============================== The World Series of Trading (WSOT) is the first of its kind to bring the exhilaration of crypto trading competition to the global stage. WSOT believes in the importance of empowering traders who embody the passion and power for crypto trading. This bi-annual event aims to champion the spirit of competition, fair play, and cultivate camaraderie among crypto derivatives traders from around the world with the ultimate goal of creating positive change in the crypto space. This year’s prize pool is a whopping 200 BTC. Sign up here: http://www.bybit.com/wsot_warmup? =============================== Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off.

• 0:11Anthony Pompliano?

  Brooke Pollak is the founder and managing partner at Hut Capital, a blockchain venture capital fund of funds and direct investment firm. In this conversation, we discuss the institutional LP world, how a traditional due diligence process works, common mistakes fund managers make, and the current blockchain VC fund landscape. I really enjoyed this conversation with Brooke, and I hope you do as well. Before we get into the episode, I want to quickly talk about our sponsors. The first is the World Series of Trading by Bybit. The World Series of Trading is the first of its kind to bring the exhilaration of crypto trading competition to the global stage. World Series of Trading believes in the importance of empowering traders who embody the passion and power for crypto trading.

• 0:55Anthony Pompliano?

  This biannual event aims to champion the spirit of competition, fair play, and cultivate camaraderie among crypto derivatives traders from around the world with the ultimate goal of creating positive change in the crypto space. Here's the best part, this year's prize pool is a whopping 200 Bitcoin. That's right, if you participate in the World Series of Trading, you've got a shot at winning part of the 200 Bitcoin prize pool. So go in the description of this episode and click on the link to sign up. The World Series of Trading is there for you. Also, don't forget that I write a daily letter to over 50,000 investors about business, technology, and finance.

• 1:37Anthony Pompliano?

  I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry. You can subscribe at pompletter.com. Again, pompletter.com. Alright, let's get into this episode with Brooke. I hope you guys enjoy it.

• 1:53Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 2:19Anthony Pompliano?

  All right, guys. Bang, bang. Super excited to have Brooke on. Thank you so much for doing this.

• 2:25Speaker 02

  Yeah, it's my pleasure. Thanks, Anthony, for having me.

• 2:27Anthony Pompliano?

  For sure. So let's start with your background. Before you decided to go out on your own and start Hut Capital, what did you do?

• 2:34Speaker 02

  So before Hut Capital, I spent 10 years, I guess you might say, in the institutional LP world. So I started my career working here in Portland, Oregon for a family office consultant. And yeah, it's a consultant that helps wealthy families with their investments overall and building their portfolio and generational wealth and all the things you would think of. But specifically, I worked on the private markets team. So our team helped these families to invest in private funds. And that was effectively anything that was illiquid, not a hedge fund. So we're investing in buyouts, growth equity, venture, credit, real estate, energy, timber, you know, a whole host of private strategies, a pretty broad world. And did that for a while and then actually moved out to the East Coast for a few years,

• 3:18Speaker 02

  first in Philadelphia with a firm called Hamilton Lane, which is now a public company. But it's a massive private equity advisory and asset management firm based in Philadelphia. And yeah, similar model on the advisory side, except their clients are more like big pension, sovereign wealth funds. They have a very large asset base because of that. And they also have a large discretionary business. So they manage fund-to-funds vehicles, co-investing vehicles, where they're investing and directing companies alongside some of their managers, as well as secondary vehicles. And in particular, I focused on secondaries there. So we managed a fund that would buy out limited partners in, you know, different types of private funds. We would help GPs to restructure their funds, give additional runway, help captive venture and private equity funds to spin out, become independent.

• 4:03Speaker 02

  And this was when Dodd-Frank was really taking effect in terms of all the financial service firms, you know, basically having to get rid of their venture arms or private equity arms. So you were involved in some things on that side of things. And You know, basically, anything where you're buying an existing portfolio of private assets, you know, from a managed by a third party. And, you know, did that for, for a couple of years and then had the good fortune to join a firm called Greenspring Associates, which, you know, is now over a $10 billion venture platform. And, you know, their model, it's, it's all venture capital, you know, fund to funds, secondaries and directs. So they have a number of different vehicles. But, you know, generally speaking, spent my time investing in venture funds.

• 4:45Speaker 02

  And, you know, that was funds like, you know, Benchmark and Excel and Decimr and Foundry and folks like that. And then a lot of, you know, emerging managers, folks like, you know, Pear Ventures or Pioneer Square Ventures up in Seattle. So really kind of the, the full gamut as well as internationally. On the secondary side, you know, we were buying, we had a partnership interest, as I mentioned earlier, as well as direct secondaries, so buying stock from your founders, you know, early employees, management, whoever it might be. But, you know, buying common stock from, from folks like that. And then also just doing very traditional growth stage, uh, direct venture. So it was kind of, you know, series B and later, uh, we were, you know, leading rounds, you know, very, very involved post-investments.

• 5:28Speaker 02

  So, you know, much more of a, you know, true venture strategy versus co-investment strategy, like you might assume, given the fund to funds model. So, you know, did that for a few years and particularly helped to build out their secondary business as well. And, you know, last year I was there, spearheaded efforts in the blockchain space. And, you know, we can, we can go more into that if you'd like. But, you know, as you might imagine, that's what, what led to, uh, to starting Up Capital.

• 5:53Anthony Pompliano?

  Yeah. And so I want to talk a lot about like the process you use, right? You sat in the seat multiple times at multiple firms. So you've kind of seen how many people do this. But one of the things, uh, when you're sitting in that kind of institutional LP, uh, seat is there's people who have trusted you with their capital and, uh, and are relying on you to deploy capital. But you're really doing the work of sourcing, vetting, and ultimately deciding or recommending, hey, this fund over another fund. And so maybe walk me through like, what does that due diligence process look like? And then we can get into some of the intricacies as to, you know, where people kind of stumble and where people thrive. But what does the process of due diligence look like, uh, when evaluating fund managers?

• 6:37Speaker 02

  Yeah, so you know, it's a very qualitative process. You know, unlike maybe, I don't know, maybe hedge fund investing, which is maybe much more quantitative. But it's a very relationship driven business overall. You know, if you just think about the world of venture capital, because these are people you're going to be partnering with for 10 to 15 years. So just, you know, getting to know people, you know, making sure these are people that you're going to, you know, want to work with over, you know, a very long period of time. It's kind of important first step and just getting to know these folks. You know, from a quantitative perspective, before kind of getting to more of the qualitative assessment. You know, there is some work you can do, and in particular, that comes down to analyzing the track record and, you know, cutting it a lot of different ways.

• 7:17Speaker 02

  So looking at, okay, you know, every deal they've done, you're looking at by partner, looking at by geography, looking at by sector, you know, looking at by stage. Kind of all the different ways that you could cut the data and, you know, see what trends you can find from that. So, you know, maybe you see that there's one partner who's really driving all the returns. You know, maybe there's one geography that they're really horrible at and they clearly just need to stop investing in. Or, you know, whatever that data tells you and look at, okay, well, how does that relate to their strategy going forward? You know, is that partner who has really driven historical returns retiring or whatever it might be? Or maybe they're taking a bigger role and that's a great thing. And, you know, trying to draw conclusions from that.

• 7:57Speaker 02

  And then, you know, using that to assess how their strategy is going forwards and, you know, hopefully. You know, that it's kind of supports their, their continued strategy. Or, you know, maybe that just leads to certain questions around like attribution, for example. And like, oh, look, look at this partner who's not there anymore and somehow they are attributed all the bad deals. Like, that's, that's kind of a little, little questionable.

• 8:21Speaker 02

  So, you know, it tells you a lot from that perspective, but, uh, you know, generally speaking, it is much more qualitative, right? So you're, you're going to need to dig in, understand their strategy, what's their approach? You know, what's their process to doing investments? How are they sourcing deals? And how are they working with companies to, you know, as a board member and, you know, helping to, you know, provide value post investment? And here's jelly speaking, like, who, who is, who are the most sought after VCs by founders? You know, who's seen the best deal flow? Who do, you know, founders really want to work with and, you know, kind of top founders that you would want to have, have access to? And you know, how do they differentiate themselves in the market? Why are founders going

• 9:02Speaker 02

  to choose them versus anybody else? You know, a lot of, a lot of that stuff, which is, you know, you just learn through conversation, you know, is very important. And then there's also, you know, the operational side, right? So what does the firm look like? What does the team look like? You know, what does the organization look like? You know, are you comfortable with them, you know, their ability to, to run a firm and run a business and build a team and bring on talent? And you know, all of that is, is very important, including, you know, back office and a lot of kind of the more, you know, less sexy, but important operational things. I guess one other key thing is, is portfolio construction. So, you know, generally speaking, you know, I, I certainly have a preference. For example, I'd

• 9:46Speaker 02

  say most LPs do for, you know, slightly more concentrated portfolios versus like a broad spray and pray approach. And you know, how many deals are you going to be doing? You know, how do you think about reserves, for example? And you know, you see, you see that as a big issue with a lot of first time funds where they don't realize they need to keep a lot of reserves to continue backing these companies and they end up with, you know, very small ownership and, you know, they don't have the ability to keep investing in their best deals. You know, what kind of ownership are they targeting? Just kind of how, how are they planning on allocating the portfolio in, in different ways like that?

• 10:21Anthony Pompliano?

  And it, and it seems like it's this weird balance between when you first go in to do the due diligence, you're really kind of a detective, right? You're trying to understand what's good, what's not. But then once you say, hey, this is somebody I want to invest in, at times you almost have to become a salesman now, right? Now you've got to convince them to actually take your capital. And so how do you kind of experience that balance between you, you want to be able to do the diligence that you want. And sometimes that requires hard questions, have comfortable conversations, you know, kind of asking for introductions to people that, that you can go do reference calls with, like all of the things that generally take work and time and effort. But then at some point you want to turn around and be like, hey, we're going to be a really easy LP, right? And you should

• 11:06Anthony Pompliano?

  take our money. It's like, how do you kind of balance that?

• 11:09Speaker 02

  Yeah, so I think it really comes down to the relationship that you build with these folks and not just being, oh, we have this LP who gets our quarterly report and, you know, they come to our annual meeting, but we don't really know them, but really building like a true personal relationship with the GPs that you're investing in. And, you know, that helps in a ton of ways, just in terms of, you know, they're being open to you asking tough questions and, you know, kind of the ability to increase act, increase allocation to, you know, top funds in the future and stuff like that.

• 11:41Speaker 02

  But, sorry, can you repeat the question again?

• 11:46Anthony Pompliano?

  Yeah, so just like, how do you, how do you basically balance between, you know, being overly kind of investigative on the due diligence process, but then also at the, at the backend, being able to, you know, convince them to take your money over maybe another LPs?

• 12:02Speaker 02

  Yeah, so I mean, I, I think GPs generally understand you need to go through your diligence, like, you know, just because you're having conversation with about them about the fund, that does not mean you're going to invest in the fund. It's just kind of the process of diligence and, you know, honestly, sometimes you, you do that, you, you go through your diligence, you end up with a negative assessment and the GPs are not pleased with it. And I think that kind of, you know, tells you, you know, tells you something when that happens.

• 12:29Speaker 02

  But yeah, I mean, really, really comes down to, to the relationship and, you know, if, if, if you build strong relationship with these folks, they're much more likely to be, be helpful for you to want to make introductions for you, you know, to help you with direct investments, for example, and, you know, just kind of, you know, help you out in different ways. And you also, about what I mentioned about being, you know, being a passive LP, like, you know, people want LPs who are going to provide value to them as well. So like, you know, providing feedbacks, seeing on LP advisory boards, you know, helping them with LP introductions, you know, even providing them with deal flow when you see it and stuff like that, and finding different ways to provide value as an LP.

• 13:11Speaker 02

  And I think, you know, if, if you build that relationship, if you're providing value as an LP, you know, like the idea of convincing them to take your money becomes a lot easier because you're not just any other passive LP, but you're like a real partner for them. And you know, there's someone that you they really value having as an LP, they want to have as an LP. And then, you know, the the kind of sales process, well, you know, that is always a part of it for, you know, really hard to access funds. You know, it becomes becomes a lot easier because, you know, they can really see that it's important to you and that you'd be a great partner for them. And, you know, I've definitely been on both sides of that, you know, in in my prior experience, I've, you know, been at places where,

• 13:50Speaker 02

  you know, we we lost access to really good funds because, you know, we didn't properly build those relationships and we were not, uh, you know, an ideal LP in certain situations. And then, you know, I've also been on the other side of that, you know, like a Greenspring, for example, where they focus very strongly on those partnerships. And, you know, I've seen how that can really, you know, um, you know, really provide value as an LP and, you know, kind of increasing your allocations with really hard to access funds over time.

• 14:16Anthony Pompliano?

  Yeah, that's awesome. And and I guess what are like the major points where you see fund managers fail the due diligence process? Like, is there one or two things that you're like, these are just the most common mistakes that people make?

• 14:30Speaker 02

  So, yeah, a couple of things. I mean, one, you know, there you have to have a certain level of confidence that they can be successful in what they're doing based on, you know, past history, right? So for for a lot of first time funds, and often it's it's not, it's not, uh, you know, they're not at fault for this, it's just kind of inherent in, you know, the in the process. You know, they don't have the proper investment experience or track record or the ability to say, hey, I've done this in the past, I can continue doing this. And here's here's the proof of that, right? So that's that's often an issue. You know, I'd say another thing is just, you know, differentiation, right? I mean, there's and there's literally over a thousand early-stage venture funds out there.

• 15:12Speaker 02

  And I mean, if you're an LP, you just have your choice of so, so many funds. You know, you really have to figure out how are you differentiating yourselves? Why should I be paying attention to this fund versus the thousand other funds that are coming and talking to me? You know, why do you stand out? Why are you going to get better deal flow? And, you know, you really have to be able to like tell that story and make that very clear in an initial conversation. Um, so that when people come away from that, like, oh, this is really interesting. I think this really stands out. And, you know, kind of just that, like, standing out from the crowd, given how busy LPs are, how many funds they're seeing. It was really important just in terms of. You know, getting any kind of second conversation and progressing that conversation forward.

• 15:53Speaker 02

  Um, you know, obviously from a track record perspective, you know, there are definitely funds that have done well without frankly, having an amazing track record. But yeah, I'd say for, you know, for the most sophisticated LPs, you know, having that good track record. You know, and you know, being able to dig, dig into that and say, hey, you've been very successful in doing that, obviously is a, is a key thing. Um, yeah, and there's certain, there are certain, you know, certain things that specific LPs look for. Maybe it's like, uh, they don't, they don't like having single GPs. Or, you know, other kinds of specific criteria like that, where maybe it's just a small fund and they don't, they don't want to be a, you know, above a certain percent of the fund, which, you know, similarly managers can't necessarily do things, do things about.

• 16:34Speaker 02

  But, you know, there are certain kinds of, uh, criteria like that, that, that LPs look for as well, look for as well, which can kind of be a negative signal.

• 16:42Anthony Pompliano?

  Yeah, makes sense. And then I guess what have you seen maybe the best fund managers, right? So kind of the top one percent, what do they do that separates them in the eyes of institutional LPs from even the ones who are really, really good? So like the, the, you know, kind of five best in the world from everyone else, what, what separates them?

• 17:01Speaker 02

  Um, I, aside from just having the brand, having the reputation, you know, kind of the, the typical stuff you expect. I'd say one big piece of it is just building like a lasting, repeatable institution. So, you know, there, there are plenty of good investors out there and a lot of, a lot of groups who like, okay, I, I, I'm going to do this for a couple of funds and then I'm going to retire or whatever it might be. But I, I think LPs are looking for, and you know, the top funds are, you know, end up being these, you know, long lasting institutions that can weather generational transition and really, really building out. You know, for the long term. So firms like, I mean, you know, once I mentioned earlier, like Benchmark and Excel and Bestmar, they've all been around for, for a long time.

• 17:43Speaker 02

  They've gone through generational transition. They've continued to be a sought after partner for LPs. And, you know, that's, that's not an easy process. You've also seen firms that have, you know, um, I guess I don't, I don't want to name certain names, but have, have not done well with that. Um, where, you know, they, they have these amazing brands and then that, that brand has really declined. You know, whether it's maybe bad performance or they haven't been able to, you know, continue to build out the team, continue to build out new talent and, you know, how people want to, want to come there. So I think that's kind of a underrated, but very important piece of it.

• 18:19Anthony Pompliano?

  And so you at some point decided, hey, I'm gonna leave and go kind of full on into a blockchain and also start your own organization. So maybe talk us through like, what was the accelerant for wanting to do that? And ultimately deciding to?

• 18:37Speaker 02

  Yeah. So for some background, I guess, and how that came to be. So I might, I'd been tracking the space for a while prior to Capital. And I went to school with a couple of guys who were early in the space. And we graduated before Bitcoin existed. But, you know, they were doing some interesting stuff later on. It caught my attention. They were doing, you know, doing well. And yeah, to be honest, at first I didn't fully dig into it. I certainly dismissed it a little. But then I started, started GreenSpring mid 2014. So I started doing venture full time. And, you know, that space started becoming a little more relevant for my day job. So I remember catching up with one of those folks. And this is late 2014, and you're walking me through, you know, how they use their platform and, you know, just moving crypto around.

• 19:20Speaker 02

  For example, I was just kind of blown away by how easy it was and how, you know, just how smooth and seamless it was. And I remember sending a note out to the full team at the time. And it's like, hey, we should be tracking this company. This is really interesting. And I didn't get a single response, which was kind of a sign of the times. But, you know, I was paying more and more attention to that space as I was doing venture full time. But, you know, the problem is it wasn't at all relevant for my day job. So that really changed in 2017. We started seeing a lot of these dedicated blockchain venture funds emerge. You know, you had a couple that had been around for longer, but we saw, you know, a much, much larger in terms of fund size and number of managers and quality of those managers. And so I went out and was like, I'm gonna go out, get some of all these funds, build those relationships, you know, just build relationships within the space more broadly.

• 20:05Speaker 02

  I spent a lot more time in education. And so went out there and did that. And, you know, that led to spiriting GreenSpring's efforts in the space, as I alluded to earlier. And, you know, GreenSpring, you know, it wasn't, you know, it wasn't a key focus for them. And I got to the point where I wanted to spend my full time and attention on it. And, you know, really felt at GreenSpring, I had a pretty broad purview into all things venture between the fund to funds and direct investments and whatnot. And, you know, I just really felt like You know, if you looked at where a lot of the innovation and venture returns had come from for the prior 10 to 15 years, areas like your software and e-commerce and marketplaces and on-demand and stuff like that, yeah, I feel like a lot of that was somewhat played out and opportunities becoming more niche and much more saturated competitive market,

• 20:49Speaker 02

  obviously, which has also been flush with a lot of capital. And so I was looking at like, okay, where is real innovation going to come from in the next 10 to 15 years? You know, where do I want to spend my time? Where true venture returns are going to come from? And you know, came to the conclusion that blockchain and crypto was that space. Unfortunately, couldn't spend, you know, my full-time attention on a green spring. So left to start a capital, which, you know, we can go more into it if you want, but it's effectively taking Green Spring's model and applying to the blockchain space. So it's a venture fund of funds and direct investment firm focused on blockchain VC.

• 21:24Anthony Pompliano?

  And so help me understand, like, what is the argument for fund of funds versus going direct to managers for investors? So people that you go talk to and say, hey, you should work with us versus go to a direct manager. What's kind of that pitch look like?

• 21:40Speaker 02

  Yeah, so I guess to provide some background, just on fund of funds in general, to give context, maybe. I mean, the fund of funds idea has been around, I guess, since the 90s. So it's a model that's been around for a long time. And it really started as more like, actually called traditional fund of funds. So folks that were, you know, giving you access to a lot of like buyout funds and kind of general private equity was like, hey, you know, you don't know this space very well. You know, come give us your money. You can just make one commitment and get broad exposure to the space and you don't have to worry about it. And, you know, that became a pretty popular model. You've seen a lot of, you know, kind of pre-sized businesses built around it over time.

• 22:21Speaker 02

  But as LPs have become more and more sophisticated and, you know, do more and more of this in-house and just your product has been around for longer, you know, that expertise and relationships and access are important. So areas like, you know, venture capital. Or small buyouts, for example, or international, like, you know, if you're sitting here in the US investing in China and emerging frontier markets is, you know, is often difficult. So, you know, you've really seen fund of funds thrive in areas like that. And, you know, so why would you use a fund of funds in venture capital or in blockchain VC, for example? So, you know, a couple of reasons, and depends what kind of LP you are, you know, for smaller LPs or, you know, smaller teams.

• 23:05Speaker 02

  I mean, it really just comes down to, you know, bandwidth and efficiency, right? So if you're a, you know, if you're a smaller investor, does it really make sense to write, you know, five or 10 even smaller checks? Probably is not a feasible thing. You know, for, for other LPs in general, I think folks in a space like this really value the diversified model. And saying, hey, I can make one commitment, get exposure to, let's say, 10 funds. And, you know, especially in a space like blockchain venture, yeah, I think having exposure to different parts of the market is very important. So, you know, different structures, different views on the market, different geographies, you know, different structures.

• 23:42Speaker 02

  And, you know, it's, it's often, you know, difficult for people to take the time, okay, I'm going to spend, you know, whatever, you know, significant amount of time is required to, you know, really dig into the space, get to know all of those funds, you know, make those assessments. And you end up making, you know, a handful of commitments. And it's just much more efficient to outsource that to someone who has the expertise, has relationships, you know, has the inside baseball on, on the market and the funds. And, you know, the, the ability to, you know, really do a lot of referencing, you know, not just the ones they ask you to, we're all going to say good things. But, you know, have the network within the space to really dig around and you'll get to the bottom of what's going on. So, you know, there's a handful of different reasons.

• 24:24Speaker 02

  And, you know, I think over time, as, as this space emerge, you know, sorry, you know, kind of progresses. You know, you'll see what you see in the traditional venture space, which is access also becomes a key, a key thing, right? Cause, you know, if you're, if you're, you know, an LP in, you know, Sequoia or Benchmark or Greylock or whoever, um, you know, that's, that's not something that's really repeatable. So, you know, if you're a new LP coming into the space, having access to these funds that are, you know, impossible to access is also, you know, a key differentiator and being able to provide that access to LPs is, you know, obviously a highly valued resource.

• 24:59Anthony Pompliano?

  Yeah, it makes sense. And I guess, how do you look at kind of the blockchain fund landscape, right? Meaning that, first of all, are you looking at just VC, or are you looking at kind of the entire landscape, even liquid traded funds, etc. And then inside of the blockchain fund space, like, how do you think about that difference between structures and strategies?

• 25:22Speaker 02

  Yeah, so I guess when we look at the blockchain VC landscape, we're focused specifically on what we focus out of capital, which is only closed-end venture funds that are focused on blockchain. So, you know, excludes hedge funds, excludes, you know, hybrid funds, as they're called, and I could get more into that. But, you know, these are all closed-end venture funds. And that universe, I think we're currently tracking 66 or 67 funds that meet that criteria globally. So, you know, I think it's a lot more than people realize. There are quite a number of funds out there. You know, what that landscape looks like, though, is it's about 70% US. So, in terms of location of those funds, you know, certainly

• 26:03Speaker 02

  the majority are in the US. You know, the other 30% are, generally speaking, split between Europe and Asia. And the landscape overall, I mean, it's a landscape of emerging managers, right? Most of these funds haven't been around for very long. And the oldest funds have only been around for maybe six years, which, you know, for a venture fund, really, really isn't that long. So, you know, you just don't have, you know, kind of these, you know, legacy institutions that have been in this space for a long time. Everyone's effectively an emerging manager, which, you know, also kind of, to the fund-to-fund point, you know, increases the value proposition there, since selection risk is really high when you can't look at a 10, 15-year track record. And, you know, overall, you know, if

• 26:48Speaker 02

  you look at the, you know, total amounts that these funds are either have raised or are trying to raise, if they're raising right now, you know, that number is about 4.2 billion, which, Christ, sounds like a lot of money, but, you know, relative to the overall VC landscape, it's like, nothing. You know, it's a very, very small amount on a relative basis. So, you know, there is a fair amount of money, you know, being raised by these venture funds, but it's a very, very small piece of their overall venture landscape.

• 27:22Speaker 02

  So, yeah.

• 27:24Anthony Pompliano?

  And as part of that, like when you look into the different structures or VC funds, right, it sounds like most of the structures all actually line up for the most part. On the manager's side, like, do you see the emergence now of pre-seed, seed, kind of series A, series B, growth stage, you know, kind of the mirroring of what you see outside of the blockchain landscape in venture? Or is it still so early that you're actually getting firms that are kind of playing it all of the stack mainly out of necessity because the companies need their capital and their backing?

• 27:59Speaker 02

  Yes, I guess for quick context before answering that directly, you know, the most of the closed-end venture funds are investing a majority in equity. I say most also do, not all, but most also do some level of token investing, but it's a, generally speaking, a smaller piece of what they do. And on the token side, that tends to be, you know, very early stage in nature because while those are still private, you know, inherently, they're kind of more like the equivalent of seed stage. But on the equity side specifically, you know, you definitely see the exact same, you know, exact same things you see in the traditional venture world where you have, you know, the same series of rounds, pre-seed, seed, series A, series B, or whatever it might be for a specific company.

• 28:42Speaker 02

  And in terms of the venture funds focus, you know, it really started where basically everyone was a seed fund, right? Because if you look a few years back, I mean, that was where you were investing, but, you know, just inherently as an investor in this space. And you've really seen that evolve, especially in the past two or three years where there's much more of a bifurcation now. And I'd say it's largely driven by fund size. You have, you know, a handful of funds that are on the larger end of the spectrum and, you know, those are kind of acting, you know, although they'll still do, you know, some seed investing like, you know, most larger venture funds would, you know, they're really, most of the capital is going to more like traditional series A rounds. You know, maybe there's a series B mixed in there, whatever it might be, but you kind

• 29:25Speaker 02

  of think of those as like your traditional series A investors. You know, I'd say the bigger portion of the market and most of the smaller funds are, you know, seed, pre-seed investors. But you definitely are starting to see that bifurcation and especially as some of the larger funds have moved up market in terms of fund size over the past couple of years, you know, there's been an interesting opportunity for new funds to, you know, basically fill that gap at the pre-seed and seed level and establish them as, you know, kind of next gen firms, I guess you could say, at that part of the market.

• 29:59Anthony Pompliano?

  And then how do you think about kind of the blockchain funds interacting with the traditional venture funds, right? Meaning that if you've got most of the blockchain focused funds being kind of seed, pre-seed, maybe even up to Series A, obviously those companies are going to need large amounts of capital later in the stage of development. And so you're going to have to rely on non-blockchain focused funds, at least right now, to kind of continue to fund those businesses. And so do you do anything in terms of understanding kind of the relationships between traditional venture funds and the early-stage blockchain funds? Or just how do you think about that kind of interaction there?

• 30:37Speaker 02

  Yeah, I wouldn't say it's a key part of our focus from a diligence perspective in terms of like specifically what are those relationships? I mean, it often does come up during diligence, just given a lot of the groups that they're co-investing with in their existing portfolios, for example. But I would say that, I mean, it is something that we pay attention to in general for really Series B and later because you have plenty of funds that are doing seed investing and Series A investing. But, you know, generally speaking, the funds in this space are pretty small. It's not like you have, you know, NEA who has, you know, $3 billion or whatever it is, and they can continue to fund companies forever.

• 31:16Speaker 02

  You know, they are clearly reliant on outside investors to continue meeting future rounds, you know, Series B, Series C, Series D. So, you know, I'd say, you know, given there aren't a ton of companies that are later stage in this space, it's still kind of TBD in terms of exactly how that plays out. I do think, you know, they will be reliant on generalist firms. There aren't any, you know, sizable, or maybe all but sizable later-stage venture funds dedicated to this space. So, you know, looking at funding rounds for some of the companies that have raised, like Series B rounds, for example, recently, I haven't

• 31:56Speaker 02

  seen the issue raising capital, but it is definitely something that is a potential concern. We're, you know, watching closely going forward.

• 32:05Anthony Pompliano?

  Got it. And then I guess another piece of this is you also mentioned that you guys may do some direct investing. Maybe explain a little bit about what you guys would do there.

• 32:15Speaker 02

  Yeah, so I mean, so the early conversation around kind of the fund of funds model. Another, I'd say, important development in the fund of funds world is that you can't really just be a fund of funds anymore. So, you know, the groups have been most successful have effectively built platforms around the fund of funds. And if you think about what the fund of fund model is, you're an LP and a bunch of underlying funds. You have access to all sorts of very unique, non-public information on the underlying portfolios. You know, you have access to, you know, board members of these companies. You just have very unique access to, you know, in terms of relationships and information. And, you know, if you're, if you're thinking about how can we utilize that for the benefit of our LPs?

• 33:00Speaker 02

  You clearly, you know, the key answer to that is doing direct investing. And in particular for us, you know, so we're not competing with early-stage managers. We don't do early-stage investing. You know, that's, you know, that's much harder and we leave that to our partners. But, you know, what we look to do is track their portfolio companies. And then, you know, try, effectively try to invest in their best companies once they're really Series B and later. And, you know, we only do equities, so we're not making any token investments. But that could be anywhere from doing, you know, a Series B round with a few million in revenue on the early side, all the way through buying pre-IPO secondaries and everything in between. And, you know, also to the earlier conversation around, you know, the relationships you build with these funds.

• 33:43Speaker 02

  You know, we're not, like, we don't ask for co-investments, for example, right? We, everything we do is just built off of the relationships we have with these GPs and the information we have. And, you know, having them, like, want to help us on deals. And, you know, just having that kind of be a regular part of the dialogue, right? So I think that's a much better approach than trying to structure it where they're like forced to give you co-investment. And, you know, we're also not co-investing per se. We're kind of coming in, I guess, technically after our early-stage managers would. But, yes, that's, you know, that's part of our focus as well. And, you know, we'll also find other ways to.

• 34:25Speaker 02

  You know, create value based on your relationships, information we have, whether that's buying LP secondaries. You know, that could potentially be buying like GP stakes and underlying funds. You know, and just looking for different ways that we can, you know, use our position to our advantage and for our LPs.

• 34:41Anthony Pompliano?

  For sure. And then talk to me a little bit about your interactions with founders. Obviously, on the direct investing side, they make up some, but also on the due diligence side, right? Of kind of diligence in the managers themselves. And kind of what does that relationship look like? And kind of how do you normally go about those conversations?

• 35:01Speaker 02

  Yeah, it's a good question. So it is definitely important part of diligence. And you know, typically as part of that, you will talk to, you know, portfolio company CEOs. So, you know, you'll typically they'll give you a reference list and it'll have, you know, some number of names on it. So, you know, those are good people to talk to. Obviously, they're, you're going to assume they're going to be positive, but you know, it's important to talk to those folks and get their perspective. You know, it's also important to talk to people who aren't on that list. And, you know, to your earlier comments around like, you know, being an easy LP. You don't want to just call all their CEOs and like clearly disrupt business from that perspective. But, you know, it is important that you talk to folks and figure out who would be good to talk to.

• 35:47Speaker 02

  Who, you know, is not on that list. Or, you know, maybe it's a, you know, instead of just talking to the three CEOs who are their best portfolio companies, also talking to ones who have been, you know, have not done as well. And seeing how they served as a partner through that process of things not going well, right? That's, that's obviously very important as well. So, you know, in terms of what you talk to them about, I mean, it's typically, you know, where did the relationship come from? You know, how did you get to know that person? How did they get interested in the company? You know, why did you choose to work for them? Or sorry, sorry, why did you choose to work with them, you know, and choose them as a partner? Was it because they just gave you the highest price? Or, you know, was it because you really valued them as a partner? Maybe it was a pre-existing relationship.

• 36:29Speaker 02

  And, you know, maybe you went with them even though they, they weren't the best price. You know, what, how they didn't like to, to work with, you know, post-investment? What's the cadence of communication look like? How are they as a board member, whatever, you know, whatever that might be. You know, just generally, how are they viewed by founders in the space? And just kind of really digging into that relationship and figuring out, you know, why did they choose to work with them? How did they get access to the deal? What they've been like to work with post-investment? And you know, kind of what's their reputation amongst founders?

• 37:00Anthony Pompliano?

  Yeah, it's really interesting. And then I guess before we finish up, I want to talk about your LPs, right? And kind of the conversations you're having on that end. So you go out, you talk to people, they give you money and then you go make these investments. We're talking about, but like, what is that environment been like as you talk to investors? You know, kind of, let's talk maybe pre-pandemic and then post the start of the pandemic. Kind of what's changed? What are you kind of hearing and what does it look like?

• 37:28Speaker 02

  Yeah, so I mean, pre-pandemic, I'd say trend wise, things were good in terms of LPs being increasingly interested in the space. And, you know, generally just being much more educated going into conversations. So, you know, if you compare it to a couple of years ago, like the level of education, generally speaking, that we have to do in a meeting is much less than it was two years ago. And it's much more about, you know, what's our focus, you know, et cetera, rather than what's blockchain, what's crypto? So that's been a really good development. And I think for a lot of groups, it's just been a very long education process, especially on the institutional side, you know? And they have to get up to speed and then they have to convince their, you know, their team and then their board and whatnot to actually allocate capital. So that's a long process.

• 38:12Speaker 02

  And, you know, it's been good to see institutions kind of get, you know, go through that process and kind of closer to allocating capital, broadly speaking. You know, definitely when the pandemic hit, you know, so let's say back in March, you saw a lot of folks basically just go on hold like, okay, we, you know, the market's down 20% over the past couple of weeks. You know, we need to kind of just put the brakes on here and see what's happening. You know, for large institutions where, you know, they were looking at this space, but maybe it wasn't like a true priority. It was just kind of something that they were looking at, but, you know, not a, like a key focus. They definitely reverted a bit back to kind of key priorities and, you know, kind of their existing portfolio and kind of managing the current environment.

• 38:59Speaker 02

  You know, over the past, I guess, what, four months now, you've definitely seen things go a bit back more, more to normal in terms of LP conversations. Obviously, having the public markets recover is helpful. You know, the fact that it's not necessarily tied to our underlying economy, you know, is a separate conversation. But, you know, in terms of their portfolio values, having them recover is obviously helpful. And, um, yeah, I'd say also, given, you know, some of the tailwinds over the past four months that have been created in this space. You know, just kind of increasing focus around crypto as a potential macro hedge.

• 39:38Speaker 02

  You know, a lot of, you know, certain folks who have come out, like Paul Teter Jones, for example, who has come out, you know, saying he's allocating to, you know, to Bitcoin or Bitcoin-related investments. You know, things like that have been very helpful and just generally, you know, a lot of the technology, technological, you know, tailwinds that, you know, you're seeing as well. And, you know, that's been good for, you know, for certain portfolio companies. And I think also just has brought additional attention to the space and kind of made people say, hey, I need to be, you know, looking at this space to have, if I haven't been already. So, you know, that's helped to offset some of the, uh, I guess, some of the, you know, folks who were kind of on hold during, during, you know, part of the pandemic. And, you know, generally speaking, we're, we're definitely seeing things recover from that perspective.

• 40:24Anthony Pompliano?

  Got it. And I guess as part of all of this, what's been your biggest learning, right? As you kind of went out, sort of had capital and have kind of gone through the process that you've gone through. What's been the biggest, uh, learning that you've had or maybe the biggest surprise?

• 40:40Speaker 02

  Yeah, the biggest learning has definitely been fundraising. So, yeah, I was not, I mean, to be clear, I was not responsible for fundraising in my, in my prior, you know, prior roles. You know, I was very focused on investing. So, you know, going out and raising a first-time fund as someone who has not fundraised before has been a huge learning experience in terms of, you know, like what that process looks like of building relationships. And, you know, how long that takes, you know, who you should be talking to, you know, how you go about fundraising, just, you know, like who you should, you know. What are the different like, what are the different avenues to try to raise capital and find,

• 41:24Speaker 02

  you know, folks that you should be talking to? Um, it's like just the, the idea of how you fundraise has been like a probably massive learning. And there's definitely been, you know, mistakes I've made through that process that I, I've learned like, okay, maybe I wasn't doing this the right way and I need to kind of refocus on maybe this part of the market. For example, from fundraising perspective, and I've definitely adjusted our strategy. Um, you know, since, since we got started, but yeah, I think, uh, people underestimate, you know, like the, the challenge of raising, raising a first time fund and,

• 42:01Speaker 02

  yeah, it's a, it's definitely been a big learning.

• 42:05Anthony Pompliano?

  It, uh, it always is. Uh, where, where do you think all of this is going right? In terms of kind of blockchain venture, uh, does this grow into something that, uh, remains kind of a subset of venture? Does it kind of get as big as, um, maybe the way people look at fintech or, or consumer social or something like that in the venture world? Uh, where do you think it's going?

• 42:28Speaker 02

  Yes, I'd say partly that's dependent on your view of the space. I mean, I, I, my, my expectation is that it's significantly bigger than fintech and eventually kind of ends up eating fintech. Um, you know, given my very bullish view on, on this space in general. Um, but I mean, if you look at it today, you know, you, you largely have these dedicated funds who are investing in the space and it's, it's developed very differently than what you've seen in different areas. When you think about, you know, like parts of the market like AI or, you know, I don't know, marketplaces and like different, you know, other waves of recent technology. You've largely had the dedicated funds come in and, you know, continue to get a lot of the, a lot of the gains and returns and, you know, continue to do very well with these different ways of technology.

• 43:13Speaker 02

  Um, and then, you know, there's certainly some dedicated funds that have been in there, but you haven't seen like you, what you see in this space where, you know, you have this huge number of dedicated funds who are really, you know, the experts in the space. They're where, you know, most of the top founders are going to for, for capital. And, you know, really kind of being like, you know, where you raise. Venture money from in this space. So, you know, with that in mind, I do think that is going to continue for the foreseeable future. I've actually been honestly surprised by that you haven't seen traditional venture funds come into this space more aggressively, just I guess, given my view of it.

• 43:52Speaker 02

  Although at the same time, you know, if I, if I look back at my, myself like three years ago, you know, it is a big hurdle to kind of say, hey, I'm going to allocate capital into this space for the first time and something I don't fully understand. So I, I, I do think that's going to take, take time, but I think we'll continue to see, you know, a, a large number of these dedicated funds, you know, the, like the, the, the way that these funds invest also is very different than in the traditional world. We have to worry about things like tokens. And, you know, like, are you going to stake your tokens and a lot, like a lot of the kind of crypto specific infrastructure? That a lot of these generalist funds are definitely just not set up to handle.

• 44:33Speaker 02

  Um, you know, the expertise is very different and, you know, if you're not spending your full time in this space, it's really, really, really hard to, you know, really keep up with what's going on, making sure you have the access and relationships to, you know, to be a successful investor. So, you know, there's, there's always going to be exceptions, but I do think you'll continue to see the generalist fund, try the dedicated funds thrive. And, you know, be the sought after partners in the space. Um, you know, eventually, I mean, surely you will see the generalist funds, spend more time in this space, become more active. And, you know, I think that'll be good for the market overall because it means, you know, more capital will come in.

• 45:10Speaker 02

  Um, yeah, I don't think that's, uh, you know, tomorrow, but eventually that will definitely happen. And, you know, I, I think that'll be good for, you know, good for startups. In terms of how that plays out over time, I think, you know, if you look at the long term, you'll, you'll have, you know, a lot of dedicated funds in this space. And I think you'll have a lot of generalist funds who are also investing in the space much more than they are today. But I do think the, the dedicated funds, given the unique nature of this space will, you know, continue to thrive and be a key piece of the market.

• 45:38Anthony Pompliano?

  Yeah, I love that. Um, before I wrap up, I ask everyone the same two questions. The first being, what is the most important book that you've ever read?

• 45:47Speaker 02

  Hmm, that's, that's a good, a good question. Yeah, I'm, I'm not much of a reader. I'm much more of a, of a music person.

• 45:59Speaker 02

  So I spend, I spend much more time listening to, to music than I do reading, but my

• 46:06Speaker 02

  most important book I've, I've ever read.

• 46:15Speaker 02

  Honestly, I say that not sure. I can't say that there's one that's, you know, particularly influenced me. You know, more, you know, like in a profound way, or, you know, more than others in that sense. There's plenty that I've, I've enjoyed, but you know, generally speaking, I'm, I'm much more, you know, much more into listening to music as a way to spend my time.

• 46:41Anthony Pompliano?

  I've never had anyone say that, but that is an awesome answer. The next question is a little bit more fun, which is aliens believer or non believer?

• 46:51Speaker 02

  I mean, absolutely believer. I think just if you think about how massive the universe is, the fact that we exist here, it's just, it's incomprehensible to me that there couldn't also be life somewhere else that's evolved. So, I mean, I, I have to think that there is life somewhere out there in the universe and probably quite a bit of it, you know, if you think about the massive scope of the universe and how, you know, you could have literally thousands of civilizations and not never have one ever, ever make contact with the other. So yeah, I, I think there has to be life besides us out there.

• 47:27Anthony Pompliano?

  Tend to think that you're probably right. We'll, we'll see, but I, I tend to think so. To finish up, you could ask me one question. What's the one question you have for me?

• 47:40Speaker 02

  So for your podcast series, how much preparation does it take to get ready for a podcast? I know apologies if you've been asked this before, but curious how much preparation goes into it?

• 47:50Anthony Pompliano?

  So I try to do as little as possible, actually. And it's this weird thing, and I've talked to other people who have similar types of podcasts. And in the beginning, I would like do all this research and show up and like, I basically in my head already had like, oh, this is what we're going to talk about. And what happens is it just becomes kind of robotic. And it's kind of like, okay, I'm going to ask this question. I pretty much already know the answer. That's why I'm asking the question. Then I'll ask the next question and like, it's just, I don't know, it was less rewarding for me because I kind of had already done all the work and learned everything before the episode started. So now, you know, I understand who the guest is, kind of their background.

• 48:30Anthony Pompliano?

  Usually I'll have a couple of talking points, but then I just want to have a conversation and really ask the questions that I'm curious about, right? And kind of just naturally let that play out. And so it's become much more rewarding experience for me to do less preparation. And it seems like there's a couple of other people that are kind of in the same boat. And so, yeah, I just always remind myself that like, you never want to come unprepared. At the same time, you don't want to show up and have like every single question scripted out. And it's just, you know, like, anyone could sit down with a piece of paper and basically fire off the questions and do the recording.

• 49:09Speaker 02

  Yeah, I had to imagine like the more of these you do, you know, the more you're comfortable not having everything mapped out as well. So that's interesting.

• 49:19Anthony Pompliano?

  My friends sometimes will be like, hey, man, we're not recording a podcast right now. Like, stop asking me so many questions.

• 49:26Anthony Pompliano?

  But like, I'm just trying to learn. It's just trying to have fun, right? Awesome. Where can we send people to find you on the internet and find out more about Hut Capital?

• 49:35Speaker 02

  Yeah, so Hut Capital, you can find us at hutcapital.com. We've also been doing a webinar series featuring leading watching DCs, which you can find at hutcapital.com/webinars. You can find me on Twitter at BH Pollock, although I'm not super active on there, as well as Hut Capital, which is at Hut Cap on Twitter. We've also done some, some writing on Medium, which is at, you know, medium.com slash at Hut Capital. And yeah, that's a good way to find us.

• 50:04Anthony Pompliano?

  Awesome, man. Well, thank you so much for taking the time to do this. I think that you were leading the way in terms of fund to funds in the blockchain space. So hopefully, you know, more people will come check out what you guys are doing and get some more capital into into the space.

• 50:17Speaker 02

  Yeah, thanks so much, Anthony. A lot of fun and appreciate you having me on here. So thank you.