Pod Insights Equity Podcast Chain Reaction: Crypto VC space may be on the cusp of recovery (w/ David Pakman) About this episode This week on Chain Reaction, Jacquelyn interviewed David Pakman, managing partner and head of venture investments at CoinFund.
Before CoinFund, David spent 14 years at the venture capital firm Venrock. He also led the Series A and B rounds at Dollar Shave Club which was acquired by Unilever for $1 billion. And in 1991, David co-created Apple Music when he was a part of Apple’s system software product marketing group
We discussed the state of the crypto VC environment, areas he’s focusing on for investments and what he thinks investors are missing.
We also talked about:
AI compared to crypto
Future of NFTs
Regulatory impact on investors
2024 outlook
Advice for startups
Chain Reaction comes out every Thursday at 12:00 p.m. ET, so be sure to subscribe to us on Apple Podcasts, Spotify or your favorite pod platform to keep up with the action. Connect with us:
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Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products.
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Transcript 0:01 Speaker 00 Hey everyone, it's Jaclyn Melanick. Welcome to Chain Reaction, a show that unpacks and dives deep into the latest trends, drama and news with some of the biggest names in crypto, breaking things down block by block for the crypto curious.
0:17 Speaker 00 Today's guest is David Pakman, the head of venture investments at CoinFund, a crypto-focused firm. Before CoinFund, David spent 14 years at the venture capital firm Venrock. He also led the Series A and Series B rounds at Dollar Shave Club, which was acquired by Unilever for $1 billion. And in 1991, David co-created Apple Music when he was part of Apple's system software product marketing group. We're super excited to have him on to talk about the state of crypto VC, his investments and thoughts on 2023, and what he's expecting in the pipeline for 2024. With all that said, David, welcome to the show.
0:52 Speaker 01 Thanks, Jackie. Good to be here. Thanks for having me.
0:55 Speaker 00 Yeah, and to start, we like to start off with asking our guests, can you tell us about someone in crypto you've met in the past 12 months who has inspired you and what did you learn from them?
1:04 Speaker 01 Okay, well, does meeting in real life, does have to be meeting in real life because meeting virtually, I've met.
1:09 Speaker 00 Yeah, I feel like with crypto, no, it doesn't. We're all kind of nomads all over the place.
1:14 Speaker 01 Yeah, well, I've met him a bunch, but you know, at our annual meeting, we had Joe Lubin come and speak to our limited partners. And he just had a very long view about what was happening. This was sometime in the late spring, early summer, and you know, in the depths of a bear market. And in a bear market, it really tests, you know, your conviction about what's going to happen in the long term. And just having somebody with a long view, which is what I try to be for our firm, having been through multiple bear markets, is an inspiration because most progress is not a straight line. There's a lot of noise up and down. And Joe has a very long-term view and expects continued consternation, challenge, setbacks in a space, but has high conviction of where crypto goes in the long term. So I found that super inspiring.
1:59 Speaker 00 Yeah, and that's Joe Lubin from Consensus.
2:00 Speaker 01 Yeah, one of the co-founders of Ethereum.
2:02 Speaker 00 Right. And speaking of the bear market, obviously, we're kind of still in it. I don't know who's to say. But the crypto VC space isn't that hot still. Last I checked, the investments declined for six quarters straight. In Q3, there was $1.8 billion invested across 309 deals. I'm reading this off. Don't worry, it's not at the top of my head. And that's according to PitchBook data. And that's a 28% decrease from Q2. So what do you think is kind of driving this? And like, what are the odds that we're going to see more declines for a seventh consecutive quarter for Q4?
2:35 Speaker 01 Well, I think your stats could be applied to pretty much everywhere in tech, except for maybe a couple AI companies. You know, it's been a challenging couple of years. Let's call it, you know, profitless companies. When interest rates go up, risk comes off and companies that don't make money, valuations fall. And we've been through this now for, you know, a couple of years. We seem to be maybe on the cusp of coming out of it. At least we think so. The market seems to think so too, that interest rates are going to start to come down next year. And that will change, I think, some of the clouds to a little bit more clarity that we're, you know, we're moving forward again. That the valuations will be able to increase and there'll be more capital flooding into early-stage venture investing.
3:16 Speaker 01 But specific to crypto, I think crypto has had the same macro headwinds as everyone else, high interest rates. But it's also been confronted with, you know, a bunch of regulatory uncertainty in the United States. Maybe you'd even say regulatory hostility. And now I think mostly behind us, a bunch of bad actors. So for instance, here's one interesting tidbit that I learned today. If you look back over the price of Bitcoin and you take a look at the moments when the CEOs of some of the largest crypto exchanges resigned because of challenges, you can see that the price of Bitcoin responded positively and started to zoom. So the first example of that was back in October of 2020, when Arthur Hayes stepped down from BitMEX.
3:59 Speaker 01 The second, of course, is SBF in November of 22, being removed from FTX. And then finally, just a week or so ago, in November of 23, we have CZ stepping down from Binance. And you see, subsequent to these things, you know, sort of Bitcoin ripping. And it's just an example of the market speaking that it prefers the cleanup of bad actors and maybe even welcoming of some regulation.
4:23 Speaker 00 Okay, so with the kind of flushing out of bad actors, how does that correlate to investors re-entering the space or deploying more capital into the space? Obviously, we're seeing a little more regulatory enforcement and the price of Bitcoin go up. But for you, what are you kind of seeing in your world?
4:39 Speaker 01 Well, the only way to make a lot of money and be for your LPs as a venture investor is to be a non-consensus investor. You have to be betting on places that most people think are unlikely to produce big outcomes. If it's consensus, if everyone believes that it's a place where everyone's going to make a lot of money, then way too much capital floods the zone, increasing prices and lowering returns. So you have to have a differentiated view. There's no question that crypto venture capital is still a non-consensus bet today. Doesn't mean we're the only venture fund in the world investing here, but we're one of a few. And we're certainly one of the biggest and one of the most experienced. But there's not thousands, you know, and there's probably not even hundreds anymore. There's probably scores of venture firms investing in the space.
5:24 Speaker 01 And now that will change as valuations go up and we see progress. So I would just sort of first say that like, you need to have some conviction. But why, maybe is your question. Like, why still invest in the space? It's not just because prices go up. It's because I think the use cases that are unlocked by crypto are really almost impossible to build any other way. And they're so big. So we just heard today that Coinbase announced that their wallet, now this is not their mobile app or not their centralized trading exchange. This is a decentralized, non-custodial wallet that a user owns by themselves. Anyone can open one up. You can't be de-banked, it can't be taken away from you, you can't be unbanked. All you need is an internet connection. You have a wallet. You can now send directly in WhatsApp
6:08 Speaker 01 or iMessage or any place where you can send a link, cross-border payments, currency, using stable coins. That's US dollars. Anywhere in the world, 24 hours a day, seven days a week, for free. So, you know, cross-border remittance is a major use case for the financial system. But you can only do it during banking hours. You need to have bank accounts or need to pay Western Union extremely high fees. This is a, almost a universal use case that crypto is unique to solve. That type of massive unlock is what gets me excited.
6:37 Speaker 00 Okay. And kind of going back to what you were saying before about the number of funds and firms in this space, it's kind of dwindled from maybe the 2021 bull market. What do you think is the state of the crypto VC landscape right now?
6:50 Speaker 01 I think it's mostly a case of firms that built, let's call it institutional LP support and have track records. So if you are the combination of those two, where a bunch of your capital comes from traditional institutional LPs as opposed to like individuals, right? You know, high net worths or family offices, then you probably have a more patient capital base. And if you have a track record, what I mean by track record is like realized returns, like you've created, you've made more money for your LPs, then you probably have a group of investors who still believe in you and are willing to take the journey through a bear market with you. But if you were a brand new fund created in the raging market of, you know, 2020 and you had no returns to speak of, and most of your investors
7:34 Speaker 01 were high net worths or individual founders, that's a really hard couple of years to sustain. And so a lot of funds go away. They're not successful at raising their next fund. So I think that's one reason why we've had a pare down. We also had a couple funds, firms, get injured by investing in like FTX.
7:51 Speaker 00 Right.
7:51 Speaker 01 Or tokens that, you know, crashed and burned. And so some self harm happened because of that, and not every firm recovered from that. And the last category of, it's called more institutional investment in crypto, came from traditional VC funds who had one or two partners focused on the space. I'm an example of that when I was at Venrock. And I think for the most part, that almost entirely evaporated in this last market. I can name like five or six or maybe 10 traditional venture funds that still have one or more people doing crypto. So we just had this huge constriction of capital and firms. And that's okay, because we've had a lot fewer deals during this timeframe. Only the true believer or founders are left. But that has led us over the last two years, really get a jump on everyone else, find all the best projects in the best ecosystems and try to
8:35 Speaker 01 make a bunch of investments. And as the markets come back, hopefully we'll benefit.
8:38 Speaker 00 Aside from interest rates and the things we kind of talked about before, what do you think it's going to take to have more money flowing back into the crypto VC environment?
8:46 Speaker 01 I think it's a very conservative view of this. It is demonstrated use cases. So where crypto is being used by either institutions or enterprises or consumers, and that usage is generating some economic value, either fees. You know, when you do a transaction on Ethereum, it costs a little bit of ETH.
9:05 Speaker 00 Right.
9:05 Speaker 01 It creates some fees. When you trade in an exchange from one cryptocurrency to another, that allows fees to be created. When you use Uniswap and do an automated swap from one crypto token to another, no humans in the middle, no companies in the middle, that creates fees. So usage drives fees, and we will need more use cases that drive fees so that we can prove that these are real businesses, not just interesting software.
9:30 Speaker 00 On that note, though, how do you kind of see this becoming more accessible, whether it be to a retail investor, someone who knows nothing about crypto, or institutions? Because you and I understand why this may be a better use case than what exists in traditional finance. But if I just go and say this to someone on the street, they'll just be like, who cares, and walk away, you know?
9:49 Speaker 01 Yeah, sure. I'm not as focused on figuring out how do we get more retail investors into crypto? Because, to be honest, crypto's ownership has largely been driven by retail investors. You know, in each of the bull markets, and that usually followed a bear market, it was consumers, retail investors, who are the ones buying and using crypto. The real question many have been asking is when will we see institutions or enterprises or traditional finance adopt it? And I think there's some evidence we can talk about in a minute that that's happening right now. But I'm less interested in like, hey, how do we get more people to own this? What I care more about is how do we get more people to use it? It can't be just for trading tokens. It needs to be an ecosystem that creates compelling, you know, software architectures and applications that people use.
10:34 Speaker 01 And I can give some examples, if you'd like, of where we're seeing that happen.
10:37 Speaker 00 Yeah, definitely. I was gonna say, like, where do you see signs of promise with this? Or what's even exciting you right now with these use cases?
10:43 Speaker 01 Well, I mentioned the Coinbase cross-border remittance application that launched today.
10:47 Speaker 00 Yes.
10:48 Speaker 01 But just a few months ago, we had PayPal, which is one of the largest money transmitters in the world. They have 430 million monthly active users around the world, and they announced that 40% of their users send money across border. It's a remittance product. So it's, you know, US dollars moving to Mexico or anything like that. As I mentioned before, it's a very expensive proposition. It costs, you know, $10 to $60 to move money across borders. It takes multiple days. Sometimes the fees can be much higher than that. You can only really do it during business hours. PayPal has been doing it for some time, but they've had to use traditional banking rails, the correspondent banking system. And that requires multiple steps. It's expensive. So this is not me making this up. This is
11:32 Speaker 01 what PayPal said publicly, a publicly traded company. They said, "We're switching for cross-border remittance, which is 40% of our users, to crypto. We're going to use crypto as the rails for moving money. We're going to make our own stable coin, which is just a digital version of the US dollar. When a customer says, 'I want to send money from the US to my friend in Mexico,' we're going to use crypto rails." It's going to happen relatively instantaneously. It's going to reduce costs by more than 90%, and we think it's reliable and transparent. It's traceable. So to me, that is an unbelievably loud signal that crypto is good for something, but in this case can be good for something at really large scale. So there's just two examples, I think, of where you see a more interesting alternative to traditional banking system that brings benefit to users.
12:17 Speaker 00 Yeah, and you touched on this before, and I don't want to miss that point on institutions. I want to go back to that. How do you kind of see institutions playing into this? As someone who's investing in this space, what do you think they want more of? And then maybe on a similar note or separate, what about LPs?
12:33 Speaker 01 So the first use case of crypto has really been buying and holding and trading digital assets, right? Crypto created digital assets, and then we created...
12:41 Speaker 00 The original, yes.
12:43 Speaker 01 Yes, and we created all the infrastructure for owning them and buying them and trading them. And there's been a lot of demand for that, right? We know there are hundreds of millions of people in the world, or at least hundreds of millions of wallets, that hold... Old crypto, there's been a lot of research on how that skews younger and it's a global phenomenon. And so, well, when you have, and fees can be generated from the purchase and ownership of crypto. So what do we have? We have the institutions saying, hey, let's make it even easier for people to buy crypto. Let's let them buy it on the stock market. And so we have a whole bunch of ETFs and they're coming to market. Most people think just in a few weeks' time in January, and they're coming from like seven or eight of the biggest institutions in the world. We've got Fidelity and Invesco, BlackRock, VanEck, ARK Invest, just a few examples.
13:25 Speaker 01 And so these are traditional finance companies that are going to create traditional financial products that will buy digital assets. That is, you know, kind of shot heard around the world as the first step and it's Bitcoin first and then Ethereum. And it's just a short step from there to exchanges, custody, all the different services around the ownership of digital assets. And I think this is a sort of hard to overstate in its importance. It is the first significant involvement of traditional financial institutions coming in. So your question about LPs, so venture as an asset class, you know, has been around more than 50 years. And many of the largest professional investors, institutions have been investing in this asset class.
14:10 Speaker 01 It's, you know, part of the alternatives bucket and obviously the foundations, the college endowments, the giant public pension funds. And a lot of fund to funds were created to access this asset class. And what is unique about this asset class is it tends to invest on the leading edge, the vanguard of whatever new technology will be popular five to 10 years from now. Right? That's the timeframe of most venture. And so it's no surprise that sometime in the last six or seven years, a bunch of LPs said, well, crypto sounds interesting and started to experiment in the space. And I think some have stayed with it and some have backed off, less because prices went down and more because of, you know, the bad actor problem.
14:51 Speaker 01 And so that's why I referenced it early on, as you have these sort of global bad actors exiting the stage and replaced by kind of regulatorily compliant management teams and operating companies. That is the unlock for more institutional capital, more traditional LPs investing in the space.
15:08 Speaker 00 Okay. And what areas do you think people are missing when it comes to Web 3 and crypto, whether it be investors, LPs, just general users? What do you think is something that you're looking at and you're like, I wish everyone else was paying attention to this the way I am, or I wish this existed and it doesn't yet?
15:27 Speaker 01 I love the question and I have an answer because I've been
15:29 Speaker 00 Perfect.
15:30 Speaker 01 Talking to our LPs and investors about this for quite some time. So what is the biggest tech story of 2023? It's AI. It's in everyone's life. It's on the front page of every mainstream newspaper and publication. You guys have covered AI much longer than the New York Times has, but now it's everywhere, right?
15:49 Speaker 00 Right, yes.
15:50 Speaker 01 We've been investing in it as venture investors for more than a decade. It's been around for 30 or 40 years as technology, but now it's tipped into the mainstream in a big way. And for me, there are two wildly underappreciated fragilities of what's going on with AI right now in the mainstream. The first is, how were these incredible large language models built? They were built by training on most of the internet. The bots went out and scraped text and images from across the internet to train these giant models on millions of parameters in order to enable ChatGPT to do what it does. And no one asked our permission. I'm sure they scraped the TechCrunch website and read every article that you've written. I know it probably, you know,
16:34 Speaker 00 We have seen things like that.
16:35 Speaker 01 Yeah, sure, it scraped my blog. It scraped a lot of words in order to train itself. And none of us, they didn't ask permission for that and they didn't give us any compensation. I didn't get any OpenAI shares. I'm not sure if you did for all your great writing.
16:49 Speaker 00 No.
16:50 Speaker 01 But we all helped train these models and we got no compensation for it. That is patently unfair and possibly illegal, possibly a copyright violation, and the courts are going to sort this out. Well, this is a great example of something that Web 3 has thought a lot about. How do we create systems where many, many people or creators can contribute content to them in exchange for some piece of ownership of them? So we can imagine a decentralized version of OpenAI where all of the people whose websites were Scraped, got some tokens, maybe in proportion for the amount of content that they contributed. Photographers, artists, for all the visual that we're about to hit the age of LVMs, large visual models or large image models, and all of those creators deserve compensation.
17:34 Speaker 01 So you can imagine getting paid in tokens and then in order to use these networks or products, you have to buy tokens and that could create a sort of commons based ownership model for AI, where everyone's getting compensated. So that's one thing that no one's talking about. By the way, except the New York Times and the big media companies, because they're all suing OpenAI over this exact problem.
17:55 Speaker 00 I was gonna say on that note, we had Danny Kulikov on from Avara, formerly Ave on, and we talked about creators, content and monetization in like the web three world with social media and how like what you were saying, anything we have out there can be scraped and used and aggregated, but we're not being paid for our content. So a follow up question to that was, where do you kind of see this integration of AI and web three happening? Is it through content monetization of tokens? Or is there something bigger that will also happen that will kind of make crypto maybe have their mainstream moment like ChatGPT?
18:32 Speaker 01 Well, I wish I could say, and here's the perfect crypto solution to this, but I'm disappointed that I can't point to it. It's a crypto concept of shared ownership through tokenization, but we've looked at a few, but I can't point at a great example of tokenized data contributions into LLMs. There's some people thinking about it, but there's nothing like that's sort of happening right now that I'd point you to. But it is a massive unmet need. It will be hard to get adopted. But boy, crypto's thought about how to solve this problem for some time and I wish it was sort of able to have its crypto moment. But I'll give you another example of where crypto is making progress related to AI. So to train these large language models, you need many, many billions of dollars of GPUs.
19:17 Speaker 01 Some have estimated, you know, five to 10 billion dollars worth of compute resources, GPU resources to train these giant models. It's why OpenAI has the partnership with Microsoft that they have. We have invested. For instance, in a decentralized network of GPUs that anyone can put their GPUs into this network and get paid in tokens in exchange for this, which would let anyone train models on large decentralized cloud-based GPU networks. So that's one example where you can see crypto apply to try to make AI more democratized. The last example I'll give you is the information, I had a great piece on this, you guys might have written about it too. There were something
19:58 Speaker 01 like more than 10,000 companies that have built on top of OpenAI's API. And there was an article that Morgan Stanley, for instance, has significantly integrated ChatGPT into their workflow. I forget what the exact use case was. It may be like, you know, when they're talking to their clients, it may suggest things. But over the course of 48 hours, because of a leadership dispute, a governance dispute between a board and a founder, the entire company almost melted down. You know, sort of in the last minute, it didn't. But literally, tens of thousands of companies would have been impacted, including like a global too big to fail financial institution. And there were panicked meetings at thousands of companies all weekend long, what are my
20:40 Speaker 01 alternatives? And some folks covered this. Well, this is a great example where Ethereum, which is a decentralized global compute network that thousands or tens of thousands of companies have built on top of, has never had an issue where it's about to go down because the founder's not getting along with the board. And this is why many decentralized compute networks are anti-fragile. They are built to withstand these sort of short-term perturbations that can wreck a company. And I think it's another great example why the largest and most important compute platforms of our time should not be subject to the whims of Sam Altman and his disagreements with his board or co-founder, but should be governed by the users through a decentralized governance model. And this is something crypto has done really well.
21:23 Speaker 00 Yeah, I agree with that, too. And I think governance is a massive thing that's not just applicable to crypto, but as you said, you know, AI, other tech sectors, or even, I don't know, like your local book club. Like, you don't need to have one leader to rule it all. And if they don't like it, then it all can crumble underneath. So I think that is also extremely valuable. And maybe there is something that could be intertwined there as well.
21:44 Speaker 01 Yeah, I agree with that very much. And so I just think that here are just two or three examples of where crypto kind of intersecting with AI, which is the biggest piece of tech's, you know, excitement today, has some relevance.
21:57 Speaker 00 And on that note, we're going to take a quick break before we get into the rapid fire segment.
22:07 Speaker 00 And we are back. Now is time for our rapid fire segment where David will answer some of my questions in quick responses. Hopefully we get the hang of it. Sometimes people are really good at this. Sometimes people, you know, like to give longer responses, but I have faith in you, David. I believe in you for this one. So to start, what's the crypto investment you're most proud of?
22:27 Speaker 01 Personally, well, I love that I backed the Dapper Labs team and the creators of CryptoKitties and MBA Top Shot and also the Flow Blockchain. And while NFTs are down at the moment, I have a high conviction that in the long term, this will be one of the most important companies in all of crypto.
22:42 Speaker 00 Okay. Would you rather CoinFund be the lead investment in a few rounds or participate as an investor across a bunch of smaller rounds?
22:50 Speaker 01 We prefer to lead in the most significant companies and their rounds, largely because RLPs expect us to try to help and do more than just spread our money really thin. So I would opt for that.
23:01 Speaker 00 So the former.
23:02 Speaker 01 Former.
23:03 Speaker 00 Okay. On a scale of one to 10, one being the least, 10 being the most, how important is the founder's background and experience when it comes to considering an investment?
23:12 Speaker 01 I would say the founder is the most important, so 10, but it's not just their experience or domain experience. It's a little bit more just about like who they are, what drives them, why they're doing what they're doing, personality type, history. So I would say 10 with a caveat.
23:28 Speaker 00 All right. Would you rather invest in more, quote, risky startups or safe startups?
23:33 Speaker 01 All I do is take risk for a living, so risky.
23:36 Speaker 00 Love that. That's all crypto is sometimes, you know?
23:39 Speaker 01 For sure.
23:40 Speaker 00 What's the biggest challenge crypto startups will face in 2024? If you could use one word to describe it?
23:46 Speaker 01 I think it's still regulation.
23:48 Speaker 00 Yeah. All right. You did great there. You also talked about Dapper Labs and that investment. I wanted to ask you, what did you see in NFTs at the time? Because that was before the big boom that we saw a few years ago. And as you mentioned, you know, NFTs are kind of down. They're kind of getting a little more momentum recently. But I feel like a lot of VCs, you know, they look at the 10-year, five-year horizon. So when you invested in it, what did you see at the time?
24:12 Speaker 01 I have to sort of thank my partner Jake Bruckman for helping me see the importance of NFTs. But you know, a lot of my career in tech was centered around digital music and media on the internet. And so I spent a lot of time around content creators and content owners. And I learned that media or intellectual property in general is something that we as a species have owned for a very long time. We've owned the physical output of intellectual property for a long time. Books, pieces of artwork, drawings. But when everything went digital, we couldn't own it anymore because you can't enforce scarcity and ownership of digital items. It's too easy to copy them. So we changed to this access model for a brief period of time. It's been like 15 years or so where you've had to stream movies, stream music.
24:56 Speaker 01 But NFTs let us go back to the way we've consumed intellectual property, creativity, for thousands of years, and that's through ownership. So NFTs are the mechanism by which we can own digital intellectual property. It's property rights for intellectual property. And to me, that's just too big an idea to not invest in, particularly when you have a team as ambitious and competent as the Dapper team. So it was a combination of team plus big market that got me excited. Doesn't mean it's going to work out. You know, if it takes 20 years for NFTs to be mainstream, then that won't work. But we've had a few bright shiny moments, right, of success and tens of millions of people experimenting with NFTs and, you know, 40, 50 billion dollars of sales. So I have some conviction that this is a real market.
25:41 Speaker 00 And going off of that in the NFT space, obviously, we talked about how it kind of got its hype, even from CryptoKitty's days, which was like one of the first NFTs out there to most recent boom. And even now, we're seeing things like NBA Topshop, Disney Create Things, other groups. And I'm curious, like, what do you think would be another cycle of boom for NFTs?
26:03 Speaker 01 I think there's a couple candidates for what this is going to be. I don't have a super differentiated point of view here. So those of us who follow NFTs will probably say some of the same answers to your question. But one is that I think in-app purchases or digital purchases in games is something that's extremely a key part of gaming. But all the things we buy there, we don't actually own. We sort of rent to use in a game. It just doesn't make sense for those items not to be owned by us. NFTs let us own in-app purchases, take them out of the game, resell them, stock them somewhere else, use them in other games. So I think NFTs as a key part of gaming, so that we can own our in-game items, it's just too obvious. I hope it happens in this cycle. I have some high conviction that it will.
26:46 Speaker 01 It didn't happen in the last cycle, so we'll see. I think we get way more than just collectibles. And the last category is, I would call them dynamic NFTs. You know, NFTs can be software. So you can own a collectible or an in-game item or an NBA Top Shot moment, but it can change over time. It can even take on personality or attributes of its owner. And that's kind of a whole new breed of intellectual property that morphs, given who the owner is and maybe how long you own it. It could increase in value for a bunch of different reasons. So I'm excited about dynamic NFTs.
27:19 Speaker 00 Okay, and to shift gears a little bit, we talked about this briefly before, but I want to dive into it before we wrap things up. A lot of guests we've had on have touched on crypto regulation. It's been a massive conversation this year, whether it be through enforcement, requests for policy, et cetera. What does meaningful crypto regulation look like to you as an investor?
27:39 Speaker 01 I was present at sort of the creation of the Digital Millennium Copyright Act and some of the early pieces of legislation around the Internet. And a key piece of that was a safe harbor that let startups doing stuff around media rights, as long as they were listening to the needs of copyright owners, operate without fear of being sued. And today, in the United States, you can't do anything with a token without having the fear of being sued by our government. But in the UK, in all of Europe, in Singapore, in a bunch of places in the Far East, in Hong Kong, you can operate without fear when you create a token and experiment in Web 3, that you can operate without fear of being sued. So creating some type of safe harbor or some clarity.
28:22 Speaker 01 If you do X, Y, and Z, your entire company doesn't go to zero if, you know, some aggressive enforcement agency decides to sue. So I think the first thing we need is some clarity or safety around what it is. How do we experiment here? And I think it's critical that the US eventually reach this stage. It is being left in the dust currently. There's way more innovation happening outside the US than in the US today because of policies of US government. I have high conviction it's going to change, but there is a regulatory arbitrage happening outside the US. And so that would be my wish, is some clarity to let startups experiment. You want to be pro-innovation. It just doesn't make sense as a country or any municipality to not be pro-innovation. Like, let people try to make the world better and create economic value.
29:07 Speaker 01 And we're not doing that here, so that's got to change.
29:08 Speaker 00 How does the current crypto regulatory guidelines or lack thereof in the US kind of shift coin fund strategy or considerations, especially within the US?
29:18 Speaker 01 Well, we travel a lot outside the US. So we have people stationed outside the US. We're almost all of the most important crypto events are held outside the US now. Developer conferences. There's a few in the US that are important, but most of them outside the US. So we're attending all of those. I just came back from Solana Breakpoint in Amsterdam and spent a couple of days in London, where I'll be there at least every two or three months. There's lots of crypto startup activity in Berlin and in Lisbon and even in Paris. So we're traveling the world, looking for the best teams who are locating in jurisdictions where, again, that safety, that clarity, at least at the beginning, exists. And about 45 of our 105 or so investments that we've made since 2015
30:03 Speaker 01 are in companies headquartered outside the United States. And I expect that number to grow rapidly.
30:07 Speaker 00 All right. And to wrap things up, David, since it's almost the end of the year, what are you most excited for and looking towards in 2024?
30:17 Speaker 01 Yeah, I would say like a better macro just makes it a little bit easier. I'm a long-term investor. I invest over like six to 10-year periods. So like, stock prices go up and down, interest rates go up and down, crypto goes up and down. I try to sort of stay away from that noise. But the environment's been so challenging the last two years at the macroeconomic level and also macro crypto, you know, the headlines, that it scares good entrepreneurs away from taking a serious look. And so my wish for next year, my hope for next year is we're in a slightly improved environment that just attracts more credible entrepreneurs for us to meet with, who may not have crypto-native backgrounds.
30:53 Speaker 00 Yeah, and those are people we could bring on the podcast then. So it'd be a win-win for everyone, huh?
30:57 Speaker 01 And they all read TechCrunch.
30:58 Speaker 00 Yes, of course. David, lastly, can you leave us with a piece of advice that either you follow or share with your portfolio companies?
31:05 Speaker 01 Yeah, and so this is a hard one to internalize, but it makes a lot of logical sense. So as a CEO, one of the hardest things for me to learn how to do was to examine the sort of competence level of my direct reports, my senior management team, every year or so, and see if I could upgrade. So, you know, it's controversial because you're like, hey, if someone's doing a good job or they were loyal, they came when the company was doing nothing, shouldn't they stay in that role forever? And I think the rule of high performance is that you actually want to add more and more talent to the senior parts of an org as you grow. So training or teaching our CEOs every year or 18 months, as the company grows and is successful, you have access to a new level of talent
31:48 Speaker 01 and you're maybe even more credible a company than you were before, and trying to bring them in at your direct report level to grow the org. It's a real hard thing to get good at, but the CEOs that do this tend to win.
32:00 Speaker 00 All right. Well, thank you, David, for taking the time to talk today. It was an absolute pleasure.
32:04 Speaker 01 Wonderful to be here, Jackie. Thanks for having me.
32:10 Speaker 00 We'll be back next week with conversations around what's going on in the wild world of Web 3 with top players in the crypto ecosystem. You can keep up with us on Spotify, Apple Music, or your favorite pod platform and subscribe to our companion newsletter, also called Chain Reaction. Links to the newsletter and stories we talked about can be found in our show notes, and be sure to follow us at @chain_reaction on Twitter. Chain Reaction is hosted by myself, Jaclyn Melanick, and produced by Maggie Stamets, with assistance from Yashad Kukarni and editing by Kell. Bryce Durbin is our illustrator, and Henry Pickavet manages TechCrunch audio products. Thanks for listening in. See you next time.
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