20VC: Why Crypto Is The Biggest Disruptor To Hit VC In A Decade, The State of Crypto Today & Why Investing In Decentralized Platforms Requires A New Mental Model with Boris Wertz, Founding Partner @ Version One Ventures

Boris Wertz is the Founding Partner @ Version One Ventures, one of North America's leading early-stage funds with a portfolio including the likes of previous guests Coinbase, AngelList, Shippo, TopHat, Polychain Capital and many more incredible companies. As for Boris, prior to VC, Boris was the COO @ Abe Books, where he led a team of 60 people until their acquisition in 2008 by Amazon. In addition to this, Boris is also a Board Partner with a16z and the lead independent director @ Ether Capital, a Toronto-based technology company aiming to become the central investment hub for the Ethereum ecosystem. In Today’s Episode You Will Learn: 1.) How Boris made his way from creating the largest European marketplace for used books to becoming one of North America's leading investors with Version One? 2.) How does Boris analyze where we are at now in the development and hype cycle of crypto? How does it compare to the internet bubble of 99'? Does Boris get concerned by the amount of dumb money entering the space? What resources and tools does Boris advice for people looking to learn the foundations as quickly as possible? 3.) Why does Boris believe you have to apply a new mental model when investing in crypto? What do existing VCs need to do to ensure they are not left behind by the emerging world of crypto? What does Boris believe would need to happen for the existing institutional LP class to embrace crypto? 4.) Does Boris believe existing investors can transition into this space or will vertically specialised funds be the clear winner? If existing investors can, what is required within their partnerships to make this happen? What does Boris make of VCs investing in ICOs? How does Boris evaluate the Telegram ICO? 5.) How does Boris view the future of VC in tandem with the world of crypto and ICOs? What would VCs becoming small cap hedge funds mean for the industry? How would life change? What have been Boris' biggest learnings from watching first hand a16z's attempts to innovate the VC model at scale? Items Mentioned In Today’s Show: Boris' Fave Book: Shoe Dog Boris' Most Recent Investment: Coinbase As always you can follow Harry, The Twenty Minute VC and Boris on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC. We also speak about Movidiam – as brands turn to smarter ways of creating video and digital content, the Movidiam platform offers faster turnarounds whilst maintaining or improving quality. They’re already working with some of the biggest, most innovative companies to help compare teams and freelancers across the global curated network of creative talent. Producers and marketers looking for the best creatives can get a shortlist from Movidiam’s account managers in hours – tailored to their project’s needs. Submit a brief or check out the platform at Movidiam.com.

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

• 0:00Harry Stebbings?

  I'm not quite sure why I always start with this is the 20 minute VC highly likely if you clicked on the show you knew that this was what you were clicking but regardless welcome to the 20 minute VC with me Harry Stebbings and you can see more from me and behind the scenes on Instagram at H Stebbings 1996 with two Bs and speaking of Instagram so many of you have messaged me there saying you'd like us to cover more crypto so naturally I listened to you and I'm thrilled to a crypto focused show today with a friend and second timer to the show in the form of Boris Virtza founding partner ad version one one of North America's leading early stage funds with a portfolio including the likes of previous guests Coinbase Angel List Shippo Top Hat Polychain Capital and many more incredible companies as for Boris prior to VC Boris was the COO at Abe Books where he led a team of 70 people until their acquisition in 2008 by Amazon in addition to this Boris is also a board partner with Andreessen Horowitz and is the lead independent director at Ether Capital a Toronto based technology company aiming to become the central hub for the Ethereum ecosystem but before our episode today brands are now turning to smarter ways of creating video and digital content to fit new distribution channels looking for faster turnarounds while maintaining or improving the quality the Movidium platform addresses that directly it's now simple for brands and agencies to connect with the very best creatives for their projects Movidium is already working with some of the biggest forward thinking companies to save time and cost by allowing comparison of the global network of curated creative talent with a global network they're well placed to continue to expand to take on the world's content demand producers and marketers looking for the best creatives can get a shortlist from Movidium's account managers in hours tailored to their projects needs and all you need to do is submit a brief today or check out the platform at movidiam.com home to some of the biggest names in the industry and support for the 20 minute VC also comes from Wunder Capital the easiest way to invest in large scale solar energy projects across the US with Wunder you can earn up to seven and a half percent annually while helping to finance renewable energy projects and you can get started at WunderCapital.com/20MinuteVC all in letters Wunder Capital where impact investing meets capitalism but enough from me so it's now crypto time so without further ado I'm thrilled to welcome Boris Virtza founding partner ad version one

• 2:18Speaker 01

  You have now arrived at your destination.

• 2:22Harry Stebbings?

  Boris, it's such a pleasure to have you on the show today. What can I say? I loved it so much the first time. I felt we had to do it again. So thank you so much for joining me again today, Boris.

• 2:30Speaker 02

  Thanks for having me again.

• 2:31Harry Stebbings?

  Not at all, but I'd love to kick off. For maybe those that didn't listen to the earlier episode, how did you make your way into VC and come to Found Version One?

• 2:39Speaker 02

  So I started as an opener in 99, Internet 1.0, build a marketplace for used wear out of print books. We built that up over the years and then sold it to Amazon in 2008. And I thought it was a great time to look at the other side of the business and looking at investing. So I did a few years of angel investment, worked with a few VCs like Uniscore Ventures and First One Capital, and then raised my first fund in 2012. We're now investing out of a $35 million early-stage fund called Version One Ventures. We focus on companies that leverage network effects to build strong and defensible businesses. And just recently, we really started focusing a lot on crypto.

• 3:16Harry Stebbings?

  And I do want to take the opportunity to say what an incredible journey it's been with Version One, and I always love your content. But I want to start on that final piece you mentioned there about crypto, because you said you've spent the last 18 months going deep on all things within the space, six of the last nine investments in the space. So we're going to start with a meta on the space, then drill down a layer deeper into existing players getting involved, and then ultimately on who the winners might be. Does that sound good?

• 3:40Speaker 02

  Sounds great.

• 3:41Harry Stebbings?

  So starting on the landscape itself, I can't get in an Uber without the driver asking me about my crypto portfolio. So I have to ask the question, where are we now in the development and hype cycle for the space?

• 3:52Speaker 02

  Yeah, it's kind of interesting. I think a lot of people consider 2017 like the breakout year for crypto where everybody started talking about it, especially around ICOs. But the reality is, the original Bitcoin white paper is almost 10 years old now. So it has been a technology that has been around. And some people kind of might remember just 2013, it was kind of the first what people called the Bitcoin bubble. But I think overall, we're still in the very early inches of this. It's still a very raw, early technology, but with incredible potential over the next decades.

• 4:24Harry Stebbings?

  And you saw the internet bubble of ninety nine. I sadly can't remember it. So how does it compare to the internet bubble of ninety nine with this hype?

• 4:32Speaker 02

  Yeah, it's kind of something I'm always trying to think about in terms of historical context, right? And I think there's on the one hand side, technology wise, we feel like it's ninety five. It's kind of around the emergence of the Netscape browser, which at the time was kind of the first time that, you know, kind of the masses could really use the internet. And that's really feels we're around that in terms of technology. At the same time, in terms of financial markets, it feels like we're already, you know, kind of much further along. When you think internet bubble kind of burst in in March two thousand, at the time, it was about a four trillion dollar market cap. With cryptocurrencies, we're now currently at about five hundred billion.

• 5:10Speaker 02

  So there's still some room to go, but it feels like we're already definitely further along in terms of financial markets than we were in ninety five, given the state of the technology.

• 5:19Harry Stebbings?

  Can I ask, you mentioned there about being further along with financial markets. There's a huge amount of smart money in the industry. There's also a lot of maybe, maybe dumb money, people that don't have sometimes the knowledge to invest in the space quite so well. I'm intrigued with the sheer quantum of people that that might get burnt. Could this harm the space more broadly for the long term, do you think?

• 5:37Speaker 02

  Yes and no. I think, first of all, unfortunately, the characteristic of every single technology bubble or every single bubble, right? That there is dumb money being attracted and people getting hurt in the process. And, you know, overall, I hope, you know, we've seen that now around the SSC and ICOs, that they gain tougher in it and really making sure that the scammers and the really bad projects are kind of locked out of the market. Having said that, I think it's also an opportunity for a lot of people to make money, to invest in something they really care about. And we've seen a bunch of stories of people that have done very well, leaving very early on in this kind of new tech cycle.

• 6:13Harry Stebbings?

  And kind of moving kind of one layer deeper, despite the hype and continuous suggestions of the bubble, you said to me before that this wave of decentralized platforms will be the biggest disruptor to hit VC in over a decade. So tell me, why do we think this and what's kind of driving that thinking?

• 6:29Speaker 02

  Yeah, I think it's really three factors that are coming to play. The first one I think right now, I think everybody or a lot of people are convinced that decentralized platforms have a different business model besides also being a completely different technology. And I think that's just a new mental model of thinking around how to invest in that space. And kind of the core idea is like a lot of the value will accrue at the protocol level and will be monetized through a token business model, right? I think the second thing is there's suddenly tremendous amount of competitions. We talked about ICOs and billions of dollars have been raised. Before, most early-stage technology investment was negotiated in private rounds through sophisticated investors. Only very few angels and private individuals participated in that.

• 7:14Speaker 02

  Now, suddenly, this is opening up through ICOs. And in theory, every single person could invest in these token projects very early on. So there's suddenly a tremendous global platform for raising money for startups. And that's certainly a new competition for these VCs. And then last but not least, I think there's a bunch of administrative things that are changing. You know, today, we bought stock in private companies and got a stock certificate for it. Now, we suddenly have a private key of a token, which is very different to store, to manage. I said, there are much more risks involved. You know, a lot of the LP agreements with current funds are not allowing for, you know, actually directly investing in token and currencies.

• 7:54Speaker 02

  So there's a bunch of things that just operationally, a VC needs to think through and has to change.

• 8:00Harry Stebbings?

  Can I ask, in terms of kind of that radical reshaping of thinking for the VC community, what do you think VCs more broadly maybe need to do in terms of thinking to really ensure that they're not left behind by this kind of upcoming decade of true innovation and decentralization?

• 8:15Speaker 02

  You know, I think the biggest thing is really spend time in it. I think it's a very complex technology and it's rapidly evolving. And I feel like if you don't spend enough time in the area, you're going to be left behind. And you know, I've heard a bunch of VCs that are just thinking, listen, it's too complicated. I think it's too bubbly. I don't want to spend time in that. And you know, while I agree, it's not easy to invest in that space right now if you get the conviction that there's going to be the technology platform for the next decade. Then you better spend time in it trying to understand it.

• 8:47Harry Stebbings?

  Okay, so Boris, before the show, we were talking about the benefits of the show and kind of all the knowledge that I gain from interviewing great people. I'd love your advice. For me, being at the very beginning of the learning curve on crypto, what would you advise me in really getting to grips with just the fundamentals? What advice would you have in just scaling that initial learning curve?

• 9:05Speaker 02

  I think a few things. I mean, first of all, there's a few key resources that I would read and kind of get into. And certainly, starting with Satoshi's white paper on Bitcoin, but a bunch of others. I think, secondly, there's interestingly enough, there have been tremendous amount of Telegram groups that have popped up over the last, you know, 12 months where investors and entrepreneurs and other supporter of the ecosystems are exchanging views and ideas. And then last but not least, I think important to just start investing. Whenever I try to learn something in investing, the best one was to make a couple of smaller bets to really get your hands dirty and get into it and learn from that. Theory is one thing, but then actually having investments and working with entrepreneurs on a daily basis is the other.

• 9:48Harry Stebbings?

  Speaking of kind of actually digging in and making that investment, we had Olaf Karlsson Wi from Polychain on the show recently. And he said that if you can't understand white papers, you shouldn't be investing in the space. Would you agree with that maybe quite binary view? Or would you take an alternate stance as to kind of gradual engagement with the space?

• 10:05Speaker 02

  Yes and no. I think, first of all, I think it's super important, especially if you can invest at the protocol level to really understand the technical details of a white paper. At the same time, I think to build a successful protocol, build a successful community of developers around it, there's also other skills you need in terms of looking at the team, evaluating the team, understanding how they build community, understanding how they can develop that platform over a long period of time. So from that point of view, I think, yeah, it's certainly a start. At the same time, I think there's many more aspects to successful crypto investing than just the white paper.

• 10:40Harry Stebbings?

  And then the other question I have is, with such a radical reshaping of thinking, is it possible for VCs to maintain their specialities in SaaS or marketplaces and the kind of broad spectrum that we already invest whilst also diving into this? This new world that is quite literally so different.

• 10:57Speaker 02

  Yeah, I think it's a good question, something we have been thinking about at version one quite a bit. I mean, for us, the answer to that question was we were built around network effects and, you know, the blockchain and crypto has tremendous network effects. So we feel like it's a continuation of investment themes, you know, from social platforms and marketplaces to smart SaaS built around data network effects to now crypto. But I think it's a it's a fair question. Can you really maintain very different investment focus areas? I would say that the real advantage of having had investing experience in, you know, more traditional internet models is everything that comes along with company building. And what we said before, kind of helping entrepreneurs through tough phases. I think that's not going to go away in crypto.

• 11:40Speaker 02

  But clearly, the vertically focused crypto funds have a certain advantage of having like a hundred, ten percent attention on that space.

• 11:47Harry Stebbings?

  You said it's not going to go away in crypto. Just with the sheer amount of increase in investors who participate in maybe ICOs and crypto raises, does that not automatically mean that kind of engagement with entrepreneur and help from the investor is reduced?

• 12:01Speaker 02

  Yes, but you know, I think what we've seen over the last six to nine months, which is really interesting, that a lot of the smartest entrepreneurs are going back to privately negotiated rounds, at least for the first step. And when you think about the advantage of doing that versus an ICO, this is manifold. I mean, the first one, it just gives you time that is not in the public eye to build your company, build your protocol, build your team. Secondly, you really have bought in investors. Instead of having, you know, millions of small investors through an ICO, you have a couple and a handful of really helpful investors. And then, you know, usually you have the opportunity to think through your token model, how you're going to dispute the token over time. So it gives you time as well to kind of figure that out. And then you can go for an ICO. From from that point of view, if you have the chance, I think it's a better model.

• 12:46Speaker 02

  It gives you time to figure things out. And a little bit like then going down the IPO road, you just have to have a little bit of a more mature company and platform to really be in the public eye and be under observation 24/7.

• 12:59Harry Stebbings?

  Can I ask, what do you make of the Telegram ICO?

• 13:01Speaker 02

  It's really interesting to look at that. I mean, first of all, Telegram is incredible platform. It already has a bunch of crypto enthusiasts on the platform, which we discussed before. I think the biggest question will be, and that's, I think, a question that is relevant for many projects, is what is more important, kind of native crypto approaches, right? And so building a protocol, a platform, the grounds up with crypto in mind, or a proven ability to ship product at scale, right? And so the Telegram team has done an incredible job of at the second one, right? So now the question is, will they succeed at the first one, kind of incorporating crypto into an existing platform? Is that even possible? Or do you have to really build it from the ground up? And I think that's an open question,

• 13:43Speaker 02

  but it's great to see, you know, a platform at scale, trying this and figuring it out. But they certainly have had a lot of financial interest in the ICO and will probably raise up to two billion or so.

• 13:53Harry Stebbings?

  Can I ask, which side do you lean on? Do you lean on the favoring incorporation later on? Or do you think ground up is the only way to go?

• 14:00Speaker 02

  So I think ground up is probably most successful way to go. Having said that, I think entrepreneurs that have built companies before and have built platforms before, that kind of starting to go ground up is probably the most interesting and most successful approach. I think it's going to be generally hard to retrofit in an existing platform, especially in an existing platform at the scale of Telegram to crypto. But, you know, jury's out. I personally believe that native crypto projects will most likely be more successful.

• 14:30Harry Stebbings?

  Yeah, absolutely. I do want to touch on one element that you mentioned earlier, which is the vertical specialization of crypto funds, kind of positing it more broadly. With the required time, effort and knowledge, is it not a winner's game for vertically specialized crypto funds over generalist funds incorporating into current investment strategies?

• 14:48Speaker 02

  I think what is happening right now is, you know, there's only a handful of really interesting projects. I think they're growing very quickly, the number of those. And there's a bunch of funds that are kind of going after it. So I think what is happening, I think everybody who's building an interesting portfolio right now, going to have a real competitive advantage over the next years, kind of pointing that portfolio and having built up crypto experience. So I don't think it's kind of a matter of generalist versus crypto right now. I think it's a matter Matter of who's taking that space seriously and going at it. I mean, you look at some of the funds like Uniscore Ventures or Enrez and Horovitz. Yes, they still invest in other things than crypto, but they have built up incredible brands in crypto and have done some of the most interesting projects. So from that point of view, I think it really depends.

• 15:31Speaker 02

  And you know, and the same thing on the on the specialized funds. There's now, I think, two hundred hedge funds or something like that, crypto hedge funds. But there's only a few that have really built a brand. MetaStable and Polychain being probably among the the first ones.

• 15:43Harry Stebbings?

  No, I couldn't agree with you more there on the power of brand. I do want to finish though, before we dive into a quick fire, on kind of the meta level of financing, so to speak, and speak about the LP class and maybe a traditionally conservative LP class. How do you think about them entering the the volatile kind of climate that is crypto? When, why, how, and kind of your thoughts around their entry and whether it will come in the coming years?

• 16:06Speaker 02

  Yeah, I think that the general tendency right now seems to be super interesting. I want to learn more and and want to understand how I can participate. Having said that, in in crypto only funds, I think what I'm hearing is most of the money has come so far from family offices and high net worth, sometimes from other VCs that wanted to learn. So for example, me investing in Polychain and MetaStable. At the same time, I think there's a bunch of institutional capital that are sitting at the sidelines and thinking about how to get involved in in crypto. For them, probably being part of kind of whatever I would call mixed funds. So you know, internet and crypto funds like version one, Enrez and Horovitz, USV, it's probably easier to wrap the head around right now.

• 16:47Speaker 02

  But I'm pretty sure that at some stage, you know, as the the sector evolves, matures, perhaps we get going to get less volatility. I think people will start really pouring more money into it.

• 16:57Harry Stebbings?

  No, absolutely, I agree. But I would love to move into a quick fire round. As you know, I say a short statement and then you give me your immediate thoughts. About sixty seconds per one. Are you ready, Boris?

• 17:07Speaker 02

  I'm so ready.

• 17:08Harry Stebbings?

  So from last time, how's the favorite book changed and what must I be reading?

• 17:12Speaker 02

  So I just read Shoe Dog from Phil Knight. And just an amazing story of a crazy entrepreneur, a passionate entrepreneur that against all odds kind of built Snakes with his group of. What he calls misfits, equally crazy and passionate people. And it just reminded me how much tougher it was to build companies back in the days with like very little access to capital. And you know, I think any entrepreneur should read it. It's just, it's incredible story of entrepreneurial energy and passion and nature of force.

• 17:42Harry Stebbings?

  You mentioned Satoshi's paper. I do have to ask, what's the other required crypto reading?

• 17:47Speaker 02

  I mean, there's a bunch of really good papers and you know, I'm, I'm trying to read a white paper every single week. I think when I think about to stay up to date on all developments and it's, it's just developing very, very rapidly. I think Token Economy is a newsletter by Stefano Bernardi and Yana Gru is a really great one. And I would definitely read that. It's just a great collection of what is happening in the space on a weekly basis.

• 18:09Harry Stebbings?

  Tell me a story about a time that was transformational to you as an individual, Boris.

• 18:13Speaker 02

  Yeah, well, it's funny. I was thinking about that and I really think like second half of two thousand and sixteen. I had not done an investment for, for seven months for version one. I just didn't find anything that interested me. And it was one of these lowlights in, in investor career. I mean, you know that something else will, will come up. But you still, you know, partly we like to do new deals. We like to get involved in new, new opportunities. We like to think through, you know, new startups and help entrepreneurs. And you know, what, what I did is it, it really forced me to look at crypto again. And I had looked at it in two thousand and thirteen and then moved away and then really built up an investment thesis around Ethereum being crypto two point O. And that really launched our investing in crypto and what we've done over the last eighteen months.

• 18:58Speaker 02

  So it was one of these really frustrating phases as an investor that you don't really see anything that you like. At the same time, it launched kind of my new focus and my new excitement and my passion for crypto.

• 19:10Harry Stebbings?

  Can I ask, as an investor with external capital, do you ever feel pressure to invest and deploy?

• 19:15Speaker 02

  I think you partly always have a little bit of that pressure, especially I feel like at the beginning of a new fund. You feel like, you know, there's, there's nothing in the bag. I think you get a little bit more relaxed over time. Once you have a few investments in the fund, you see how they're doing, you, you hopefully have a few early winners, et cetera. But yeah, as Zen, as. We all try to be about it. You still feel a little bit of the pressure of doing investments and, you know, putting something on the board.

• 19:40Harry Stebbings?

  What do you believe that most around you disbelieve?

• 19:43Speaker 02

  So I think many crypto enthusiasts think like decentralized platforms will basically take over the world. At the same time, you have all the people that don't believe in crypto that say, listen, we're just going to continue to see centralized platforms. I actually believe that truth is really in the middle, that centralized platforms are amazing for efficiency. Decentralized platforms are amazing for trust. And I think the most successful project is going to pick the best out of both worlds. And it's not the either or, it's actually somewhere in the middle. I'm, I'm, I'm super excited to back in teams that, that think that way.

• 20:16Harry Stebbings?

  You're out of the ether of Silicon Valley. What would you most like to change about Silicon Valley, having that kind of external perspective?

• 20:23Speaker 02

  So I think that the valley is really the greatest place on earth for innovation. And I believe that technology can solve some of the hardest problems in the world. But at the same time, technology, as you all know, has sometimes really negative side effects. As seen around the discussion with social media or the effect of automation on jobs. And I feel like the values sometimes tend to focus a little bit too much on the positive effects. And I, I think we just need to have a more balanced view, you know? Otherwise, we will not get the mainstream to embrace technology and we will not be able to get the chance to solve problems. So having that balanced view, I wish was something we were working on.

• 20:56Harry Stebbings?

  What about the biggest learning from being an A16Z board partner?

• 20:59Speaker 02

  I think it has been amazing to just be at the periphery of Andreessen Horowitz through that position. Innovation at scale in VC has not been attempted. And Andreessen Horowitz is kind of a daily example of how they try out things, how they innovate, how they come up with new ideas, quickly test them. So it's amazing to see how it's really being run like a startup that is continuously trying to develop new ideas and test new ideas.

• 21:24Harry Stebbings?

  And then a final one, what's the most recent publicly announced investment and why did you say yes, Boris?

• 21:30Speaker 02

  So we invested in Coinbase late last year. And, uh, you know, as, as you know, this was a series D, so it's a little bit later than we usually invest in. But we really thought that Coinbase can be one of these iconic companies of the crypto ages. And, you know, we're incredibly lucky to have had the chance to invest in that round. So that, that was our last one and we're, we're very happy about it.

• 21:50Harry Stebbings?

  Well, Brian's episode last year was the most downloaded founder episode of 2017. So I, I think that's clearly a very good sign, but Boris, it's always such a pleasure to chat. So thank you so much for joining me today.

• 22:01Speaker 02

  Thanks for having me.

• 22:04Harry Stebbings?

  And I want to say again a huge thank you to Boris for giving up the time today to come on the show. More exciting times ahead for him and Angela with version one with the new investing thesis. And you can find out more on Twitter by following Boris at Bverz. Likewise, we'd love to see you behind the scenes here at the 20 minute VC. You can find me on Instagram at H Stebbings 1996. It'd be great to see you there. But before we leave you today, brands are now turning to smarter ways of creating video and digital content to fit new distribution channels, looking for faster turnarounds while maintaining or improving the quality. The Movidiam platform addresses that directly. It's now simple for brands and agencies to connect with the very best creatives for their projects. Mavidium is already working with some of the biggest forward-thinking companies to save time and cost by allowing comparison of the global network of curated creative

• 22:49Harry Stebbings?

  talent. With a global network, they're well placed to continue to expand to take on the world's content demand. Producers and marketers looking for the best creatives can get a shortlist from Mavidium's account managers in hours tailored to their projects' needs. And all you need to do is submit a brief today or check out the platform at movidiam.com, home to some of the biggest names in the industry. And support for the 20 minute VC also comes from Wunder Capital, the easiest way to invest in large-scale solar energy projects across the US. With Wunder, you can earn up to 7.5% annually while helping to finance renewable energy projects. And you can get started at wundercapital.com/20minutevc, all in letters. Wunder Capital, where impact investing meets capitalism. As always, we so appreciate all your support and cannot wait to bring you Founder's Friday.