A VC's Playbook: How to Invest in Decentralization

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• Where is the transcript for this webinar?

   

  In today’s discussion, I’m going to talk a little bit about something a lot of VCs have, which is a secular trend about decentralization. We at AV believe strongly that this is the way the world always heads and is heading now at an accelerated pace. Some of the technologies—blockchain and others—are really aggressively attacking centralized powers, and if you believe in a distributed world, decentralization, I think that you might find today’s presentation interesting.

  So before we get started, just disclosures. This is not an offer to buy or sell any securities, which are made pursuant only to legal documents. It’s just the views of me and Alumni Ventures on the investing landscape. So no further ado. We’re going to quickly cover just a couple of minutes about me and AV, talk a little bit about blockchain and the relationship between it and the major trend toward decentralization. We’ll talk about sectors, specific companies, trends, and then maybe how to invest in the space. This is about where the world is heading and I look forward to talking to you about it.

  I’ve been in the venture entrepreneurial space since the eighties. I’ve seen a lot of trends. Started Alumni Ventures a decade ago to bring smart, simple venture investing to retail investors with a pretty simple proposition: we can do better together in this asset class by being a network than we can do on our own.

  It’s been a pretty successful journey. We’re coming up on $1.5 billion raised. We have 11,000 or so individual customers. We’ve invested in 1,500 companies. We offer an opportunity to invest in a fire-and-forget portfolio for as little as $10,000, or to pick individual deals through our syndication program. We’re 120 people located equally in our back office in Southern New Hampshire, and our investing teams are in the major venture hubs. Our strategy is really to be a co-investor of choice. We are very well thought of in that space. We encourage people to check out some of the amazing companies we’ve invested in through our Apex 50.

  Part of the strategy as well is to be a co-investor with leading venture capital firms. These are some of the names that we invest with a lot. We could have other top firms here, but we’re very much a co-investor alongside very strong leads. We think there’s a strong correlation between it, and we’re going to talk a little bit today in the specific investment thesis about some of the groups that we co-invest with, which we think really have domain expertise in distributed technologies.

  We’re going to talk a little bit about just a very quick explainer on blockchain. It’s really software. It’s about a ledger that has pretty significant advantages, but it is fundamentally an approach to organizing data that is immutable, distributed, and can be very, very powerful in a variety of key applications. So we think it’s a powerful technology. Do not confuse meme coins and bad actors with what can be a very powerful technology trend.

  So what are the advantages? Decentralization, secure, distributed, immutable, programmable—these things are very powerful attributes of this approach. I view this because I think there comes a lot of baggage with cryptocurrencies and meme coins and blockchain and run-ups and speculation. I think it’s very easy to lose sight of what I think is really going on here, which is a decentralization revolution.

  If you look at the companies that we’ve invested in using this technology, they’re really about disruption and doing things more efficiently, making things more accessible, making things more global. It is really about breaking down centralized power that exercises either monopoly pricing or taxing, and it really returns control and freedom and autonomy to individuals in a much more powerful way than has ever been available before.

  Like many big profound technologies, it has fits and starts and it is a multi-decade transition, but I think one that’s incredibly powerful, incredibly misunderstood—but inevitable.

  And we’ll be sending along this deck as a follow-up. So I’m going to move through a lot of this stuff pretty quickly. But the idea of the advantages of this approach—third-party involvement, where control exists, how hackable it is—the ability to use things in a distributed fashion means that you don’t have a single point of failure.

  Ease of use—again, this depends on the specific application—but there’s opportunities to make this more powerful and customizable and personal. And then just the tax tolls, the monopoly power, the pricing of a centralized system—obviously we’ve seen centralized powers create enormous tolls on transactions, on access. Really, a lot of the richest people in the world have kind of centralized these kinds of powers and controls. So we think this is—the market always wins. So we think that this better technology will eventually dismantle some of these centralized systems, and that makes it very investable.

  So this is just a few of the areas. Again, I’m going to cover them a little bit. Clearly when you’re talking about new technology, there’s infrastructure, there’s financial services, there’s control of information, there’s a lot of infrastructure stuff that goes on with the formation of a new technology. But we’re starting to see, I think, next-level stuff. I mean, one of our companies, BlueSky, really taking a decentralized approach to social media.

  I think we’re seeing the convergence of some things going on with identity and AI. I think there’s new versions of Web 2.0 services. Clearly we think there’s things related to stores of value, currencies, where there’s real opportunity. So I think this is like the internet. I think this is something that again is a multi-decade trend, and we’ve been very proud to be investors in these companies and others for quite some time now. And really, there are companies on this list that I think are crushing it—could have IPOs in the next year or two. Again, I think the next five years we’re going to see another wave of decentralized, general ledger-based companies really come to the fore.

  So let’s bring this to life. Let’s talk about some specific companies. Again, I’m going to go through this pretty quickly. I’ve just lumped them into these six categories here. Again, a lot of you have heard of companies like Carta, Upstart, which are financial platforms. There’s definitely a lot of buzz around BlueSky right now. But other companies people have heard of—TRM, Babylon, Quiet Networks, Mysten Labs—are doing amazing work. Again, there are companies within the digital asset ecosystem that have filed for IPOs. Again, we’re just really proud of having been in this space for some time now and really excited to continue to invest on a yearly basis.

  So this focuses again, just touching briefly on some of these trends—decentralization, data, infrastructure—a lot of these things are related to things going on in AI. Clearly we need authentication in a world of deepfakes, privacy issues become more important, cybersecurity becomes more important. These are really strengths of blockchain and distributed ledger technology protocols.

  These are infrastructure plays dealing with scalability, interoperability, efficiency. How do you do these things with low energy, high latency issues addressed, efficiency, ease of use—very important. Obviously one of the verticals where this can really make sense is in financial services, where there is a lot of centralization, there’s a lot of tax, there’s a lot of inefficiency. Those are really areas that are always kind of—you look for, can you disrupt it when there’s real pain-in-the-ass factors that come with centralization, an innovator and entrepreneur can look at doing things that kind of tackle that.

  So again, kind of the synergy between AI—doing more with less—decentralized, empowering individuals, doing things more efficiently. Great entrepreneurs along the line are using this to tackle financial platforms, digital asset ecosystems. We’re seeing the world is moving digital. Obviously Bitcoin has been disruptive to gold as a digital repository of value, and I’ve written about—I don’t think that story is even close to being completely told yet. But I think you’re going to see more and more of this over the next five years, and companies that we’ve been invested in for some time now are really kind of coming into their own in the spotlight. We have great opportunities to continue to invest in these kinds of trends.

   

  US security—obviously, this is always an issue with hacking, hacking at scale, AI-enabled hacking. Security and authentication really play into the strength of this technology. So as AI takes off, we think it is going to create huge opportunities for some of our portfolio companies.

  Again, as I talked about, I think there’s a huge trend toward disruption, decentralization. AI is going to power this. These are just three of our companies in our existing portfolio that deal with this. BlueSky—maybe one of the hottest tech companies of the last year. People think of it as kind of a red pill, blue pill alternative to X, but we invested in it as a decentralized platform that really promotes autonomy, decentralization. X is actually a very centralized platform, and so we really like using these new forms of technology infrastructure to create alternatives and competition.

  So what do we think? Key trends from our Apex 20—and that’s our list of 20 companies that we believe are really in this decentralization space that we’ve already invested in. Again, we continue to invest actively, but the AI and blockchain integration flywheel we think is a big thing. We think there’s decentralization and disruption coming to the social media, research, supply chain. We think that there is a big positive trend toward a more favorable regulatory adoption. I think you’re going to see uses of this technology in the public sector as well as the private sector.

  I think whenever you give people a more efficient way to control their privacy, their security, their data—if you decentralize it, if you make it more accessible and cheaper—you’ll create enormous value. And this is what this technology enables. We think that there’s a real bridge between what existed in the web and the huge companies that were created on the Web 2.0 and what will eventually become a much more decentralized Web 3.0, kind of driven by AI.

  So we’re believers. We’re here to stay. What’s in the public sector, what’s in the mass media ebbs and flows when it comes to the whole area of blockchain, decentralization, power—but we’re believers.

  So just a little bit about our Blockchain FinTech Fund. This is a fund that we raise on an annual basis. It’s a portfolio of 15, 20, 25 companies, generally all stages, that includes both some tokens, equity positions, and it’s international. Our performance—both MOIC and DPI—we’re very, very proud of.

  Some specific examples of particular companies that we’ve invested in—this is a high-risk, high-reward asset class. This is not earning 4% market share, but you look at the groups we’ve invested in here, where we are today—there are opportunities here to make 5, 10, 20, even more on your money in some of these investments.

  I think it’s really important to note that we are investing with some of the leading blockchain, distributed ledger, and decentralization investors in the world. These are the deals we’ve done with these particular players. So on this slide and the next slide, you’ll just see who’s doing good work in this space, who’s committed for the long term, who’s committed to building great companies.

  We’re proud of our co-investor list. In addition to being part of our fund, this is a great place to learn if you’re interested in technology, if you’re interested in AI, robotics, blockchain. There is a lot of content we create—in real-life events. We do a great job at AV, I think, of getting our community involved—again, based on this network-powered idea.

  And one more thing—we encourage you, if this is something you’re interested in, to get on the phone and talk with us. We have a variety of personas—from people where investing in private companies is new and they want to learn about how to construct a portfolio, how to think about it, what to do. We call ’em venture-curious.

  We also have people who are trophy hunters or tech enthusiasts who really want to learn, know what’s coming, and build their career. We have people that just have made a bunch of money and want to pay it forward and stay young, use it to educate the next generation. So we have a variety of personas that are interested in venture investing, and we want to be your venture partner.

  So encourage you to reach out. We have different ways to engage. Some people just like to do it as an introvert and read materials, make their own decisions, do their own research. Other people like a more interactive give-and-take with a human being. Both are cool, and we encourage both. Just really easy to schedule a call here with QR code, view our fund materials.

  Obviously, if you’re already an existing AV investor and just want to review your portfolio, put together your plan for the next 12 months, we have incredible customer service support and account management.

  So I went through things really fast today. Again—secular trend, bit contrarian—but it’s a bit where the future is going to go. And those with foresight, think over the horizon. Decentralization is happening. Blockchain is a foundational technology that is going to be more in play in the future than it is today.

  So if it’s something that resonates with you, please reach out. Thanks for your time.