Why I have zero faith in crypto venture capitalists • Hacker News Board

Re: Why I have zero faith in crypto venture capitalists

#11

Post by dweekly » Sun, Jun 13, 2021, 2:31 PM UTC

pavlov wrote: post #7

Venture capitalists are in the “buy low, sell high” business. Their motivation is not “is this thing I’m buying going to be useful to someone?” (although that’s a nice side effect that gives them something to talk about at parties.) Rather it’s: “Can I offload this thing I bought with exclusive access to someone else in a reasonable time horizon?” Tokens and other crypto investments have been attractive to VCs becaus…

I think you may have confused venture capital with hedge funds.

The overwhelming majority of VC funds are set up with a 10y time horizon and option to extend to 15y. They make their investments in the first 2-3y of the fund and then hope to earn their carry by "returning the fund". For a typical mid-sized $200m fund this means turning one of their $5-10m Series A checks into a liquidity event far above $200m (valuing the company in turn at over a billion to return this amount to the firm), in other words counting on a >>20-40x return for the lucky breakout in their portfolio and taking the others mostly as a (relative) loss. While some secondary activity exists, it is rare for a regular fund to manage to achieve these kinds of multiples in a secondary sale versus an IPO or acquisition. And an acquisition that exits after 3-5 years is extremely unlikely to have this kind of multiple -- and consequently those are not deals in which the partners will earn carry. (And going from Series A to IPO in 3-5 years is extremely unusual - median time to IPO is 9-11 years, though SPACs may have at least temporarily changed some of the calculus on this.)

So no, I don't know of any VCs who target companies that hope to be bought in 3-5 years and don't care if the company ships anything.

Re: Why I have zero faith in crypto venture capitalists

#12

Post by marvindanig » Sun, Jun 13, 2021, 2:32 PM UTC

WJW wrote: post #2

Would you say that the relation is... trustless?

Exactly! I suspect most of the folks complaining about crypto space in general are 'brick and mortar' investors of a centralized web. These people invest only in their closed network, in people they meet face to face and "like" in general. I wouldn't put much weight on this whining really.

Edit: Looks like I touched a raw nerve of some bay area folks. lol.

Re: Why I have zero faith in crypto venture capitalists

#13

Post by throwaaskjdfh » Sun, Jun 13, 2021, 2:33 PM UTC

borrowcheckfml wrote: post #10

giansegato wrote: post #3

The VC model has always flirted with being a Ponzi scheme, but ultimately some startups _do_ make money somewhat consistently, so the model is risky but fair to retail investors. But a crypto project is not a traditional scalable company. It does not make money as platforms traditionally do. It's open source and distributed. I truly cannot understand how it differs from a huge Ponzi scheme.

I agree with you, but looking at what comes out of Silicon Valley these days, there is a fine line between "ponzi scheme" (in the broad sense) and "re-invest everything in growth and hope to get acquired". I'd push back that many traditional startups, most of which end up never being profitable but still exit in one way or another due to hype and investor relationships, are just as close to pump and dump schemes as m…

Cryptocurrencies, DeFi, and retail trading are all areas where more skilled traders take money from less skilled traders.

These venues can be distinguished from a Ponzi scheme because the participants are traders in a market, not investors in a company or managed financial product.

Re: Why I have zero faith in crypto venture capitalists

#14

Post by ralston » Sun, Jun 13, 2021, 2:33 PM UTC

rvz wrote: post #6

For example look at the real price history of a VC funded token called "Internet Computer" [0] by selecting "ALL" on Coinbase. Out of no where on launch, it was listed on Coinbase and Binance already with the top 10 coins of the largest market capitalisations. Only VCs and angel investors with such connections to these exchanges could have made such a listing like that possible. After that, then came the VC dump with…

Was just talking with friends yesterday about this - Internet Computer getting absolutely dumped by the VCs who pumped it so hard from the beginning. Once I saw that they were headquartered in the Bay, had their entire team in the Bay, and wanted to be the “everything for everyone” computer, that was kinda my sign that this was a scam.

Re: Why I have zero faith in crypto venture capitalists

#15

Post by borrowcheckfml » Sun, Jun 13, 2021, 2:35 PM UTC

throwaaskjdfh wrote: post #13

borrowcheckfml wrote: post #10

Earlier quoted context omitted.

I agree with you, but looking at what comes out of Silicon Valley these days, there is a fine line between "ponzi scheme" (in the broad sense) and "re-invest everything in growth and hope to get acquired". I'd push back that many traditional startups, most of which end up never being profitable but still exit in one way or another due to hype and investor relationships, are just as close to pump and dump schemes as m…

Cryptocurrencies, DeFi, and retail trading are all areas where more skilled traders take money from less skilled traders. These venues can be distinguished from a Ponzi scheme because the participants are traders in a market, not investors in a company or managed financial product.

But I am referring to investing into a DeFi project as a VC (= receiving tokens), not trading in Defi. Why is that not equivalent to investing in Robinhood as a startup?

Re: Why I have zero faith in crypto venture capitalists

#16

Post by throwaaskjdfh » Sun, Jun 13, 2021, 2:40 PM UTC

borrowcheckfml wrote: post #15

throwaaskjdfh wrote: post #13

Earlier quoted context omitted.

Cryptocurrencies, DeFi, and retail trading are all areas where more skilled traders take money from less skilled traders. These venues can be distinguished from a Ponzi scheme because the participants are traders in a market, not investors in a company or managed financial product.

But I am referring to investing into a DeFi project as a VC (= receiving tokens), not trading in Defi. Why is that not equivalent to investing in Robinhood as a startup?

With that clarification I agree that it would be a Ponzi scheme. If the project is mainly accepting money from new buyers and routing it to early participants who are selling, then it's a Ponzi.

Re: Why I have zero faith in crypto venture capitalists

#17

Post by artfulhippo » Sun, Jun 13, 2021, 2:42 PM UTC

ralston wrote: post #14

rvz wrote: post #6

For example look at the real price history of a VC funded token called "Internet Computer" [0] by selecting "ALL" on Coinbase. Out of no where on launch, it was listed on Coinbase and Binance already with the top 10 coins of the largest market capitalisations. Only VCs and angel investors with such connections to these exchanges could have made such a listing like that possible. After that, then came the VC dump with…

Was just talking with friends yesterday about this - Internet Computer getting absolutely dumped by the VCs who pumped it so hard from the beginning. Once I saw that they were headquartered in the Bay, had their entire team in the Bay, and wanted to be the “everything for everyone” computer, that was kinda my sign that this was a scam.

Internet Computer aka DFINITY is not a scam. The price action is fishy, but when you investigate the project’s vision, the technical architecture, the team behind it, and the community building on it, you’ll discover that it’s perhaps the most serious, innovative, and ambitious system out there.

Re: Why I have zero faith in crypto venture capitalists

#18

Post by canadianfella » Sun, Jun 13, 2021, 2:46 PM UTC

borrowcheckfml wrote: post #10

giansegato wrote: post #3

The VC model has always flirted with being a Ponzi scheme, but ultimately some startups _do_ make money somewhat consistently, so the model is risky but fair to retail investors. But a crypto project is not a traditional scalable company. It does not make money as platforms traditionally do. It's open source and distributed. I truly cannot understand how it differs from a huge Ponzi scheme.

I agree with you, but looking at what comes out of Silicon Valley these days, there is a fine line between "ponzi scheme" (in the broad sense) and "re-invest everything in growth and hope to get acquired". I'd push back that many traditional startups, most of which end up never being profitable but still exit in one way or another due to hype and investor relationships, are just as close to pump and dump schemes as m…

> there is a fine line between "ponzi scheme" (in the broad sense) and "re-invest everything in growth and hope to get acquired"

Not at all.

Re: Why I have zero faith in crypto venture capitalists

#19

Post by steveBK123 » Sun, Jun 13, 2021, 2:48 PM UTC

I find crypto super interesting and have dipped my toes in with some small real money just to force myself to try out different products.

That said, so far, almost 10 years in, there really are not a lot of real world use cases. Sure there are glorified POCs of things that could potentially lead in the direction of real world use cases.

But most of these products/tokens are just extremely meta. Tokens you get paid/pay for when you trade/borrow/lend/invest/stake your other tokens. Derivative tokens which allow you to get exposure to underlying tokenX on chainY.

The transactions are slow, or fast.. cheap or expensive, good luck understanding which in advance.

It doesn't feel like we are any closer to normal people using it for normal real world transactions/finance.

Right now it just feels like pump&dump/frontrunning/private placement games on each new token before it hits mainstream, completely nothing to do with what the alleged business behind that token is supposed to be doing or its prospects of success. It's just a game of getting hold of difficult to acquire tokens before they hit the more normie venues like Binance, Coinbase, etc.

Re: Why I have zero faith in crypto venture capitalists

#20

Post by indigochill » Sun, Jun 13, 2021, 2:52 PM UTC

giansegato wrote: post #3

The VC model has always flirted with being a Ponzi scheme, but ultimately some startups _do_ make money somewhat consistently, so the model is risky but fair to retail investors. But a crypto project is not a traditional scalable company. It does not make money as platforms traditionally do. It's open source and distributed. I truly cannot understand how it differs from a huge Ponzi scheme.

In theory, a crypto project could provide value (not money, they're different things) to its users. For instance, there are experiments with distributed games where assets are NFTs. In theory, this provides the basis for independent games sharing unique assets among themselves.

In practice, nobody's doing this (even those game devs who are minting assets as NFTs are keeping the assets to one game, making the whole exercise pointless) and it seems probable that nobody really wants it.

But the point being I do believe theoretically there are "legitimate" applications where the decentralization of assets is useful. I just have yet to see an example in the wild (or even to imagine a concrete thing I could make where this would really be the case).