Using What We Invest In
Skin in the game and incentive alignment are becoming increasingly important across businesses and institutions. You want governments, politicians, and executives to be held accountable for their actions. You want CEOs who believe in and use their own products, whether it be biotech CEOs taking their vaccines, or car company CEOs driving their cars. You want software companies to use their own software internally. And you want investors who will actually use and believe in their investments.
Conversely, you also want customers who will be able to invest and have stake in the companies and products they use. Incentive alignment is a big aspect of this fund's thesis, in a world where leadership is often not held accountable and systems are opaque. Technology has enabled many aspects of fundraising to be automated and simplified. Having an extended network of investors and LPs that are also users and brand champions is a big net positive for new ventures. It cultivates loyalty and network effects through a community-driven approach. We invest in a variety of companies and projects opening up these capabilities to more people.
Crypto is certainly a big part of this, but we expect general standards of transparency to increase across many different types of institutions and businesses. More data is being open-sourced and the expectation for that transparency and incentive alignment is increasing day to day.
We are seeing more equity crowdfunding rounds being raised, where companies want a broader audience with skin in the game. Almost every round we participate in now, we see a much wider cap table of smaller investors and angels (often previous founders themselves). Many of them will provide value through their networks and be incentivized to do so. Decentralized Autonomous Organizations (DAOs) are enabling new techniques to bring the opportunity of ownership to more users around the world. We are seeing situations where early users and top contributors of products are given retroactive rewards (1, 2) for their participation in a growing network. It's a very thoughtful approach to meritocratic incentives (i.e. support and contribute to something early, get compensated) and has brought huge amounts of loyalty to projects that have done it right.
With trust at all-time lows across much of society, it's important to align these incentives from the ground up and prioritize transparency along the way. This approach previously would have been cumbersome, time consuming, and costly, but smart contracts will enable and automate this type of structure to be organized simply and on a global scale.
We are currently users in 27 of 32 of our active investments (84%). Most funds cannot say this. As customers, this usage often involves actively deploying significant capital in fintech platforms or crypto protocols, helping increase their AUM and network value. The main things we aren't using are the few SaaS/enterprise investments we have. For these, we've almost always been able to help with business development or hiring in some way. We like to actually get our hands dirty with products and drive growth not just through financing, but active usage and contribution. It not only helps us give useful feedback to founders, but it brings us closer to the team and helps raise our conviction levels for subsequent financing. It's been something that every founder we've talked to greatly appreciates – to have proud investors that are also active users, ambassadors, and community members.