Announcing our investment into very early Ventures

0:00Dennis, Jan, Matthew, welcome to the European VC podcast and to this special episode, the memo episode. And to the people listening in, Matthew just celebrated vividly like, wow, this is an achievement of a lifetime. I'm kidding, Matthew. Guys. Second podcast. Second podcast. Second podcast. Definitely many more to come. We're super excited to have you guys. We met you almost a year ago, actually, in London in the offices of Isamer Capital. And we grew to get to know you better, learn about what you're building. And hopefully everyone will be as excited as we are about it.

0:35Tear down this wall. It's more than just an alliance. This is a union of values. United and determined we can serve as a model for other regions of the world. The nature of a problem requires a European response. Europe is a story of new beginnings. Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Start with the basics and there's three of you. So this is going to be a bit complicated to coordinate, but I'd love to hear your stories. How the hell did you guys get into Web3, of course, but also how did you then get into venture?

1:23And finally, how did you come together? So let's start with the basics. How the hell did you guys get into Web3 and venture? Feel free to take it, anyone. All right. So I guess we'll go one at a time. So I'm Jan and I've gotten into Web3. We all got in around the same time, around 2016. And so for me, it was one of these nerdy friends who just couldn't shut up about Ethereum. So I had to look into it and fell down the rabbit hole, as we say. Then I wrote my thesis about it. And that's actually how I met Matthew because he was advising that in the frame of his PhD. Then I had a stint as a founder, spent some time at Early Bird VC.

1:58And that's how I got a first glimpse into VC and really liked it already then. I also spent some time at Google. So these were all kind of different looks at technology. but Web3 was always drawing my attention because I was so excited about the potential of building a whole new financial system and the next layer of the internet. I really dove in when I was at Outlier Ventures, which is the largest Web3 accelerator. And there I focused on token design. So I was working with over 70 different projects. And they all had very different use cases, but all in Web3. And very interesting to get that breadth of experience.

2:38And Jan, just before moving on, where are you from? Where are you based? I'm from Switzerland and I've spent the last year in Lisbon and now temporarily back in Switzerland again. Ah, so you left the best city in the world. Yeah, it's buzzing. Really, there's so many, so much founders and so many founders and much activity. So I'll be spending more time there for sure. Awesome. Thank you, Jan. I'm Dennis. Dear listeners, please map this voice to the name Dennis. So, yeah, as Jan mentioned, we all met at university. Matthew and myself were doing a PhD. We have a fairly technical, quite technical background.

3:21Some of us were actually researching these web-free cryptocurrency blockchain applications. I personally was doing more on the machine learning side. but yeah it was ultimately it was at the at the chair with our professor that we all all got triggered from okay we've heard these blockchain protocols we've heard about bitcoin maybe we've heard about ethereum uh it all sounds sounds a bit like complicated and we don't really get it we don't really know what it's used for but then being at the university that helped and that's basically what transitioned us from somewhat curious to very curious and very active and now very early which is the name of our fund so now we are very early doing very early seed stage or pre-seed uh investments in startups in this blockchain web free space awesome i i love that excited, very excited segue.

4:28Thank you for that, Dennis. That was fun. Dennis, where are you from? Where are you based? It's a complicated question. I'm based in Zurich, Switzerland. I moved here like eight years ago, eight and a half years ago for the PhD. I think I haven't mentioned, so actually the PhD was in Zurich at ETH. ETH Zurich is a bit funny. If you're in the Ethereum space, the ETH usually stands for Ethereum, and we're doing like ETH or ETH. Denver or ETH Lisbon or soon ETH Zurich conferences as well. So the ETH is following us everywhere. Yeah, it was 2014 when I moved here from Germany. That's where I lived most of my life.

5:09Originally, I was born in the Balkans in Bosnia, but now I'm in Switzerland. Awesome. Matthew, tell our audience, who are you? Yeah, so I mean, I got into crypto purely through luck. So I joined this chair at ETH Zurich to do my PhD after abandoning another PhD, which I didn't like. And this one really caught my attention. So I was actually doing research on Ethereum and other blockchain systems and how you can translate some of these properties of blockchains into traditional distributed systems. And that's where I met Dennis, who was doing the PhD at the same chair, and then Jan, who was doing his bachelor thesis with me.

5:51So we all met in 2016. And yeah, from there, I started doing TechDD for traditional VCs who were going into the space and needed a bright mind to look at just all these random white papers that they got sent and didn't know which ones to invest in. After that, I joined MakerDAO as a product manager. So I was always interested in both the business and the tech side of things. uh led a spin-off of maker had to close that pretty quickly again so you know gone through the whole the whole startup uh cycle in in maybe half a year went to settle as a product manager and then funded the fund together with with dennis and john uh last year so you guys you guys uh kind of all three of you spoke about yeah and then we started a fund right let's dive a bit into that You know, how did that come together?

6:46First time funds, first time, first time GPs, right, as well. Not necessarily, I would guess, the most expected outcome given your backgrounds, right? Your peers probably, you're the only ones doing this, right? So how did you come to the realization that you wanted to start very early? And how was that journey? Because a little bird tells me there was some ups, of course, but also some downs. Yeah, so I mean, we've been investing for a very long time, right? Like back in 2016, we bought our first ETH or 2015. And then the ICO mania came and we invested more and more. And then later on, we started to do angel tickets into private rounds.

7:27And it was just something that kind of evolved naturally. And we've been through the ups and downs and we discovered a bit what type of investment style we like, right? We're not the kind of hedge fund guys trading short to midterm. We really like understanding which protocols deliver and create true innovation and could be relevant over the long term. And we are good at holding and keeping assets, which many people struggle with. But we are not so good at selling in an untimely manner. And then all of this coming together basically means that if we were to become professional investors, right, we should do a VC fund and not some other strategy.

8:11And why did we want to do a VC fund and not something else? I mean, I think I have an entrepreneurial gene inside me for a long time. Like in my family, many people have their own businesses. And I always knew I wanted to build something. Could have been a fund. Could have been something else. and it just so happened that I think you know the most important aspect in doing any venture is the team that's what we look at a lot when investing and that's what I was looking at a lot when deciding you know what to do next and it just happened to to be so that you know Dennis Jan and me we had decided or were thinking about what to do next at somewhat the same time and both Jan and Dennis didn't want to do like a traditional startup.

8:57Jan had been a founder before, right? Dennis is more a kind of a trader personality and that's why we decided to do a fund together. And actually, it's not the first time that we decided this, right? I mean, a little secret is that already in 2020, when I was just graduating from my PhD, this team wanted to build the first fund already. But, you know, the market was a true bear market. It would have been excellent timing to launch, but we just couldn't get it off the ground. And so two years into the future, basically, we met again and decided to try again. And here we are. And we have launched.

9:36You know, we cannot hear you say that and then not dive into the fact that you've done a race that has definitely gone through the high synopsis of Web3 and anything that's called crypto. took. So with that reason, I have to ask you, could you touch both on the journey there, and then I think afterwards, we'll then talk about the opportunity. But I'd love to, because we've got so many people or GPs listening on this podcast, I'd love to ask you about that fundraise process and what it's been like to go through a time where anyone doing something in crypto could walk on water to then all of a sudden very much seeing the whole sector falling from grace in the people that are not deep inside our crypto Web3 world?

10:22When you look at our LP base, it is true that most of them already understand crypto and have, you know, either our crypto founders themselves or our anchor investor Isomer already had done previous fund investments in the space. So it's true that during the time we were raising, it was, you know, it was hard to convince people who didn't buy into Web3 yet. But actually, we see this as an advantage for us that the whole fund, including our LPs, are crypto native. So we've seen like funny coincidences of like an opportunities of, for instance, in an LP call, we had one of the LPs that is a crypto founder connect with one of the portfolio companies for a collaboration.

11:06And so it's actually turned out to be almost an advantage at this point. and yeah and it's while the fundraising environment might be a bit tough the investing environment on the other hand is ideal at this point so happy about that yeah it was really really tough right I mean we've tried this to basically in 2020 beginning of 2020 end of 2019 there we were in a full bear market like we didn't raise anything in half a year this time it was basically the same scenario right but we had more history more track record and we maybe even yeah we also had more grind and the environment when we started was a bit better right we were not in a flat time we were starting to raise at the peak so getting those first conversations going was easier but then actually turning them into signed lps was extremely hard but um you know with enough time enough grind and enough connections at some point yeah you have your first ticket your second ticket and then it kind of starts to to roll and we really leverage mostly our crypto network for this so the question was never is crypto relevant or not like if you have to discuss this with an in this market like they will never invest is basically what we've learned.

12:30It's more about, okay, are you three guys good enough and know enough and are connected enough so that I trust you that you will invest well in this environment and yeah. I've featured you on our newsletter a couple of times. And one of the times I featured you with a description that said that you are, You know, sometimes when I meet GPs that want to do a 50 million euro fund for two guys that have primarily some angel track record or, you know, or a solo GP raising 30 million, you know, I'm always like, how much grind is there in that? And how much hustle is there in that? You guys are raising 20 million, three guys.

13:13And I've always thought, well, I love it when I see GPs that are obviously not going to do this because they're going to get fat on the management. And 20 million split across to three of you is definitely not the place where you could make the highest wage on a daily level. And I just want to restate that for anyone listening in that this is part of the things that I like about teams like yours, where I'm seeing that you're not doing this just for the fun of it or just because there's money to hunt. And especially, obviously, in crypto, what you want to be on the lookout for is for sure people that jumped in because it was hot and everyone could race at a certain point, right?

13:56Dennis, you were about to touch on this as well. I wanted to add, it's not just that we're aiming to raise the 20 million for free people. It's also that we live in Switzerland or like in Zurich, one of the most expensive places to live. So yeah, I'm literally living on less than I had during my PhD salary. Yeah, exactly. And that's what I love, right? I hate the guys that are rolling up in their Audi and then raising too much. so I'm just restating this to everyone listening and also because we have people wanting to race from us so it's also a message given there yeah I think that's an important point to also expand on we're doing this for the passion and I think that also transitions are like reverts and bridges to what Matthew has said like our investment style and not being like a hedge fund we're not like short term visitors, we see ourselves as convinced of the industry and as such, we see the biggest impact being in as long as possible, as early as possible, and not just come, visit and leave again, but stay for the purpose and for the change.

15:14I want to come back to this topic of what you just said, Dennis, but I want to come back to, from what I heard from your journey, I think there's a couple of cool lessons that already extracted right so persistence right the fact that you try this in 2020 you now have a success story to share but it shows persistence right and you might not get it right the first time but you can get it right eventually if you keep on working and iterating and improving and so on and so forth and i think that's a great lesson for anyone listening in and just to share with with you guys and also our listeners it's a tough time right now in the market and adres and myself we have received some emails over this week only saying gp saying well we've put our fundraise on hold.

15:54Well, and I think it's important to share these, these, this message as well. Well, that doesn't mean you're doomed, right? And you guys are a good example of that, right? So back in 2020, I'm sure you guys felt like shit. Well, you kept on working and grinding. And I think that's a beautiful story to share. And then Matthew, you also said something really cool about if I'm pitching to an LP and I'm having to pitch the sector, that, that, that, that's not going to cover it. And that's something we've learned. So maybe my question to you guys, and feel free to take some time to think any other lessons that you'd like to share with our listeners from that fundraising experience that you've had in those ups and downs and this long journey that now, you know, I'm sure PR will cover it and they'll say you guys are amazing and great, blah, blah, blah.

16:33But that's just, that's just kind of a front, right? It's, it's really, it's really grueling and struggling and filled with lessons learned. One issue we had, and maybe that shines through on, on the podcast is we are nerds, right? We are technical people. We have done PhDs and papers and coded, and that's how we invest. And that also kind of corresponds to us not being the best salespeople. And usually VCs are amazing salespeople. And a lot of people say VC is about being a salesperson, right? You have these networks, all the deals come through networks. You need to like please a founder and then get access to the round, et cetera, et cetera.

17:13And a lot of persons have gone through service industries where also this networking capability and the social aspect is very important. We come from a very different angle. And initially, you know, we felt a bit like outsiders and it was hard to kind of, we tried to become better salespeople, basically. But what we learned over time is that it's worthwhile to just lean into our strengths and basically, you know, be blunt about it and say, okay, maybe we don't sell as well. But, you know, here's what we've built, like the protocols we've built, the smart contracts we've coded, the tokens we've created.

17:50and the founders that were impressed with our capabilities and thus invested in us, et cetera. So what I would say is like, yeah, lean into your strength. And also if you are active in a very specific sector, like we are in Web3 and then within Web3, we focus on different verticals, right? We again, lean into our strengths. We mostly invest in decentralized infrastructure protocols where basically all the founders are super technical as well, where you really need to have a deep understanding to judge whether something is truly newly and innovative and can scale and reach adoption or whether it's just some white paper idea.

18:29And yeah, that is an additional learning basically from our side. Another learning was that just getting started is really valuable because then we can start proving that we get into interesting deals we can have like a if the fund is now you know having done our first close it's not an idea anymore the fund is live we're investing and here's what we're doing so that's a also a bit of an easier sell than than before having launched so just getting started i think is a is another good lesson here yeah i think that's an extremely important point because just having done our like first close in in january even though that was a bit smaller than initially anticipated like we ended up uh saying okay let's just do this and then do a second third and final close later but just like build on that momentum and be able to a show that we already did a close and what we did and how much it was and we do need to remind ourselves that that was like a huge success in the 2022 environment, which also we've heard repeatedly from industry insiders.

19:40But then also the other side, we now have a portfolio, right? We're not just selling an idea or like, this is what we want to do. It's more like, hey, this is what we did. And this is what we continue doing. And you can be part of this portfolio. And now we can show you here's these eight companies as it is 50 is decentralized infrastructure the other 50 is like real world impact and based on that we can discuss and we can dive into the specifics i love that message i couldn't agree more with it i something i find myself resonating because a few a few gps have shared that on our podcast and i find myself resonating often to emerging and aspiring GPs.

20:21So Dennis, you were talking about passion, how you guys breed and live the space. So you're not like, you know, random big consulting guy meets random trader. And now we're going to do Web3 because we think it's cool and we can make make a lot of money. By the way, that's a real example in my head of people I've met. And so my question to you is not to comment on those profiles of course but i guess there's a lot to be said about your networks given you know you've dedicated your professional lives at least to the space your networks and how that influences the fund meaning deal flow uh but also how founders perceive you guys right because you come across as gritty entrepreneurial and understanding the space i'd love to give you some space just to expand on these two topics?

21:06Well, the founders is a quite interesting story that I would like to elaborate on more. So just being able to have conversations with the founders, being able to really technical conversations, discuss with them specifics about the protocol design or the token design. These are things that we have been doing for the past months with founders. I think there we do share the passion. This is a bit of a disclaimer because I'm not going to talk about this now. Let's talk about this more later. My brain is occupied with your passion example and you telling me how we're in for the passion. And I think an example, what we are doing, we also see ourselves as ecosystem builders, right?

21:57We're also trying to share the passion with other people. So that means Mathieu is like leading our processes to establish like Zurich based technical meetups also conferences bringing the community here together community might mean already technical people building but also people that are just like interested and not yet come based. I am running like a scholarship in Bosnia, initially Bosnia and Serbia. Now it's all students currently in Bosnia but the next batch shall again expand in both countries. Basically there, I got students that have more of a traditional Web 2 background, students or graduates, so either the last year, final year students, or they are already finished.

22:44They are experienced in web development. Maybe they end up front-end developers, back-end developers. I don't know. They do some more or less commoditized software development, and I'm pushing them towards both the machine learning, but now more and more the web free space. So what they're doing, they're getting a scholarship and in return they have to learn. It's kind of like learn to earn model. And for them, it's the first time that they experience this crypto web free space. And they do that in a hands-on technical way by programming smart contracts, by building like a Bitcoin client in Python and by analyzing blockchain data on Dune Analytics or on some other open and free-to-use platform.

23:34So let me add, I mean, on the one hand side, right, this is pure passion. Actually, this project then is started even before we had started the fund. Now, there is also a less passionate angle to this, right? Obviously, these guys that are being built out in Bosnia at the moment as developers, There's a big developer shortage in Web3 and more generally, but especially in Web3. And the price of living, unlike in Zurich, is very low in Bosnia. So we estimate that we can get great talent there and supply them at reasonable prices into our portfolio companies, right? And the nice thing about that is, you know, venture, it's not really a scale business.

24:17We will have about 30 portfolio companies in our fund. And so even if we develop 10 people every year in Bosnia as DEVs, that's like a meaningful meaning, very meaningful contribution for our portfolio companies. And regarding the Club 3, right, what Dennis alluded to here in Zurich. So we've co-founded this technical meetup series in Zurich together with other protocols like Gelato or Liquity. Basically what we found, right, we travel to all these conferences all around the globe. There are a lot of crypto conferences, you know, in Paris, in Lisbon, in Denver, in Istanbul, wherever. And oftentimes we've met really interesting people there and then figured out in hindsight that they were also based in Zurich, which is kind of sad, right?

25:04You travel to Paris or Denver to learn about an interesting person, which is living a couple of hundred meters away from you. and so we really wanted to create an area where these people can congregate where also students from ETH where we all studied or the University of Zurich can come and learn more about Web3. Again, it's a deep passion of ours to make this area of tech more well-known and to connect people but ultimately this will also drive deal flow and we have about 100 devs joining these meetups. we've had founders of the likes of like Liquity or core guest developers present at these meetups.

25:44So it's somewhat small, but pretty high caliber people that turn off there. I'd love to take this because now we've gone a bit into the macro and heard about how you're adding value both to founders, but also building out your community around the fund. But I'd love to take us all the way back to say the macro look at Web3 because all until we had ChatGPT take all the limelight, everyone was talking Web3, but then we both had, in the end, we had ChatGPT, then allowing everyone to now focus on generative AI. But before that, we also had the bust that came with, of course, the whole horrible situation with our dear friend down in the Bahamas.

26:36So I'd love to ask you, because I think that there's many outside of Web3 that would say, isn't that long gone, the time when Web3 was something that you would bet on? And I'm looking at your slide deck, and I know that that's not the truth, and that's also why we're investing. But I just want to ask you and give you the opportunity to reply to that question, which I'm sure that some in our audience would have. Yeah. So while from the outside, I mean, certainly things have cooled down a bit. And yeah, like the bad publicity events like FTX, you know, make it look from the outside like not much is going on anymore.

27:13But it's a very different pictures being immersed in the space. So not only do we have more developers than ever, like over 20 ,000 active developers building in Web3, but also just the adoption from the general culture is still growing. And we've seen this pattern before, like in the Web3 has gone through at least three cycles. And it's always been like that, that in the kind of bear market, which we're now in, the next wave of technology, which will in a few years again make huge headlines, is being built. So we see now like so many more applications coming up, like new innovations, building another layer on top of these blockchains and opening up whole new areas of application.

27:56So we couldn't be more excited. But just from the outside, you might not see all of that activity. Let me underlie that with a few facts, right? So for example, prices of many currencies have dropped 50 % to 80 % to 90 % over the last year or so. However, developer activity has gone up during that same period of time. So we have like a 2x increase in developers that are active in the area from 21 % to 22%. you know, if you look at enterprise adoption or traditional brands which are adopting this, it is very similar, right? You have in culture around NFTs and gaming and so on, a lot of traditional brands that are jumping into the space, right?

28:39Nike building this platform for NFTs, Adidas launching their own NFTs, Christie selling over 100 million in NFTs. And if you look at the number right of nft holders this has 27x from 21 to 22 if you look at real world assets and are we talking more financial things we have 500 million of treasury bills now on chain we have siemens which did a 60 million dollar loan we have société general who did 100 million dollar loan on ethereum and real world assets overall 22x from 21 to 22 so there we see real growth and adoption but this is hidden under a lot of price decrease which which the public eye catches more exactly and what what else we see that other people might not see and jan has mentioned matthew has also mentioned like jan mentioned the number of developers matthew mentioned uh the the number of developers doubled which already helps us to like reference where is it because the sheer number what do i know how many it is but i do know that the number is like or like that developer crowd is actually the base for everything that's being developed and then knowing that the number doubled in the last year tells me that 50 of the developers are new right so that means we have a new generation a new cohort of developers with new ideas with new innovation and for me that means we will see a lot of new twists and approaches on maybe existing problems, but also on new problems.

30:15And that is opportunity for us. I couldn't agree more, especially, you know, it's so clear when you talk to the people that are in this sector. And when you're coming from the outside, all you've seen are all the tourists. And the people that are in Web3 say, well, it's actually in a way, it's just been a good thing for us because before you had to sift through so much of people that didn't know anything about warp 3 but nonetheless or blockchain nonetheless tried to build a startup that would be branded warp 3 or blockchain or whatever so for that reason am I right in saying that you you do really think that warp 3 and the trajectory of warp 3 is better today than it was a year ago.

31:01Absolutely. And I think it's also just zooming out and looking long term to us, it's inevitable that a large part, if we do have continued to have a global financial system, a large part of that is going to end up on Web3. And the same with many of the technological silos that we have now with, you know, your Googles and Facebooks and so on. It's also obvious to us that we need a new infrastructure for this. So not just the opportunity isn't just a new financial system, but also a whole new infrastructure of the entire internet. So we couldn't be more excited about investing in this space. I was thinking to myself that we covered some of my favorite questions or topics to discuss with GPs.