Public Key Podcast

Future of Blockchain Investing with Alon Goren – Ep 94

February 13, 2024 | by Chainalysis Team

Episode 94 of the Public Key podcast is here! “we invest in two people and an idea” is not a statement we heard much during the downturn in the crypto market, but in this episode, Alon Goren (Founding Partner, Draper Goren Blockchain) explains why him and his partners are bullish on web3 projects even without product market fit and sometimes even without a product. 

You can listen or subscribe now on Spotify, Apple, or Audible. Keep reading for a full preview of episode 94.

Public Key Episode 94: Unlocking potential of early-stage decentralization-focused startups

“We invest in two people and an idea” is not a statement we heard much during the downturn in the crypto market, but in this episode,  Ian Andrews (CMO, Chainalysis)  speaks with Alon Goren (Founding Partner, Draper Goren Blockchain) explains why him, Tim Draper and their partners are bullish on web3 projects even without product market fit and sometimes even without a product.

Alon talks about the launch of their new venture studio and the exciting opportunities in the current blockchain and crypto market, especially their passion for early-stage investing and the importance of finding founders who are truly passionate and dedicated to their ideas.

He also highlights two companies in their portfolio, LunarCrush and Ownera, that are making waves in the industry from social media analysis on markets and bringing interoperability to the emerging real world asset tokenization market.

They  also discuss the potential of blockchain technology to revolutionize various traditional industries, the accredited investor rules in the USA and how it creates a more decentralized and inclusive financial system.

Quote of the episode

“If you meet some great entrepreneurs or great engineers and it’s too early for your fund, you introduce them to us, because we’re the crazy people who will write the first $25K check, write the first $50K check or $100K check to two people and an idea.” – Alon Goren (Founding Partner, Draper Goren Blockchain)

Minute-by-minute episode breakdown

  • (2:15) – Reasons for launching a blockchain venture studio during current market conditions
  • (4:40) – Focus on early-stage companies and finding truly passionate founders
  • (12:30) – Adding value as an investor and passion about decentralization
  • (20:16) – Challenging the accredited investor rule and its place in the modern era
  • (25:13) – Involvement in Lunar Crush and their unique approach to analyzing social sentiment in crypto
  • (32:21) – Discussions about Ownera and its role in interoperability in tokenization 

Related resources

Check out more resources provided by Chainalysis that perfectly complement this episode of the Public Key.

Speakers on today’s episode

  • Ian Andrews * Host * (Chief Marketing Officer, Chainalysis) 
  • Alon Goren (Founding Partner, Draper Goren Blockchain)

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Transcript


Ian:

Hey everyone, welcome to another episode of Public Key. This is your host, Ian Andrews. Today I’m joined by a really special guest, Alon Goren, who is the founding partner of a new venture studio called Draper Alon Goren blockchain. Alon, welcome to the show.

Alon:

Thanks for having me. Happy to be here. Very, very excited to hang with you.

Ian:

Well, let’s not bury the lead. You just launched a new venture studio in the last two months, I think, at the time we’re recording here. Given market conditions both within crypto and the broader macro setting, it feels to me as a weird time to launch a new accelerator. But I’m guessing you’ve got some really good reasons why this is a great time. Why don’t we start there?

Alon:

Yeah, I mean it’s a bit of a continuation of what I’ve been doing over the years. I’ve been partnered with Tim Draper for a very long time, incubating accelerating companies and running an early stage fund in our space. And as we were getting towards the end of the life cycle of the last fund was preparing the future of what’s next, and decided to continue on this path. And now is an awesome time because of the current environment, right, because of the environment over the last few months, which if you are a diehard, if you were here even for a minute, but we’ve been here for a long time and you believe in the space long-term, we’re still crazy early. And my specialty, my sweet spot and where I have the most fun is early stage.

And we like to be the earliest. We’re known amongst our peers in the industry where if you meet some great entrepreneurs or great engineers and it’s too early for your fund, you introduce them to us, because we’re the crazy people who will write the first 25K check, write the first 50K check or 100K check to two people in an idea. And we love it because that’s where we can get in the trenches and almost act as co-founders. And so there’s never a better time to do that than when the sort of tourists and looky-loos and people who followed the hype are gone because there isn’t free money falling from the sky right now. And valuations are more reasonable.

And the diehards who are here for the absolute right reasons are here still, right? They’re here because it’s where they want to be because they believe in this space. And so that’s who we want to hang out with, that’s who we want to work with. And so now is the greatest time to be incubating companies or investing in early stage companies and finding the true believers.

Ian:

Yeah, I knew you’d have a good reason. I’m super curious about, you said you go to the earliest of early in terms of stage of company, two people in an idea and you’re showing up to write a check. How do you pick the good people and good ideas when there’s nothing there? This is pre-product. I’m imagining you’re not seeing a lot of product market fit or you’re not looking at metrics, none of the normal things that I would evaluate. Is there a business here? Is there a successful business here? Can it grow with more capital? You’re way upstream of that. What’s that process of decision making look like for you?

Alon:

Yeah, a lot of times we don’t always get it right, but what for me, it’s always the people and that they’re attacking a problem that actually exists, that’s actually an interesting problem. And it’s a bit non-scientific, right? It’s passion, right? I understand that If somebody did come to me with, here is our exact plan of what’s happening in one month, this is going to happen in six months, this is going to happen in two years, this is going to happen and in seven years, we’re going to sell to JP Morgan, right? I don’t know, that’s all good, right? I mean that’s very educational and properly done. And writing a business plan when you’re going to college or learning how to write a business plan is one thing, and that can be important to be organized and to have an idea of where you want to go and what you want to do.

But having done enough startups and being involved in enough startups, you know that you don’t know. You know that your plan is all good until you start to execute. And even ideas are fine until you start to execute. And everybody has a little bit of this, like my idea is very precious feeling, but what you’ll learn is the more experienced people are, the more open they are to just throwing the ideas out there and sharing the ideas publicly, because they know the secret sauce. The special part is in executing the idea. So when I meet companies… And they give me their idea, and I say two people in an idea, but in these times where I grew up in this startup world where if you wanted to do something, a lot of times you would need money because even just having web servers was expensive.

Pre-cloud, you had to get a server at a data center and you’d talk to a company or you yourself would be like, okay, we’ve got to do a deal to get a rack of servers at the LAX data center and to do this online karaoke company, we’re going to need 18 dedicated servers. Something that lives in your browser today would actually cost a lot of money and effort, or you would run your own server at home or something. And that couldn’t actually be your web server because you know your home internet connection wasn’t good enough for that. So everything that was hard back in the day is something very simple we take for granted now.

So two people, and an idea can actually be a prototype, a product or something there. And so there’s something to show for it. So I can judge people a little bit based on what they’ve done with nothing at the beginning to prove to me it’s a worthwhile thing or to prove to themselves it’s a worthwhile thing. And then the biggest part really is, are these people we think can attack this and do we want to be locked in a room with them for the next 10 years?

Because startups take a long time and if you’re an early stage investor in startups, you’re looking at a time horizon of on average like eight years to a potential exit. And so if you’re coming even earlier when we are, we have to assume this is a long game. And if they fail, I want to be first in line to back their next thing too. So I want to be working with someone who I want that long-term relationship with, who I like. And so a lot of those early meetings and things like that have very little to do in terms of due diligence with like you said, with metrics because the metrics don’t exist quite yet. They might have be some high level metrics. So I understand that they even know the market they’re going after or where it is, but usually it’s them giving me an addressable market and me saying you’re thinking too small. Because we are thinking in the current world, we’re thinking in a specific categories, but I believe in a world where the blockchain space and crypto in general is ubiquitous.

Nobody talks about launching an internet startup anymore. But that was 10 years ago, people would talk and be like, what are you doing? Be like, oh, I’m launching a tech startup or an internet startup. We’re utilizing social media to raise money on the internet. We would say these things in all seriousness. But at that point, even just 10 years ago, 10 years ago was just started. But no, not even exactly 10 years ago you were not watching a full length movie on Amazon. The filmmakers thought it was bullshit that people wanted to stream movies online. It was not a thing they wanted to be a part of, because they were artists and cinematographers. And I’m going to let you watch this pixelated streamed on the internet version of my beautiful piece of art. So thinking about how much has changed. So in 10 years ago we would talk about tech startups or internet startups.

In 10 years, I don’t think people are going to say, I’m launching a blockchain startup or a crypto startup. They’re just going to be launching a new finance company or they’re going to be launching a collectibles marketplace or a game, right? And I think it’s just going to be ubiquitous, and even all this AI stuff is going to accelerate it. People are looking at AI, it’s a new fad. It is. And there’s a lot of BS and there’s a lot of looky-loos and all that stuff, which is great because it drives them away from our space a little bit. But the more that exists, the more we’re going to need proof, the more we’re going to actually need proof that things are real. And that’s what crypto is, the actual sense of the word crypto or cryptographic proof and the blockchain and trustless world, all of our big buzzwords address the problems created by it. And I think that that’s the world we’re going to live in. So I did a lot of circles around your question, but really it’s about the people.

Ian:

It was great. Yeah, to me, I pulled two parts out of that. One was you want people that you’re actually excited to work with. I would guess you’re probably looking for people who have some shared vision to the one you just talked about, this future ubiquity of blockchain, but probably also have some really unique industry technology market insight that is leading them to want to build a company.

Alon:

I think it’s maybe market insights. I think you are coming at it from an analytical point of view, and I even talk to our investors about this sometimes. Publicly, especially like Twitter versus LinkedIn or something. But on Twitter, I’m purposely a bit of a goofball. I will say silly things. I will act kind of dumb. I will goof around and it’s like a playground and on the surface, and I am very emotion based artistically thinking and thinking about things from that level. But when we are analyzing deals and things like that, I am a nerd for analytics and things like that, and I understand the really deep levels of you know that this type of venture fund outperforms that type of venture fund. Why does early stage outperform late stage? Why does B2B outperform consumer? I understand the metrics and all the things, so I do things very purposefully.

So it seems sometimes on the surface like I’m goofing around. But I think the founders, it’s kind of funny there. I think there’s a pretty direct… Not a hundred percent of the time, but there’s a pretty high correlation between founders who aren’t doing it for the money, they’re doing it because they’re very passionate. They might not understand even the full market, like I was saying, do they understand. That’s not always the most important thing, but they’re doing it because they have to or they’re doing it for these reasons of not because they think this is going to be the billion-dollar company idea.

They might also think that or they might sell that, but they truly are there for the right reasons. And it’s really funny because some of the biggest founders in the world have not done things for that reason. And people who do come to you with all the numbers and all the things, and then they tell you that’s why they’re starting the company, if I believe that they’re doing it for that reason, it’s harder to get behind them. Because the second things aren’t working out because things won’t work out.

I have kids and read all the books and whatever, but the oh places you’ll go, Dr. Seuss spoke with like, things aren’t going to work out every time and there’s going to be crappy times. There’s going to be this and there’s going to be that, but I have your back. That’s very, very true. The star of world. It’s always harder to raise money than you expect. It’s always harder to get customers than you expect. It’s always harder to break through than you expect. And so you need founders who are these true believers who aren’t coming to you with the reason why this is a great idea and the reason I want to start this company is because over the next three years, the $7 trillion alternative investment market is going to go digital. That’s true. But if the main problem and reason they’re doing it is because of really practical reasons, there’s going to be a moment six months from now and they go for very practical reasons, I need to quit and get a job because that’s a more practical decision.

And so you have to have somebody who is accountable to that passionate idea over very simple practical reasons. I know I diverted from what you were saying, but it really is a big, big driver, at least for us at that crazy early stage. Because at this crazy early stage, things are going to change dramatically over a year or two or three with where they’re going and what they’re doing. And you need that person whose North star is a real, real pain point or a real problem or passion they’re going after.

Ian:

It sounds like you’re looking for somebody that has almost an irrational need to create a company and a solution or a product offering beyond meeting your traditional Maslow’s hierarchy of needs. You’re going to ignore some of those-

Alon:

A thousand percent. And I think we all have it with certain passions, right? I am right now wearing a nardcore t-shirt, nardcore, it stands for Oxnard Hardcore. Oxnard is a small town near where I grew up where these punk bands called themselves nardcore bands. So in the early eighties there were hardcore bands, which are these punk bands. These guys were nardcore bands. They were in a suburb valet. They created their own little category. To this day, I love nardcore bands. I’m obsessed with punk rock at a very, very irrational way. And one of the kind of tropes in punk rock talked about this before is people didn’t want to write love songs and things like that. That wasn’t cool. It’s a lot of politics, a lot of youth culturey stuff, but there’s a whole category of songs of basically the love of punk rock.

There’s a whole category, but you’re doing it a lot of times not because you love it, not because you want it, but because you absolutely have to and you don’t even know exactly why. It’s just who you are to your core. That’s how a lot of really passionate founders are. I used the example before, like I said something about collectibles marketplace or something like that. You can talk about why it’s a good business, but the person who would run a business like that isn’t necessarily… Maybe later on when it gets to a certain stage, you could hire a really analytical person, professional COO CEO kind of person that understands the metrics and the numbers and can optimize it and make it better and grow it and whatever.

But the best person to launch a company like that is someone who’s absolutely obsessed with those collectibles. Somebody who absolutely grew up collecting comic books and to this day has their collection of comic books. They didn’t buy any of them originally because they went, Ooh, the spawn number one comic book I’m buying today is going to be worth $1 more tomorrow. That’s a part of it, but they needed it. It was a part of their culture, their soul, their thing. And that’s the right person who launches a marketplace like that, on day one at least.

Ian:

I have a copy of Swan number one, just-

Alon:

I do too. It’s funny, until my mom finally, after many years boxed up my room at their house and made it a little office for herself and guest room for when people come to visit, the Spawn number one comic book was one of the ones I had up on my wall actually. It was important to me because it was the most I had spent on a comic book. I think I bought it for $10 at a comic book convention when comic Cons and comic book conventions were in high school gyms before ComicCon was a thing. It was important.

Ian:

I think I got all the first season of Spawn, bought them off the newsstand as they were coming out.

Alon:

Dang, that’s pretty cool. I was like maybe a few months late to that, but it was a big phenomenon thing and I remember getting it. And I was passionate about comic books, but I wasn’t super-duper. Something about it for me was it was a collectible, but I was scared to read them because I didn’t want to kink the corners and mess with them and I would watch the cartoons, the more mainstream stuff, but I still collected them. To me though, what was exciting, because my older brothers collected baseball and basketball cards was when comic book cards got big. I’ve got the Marvel masterpieces sets and stuff like that in the notebooks at my parents’ house, in those full page sleeves that hold nine cards in each one. I’ve got a few of those sets of the different ones.

Ian:

Amazing.

Alon:

And of course subscription to Wizard Magazine and all that fun stuff.

Ian:

Oh yeah, I remember that. So back to the venture fund, do you look for particular industry trends that you try and invest in? What is getting you excited about what’s happening in the world of blockchain and crypto today?

Alon:

I try to focus, and what’s great is having a rounded set of partners too in this world. But I try to focus on the things that I just get really super passionate about myself, right?

Ian:

Yeah.

Alon:

So we’ve done things where, for example, in the past I’ve met incredible entrepreneurs who come to me with ideas. Something like, I don’t know, medical records on the blockchain or something like that. And there’s two things that happen, but the main thing is I look at that and I go, “Holy crap, I love this person.” I would love to be a part of this crew and have them be a part of our crew and get to grow this with them. But then I go, I don’t know how to add value here. I don’t know anything about this world, and it’s not something I can find myself getting so deeply passionate about and going down the rabbit hole that we’ve never done any of those deals. Because it just hasn’t been that.

And a part of it also has to do with our business model. Our first check when it goes to companies, it’s kind of similar-ish. I think we do things specifically for this space that align us with the founders way, way better. But similar-ish in kind of economic terms to what a Techstars or Y Combinator does. And so I’m asking for a disproportionate amount of equity in a company, at least compared to an angel investor who just writes a 25K check. So if I’m going to ask for more, I have to be willing to not just give more and bring more to the table, but I do an internal talk. Every time we bring on a new company, we have a sort of investor committee team call thing, and literally, it’s like an exercise we do out loud and try to keep each other accountable, is what are we bringing to the table? How are we going to add this value?

And if it was our company, could we justify giving this other group 5%, 8%, 10% of our company? So if we’re to do that, if we’re willing to take it, we better bring it because we can’t have the reputation of those other guys. I mean, they have good reputations in their own ways, but I don’t think it applies to crypto very well. I don’t think it applies to our culture in our space very well. For the most part, I think they add a lot of value, but they add value for a short period of time and then it’s a logo on the wall. That’s not me. I can’t do that. It just doesn’t make sense to me.

So for us, we don’t do a three, four month program and send people off on their way. We do disproportionately help them more the earlier on you are in a company, but we’re tied to the company forever. We stay close to them and we try and participate as much as possible. We’re very active. So it’s really important to us that we know and understand it.

Going back to the real question of categories, the things I’m really crazy obsessed with is decentralization from just a high level freedom standpoint. I’m very passionate about it. I want every person in the world, no matter where they’re born, to have the same opportunities that we get because we’re so fricking lucky to have been born in the United States.

And then the problems with our government that I’m totally willing to highlight and argue and debate and all that, crypto fixes that too if we do it. So I’m super passionate about any ideas that kind of go that direction, but I also can see past fun stuff too. Like the NFTs and how they apply, not just because it’s fun and I liked collecting comic books and whatever growing up, and so I like the metaverse and all of those things, but I think they have an application. Like when FaceTime did a better version of Skype and stuff like that. What it did was it kind of fixes the same problem that technology creates. Technology makes us a little less intimate with each other as human beings. Now we can work from home, we can not see each other. We can be insulated and still get all the things we need to live in whatever without leaving the house.

But what that did was it made it so that you can have really tight close feeling emotional relationships with people no matter where they are in the world. So I had family on the other side of the world growing up. I’d see them once a year if I was lucky that year. And we would talk on the phone sometimes it was really expensive. If I could have talked to my grandparents over FaceTime, the way that I talk to my cousin that lives in New York, that’s like my brother, I talk to him on FaceTime is often or more often than I see my brothers who live five miles away. And that’s a big thing. I think the metaverse and some of these things we do will have the capacity to do that or enable that kind of stuff. But I also can see that the contracts used in an NFT could also apply to intellectual property rights.

And that also means that it could be used for the title of a home. And I think that I can see past where the more we develop these technology, even for these rudimentary silly fun ideas, the more that technology can be used for bigger and more exciting things. And so I am passionate about those things too.

And my last company I did when I quit my day jobs and started doing my own businesses was a crowdfunding company, for lack of a better word. The word crowdfunding didn’t exist back then. We called it social fundraising. I actually started it while I was working at MySpace back in the day. But when I did that company, I had basically launched away for people to raise money for their small businesses on the internet. And anyone who understood securities laws or lawyers that I knew and things like that came to me and were like, dude, you’re breaking securities laws. This is illegal.

And that was insane to me. I had no idea these rules and laws existed that accredited investor laws, like public solicitation, rules and laws about what you can and can’t say on the internet. To me, that was just so offensive and insane antithesis to the American dream. I was taught and raised as the kid of immigrants who came in this country, started their own businesses and things like that, that it was offensive. And so a lot of the companies we’ve done over the years have had to do with streamlining the process of we’ve come to terms or we have to come to terms that we live in America. A lot of the companies live in America. Certain categories of products like I don’t know, real estate won’t be able to be fully defied, decentralized, anonymous, no matter what we want. Because even in the world of digital jurisdictions, there’s still going to be countries and land and stuff like that.

So how do we use this technology to make that burden less of a burden? And how do we push those buttons to compete and force the hand of banks and governments to change the rules and make it so that all of us can participate, whether or not we’re millionaires? Because two important things, startups and early and small businesses do employ the most amount of people and create the most jobs in the world, whether it’s here in the United States or abroad. So that’s really important to foster and really important to help. We want new startups to come in and push the buttons of the incumbents.

And then two, it is also the greatest category. Going back to numbers, early stage venture investing, early stage investing is the highest performing category. It’s the longest and the riskiest, but it is the greatest way to create generational wealth. And if you’re in the United States and you’re not a millionaire, you’re not allowed to participate in. That’s not okay. I’m very extremely passionate about some of those things like the real world assets and tokenization stuff, which I feel like is a Trojan horse to those things. On the surface level, it’s like, okay, we’re playing with the big banks, we’re acknowledging that they exist and we’re enabling them in a way. But I think that the more this becomes ubiquitous, the less power they have and that’s important.

Ian:

Yeah, I think the point you’re raising about the accredited investor rule in the US is certainly a good one. Because I think the intent of the law obviously was consumer protection. We have people who were, I think the assumption was made less informed, less well-equipped to evaluate the quality of an investment and likely to be targeted.

Alon:

In the 1940s, and in the time of… They literally use the example. It’s crazy when you talk to politicians or people, and when you look at why the rules were made, they literally talk about you walk into a bar and there’s a man in the corner smoking a cigar and he sells you railroad stock to a railroad that doesn’t exist. So that’s why the rules exist. Okay, you’ve built these rules and laws to protect people from being scammed instead of maybe making the punishment for scamming people much, much harder. I feel like that’s a better approach. But now the year is 2023. The amount of money you have does not give you a disproportionate amount of information. You can be a 16-year-old kid spending time on Reddit and learning about a startup and have way more insight and be way better equipped to know if that is a good idea than your parent who’s a doctor, because the biggest group of accredited investors in our country are doctors, right?

Ian:

Yeah.

Alon:

Is a doctor well-equipped to make a metaverse investment decision? Or is there child who grew up playing roadblocks or a better equipped person? The kid is better equipped, but the kid’s not allowed to participate. The parents are. So that doesn’t exist anymore. And there have been some things. So the rules have changed for the better over the years slightly, but they’re still random proposals that to me are insanely offensive because they’ll say things like… Well, how about this? If you’re not an accredited investor, you can take a suitability test and see if you are sophisticated enough to make an investment.

And that’s insane to me because that’s like saying if you’re not a millionaire, you’re stupid. Or at least if you’re not a millionaire, we’re not sure if you’re smart enough to make an investment. It’s insane. Either make everything take a suitability test or remove the rule and law. But it’s definitely in this day and age, not a fair assumption. You don’t have a rule of going into Vegas, which I think investing in startups is less of a gamble and better, but there’s no suitability test to go to Vegas. There isn’t like, oh, well you can afford to lose the money, so we’re going to let you in. There’s nothing like that in any other category in the world. So, I understand if you follow the money, why it exists. And it’s not to protect the investors.

Ian:

We actually had a guest on the program who runs a crypto exchange in Malaysia. And was explaining that in Malaysia, everyone has to take a test-

Alon:

That makes sense.

Ian:

… in order to invest. I think it’s a great idea.

Alon:

Yeah. And I don’t disagree with that. Even, I think if you treat everyone the same, fine, then I can get at least behind the reasoning. I don’t know if it’s necessary because we live in a world where you can spend your money at any point in time in on a myriad of irresponsible things. Irresponsible from my perspective. And somebody else might say no, right? It’s not. But if you’re going to do it, I understand, or at least, because here’s the thing, the disclosures that a wealthy person or that a privately fundraising startup forces an investor to check those boxes and do are legalese blocks of text that nobody is taking seriously. It’s like the, I agree. When your iPhone doesn’t update, have you ever read it? No, you don’t care, whatever. But the reason why these rules and laws are important is because the second a startup raises money in a public way, they are actually on the hook to verify that you’re a credit investor and whatever.

So you’ve added more liability and more hurdles to the company who’s creating the jobs, who is generating, who is making the country and world a better place, presumptively. You’re making more hurdles for them versus the person who’s doing it. And so either the person who’s making the investment is blocked completely or it’s a private raise, they get a piece of paper, nobody verifies anything you basically sign an I agree, and nobody verifies it ever. And a lot of accredit investors and angel investors aren’t actually accredit investors according to the rules and laws because debt cancels out their net worth. And how many people actually have that multimillion dollar net worth and don’t have debt to cancel it out?

Because what you end up finding out is it doesn’t make sense. That’s why the largest category of accredit investors is doctors because of how much they make per year. Because you can qualify based on having a net worth or having a high paycheck for a certain period of time. And inflation is helping that a little bit actually, right? Because everyone, at least we hope, is making more to keep up with inflation, but they’re changing the numbers. They want to change the numbers for inflation to stop more people from investing, which is like of mind-blowing. When I say they, certain politicians and certain people. Some people are pushing against it and in more agreeance with me, but it’s crazy.

Ian:

So let’s change gears here and maybe talk about some of the companies that you’ve invested in recently. I know a big, big one you were sharing on social media was a company called Lunar Crush. What do they do? What got you excited about them?

Alon:

Yeah, so Lunar Crush is one of the earliest ones we did. It was really exciting. And full disclosure, I’m an investor in Lunar Crush. I’m on the board of Lunar Crush, and I recently led the round of funding in Lunar Crush for us and for the Draper Venture Network, and they’re kicking butt, and I love them. So what they do, they started 100% in the crypto space, and their premise was awesome. It was in the earliest days of crypto, they were crypto nerds like us, and I met them and hung out with them, and they said, now that all these tokens are going live, all this world exists. How do we know what’s real? There is no CEO, there is no quarterly earnings report, there is no basic financial analysis of these tokens. In our world, is their GitHub active? Are there engineers participating? Is there a community that’s actually building or is it just bots posting things online?

All of these different ways in which you can get access or understand a public company back then, right? We’re talking about let’s say four or five years ago, didn’t exist for crypto, but then also pre all of this Reddit craziness and Wall Street bet stuff. How do you know that a public stock is also not influenced by public opinion on social media and everywhere else? And why should we only judge what’s happening there based on the reporting by those companies and based on those quarterly reports or what the CEO says or whatever. And so they started building these sort of social listening tools to see what was being said online and ingest all of that content and then filter out the bots or humans who act as bots. Because there are certain situations in crypto and otherwise where people do things like that.

But also then understand the context and the way in which we speak, because we are starting this whole new industry. And we would say things like when moon or whatever, and what does that actually mean? If you took normal just language processing, is that bullish? Is that bearish? Is that good? Is that bad? What happens when somebody says, I got rugged, right? If you took a normal just basic analysis tool, you would never know what that means. And so specific to crypto. Over time they understood these things. They were able to show and demonstrate how social media impacts price and movement and social sentiment and all these things. They’re able to tell you not just if there was more noise about a specific token. They can tell you not just here’s how many posts about Bitcoin happened today. But they can tell you how many individual people are discussing Bitcoin today on the internet, which then they can compare to yesterday.

And you can say 20% more people are talking about Bitcoin today. That’s way more important than 20% more posts on the internet about Bitcoin, right?

Ian:

Yeah. That’s kind of incredible.

Alon:

New blood in the industry. So they would do all of these things and then provide you that data in different ways. And they, in my opinion, were the best at doing that in an automated fashion. And now what they’ve done is they’re expanding into other categories. So you can also use this same information. They added later more financial stuff outside of crypto like stocks, but then they did a version of that where now you can compare all the social data that you could on a stock to anything that’s comparable to different football teams. Two different political opponents. So now you can rank all of the current people running for president in the next election and see probably more importantly than what the polls are telling you, based on certain topics, just how many specific individual people are talking about them, whether they’re more bullish about one versus the other and things like that. And that’s important we learned by Trump becoming president and things like that, that it is a popularity contest. There’s a lot more to it than just what’s being said publicly and what people realize.

And we learned that in the public stock market, what people are saying online drives price much more than an earnings report. We know that in crypto, we’ve known that for a long time, and I think it’s a part of our culture, but the rest of the world is coming up to it. Coinbase stock was a good example of it during the bear. They’re correlated to the crypto market for purely emotional purposes. But when crypto dumped, more people sold and Coinbase earned more money in the quarters. Because they earned money on fees, they made more money during some of the times when their price of their stock went down.

And that doesn’t make sense. It’s like saying record revenue and the stock price is down because it has nothing to do… Not nothing but very little to do with the traditional way in which things are. We see it with GBTC and stuff like that. The price of their holdings is worth more than the stock price, and there’s a discount to their holdings. And that’s purely because of emotional reasons and because of social sentiment and human reasons. And so they’re able to analyze those things and do that stuff and they’re growing and changing and doing some cool things. I recommend checking it out.

It’s different than what chain analysis does, and it’s different from a human type of research, but it enables humans to then help make decisions and things like that, which is super fun.

Ian:

We will link to Lunar Crush in the show notes. I’m curious, when you first encountered the team behind Lunar Crush, I imagine pretty early stage, what was your involvement in shaping where that product has gone?

Alon:

There’s two things. We get really involved, but the key word in what we do is amplify. Because I’ll give my opinion and I’ll say things. VCs have this weird bad rap at the later stage, especially where they go, okay, they request a board seat, they request control, they request these special terms and things like that. And the reason they do that is because if Ian starts getting funny or going the wrong direction, I can twist his arm and let him know I’m the boss, or I can fire him, I can replace him, I can whatever. I’m not that guy. Especially at the early stage, you’re a crazy person if you try to be that person. You start a company yourself if you want to be in control.

So to me, it’s about giving my opinion, helping brainstorm. I’m an early stage startup guy, so I love that. But also knowing that it’s their company, it’s their thing and having their back when they make those decisions. These guys are rock stars. I mean, so when I first met John and Joe and Dan, the three main founders, they had a fourth guy named Isaac who’s incredible also, but he didn’t end up going full time and he went back and forth. But they knew what they were doing. And I was a little concerned actually because a couple of the guys are really great product guys who actually wrote a really detailed roadmap. And I was like, the roadmap was almost too detailed. It scared me a little bit. They’re running this like a big corporate when it’s three people in an idea, but they understand the space and they understood where it was going. And they also understood that, like what I was saying earlier, the North Star might be the North Star, but how you get there is going to change along the way.

And so then the next time I met with them, they went, hey, you know that thing in the roadmap? We delayed this thing, we changed this thing, we did this. And I realized they can iterate and evolve. So my involvement in the creation of the idea and stuff like that, I can’t take any real credit in that sense because these guys really knew what they were doing and are incredible. But I was there to help amplify anything that they were doing and help them along the way. And then make those connections to potential other investors, to other partners, and help them in the growth side of things, and be there when they do need me. And so even now, having worked with them for years, I still am texting with the founding team every other day and I end up being in a meeting with them once every two weeks or so. And then in certain times when this round of funding was going on, being on with them every other day and stuff like that, that’s generally how it works with all of our companies.

Ian:

Amazing. One of the other companies that I noticed in your portfolio that was interesting was Ownera. What do they do?

Alon:

Ownera is awesome as well. So they’re in that world of tokenization and stuff like that. So it’s really funny, we actually incubated that company, so I can take maybe a little more credit. But Ami Ben David, the CEO, is really the driving force. But he came to me at one point and we were debating after one of our conferences, I had a Zoom hang with him. He’s based in London, and he goes… We were debating the idea of can things continue to be tokenized on Ethereum? Are these public blockchains going to work for this kind of stuff? And he was brainstorming this idea about can we have a blockchain specifically built for ownership? That was the first premise.

And I got excited because one of the things that my crowdfunding company had pivoted into over the years before that was wanting to build a network for raising money on the internet for bigger things like funds and institutional products that maybe aren’t big enough to have their own websites and things. Because this was at a time where stuff like that was hard to build and it was different. And so I thought these smaller funds and institutions are going to raise money on the internet. Maybe we build a private network for it. But it failed miserably in hindsight because nobody trusted us.

Part of the secret sauce of the two main people in that world is the actual GPS of the funds, like the general partners of the funds and then the bankers and institutions who help them raise money. The bankers and institutions, their superpower is their Rolodex. They will not trust it to any third party no matter what assurances you give them, because that is their bread and butter. Then same with the general partners of the funds and things like that. So what we realized is only people that were a hundred percent committed to making an investment would come and use that product to then make the investment. And I wanted it to be a destination where you can bring everyone in and show them the docs and all the stuff and the deal rooms and the way things are built now where people are more trustworthy of those things.

But if the blockchain existed, and I could prove that Ian is the person who introduced Tim Draper to this website, and because of that, he will earn his fee no matter which product he invests in on our website. That can exist today in the blockchain world. That couldn’t exist back then, or nobody would’ve trusted it if we had built something because it’s not the same world. So I thought, okay, this idea Ami had, if it existed, I could have built that big company that I was super passionate about. So I got excited about it. We started brainstorming this idea. Owner was created, originally was going to be a blockchain for ownership. That was the first concept. But then it evolved over time. And what we realized is that every institution, every jurisdiction, every type of investor is different. And every blockchain is in its own silo.

And the first generation of tokenized products would be tokenized on a specific blockchain and only available to purchase on a specific platform like a T Zero or Open Finance. So imagine if in the traditional world you had a piece of paper, and that’s what I own in a private company, and I can take that piece of paper like people did before Facebook went public and whatever. And with the help of bank or some bankers, I could sell that piece of paper to somebody else in a very inefficient way, but there was not a lot of constraints other than the legal constraints. Tokenizing was supposed to make things more streamlined and easy, but imagine if you bank at Schwab and you have your money in Schwab and you have your Tesla stock in your Schwab account, and you have your 401k and your whatever stuff in your Schwab account.

Now what happens if you want to buy SpaceX stock, but to buy SpaceX stocks, you have to take your money from your Schwab account, wire it to an account at Fidelity because you can only buy SpaceX stock on Fidelity. That’s what the first generation of tokenized funds and products were. I had to actually take my money, go and KYC and set up an account at a whole different new bank to buy a product at that bank, and I couldn’t then send that product to my other bank or whatever. This isn’t DeFi. It wasn’t like crypto, like a same wallet. This is having to have an account at different institutions and none of the institutions talk to each other. That actually took this thing that was supposed to be streamlined and made it harder to actually trade.

But that technology is really important. It set the stage to where we are today. But what we realized is these things were happening in silos in different blockchains, and JP Morgan was going to do things on their chain and US Bank might do things on their chain, but then their customers and the products might be in different jurisdictions too. And one person might be a qualified investor, but one other person might not be a qualified investor, but is an accredited investor, and that means they can only participate in certain products.

So as Ownera was navigating this world, they realized all these things existed and a blockchain wasn’t the most important part, and there is going to be a lot of different blockchains, and we’re seeing that now with all the L2s and everything else. So that future did it come into existence? What they realized is there needs to be an interoperability layer so that if I am a Fidelity customer and I want to buy a product from a Deutsche Boerse, private markets, tokenized private share of something, a money market fund, a actual startup, a real estate, piece of real estate, whatever, how can I do that utilizing crypto and have instant settlement?

And that’s essentially what Ownera built. One of the things they just launched the other day was actually one of my fellow board members in Owner, Nadav. He actually, with his LRC group, about 500,000 British pounds worth of a tokenized money market fund from a group who tokenized it, through a different financial institution on a different blockchain than the system Tom next that he was actually utilizing for his institution. And they were able to do instant settlement literally on stage at a conference. He bought that 500,000 pounds worth of those shares in that company. And it was very anticlimactic because when technology works, it’s like flipping on a light switch. It’s done, right. But it happened and it went cross chain, cross jurisdiction and happened instantly. And that’s what’s going to enable our industry to flourish. The ability to buy not just a New York Stock Exchange shares on a specific platform, but shares in every major exchange need to be able to be bought on Robinhood, for Robinhood to make sense, right?

And that’s what’s going to happen with these private market groups and institutions. US bank trusts Wells Fargo at least so much to know that Alon, who might be a US Bank customer and Ian who might be a Wells Fargo customer, they’ve already KYC’d in those places, those places can verify that each are allowed to participate in a certain kind of transaction and they can enable that transaction and then all of the pieces along the way should be and can be automated now with modern technology. So now you can actually settle these transactions instantly without the human intervention, without all of these pieces. The same way we do DeFi, but across regulated financial institutions. That’s what Ownera has enabled, and that I think is the Trojan horse to this more borderless world. And that’s what’s going to get really interesting, because you’ll be able to soon go into your Citi account. And just like every bank when you’re in your bank account, the technology on that website and online system is not a hundred percent proprietary to that bank.

It’s not a special website that’s just belongs to Wells Fargo. When you’re in the mortgage section, it’s powered by one API. When you’re in this section, it’s powered by another API. When you’re in this section, it’s a white labeled product by this company. And the interoperability happens through these pipes and APIs and whatever. But even in those things, when you feel like there’s instant settlement in your Schwab account and whatever, it’s not actually instantly settled. There’s a certain amount of calculation Schwab is willing, and risk Schwab is willing to take to go, okay, I bought because the shares of this company exist in a different place and we’re going to act as if it’s instantly settled in your account, but it actually is taking four or five days to happen.

This is happening instantly. We can have actual T zero transactions happening across financial institutions globally, which will enable all sorts of interesting thing like buying real estate with Bitcoin. And the person who owns the real estate doesn’t have to accept the Bitcoin. They can accept the dollar, but me as the Bitcoin holder won’t have to sell the Bitcoin to dollars, take that risk, pay those fees, and then send the money, wait the period of time and take the execution risk and the risk of all that stuff. These things can happen instantly, and that’s enabled. So that’s what Ownera is doing.

I know it went long. I got excited, but it’s what Ownera does essentially, is this interoperability layer, and it’s also open… They’re building an open source interoperability layer, which is important. It’s called FIN P2P. So people who are in that tokenization world should go look that up. They could build adapters for their systems into it so that when somebody tokenizes the product using your system, they’ll be able to sell it and actually have liquidity across the whole industry. Because that’s our biggest issue. You can argue that one blockchain versus another is the best technology, but without liquidity and without good products, nobody gives a crap, nobody will use it. That’s kind of the historical argument with programming languages and platforms and whatevers. You can always argue that one technology is better than the other, but if nobody’s using it, if it’s not happening on the computer side, we don’t win. I mean, it’s our whole space. We want adoption. We believe it’s better. Now is the time to make it happen.

Ian:

It sounds like a fascinating company working on a huge problem, which is very exciting to me. So we will make sure to follow it. We’ve run out of time for our conversation, Alon. It’s been fascinating to chat with you. Where can people follow along? Because, it seems like you’re in the middle of some really exciting stuff.

Alon:

Connect with me. Yeah, so we got some new branding done and everything because the original branding for DGB was literally me goofing around when I was creating the Google presentation for our investors. So we got new branding that’s really great looking. And about to launch the new website at dgb.vc. But if you follow me on Twitter just @AlonGoren or connect on LinkedIn or whatever, you will see the updates. And if you have an early stage company, if you have an idea, if you’re just getting started and you don’t know where to start yet or you’re just at that crazy early stage, haven’t raised any money yet, hit me up. I want to hang out with you. I want to see how I can be helpful and please reach out and you could also email me. Just [email protected].

Ian:

Amazing. We will link all of that in the show notes so people can find it there. Alon, thanks so much. It’s been great to chat.

Alon:

Awesome.

Ian:

All right.0

Alon:

Thanks for having me.

acceleratorAlon GorenBitcoinBlockchainCryptocrypto startupdecentralizationDraper Alon Goren blockchainearly stageFundraisingideaInteroperabilityinvestorsLiquiditymacro settingmarket conditionsmarket insightsownershipPodcastPublic Keyreal estateRegulationsocial mediasocial sentimentstartupstechnologytokenizationtokenized productsventure studio