Original Source: Overseas Unicorn Team

Original Source: Overseas Unicorn Team

In the spring of 2017, after experiencing the ICO bubble, the two founders of Multicoin Capital, Kyle and Tushar, recognized the lack of an analytical framework for crypto investment and decided to be the Benjamin Graham of the crypto world, trying to open the door to value investment in the crypto field. era.

Starting from "Understanding the Circulation Velocity of Tokens", the two used sharp articles to establish a fund person who is not afraid of "anti-consensus". When people enthusiastically sang about Ethereum, they gambled heavily on the "Ethereum Killer" EOS; EOS failed due to the project's own reasons. When the market celebrated Multicoin's "mistakes", Multicoin did not "admit its mistakes" and insisted on its own thesis. Bearish on the speed of Ethereum's expansion, and finally voted for a brilliant project like Solana.

For 5 years, Multicoin's investment style has always beenThesis-driven: A group of fanatical observers of the encryption world debate the problems of the public chain day and night, deduce technological iterations and the "theoretical picture" of the future of the encryption world, and build investment portfolios accordingly.

Multicoin believes that a thesis will focus on investing. They "take 10 years as the horizon and wait patiently for the thesis to be verified by time.Rather than entering the market too early, they are more afraid of missing an opportunity for infinite compound growth."They have worked closely with the invested projects and contributed to the construction of the Solana ecosystem, as well as Helium, The Graph and many other projects that have caused people to rethink the Web 3 model.

As of the third quarter of last year, the Gross MOIC of Multicoin's first VC fund was as high as 114.7 times, and the DPI was 47 times. A report by Axios late last year also showed that Multicoin's hedge fund return was about 203 times since its inception.

Multicoin's LP lineup includesMarc Andreessen (a16z)，Sam Bankman-Fried (FTX), Fred Wilson (USV), Su Zhu (Three Arrows), are names that don't need much introduction.

The culture of Multicoin is hot and direct,The two founders dared to express unpopular opinions in public, especially in the tribal and intolerant discussion environment of cryptoThe following is the table of contents of this article, and it is recommended to read it in combination with the main points.

The following is the table of contents of this article, and it is recommended to read it in combination with the main points.

01 Escape from Wall Street: Finding New Worlds

02 An observer of the encrypted world who builds a reputation one stroke at a time

03 Winners win big, losers average losers

04 Thesis-driven Deduction Maniac

05 "The third entrepreneurial partner"

06 Investment themes and the future of encryption

• Open Finance: The Grand Ideal of Financial Integration

• Web3: Reimagining the Coordination of Human Economic Activities

• Almighty public chain: a future without bridges

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01

Escape from Wall Street: In Search of New Worlds

The two founders of Multicoin are both 2008 New York University undergraduates. They both hoped to leave a mark on Wall Street. Until the financial crisis happened, Wall Street and Silicon Valley's one loss and one prosperity directly affected their trajectory. Kyle began to follow his computer scientist father to study entrepreneurship in his electronic medical records company VersaSuite. Tushar also wanted to learn entrepreneurship. He rejected offers from several large PB banks and voluntarily cut his salary by half to work in Kyle's father's company.

A year later, the two went out on their own. Based on Google Glass, Kyle made a VR display device for surgeons. During surgery, he can wear this device to record the entire interaction process with patients, and see some successful surgical guidance in the past. Soon Google killed the then famous app, and Kyle was forced to sell his first startup. In terms of market opportunities, he was at least 10 years earlier.

Tushar's first attempt was also in the field of healthcare, establishing ePatientFinder, a platform for matching doctor-patient data and clinical trials. At that time, people's acceptance of SaaS was not as good as it is today. The entire sales chain, clinical trial feedback, and product cycle were too long. Tushar eventually sold it to a competitor.

The first four years after the two graduates are not considered successful in the worldly sense, and many people even think it is a bit too slow. Satoshi Nakamoto’s Bitcoin white paper, which was published in 2008, was not picked up by Tushar until 2013. Then Kyle "discovered" Ethereum, and the two completely entered the encryption world. They participated in many offline discussions on cryptocurrencies within a year, and met a future Multicoin LP Adam Mastrelli.

It wasn't until the spring of 2017 that they decided to start a crypto fund together. Since then, everything has been given an amazing acceleration, and the rate of return has been unattainable in 5 years.

andHeliumandSolana, representing their two major beliefs:The power of Web3 to decentralize organizations in the physical world, and the future of an all-powerful public chain.As of the second half of last year, when the third fund was raised, Multicoin allocated about 11% of the two VC funds in Helium, and 7% in Solana, both of which achieved returns of more than 10 times. Solana’s MOIC reached an astonishing 1318 times.

As of the third quarter of 2021, an LP shared the return of their first VC fund in Multicoin. The Gross MOIC was as high as 114.7 times and the DPI was 47 times. Multicoin's official caliber shows that the first and second VC funds have achieved returns of 33.1x and 3.6x respectively.

Founder Kyle often mentions 'Timing is a bitch' in interviews, thinking that it is impossible to make a good investment in the crypto field, so he had to withdraw from his obsession with timing, "Win in ten years ".

Multicoin's first VC fund was only US$17 million. After achieving impressive results, the second and third funds still only raised US$100 million and US$250 million with great restraint. Today, Multicoin, with a hedge fund of approximately US$4.5 billion in AUM, is still focusing on finding the top 1% of entrepreneurs with a team of more than a dozen people, always holding the"We're still at the head of the wave"first level title

02

A crypto world watcher who builds a reputation one stroke at a time

2017 is regarded by many as the first year of the crypto field. At that time, the ICO bubble was the same. Tushar gave an example that even the absurd concept of Dentacoin can gain a group of believers in the market-Dentacoin is determined to give people with high oral hygiene Offering token rewards to disrupt the dentistry industry also sparked a wave of public opinion that these tokens could be used as a “general equivalent” of fiat currency to purchase goods.

The phenomenon of short-term rush and rapid listing has deprived the living space of long-term investment. At that time, very few institutional investors paid attention to the encryption field, and capital movements were very hidden. Polychain and MetaStable, which were relatively influential at the time, never shared any market insights in public, let alone spontaneously advocated a more rational value investment.

The Crypto World of 2017 Needs a Benjamin Graham[Note: The father of "value investing" and the author of "Smart Investor"]. Kyle and Tushar found a vacuum and started vocalizing.

Neither of them has a good crypto-related resume, and the biggest weapon for attracting attention and building a brand is writing. At the beginning of its establishment, Kyle's article "Understanding the Circulation Velocity of Tokens" was frantically forwarded in the crypto circle. Until now, Multicoin can be regarded as one of the most vocal investment teams in the encryption world.

For example, one of the most frequently written concepts in Multicoin recently: composability, which refers to the continuous construction of new modules on a platform and programming them into higher-level applications. Multicoin thinksThe time is ripe to build "Lego for encryption", where users can combine the underlying protocols in different ways. While demonstrating composability, Kyle also repeatedly demonstrated why the answer to the expansion of the public chain cannot be "sharding".

Take Defi as an example. Based on the same "Lego pedestal" (the underlying order book), the decentralized spot trading Serum and the futures exchange Mango Markets can simultaneously do long spot and short contracts based on the "incremental neutral" strategy. The fully mortgaged method creates a stable currency UXD; the high-performance almighty public chain can also be superimposed on the agreement integration of lending agreement, digital asset custody, option trading and even hedging tools, which cannot happen in the state of multi-chain fragmentation : The delay in information loading between systems, the technical complexity and coordination costs of development, and the vulnerability of cross-chain applications will all destroy the operation of this Lego world.

The two founders are keen to share how they see the possible application process and technical path of the encrypted world, and often announce an investment article, citing some previous assertions, such as social experiments with timestamps. Tushar mentioned in an interview with Capital Allocators:

We are used to writing down our opinions and posting them online, because the people in the crypto world, especially on Twitter, like to poke your loopholes. At this time, you are forced to debate repeatedly, so as to constantly revise and verify your position.

At the beginning, Multicoin’s fundraising was not smooth, and many institutional investors were skeptical about crypto. Managers of some large LPs were unwilling to take risks, and preferred to invest in funds with established social relationships like Sequoia and even Paradigm. But as Kyle and Tushar's writing became more and more vigorous and their voices gradually increased, many investors noticed them.

Throughout 2018, Multicoin won a number of heavyweight LPs: Marc Andreessen, Chris Dixon and David Sacks (the first two are the soul of a16z, David is the founding COO of Paypal and the founder of Craft Ventures), Fred Wilson of Union Square Ventures He even bluntly said that the reason for his raise was the two founders"Not afraid to make mistakes in public"。

Of course, this straightforwardness of Multicoin also attracted a lot of firepower. They were initially firmly bearish on Ethereum, which led them to invest in EOS, the once-famous "Ethereum Killer", a blockchain that attempted to provide a high-speed alternative. In the eyes of many Ethereum fans, this is a direct challenge to Ethereum.

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03

Winners win big, losers average losers

Due to the extremely fast listing of projects in the cryptocurrency market, Multicoin initially had only one hedge fund to catch up with good ICO projects. Beginning in 2018, people no longer regarded cryptocurrency as a fleeting fashion, began to pursue long-term influence, and began to open private token issuance in the early stage.

Multicoin quickly established a dedicated venture capital fund. This crossover fund model has brought great discretion to Multicoin: early investment in good projects, close cooperation with entrepreneurs, and if you have a strong belief in a project, you can use secondary tools to invest in longer-term to hold.

The assumption of Multicoin in making investment decisions is to invest in projects that they think can be held for 10 years.This is the so-called ability of continuous long-term and compound growth, which is the same source as Tiger's overall "Long the internet" Changsheng strategy 10 years ago.

Multicoin hopes to fully play out the thesis obtained through repeated debates, and obtain the strongest returns at the end of the cycle, which requires firm belief and sufficient patience. This is why in the cold winter of crypto in 2018 and Black Thursday in March 2020, Multicoin firmly held large positions such as Solana and Helium (these teams were almost unable to turn around at the time).

When the encryption market was retreating, Multicoin even raised several large positions including Solana, and even invested in the decentralized music streaming media Audius in a "counter-cyclical" way, together with Livepeer and Braintrust later. , has become an important case under the motif of "web3 digital sovereignty and application logic".(We will expand on the investment theme in the second half of this article)

At the most sluggish moment, Multicoin made up his mind to stop trading and stuck to his bets. In 2018, despite the fiasco of EOS, it still outperformed Bitcoin and Bitwise 10 (an important index fund in the crypto circle) by more than half. This is a decisive turning point for Multicoin:Since then, they are no longer obsessed with the so-called "market timing", but more focused on the size and value capture of this opportunity— As Tushar said, “We realized that you can never predict a black swan event, standing in January 2020 and you can’t predict exactly what will happen in March. We decided to stick to our strengths:Thesis-driven asset selection. "

Before introducing their thesis-driven strategy in the next chapter, let’s give an example: After Multicoin’s big bet on EOS failed, those “Ethereum centrists” were gloating. However, the two founders did not withdraw all their previous thoughts on Ethereum issues: Ethereum’s expansion route was changing rapidly, but there was not enough speed to deliver. Many elder-level talented developers in the community have left. Lianchuang Gavin Wood has moved to A new project Polkadot, and because of Vitalik's slow action speed, Ethereum's congestion and low throughput also make it impossible to see a good future.

They realized that the failure of EOS lies in its resource allocation model and other aspects, not that their thesis is wrong. They quickly figured out why they bet on the wrong horse, and stuck to the original thesis. In the process of searching for "Ethereum challengers", they finally voted for a project with a thousand-fold return like Solana.

Multicoin does not want to cast a wide net, but wants to catch the biggest fish and catch it with all the money.When asked about Layer 2 and the most promising zero-knowledge proof rollups recently, Kyle said frankly, "It's not something we do, we don't pile into this trade", and admitted that there was an element of luck in betting on Starkware back then. They invested in Starkware together with leading funds such as Paradigm and Sequoia. Multicoin did not repeatedly discuss the investment logic, nor did it continue to systematically deploy Layer 2. These moves honestly show how much they believe in and endorse the field. This focused investment philosophy is also the reason why Multicoin can have several star projects that drive huge excess profits.

The two founders agreed that Multicoin is more risk-averse than its peers and is one of the few crypto funds that "give up" managing volatility and manage risk from a qualitative perspective."Losers Average Losers" by Paul Tudor Jones is their mottofirst level title

04

Thesis-driven Deduction Maniac

Thesis-driven is easier said than done. Opportunists are always reactive and receptive to evaluating new things emerging in the world. Tushar bluntly said that this is no different from swiping Tinder. The truly thesis-driven investors form a predictive point of view first, just like the public roadmaps of many Web 3 projects, they will have a complete picture of their "electroencephalogram".

In extreme terms, the first mission of Multicoin is not to invest in good projects, but to form a good investment theory. Recalibrate the "should" of the Web 3 world with pure first principles, and once you determine that a certain element will occupy a major strategic position in the future, you will "gamble" all in. Although the two founders like to use the word "gambling", in fact, the theoretical construction behind it is as delicate as a surgical operation.

Tushar published Trade-offs in the Decentralized FTX Space. Four months after they proposed the idea of ​​"decentralized FTX", they found their favorite project Perpetual Protocol, which valued its deep liquidity and high leverage; The repeated argument of "digital sovereignty" from the technology giants led to later investment in projects such as Audius and Project Galaxy, which directly hand over their own "IP" to the end users.

In their voting meetings, 80% to 90% of the time will be spent discussing the market, using first principles to debate existing problems, possible models, defects of existing models, and future technological innovations. Only when you are indistinguishable can you know what you are underwriting and what value you can create.”

Just as they intentionally stoke discussion by continually voicing their views in public, the vote is a venue for exposing any ill-conceived, flimsy logical deduction, and this "habitual, constructive disapproval" becomes The communication method that Multicoin relies on most is efficient and in-depth,"After coming out of the meeting, we can either strengthen our previous ideas, or we can overthrow them and start to build a whole new set of theories."

Interestingly, in the first ten minutes of the IC, they all silently held the computer and commented on the memo at the same time, in order to make the discussion flatter and everyone can think independently without any presuppositions. Get up and discuss.

Multicoin has a fairly balanced team. Kyle is fanatical (hereafter, the article is like him), and Tushar is calm. The roles of the two are the establishment of thesis and the management of the investment portfolio. Kyle speaks fast and has a typical debating personality. Although he publicly bad-mouthed some projects in the early days and offended insiders, it can be seen that he has already thought about "our sovereignty in the digital world" thoroughly. Tushar is relatively gentle, with strict logic when speaking, and likes to look ahead. He often says "We're missionaries not mercenaries", and believes that encryption technology can broaden the boundaries of human technology to obtain a greater degree of freedom.

Miraculously, the two founders who escaped from Wall Street recruited two important founding members from there: Brian Smith, a former Tiger Management analyst and former financial VP of a listed e-commerce software provider, served as COOs and CFOs. Matt Shapiro also has a banker background and quickly grew into a partner.

Here also have to mention the addition of Mable Jiang. The opportunity is that when everyone criticized Binance for not being decentralized enough, Multicoin took on the role of anti-consensus. At that time, Kyle also realized that he did not know enough about the Asian crypto market, so he moved to China for more than a month to find a responsible person. An investor in the Chinese market, he met Mable at a meeting and finally invited her to join (Mable just left Multicoin to work as the chief income officer of StepN, a recently popular move-to-earn project). Also because of their mutual passion for Binance, FTX's Sam Bankman-Fried hit it off with the two founders. Later, Multicoin bought the now $60 FTT for $5 in Q4 2019.

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05

"The third entrepreneurial partner"

andSolanaandHeliumas an example.

The founder of Solana attracted the attention of Multicoin because of his "almost obsessive pursuit of blockchain performance". After investing in Solana for the first time in the early summer of 2018, Multicoin continued to gain shares from some "unwilling" investors. We must know that Multicoin faced similar turmoil as EOS when voting for Solana, but this did not prevent Kyle and Tushar from actively participating and calling for orders.

One of the great strokes may be the cooperation with Sam Bankman-Fried: build a decentralized exchange Serum on top of Solana, and use Solana's performance to insert it into Serum's on-chain order book, allowing developers to trade in Solana It is easier to build scalable DeFi applications on the Internet. This became an important step for Solana to build a wider and wider ecosystem. Multicoin also openly ridiculed Uniswap opposite Serum: the order book on the high-performance chain and the AMM on the low-performance chain. compromise.

The founder of Solana regards Multicoin as his "third entrepreneurial partner", and being "the first person to think of when encountering problems" is the realm that many VC investors want to achieve.

Similarly, after being exposed to the Helium project, Tushar and founder Amir had numerous phone calls to discuss Helium's token economy. The original thesis of Multicoin is: data is the largest commodity in the world that has not yet been fully financialized, and we need a more economical way to transmit data. Based on this belief, Multicoin is fully involved in governance, and highly concentrated betting on Helium, deploying more than 11% of funds, following up through hedge funds, and also adding HNT for LP's separate operation of SPV.

In return, the Helium team gave Multicoin preferred shares, as well as the Founder's Reward distributed in proportion to the network expansion, almost delivering income to Multicoin in the form of a perpetual annuity.

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06

Investing Themes and the Future of Crypto

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Open Finance: The Grand Ideal of Financial Integration

Open finance represents the grand ideals of the two founders:To allow transactions in the global capital market to be conducted in a fully trusted manner without guarantees. No need for a middleman, no need to worry about counterparty risk, your assets can be transferred between platforms within seconds.

In a conversation with Micky Malka, founder of Ribbit Capital (an excellent fintech-focused fund), Tushar talked about where DeFi's competitive advantage lies, and attributed this issue to consumer relations: It's all about who owns the customer relationship. The moat that determines the value of Defi is how many relevant parties (developers, consumers) they can attract to accumulate value.

Bitcoin itself firmly grasps consumers in the form of social contracts or value storage/value-added, but for Defi, people do not form a natural sense of attachment and belonging to a certain agreement itself, they only want the best Rates, Liquidity and Experience. This is why some aggregators now distribute consumer orders to various Defi venues to obtain the best configuration, and their relationship with consumers is actually better.

Micky used a vivid analogy. In a small town in his hometown of Venezuela, there may only be one barbershop and one hotel, but there are always two or three banks, and the banks compete on the basis of interest rates and service differences. Financial services have always been a highly commoditized industry, and there is nothing that cannot be imitated, but how to win? Just rely on the brand. In order to have a consumer relationship, perhaps DeFi needs to follow the old path of traditional finance to pursue brand effects, and explore the core characteristics of the brand that can ultimately gain consumer trust. Before that, it is similar to Sushiswap’s fork of Uniswap, Tweaking will not change the situation.

Looking forward to the end, Kyle gave an analogy corresponding to traditional finance: there will be a "Defi-native" "prime brokerage" to support the blockchain version of the Perpetual swap contract ——You can freely exchange between cryptocurrencies and fiat currencies, and you can purchase financial products from all over the world at will.In the future, traditional finance and Defi will coexist, but Defi's obvious low transaction costs will definitely attract more people to transfer.

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Web3: Reimagining the Coordination of Human Economic Activities

The theme of Multicoin's Web 3 can be summed up in one sentence. It is a trustless network that allows people to coordinate economic activities more freely and efficiently. In fact, it extends the logic of the previous Defi to all aspects other than finance.

Specifically, many activities in modern society rely on a centralized entity to allocate resources: AWS for storage, AT&T for communication, and Google for query. Behind this are high transaction costs and serious centralization risks (data privacy, single point of failure, etc.).

Some projects try to decentralize these,After decomposing the infrastructure that we took for granted in the past world into the smallest value units, every Web3.0 resident can realize the resources that were impossible to realize in the past:Social networking (SocialFi), hard drives (Arweave), network bandwidth (Helium), and even attention (Brave).

Among them is a very interesting sub-topic: Web3 sharing economy. Multicoin voted for projects such as Helium, The Graph, Arweave, RNDR, and Audius under this motif.

• The background of Helium is that with the popularity of the Internet of Things and 5G, network speed and layout requirements are increasing day by day, and the traditional communication model of centralized capital is not sustainable, so Helium uses shared bandwidth to establish a decentralized communication network;

• The Graph hopes to become a unified search engine for Web 3, making blockchain data universally accessible and usable, and Dapps do not need to rely on centralized service providers;

• Arweave not only disrupts AWS, but also solves the problem that it is impossible to store all data on the chain under the scalability limitation of Ethereum, using a distributed permanent storage network of shared idle hard disk network;

• RNDR is a distributed GPU computing rendering network that emerged under the huge and complex graphics rendering requirements brought by the Metaverse;

• Audius returns the control, copyright and income rights of music to musicians, removing the middleman between musicians and fans, which may redefine IP and fan economy:

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Almighty public chain: a future without bridges

This part only represents Multicoin's prediction of the future of encryption, which must include repeated reinforcement of the bets that have already been placed and passionate calls for orders, but the arguments of the two founders are indeed worth sharing.

From the perspective of feasibility, Tushar uses an analogy to describe the historical role of cross-chain bridges:In the 1990s, technicians thought about how to connect everyone's intranet (intranet) with bridges to form a network. Until the concept of internet (Internet) appeared, people found that a global network could be used.Similarly, the cross-chain bridge is also a transitional form. Once a layer of complex application layer programming is added, the friction between systems will be difficult to deal with. In the long run, the cross-chain bridge will gradually withdraw.

Kyle added one point from the perspective of efficiency: cross-chain bridges will increase delays, increase barriers to value and data migration, and gas consumption, and the compilation of applications may have high requirements for system consistency and interoperability. We don’t know yet Which things should be placed on the same layer, but generally speaking, only one shard is the best. This is why he believes that there will be no niche public chains, such as game public chains, DeFi public chains, etc., because there is too much demand for cross-chain bridges.

Therefore, Multicoin does not believe in multi-chain co-prosperity, and believes that it may be a multi-chain world in the next year or two, but in a longer time dimension, it should be reduced to 2-3 all-powerful public chains.The public chain will slowly wash away the sand, and the turning point may be when the Internet giant chooses a chain to build applications.secondary title

Non-sovereign digital currency: beyond the trust-based economy

At the Multicoin 2019 summit, Kyle mentioned:The stability of legal currency depends on a powerful national government, but there are 500 million people in the world living in a society with an inflation rate greater than 10%. For these people, if they do not find a channel for asset preservation, their annual net worth will be reduced by at least 10%. Digital currency may play the role of digital gold to help them preserve their assets.

He also believes that from the perspective of asset appreciation, digital currency is also a very market-expandable capitalization method (people can seek income through pledges and other methods); finally, a large part of the wealth created in the crypto world still has to be in Digest in this world (such as buying NFT, social token, etc.).

Multicoin believes that the above 4 points add up to a market size of 40-100 trillion USD. These are the future of crypto they see.