On The Brink with Castle Island - Dan Tapiero on Growth Investing in 2023 (EP.418)

Episode Date: April 19, 2023

Dan Tapiero, the founder of 10T Holdings and 1 Round Table Partners joins the show. In this episode we discuss: The performance of Bitcoin as a macro asset over the past year. The current regulatory environment and how the USA is losing its lead versus other countries in the digital asset ecosystem. The prospect of U.S. companies going public in non-U.S. jurisdictions. How Dan and his team approach growth stage investing. The secondary market and how Dan thinks about building ownership via secondary transactions. The LP landscape and how allocators are thinking about digital asset ecosystem managers. To learn more about Dan visit the 1RT website and follow Dan on Twitter  

On today's episode, I sat down again with Dan Tapiero, the founder of 10T and one roundtable partners. Over the past couple of years, Dan and his team have deployed over $1.2 billion into growth-stage companies in the crypto ecosystem. It was great to have Dan back on the podcast to discuss the regulatory landscape, the growth of crypto ecosystems outside of the United States, and his views on the IPO trajectories of some of the companies in his portfolio. I think you'll enjoy this one. So without further ado, here's my conversation with Dan Tapiero. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures.

Guest and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only is an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AI, $85 billion. This is a different kind of market, and the Fed is asleep.

The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of concentrated easy. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Well, Dan, welcome back to the podcast.

It's been over a year since I had you on. If you had told me that we would have basically every crypto lender go out of business, FTX was a total fraud, regulatory enforcement actions, just out the wazoo, I would have told you maybe Bitcoin's about $1,000 right now. What the heck is going on out there? Well, I think that would have been super negative of you. I mean, a thousand. I sort of bought after the last bull phase.

And again, I still can't take my macro hat off. I do look at price action and charts and not a lot, but it's sort of hard after being 25 years in the macro hedge fund business, hard to not look at that. I really didn't ever think we were going to get below around 20,000, even during the last bull phase. And I thought, I'm always off by a little bit. So I was thinking like 15 to 20. And that's sort of where we held in. I think the price action and Bitcoin and Eath, because I consider sort of those two assets as different. from the rest of the space. I mean, I do think they're more established and they've achieved network effect and the other cryptocurrencies to me, at least, are still sort of venture projects.

I mean, maybe you can chime in on that later. But I think for those two, there is an underlying demand at certain price levels. And what's happened with the U.S. banking mess, which you didn't, I mean, this happened towards the tail end of that, is really like the flashing go signal for Bitcoin and to some extent, ETH too. I mean, Bitcoin store of value now, you know, every single Fed rate hike cycle has ended with some sort of banking mess or someone blowing up. This one sort of reminds me more of 1994 in Orange County messing up because it was, you know, it's basically the bank was acting as a hedge fund and they lost.

And that was sort of like Orange County. just long bonds all the way down. And you probably don't remember, but 1994 was the worst year for bonds since 1929. So last year, I mean, I think it was one of the two or three worst years. You know, what was it, the 6040 portfolio had its worst year since 1873. So I don't think it was just the crypto space and SBF fraud and the Luna blow up and all of that. I think that it was compounded by a massive and I think inappropriate to the degree that they fed hiking cycle.

And I think now looking back at it, rather than saying maybe, are you surprised how well it's held up? I think it's like, holy cow, we threw everything at this market, traditional world and regular world. We had banking crisis. We had credit Swiss going to zero. Everything we could throw at it. And you know what, without government intervention, without any banking regulator coming in and saving the day,

because we really would have had a massive bank run, had those people lost their deposits at Silicon Valley and the other affiliated banks. And so it just reminds me that the whole crypto space is truly like the only really free market that we have left where people aren't intervening. I mean, currencies, you have central banks that come in and do smoothing operations. The Treasury market now is, you know, you have quantitative easing or tightening, whatever it is. Even stock markets in some parts of the world are, you know, I don't say manipulated, but there are official sources, official sources of demand. But we don't have that. And it just makes this stronger every single time we have a bare face.

It's so well put. I mean, the other thing that's been really fascinating, just over the last quarter, I would say, as you have these enforcement actions, as you have this coordinated crackdown on the banking for crypto sector, you're just seeing a lot of innovation happen outside the United States. And so you're starting to see the UK emerge, starting to see Hong Kong emerge. Obviously, Singapore has been on the scenes for a while. But it's kind of highlighting the fact that this is a global market and these infrastructure companies are just going to get built other places in the meantime if you can't build a crypto company the way you want to in the United

States. Yeah, I mean, I 100% agree, and we see that in our LP base. I just got back from a crazy trip. I mean, I have never really traveled this much. A month-long trip, and I was in Dubai and Abu Dhabi and Riyadh, and then Auckland, Melbourne, Sydney, Paris, and that was a month. And what you really see out there, I probably got in front of a few hundred people as well. this is to talk about the launch of our fourth fund, one roundtable partners, which is the follow on front from the 10T funds. And I think they're bewildered. I mean, they don't understand why the U.S. doesn't see just the basic innovation that the Bitcoin code is. And Australians, for instance, I think are sort of on the cutting edge out there. I don't know if you have any Australian

investors, but, you know, they really understand currency, first of all. You know, you can walk down the street in Sydney, and I think many people probably know where the Aussie dollar is trading against the dollar. They're also, you know, they live on an island. They look out for opportunity. They're entrepreneurial. There's a lot of wealth there. They really understand it.

And even A&Z Bank, I think just a few days ago, I think they put carbon credits on a blockchain, and I think they were traded, actually. So they, I think they see that the innovation as potentially impoverimps. impacting them, and they want to get ahead of it. They don't want to be behind the eight ball. And so that's in Dubai, for instance, has been very aggressive in courting crypto and blockchain businesses, Abu Dhabi as well. And I think it's starting a little bit in Bria too. So, you know what's interesting, though? I would have to say is that in each region, each group of people who are proponents find something different that they really are.

are pulled into the ecosystem by. And I'll give you an example. I mean, I was an NFT week or Paris blockchain week. And there is a lot of interest there. And how do NFT, how do you incorporate NFTs into sort of luxury goods products? I mean, how do they, how can you enhance your community and get closer to your customer by having a sort of robust NFT platform from the luxury goods companies? There are no real OG bitcoins there.

Like, don't want to move Bitcoin in France in 2011. I mean, basically, you go to Korea, it's all about blockchain gaming, right? You go to Australia, it's a bit of everything. If you go to Dubai, it's about Web 3. I mean, it's really a much bigger, not just world, but it's a bigger focus. Yeah, I find that all the time. I was just saying that to my partner, Ria, that there are even pockets within the crypto ecosystem that it's just hard to stay up on it. I mean, I don't know how you could be a generalist just dipping your toe into crypto VC these days. Just crypto VC itself is just so expansive across all these categories. I don't see why, you know, certainly the Tradfai Reg journalists and regulators, why they're so focused on one aspect of this world, which is trading. And I get that.

But I don't know, do you regulate blockchain gaming? I mean, what is that all about? Or the stable coin business last year settled $8 trillion of value. I mean, that's not going away. And, you know, look, I think the stat is, and I don't know if you can confirm, I think it's around 85% of total world cryptocurrency trading volume is done outside the U.S. So the U.S. is important. SEC people will follow.

important. But the reality is that as the U.S. dithers here, you mentioned other Singapore, Hong Kong now. I think the U.K., you're right, Europe a little bit, but definitely the Middle East, as I said, Australia, I think these places see the innovation and are grabbing it. And look, this is the first time that I think in the last 50 years that the U.S. hasn't been leading financial and technological innovation. And it's not about the dollar. I'm telling you something. Everyone's focused on the dollar isn't going anywhere. The dollar is going to be the most important currency, I think, for many, many years.

You don't build up the status. I don't just mean the trust and the liquidity and all these things, and it disappear all of a sudden. So, I mean, the dollar can go down a lot against Bitcoin. I think that's true. But we live in a huge world, and I don't see another. traditional currency getting even close, though I will caveat this. I think we have entered a bare market for the dollar. I think the growth and inflation numbers in the U.S. are going to be lower

every quarter, certainly into the end of the year, and that we possibly could see 10-year rates below two and a half. And I think at some point later this year, the Fed will ease up. The currency market's already feeling that, and I think the inversion in the yield curve is already telling you that's the course that it sees. That makes sense. I mean, I guess it's frustrating because if you were the CEO of the United States, you'd look at this and you'd say, all right, well, let's pass a stable coin bill here. Let's just make sure that the dollar can remain strong and that people outside the United

States can get dollars. And that will further entrench the dollar as the apex predator of fiat currencies. And then let's go past a market structure bill because we need to know who oversees the spot market. We need to know how you can issue one of these things, have it be to send a centralized over time, because then the banks and the broker dealers and everyone with money can actually participate in these markets. And it just seems like pretty obvious to me that that's what needs to happen. In the meantime, we're spending our tax dollars on enforcing a bunch of

crypto projects, just in discrete cases over two to five year time horizons. It just seems crazy. Like, is there an end in sight here? You know, I look, I've said this on Twitter a bunch of times. And I hate to say it, but I do think it's the reality, which is that we have a bunch of 80-year-old people. running the government. And it's not just the president. And I just don't think they have like an expansive sort of 10-year view. I don't think that they're technologically adept or savvy. And I don't think they get it. And I don't see that they will get it. However, we have an election coming up. And I think people under 40 get it. I think we really need like a 40,

45-year-old president. I see this in the potential investors I speak with and in my own investor base. Anyone under 35, I mean, the conversation is totally different versus guys over 60. There are plenty of smart guys over 60 who get it too. But it's just generally speaking, there's just such a comfort and a second nature about, I mean, they're digital native people. My kids in their 20s, one of my daughters the other day was just basically telling me she's never been to a bank. And she's never going to go to a bank. Actually, she had to go to get two certified bank checks for her apartment in New York City, which is just nuts that to rent a place in New York City, you still have to go to the bank and get bank certified checks. That's all going to go

away. So I think it's a generational thing. It's an age thing. The stable coin, I mean, look, circles of phenomenal business. Jeremy is a fantastic CEO, I think, is a great representative for the space and I'm sure he's down in Washington all the time. It's a huge opportunity for us. You're right. We could cement the dollar, the digital dollar as the digital currency for 30 years, for 50 years, forever by just making it a little, forget a friendly framework, just a framework that was rational. And I don't get it either. And it's just, honestly, unfortunately, I feel it's just like old people afraid of change. I really do. to say it, but to me, that's what it feels like in everything I read and do. I mean, am I off

piece here? No, I think you're right. I mean, I think ultimately this is why you have a democracy and you need to have people speak with their votes and you need to have people that are energized around these issues. And I think the crypto community probably got quite activated around the infrastructure bill last year and took one on the chin there. But maybe you will start to see a little bit more grassroots movement there. I'm optimistic. I'm also optimistic that you have some firms like Bank of New York Mellon and Fidelity that are trying to build things despite this ambiguity and I think are being helpful generally in some of those conversations. So maybe we'll see some more of that. Yeah, I mean, you mentioned Fidelity. You know, they've been supporters

of the ecosystem and early adopters. I mean, they've been, it is strange because you think if you're a legislator down to D.C., Fidelity is America, right? You have to say to yourself, well, what are they seeing that we're not? Right? They're not even asking that question because obviously Fidelity didn't go into this space, risking their brand and their name

and their reputation, encouraging their clients to get in, in a way, without having done a lot of work. And that's sort of the one thing, I think that not just the trap by press, but the regulators and the legislators that just haven't done the work.

And I don't know that I want to completely blame them because the work is hard. And the barrier to understanding stuff is really, I mean, especially when you get into the weeds, certainly a defy. You know, one of my analysts was talking to me yesterday about optimized ZKEVM. I mean, it's hard, right? And they've got day jobs and have other issues. And how many people really understand the Satoshi White. paper, right? It's just not easy. But foreign places that have had problems, like basic problems

with monetary and fiscal policy, especially emerging countries, they get it right away. But they get one part of this world, right, which is the store of value, alternative currency, potentially payments, money outside the system. That isn't necessarily defy, NFTs, Metaverse projects, stable coin business, right? I mean, there's a lot going on. Absolutely. Before we started recording, you were showing me this ecosystem map, which I thought was great, that just highlights the various categories that are investable here. Maybe talk a little bit about how you've approached this from an investing perspective since when you started 10T and now with this much bigger fund at one roundtable, just in terms of what you can invest in out of one of

these venture funds. Oh, yeah. Well, let me just be clear. I'm not a venture fund. We don't do venture. We leave that to you guys, the younger geniuses, and I do mean geniuses in the true sense. You know, you and your partners have done a fantastic job and identified, I think, some great companies that maybe down the line will be invested. And we, as far as I know, we're the only growth, active growth equity fund in the world that focuses only on crypto and blockchain businesses. We've invested in 26 businesses in the ecosystem, deployed $1.2 billion.

And I think that people generally outside the world, the space, don't understand how big it is and how fast it's grown. So we tend to only look at companies that have revenue of, I don't know, over 30 to 50 million. So again, the winners from your portfolio generally are the guys that we're going to be interested in. And we, you know, look at things from a very sort of traditional valuation perspective. Like we want to see that it's hitting, you know, about to, you know, they just need a little growth equity. They're going to hit escape velocity that they've already proven out their business model, product market fit, all of those basic things that they've gotten over sort of the initial growing pains that early stage companies have. And then when you get to the bigger companies, I mean, today they're probably, believe this or not, 150. companies with a market value in the space of over about $300,400 million.

And just to show you how far we've come, when I got the idea for the fund in the middle of 19, there were only 20, 25 companies in the world that had a valuation of over $3,400 million. And today you're at $150. I think over 100 are worth a billion, and that was about 150 at the peak last year, it's roughly 10% of all the unicorns in the world. So of all the, you know, there are 1,000, roughly 1,000 private companies worth over a billion dollars. And 10% of them are in our space.

So I just don't understand why an old-time macro guy like me is the only guy in the space exclusively. I think there are some people who have come in. But a lot of those names have moved out. You know, the larger private equity funds, they overpaid. I think in some cases, they didn't have a big enough team or whatever the reason is. But, you know, in terms of how big ecosystem is, I mean, we passed on over 100 deals last year. So it's big.

And the capital needs are definitely going to be there. One stat, Matt, that I will speak to you that I talked to LPs about is that in 21, 22, $20 billion was invested at the early stage. It was 89% I think of all the deals were done pre-A, basically. And, you know, if I think 18 months from now, some of those, the winners from that group are going to need growth equity and capital to grow. And I don't know who's going to be out there for them unless you're only talking about five or six winners, but I don't think so, right?

I don't know. There were certainly folks that saw the opportunity and might have stepped on a a landmine with their first deal in doing FTCX, right? I think maybe that's part of it, too. Yeah. Or Celsius or BlockFi. You know, fortunately, we were in a company led in Canadian C-Fi lender. I think the only one that survived that I'm aware of. And they had a near brush with big problems, but they've come out of it pretty well and have plenty of runway now and are doing great. But look, it's a tough space. And I tell my investors, look, you know, we have a 10-year life. fund, I'm sure just like yours, there are going to be three nasty bear phases in that 10-year period

where the space, especially the cryptocurrency, is going to lose 80% of its value. And we invest in the larger companies in the space. We didn't have the volatility. Our performance actually held up pretty well. We had five or six companies that actually made more money in 22 than in 21. So when you have a portfolio, even though, let's say, our exchanges marked down because volume dropped a lot in 22 from 21, we had companies, you know, like Anamoca, you know, like Ledger, like Deribit, that had very good years, certainly compared to the rest of the space. And we had others, too. Quicknode had a breakout year. We just led their round. So when you have this sort of broader portfolio that's exposed to a lot of different things in this larger

digital asset ecosystem, you don't have the volatility profile that a lot of the guys in the space have who focus on the earlier investments. Now, we don't have as much upside as you know. I'm pretty sure you guys will outperform us in the long term, but we just have modest return expectations for the space, which is just five to 10x over 10 years. You know, I think if you guys made 5x over the 10-year period, you'd want to shoot yourself. Knocking on wood over here, Dan. Yeah. Yeah, I'll get on wood.

I'll knock on wood myself. But we were talking before the call about some of these funds that, you know, had 20-30x returns and then dropped a huge amount. And they're going to have 20-30x again. Yeah, no doubt, no doubt. You know, some of these businesses, as you point out, are doing so well despite this general environment. I'm looking at compliance software, market data.

businesses with net revenue attention numbers in this industry that are better than like Snowflake in a non-crypto context. And it's pretty exciting. I mean, the obvious question there is what's the path to getting, you know, an exit from some of these? And it just feels to me like there will be some consolidation here in the coming years. And we haven't really seen like an M&A flurry yet. Do you think that's on the horizon? Well, we haven't really seen anything. And I would say this, that I mean, I'm pretty measured about a lot of my views, even though sometimes it may not sound that way, but there's some things that I know for sure. And one of them is that I know for sure that five years from now, there isn't only going to be one large

crypto blockchain, public crypto blockchain business. Today, it's Coinbase, right? There is zero chance, zero. Now, whether these companies end up going public on the NASDAQ, or whether it ends up being in the UK or in Dubai or Australia, I don't know. I think the NASDAQ has the most liquidity, and I think many of the CEOs and founders, that's their aspiration. But if that's not possible, there are jurisdictions that are going to jump at it. Hong Kong now is all of a sudden like galvanized big time. So what I would say is that I sort of see that as part of our function in this space.

I think that we have already helped create sort of synergies between some of our portfolio companies. I mean, the one I mentioned, you know, that is sort of known is, you know, we introduced Figment to Ledger, you know, so staking that happens on Ledger Live is through Figment. That was something that we helped facilitate. I see that a lot. I see that as a huge focus for us that we're going to be able to actually create and drive value. I mean, in the beginning, it was Tinti, it was just a small.

on that I wanted to aggregate positions in some of the private companies, I didn't expect us to be in the middle of this sort of mid-stage to the degree that we are. I also think that we are going to be shepherding some of these companies into the public arena. And so I'm bringing on several senior partners to the fund, one roundtable partners. We are raising capital now, and we are going to build a portfolio and different buckets in the space, but we are going to spend a lot of time bringing, shepherding some of our 10T companies that are ready. I would say by the second half, 24, 25 could be ready for IPOs. And, you know, we have companies that they're almost there. These guys want to be public. They look like public companies a little bit already. Their

revenue support is there. So, look, you just... just don't have the Goldman's and the Morgan Stanley's out there coaching these guys to exit. So I think some consolidation, but, you know, Matt, how much consolidation can there be when they're only like, so if you look at big stakers, you know, you've got Block Damon, you've got figment, you maybe have a few other, like you only have three or four companies. You know, in the API node infrastructure space, you got Alchemy, you got Quicknote, what, they're going to, you can have more than two companies, you're probably going to have. 10 or 20 companies, right? So I don't think so much about consolidation as, you know, maybe purchases

by traditional companies or maybe some of the bigger crypto businesses purchasing some of the smaller ones. So I'm on the same page with that. I don't think you have enough companies yet in the ecosystem. So if you take a view that just look at financial services and say digital assets will be a thing. And so every bank and broker dealer is going to need to figure out how to do custody and trade execution. They're going to have to have staking. They're going to have to have note in for behind the scenes. There just aren't enough startups right now to go out and buy, right? There aren't even enough custodians. If every global custodian had to offer just Bitcoin custody right now, they'd all be screwed. They wouldn't have a way to do it. There's only so many fireblocks and

copper's that you can go out and try to acquire. Yeah, but we passed on fire blocks. We love them. We passed on them. Papper. We liked them. We passed on them. Can invest in something at 30, 50, 80 times revenue. Just can't do it. You know, I think our LPs, I go into every investment, really, you know, we underwrite this 10x return. And if we can't see a 10x over 10 years, now again, we're not going to get a 10x. But if we can't model that, then, you know, we just can't do it. And I think the space is big enough. And again, we pass on over 100 deals. One thing that we really focus on is geographic diversification. 65% of our portfolio is outside the U.S. I'd love the U.S. We'd love to have more exposure there. I'd love them to take the bull by the

horns on the stable coin business, as you mentioned before. But the reality is there are a lot of smart people who aren't in the U.S. And also, you're starting to have companies like Lennon, for instance, in Canada, they were thinking about moving to the U.S., now they don't touch the U.S. So they're going to move all over the place. They'll be, you know, they could be in Dubai. They could be, you know, the same thing for Derbitts, a Dutch company, but, you know, they could be anywhere. And I think if the U.S. really comes down with negative on the regulatory framework, I think you could see some U.S. companies just set up shop in other friendly jurisdictions, and that we really don't want to see.

That's happening. I mean, that's, I think that's not even a hypothetical at this point. I mean, we're talking to prospective investments every week where they're saying we're going to actually domicile in the UK or we're going somewhere else. So, you know, it's unfortunate. I think what you're saying about companies going public outside the United States, that would be a really interesting kind of shot across the bow of just U.S. Well, I've already had discussions about it with people out there. And those people are like thrilled. I mean, I actually posited something. To a guy I spoke with a foreign guy, I said, you know, look, imagine this. You've got your exchange, whatever it is. Look at our 26 companies. All right. I'm not saying that they're going public tomorrow and some of these guys may never do it or whatever it is. But if you took our portfolio just overnight and they were all public on your exchange,

you would become almost de facto like the crypto blockchain center. I don't say of the world, but certainly an important center. I mean, look at our companies, right? I mean, ledger and figment, credo, quick node, Bitfury, Anamoka, Gemini, Crackin, Quabee, right? I mean, these are figure, circle, derbit, right? These are big companies making money. And just imagine the attention and exchange or a jurisdiction and focus. Like, can you imagine?

I mean, like, you'd actually have a place to go. I don't think that's likely that we're going to have all 20s. But I'm just saying, theoretically, if someone really wanted to encourage development, these aren't venture companies anymore, what I mentioned, right? These are real businesses. So it could happen, right? I certainly think it could. Maybe transitioning to just your company, how have you found just the LP appetite for

this type of a product since you started back in, what was it, 2019 through now. Yeah, and this started in the Q3, Q419. We would have launched in April except COVID hit, and that kind of put a wrench in things, ended up launching towards the end of the year into early 21. But, I mean, look, initially we were, I was shooting to raise $100 million, and it was just, you know, my money and some friends and people in my network. And it was really just going to be, I would call an aggregating vehicle. We're going to get 10 stakes and private companies that I didn't have access to.

And what's happened is that the interest in demand for the fund, even after the beginning, was so much greater than I anticipated. And I think it's as a result of us having a different risk reward profile. I mean, I come from the traditional investment world, well, traditional hedge fund business. And managing volatility was always a thing. And I look at this space. And if I'm a pension fund, and we have two big U.S. pension funds in our fund, I say to myself, look, I can't own something that can go down 80%. I don't care if it's going to do 200% annualized

for 10 years like Bitcoin, if it's going to have seven drawdowns of 70 to 80%. And I understand that. And I've built a business before in the farmland space called Agcoa. I did that when I was working the Stan Druckenmiller. We launched that in 06 and sold it in 13. But that was an aggregating vehicle as well, a way to get exposure to the price of the underlying grains through owning farmland in certain regions in the U.S. And we ended up selling that to CPP, the Canadian pension fund system. But so in the back of my mind, what always blew my mind about Agpoa was that in 08, the entire portfolio didn't mark down. In fact, it marked up 3%. And I think that portfolio, along with the Treasury bond, were the only two assets in the entire world that didn't get

completely destroyed. And so I was like, could I do that here? Could I own the most volatile, greatest returning asset in the history of the world with less volatility and create a sleep well at night investment for people like me and people from the traditional world who don't need to make the 20, 30, 50x return would be very happy with a 5 to 10x over the next sort of 10 years. And I think that that was the initial idea behind the fund was that, you know, how do we do that? we stay away from venture. And, you know, we can't compete with guys like you and Andreessen and Polly Chain. We just don't have that expertise. I never did. So companies that are already a little more developed that are making money, they just don't have, they're not threatened in bare faces, right?

If you're sitting with five years of cash on the balance sheet, you're not threatened. And many of our companies had over three years of cash going into the bare phase. So we felt we were bulletproof and our funds have come through this like unbelievably well. And now we're in a very strong position and launching this next fund in the fourth one in July. And the interest has been fantastic to tell you the truth because many of the deals that we passed on last year are now coming at more reasonable valuations in the secondary and deals that are going to be out there to lead. You know, there aren't that many guys that are comfortable writing a 30, 40, 50 million dollar check to a crypto blockchain business.

And that's what we do all day. I mean, that's what we do. So I think that the competition is left and the price. is more reasonable. And so my existing LPs and some of my new LPs, they see that, right? I mean, you know, Matt, we didn't do a single thing in 22 between April and October. And then in October on the FTX fraud, I recognize this is me putting my old macro trading hat on. Ethereum didn't make a new low in price on the collapse of FTCS and Bitcoin went down and then came back. And when a market can't make a new low on the most horrifically negative news, it tells you the selling is finished.

And I allocated about $120 million to eight different businesses in October and December. I thought that was the low. That was the end of our third fund. Unlike private equity guys who like and don't really have a sense on the cycle and like to have five-year investment periods, invest through the cycle, I don't. The cycle is my friend. And I don't buy when I think things are frothy, and I try to buy everything I can when I think things are panicky and near the lows. So that's another reason.

We bought actually four of the eight investments were in the secondary. I bought it 40 to 80 percent discounts from previous rounds. That's incredible. I mean, that was actually where I was going to go next is this secondary thing that you're doing is another example of where there just structurally aren't other firms that are doing this. You talk to some of the secondary players in the traditional non-crypto markets. They don't even look at this industry. Yeah, well, it's not an industry because as far as I know, there's only one large buyer.

I mean, of the $1.2 billion that we've invested, $600 million of it has been in the secondary. And so sometimes we do that as well because that gives us pole position to potentially lead the next round. You know, we also miss a lot of things. Like I, you know, we missed the figment round in the summer of 21. We just missed it. You know, we're doing a lot of different things. And so we ended up buying some in the secondary, right? So I have to say it's been an interesting tool in our toolbox.

I mean, we, to get exposure, didn't expect again to have that much exposure in the secondary. But look, there are a lot of funds out there that need liquidity. their venture funds that are seed investors. I mean, we bought $120 million of Cracken equity in January of 21 from the seed investor. And yeah, it went up multiples from where we bought it, but he was still left with hundreds of millions of dollars. I mean, you get in at the seed stage and there's no avenue. So we do a little bit of that.

There are also now some brokers. and I think any clip over $5 million, either me or someone on our team gets emails from a broker, from, you know, we buy from ex-CEOs, we buy from ex-employees, we buy from the company directly sometimes. But yeah, I, you know, I have to think that we can make a 10x, right? And investing at alchemy at 100 times revenue at a $10 billion valuation, which happened, I just, didn't think I can make a 10x. Maybe it goes up 10x, but that was largely the reason that we passed on FTX on three separate occasions is that the guy wanted a $32 billion valuation.

So I'm like, is this guy going to be a $300 billion company? I mean, I guess it's possible, but the odds aren't really there. So we had other reasons for passing, let me tell you. But at the end of the day, I have to say, to be completely honest, if he had come and raised at a $2 billion valuation, I might have done it. I might have done it. 32 billion, it was just so beyond like a redefinition of what greed was. And I know a lot of guys did it, and I'm sorry for that, but I mean, it's just preposterous. And so the secondary investments, we can get more reasonable pricing. And we know this world. Like, we know exactly,

we have a hit list of 150 companies that we have three-page tear sheets on, every investment we write these 50 to 70-page investment memos. I mean, we do a lot of work, but this is all we do, right? And so I think we're in a really interesting position over the next few years to potentially just sit in the middle of this whole world and be a liquidity provider for some of you early venture guys, help shepherd some of our companies to exits, you know, help on the operating side and bringing in a person, very well-known person who's been a CEO of two large companies, one, you know, large public company who's done deals. So there's lots of opportunity here. And the investors, you know, they keep surprising me on the upside. Like,

you know, I had a few conversations yesterday. A few guys were on the fence. We talked for about 45 minutes and go through the deck and it changes things. So do you see the same thing? I mean, where his mentor slowed a little bit. No, I think it's been clarifying for a lot of institutional allocators actually that some of the things that they thought were frothy and scammie actually did turn out to be frothy and scammie in a lot of ways. And so I think you're just seeing a maturization. And I think what you guys are doing, the secondary front and on the growth front, is also just giving a lot of credibility to the industry, that this is not just a kind of a run-and-gun type of token industry anymore.

You know, the space has $1.7 trillion of value now in it, this digital asset ecosystem. That's the value of all the cryptocurrencies and our estimates of the value of all the business, all the equity in the space. So $1.7 trillion, when I started this, it was $300 billion. At the peak, it was over $3 trillion. Do people not understand that this is not going away? 1.7 trillion isn't in the space by mistake, right? It's not a fraud.

It's not money laundering. It's not bogus. I just don't regulating it away. I mean, it's just nuts. You see the Wall Street Journal today and see the compliance software category alone and just look at how much money governments around the world or spending on some of these startup companies. It's clearly not going away.

Well, Dan, that's a great place to leave it, I think. Where can we send people to learn more about what you're building and get in touch with you and the team? Well, you know, LinkedIn is a pretty good spot. I think that's, and I'm on Twitter at DTAPCAP. You know, we have our website to 1.1RT Fund.com. Just a landing page now, but things are really heating up. And to be honest, I mean, as you mentioned,

the action in Bitcoin and Ethereum, What is it up now, 70, 80% on the year. And even though I think we got plenty of ways to go, but it just gets people's interest piqued again. I'm sure you're getting more calls now, too, than you did six months ago. People seem to like me a lot more when Bitcoin is at 30K than at 15K. It's funny how that works. And they're going to like you a lot more at 50 and 100K.

Yeah, exactly. Well, Dan, it's always great to catch up. We'll have you back on in a few months to check in. But thanks for doing the pod. Love it. Thanks. Great seeing you, Matt. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.vc. To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com

or just click on the tab in our website. Thanks for listening.