The Pomp Podcast - #1047 Alyse Killeen On Crypto Investors Coming Back To Bitcoin

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Elise Killeen is the founding managing partner at Stillmark, a Bitcoin-focused venture capital fund. In this conversation, we talk about Bitcoin, mining, the development around the protocol, and what is the current state of venture funding and entrepreneurship in Bitcoin. I really enjoyed this conversation with Elise, and I hope you guys enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by FTX US.

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Starting point is 00:03:09 personal opinion. This podcast is for informational purposes only. All right. I think we've got Elise here with us. Elise, how are you? I'm good. Good morning. How are you? I'm doing fantastic. I would love to just hear kind of your reaction. Obviously, inflation this morning, 9.1%. I know that you spend a lot of time with various types of people in the Bitcoin community. What do you kind of think their response to this is? Do the builders care that inflation is so high or is that just the investment crowd that cares? That's a really good question. So this morning's been busy. You're telling me the official numbers for the first time. I'm hearing them from you. So the builders care in that it's data that informs the hypothesis that they're

Starting point is 00:03:50 building on, of course. Bitcoin is intended in part to be a hedge against inflation or changing monetary supply, monetary policy. And the intention is to separate money rules from rulers. And so I think founders certainly care from that perspective. Of course, it doesn't change roadmaps or drive for growth. And so it's a bit of background noise in that regard. And when you start to understand kind of the investment side, do the builders care about the investment side? Like most Bitcoin builders also hold Bitcoin themselves, which is kind of a unique thing, right? Normally a founder would hold equity in their company and then they would go build whatever the product or services try to help their customer and their economic attachment

Starting point is 00:04:42 to their work would be directly through the equity in their business. Most Bitcoin products are equity based. And so people actually have two different kinds of economic attachments. They have the equity of their company, but almost every single one that I've ever talked to also holds Bitcoin itself. And so how do you talk to founders about those two different things? And is it important or is it just no, it's just similar to equity? If they do a great job, then Bitcoin will benefit? Okay, this is a really great question. So one of the things that Bitcoin founders have an opportunity to do is to increase the robustness of their company through strong, smart treasury management. You've noted that it's historically true that founders in the Bitcoin space will often

Starting point is 00:05:26 diversify their treasury to be not just cash holdings, but to also include BTC. The opportunity of that, of course, is to buy low or to buy and then to appreciate Bitcoin's appreciation over time. We know that as adoption has grown, Bitcoin's price has risen alongside it. Now, keep in mind that most of these founders are building applications or infrastructure that, in fact, helps drive adoption. So if they're doing really good work, and as that work progresses, they should be able to contribute to the fundamental value of BTC, the asset itself. If they're holding Bitcoin, they get to also participate in the appreciation of that. And it helps them avoid further dilution, right? So whenever a founder brings in capital to their

Starting point is 00:06:16 company and sells equity, of course, they're reducing the amount of equity that they themselves have. And so if there's an opportunity to extend runway without selling equity, without facing dilution, it's really attractive to founders. In the Bitcoin space, people have done that through grant programs. Of course, if you're producing revenue and cash flows, you can also extend runway without facing dilution. And then finally, if BTC appreciates and you're holding it, that will also extend runway. Now, at the same time, BTC, of course, has volatility. It goes both ways. So when in a down market, if you're holding BTC in the treasury, your runway is impaired. What we're seeing today in the mining sector is just a snapshot of one space that's needing to

Starting point is 00:07:06 respond to this is that miners with a decrease in Bitcoin's price are using treasury management it's a strategy, a competitive strategy to finance their business and operations through the downturn. It's not too different from other sorts of companies in the Bitcoin space. Of course, miners have generally financed through debt, and there's been a retraction of debt of the availability of securing credit. And so treasury management is most important probably for miners, but other companies will experience the same. So Pomp, here's a really quick rule of thumb. In a healthy macro environment, so in a sort of standard non-conflicted environment, companies should have 12 to 18 months of runway in cash at a minimum. In today's sort of environment in a recession condition where we worry about a potential contraction of the venture capital market, to extend that cash runway from 12 to 18 months to say 18 to 36 months, it could be suitable.

Starting point is 00:08:11 When you start to see what founders are doing, obviously, if they take 100% of their balance sheet, and they put it in Bitcoin, there could be volatility to it. And given that they have operating expenses, as you're mentioning, that could heavily impair them or change what they do. Is there a kind of best practice, because maybe they don't want 100%, but like they're putting five to 10%? Like, what are you seeing founders actually do on the ground? Given that if they have a pile of cash, and sometimes that's, you know, a million bucks, sometimes that's $20 million dollars. They tend to be bullish about Bitcoin. Like what are they doing actually to prevent any impairment to the balance sheet, but also potentially get exposure to the asset?

Starting point is 00:08:50 Right. So that's a great question. It really, it really depends on how much they raise in a financing. And so if they raise 36 months of runway and they put 18 months aside, that's 50% of the raise, but founders are doing, are taking a more nuanced approach than that. So, for instance, what some founders will do is when they raise, they'll keep that all in cash. And then as they produce revenue, that revenue, if they produce the revenue in BTC, that revenue will stay in BTC and will start to build their BTC treasury. The important thing to note, there's two things. One, the first I offer to founders so that they're not surprised when they're fundraising, but the investors that back founders, most of them, not all, but most of them are going to care about what their treasury looks like. And so that's probably going to be a term that faces founders in term sheet negotiations.

Starting point is 00:09:44 So an investor is generally not going to want to see all of their capital turned into BTC once it's received by the company in the financing round. And so this will likely be something that is discussed between, you know, ultimately preferred shareholders or investors and the founders in advance. And so there will probably be a sort of rule set governed by a board about what founders can do with the capital received. The reason for that, though, is something that founders often intuitively get or care about themselves. And that's that the company's risk is, of course, denominated in USD. So the company's operating risk or needs are denominated in USD. And so the company needs to be secure against those particular risks. And then the other thing is, of course, that participants in a company, so that's everything

Starting point is 00:10:40 from investors all the way to a company's team members, really want to know that the folks at the helm of the ship are prioritizing the company's growth and impact. you know, over some, you know, sense of like moral obligation or otherwise to be denominated only in BTC. Of course, the eventual goal is to get to a world where we are denominated in BTC. But I think, of course, and, you know, I have to think this as a venture capitalist, right? But I think that startups and the way that companies grow in the space has an impact on how quickly Bitcoin is adopted and how quickly a Bitcoin standard is adopted. And so the healthy operation of companies, including the healthy management of the treasury

Starting point is 00:11:29 in accordance with the company's own risk set, that's ultimately beneficial to BTC, the fundamental value of BTC, the asset. Does that make sense, Pomp? It makes complete sense. And I think we've actually actively gone through this exact kind of thought process of like, how much should you put in Bitcoin? How much should you leave in dollars? How do you denominate revenue? Even if it's getting paid in dollars, is there a way to think about it? Not on your official kind of balance sheet or P&Ls, but is there something that you should do in terms of understanding the denomination in Bitcoin? And I don't think there's a right answer. There is no specific playbook. And it also depends on if you're a public company

Starting point is 00:12:08 or a private company, right? Obviously the public companies, the accounting rules there are not necessarily nearly as friendly as maybe what you can do in the private markets. And so my advice always to founders is just like over communicate and be hyper clear with what you're doing on the balance sheet and the P&L. And as long as you and the investors, especially in the private market, all understand it, it's really just you agreeing on how you're going to report that information from a day-to-day management of the business. And so that clarity becomes incredibly important. One other aspect- And know how you're going to respond to different scenarios, right? So know what you're going to do differently if BTC is down, know what

Starting point is 00:12:46 you're going to do differently if BTC is on the rise and having those plans in place before you need them is helpful. I couldn't agree more. Talk to me about paying employees in Bitcoin. One of the things that we've heard a lot of chatter about, usually outside actually of Bitcoin companies, is people almost announcing, hey, we're going to pay our employees in Bitcoin and then none of the employees ever asked to get paid in Bitcoin. But inside of these Bitcoin companies, what are you seeing? Are people getting paid in Bitcoin or are they getting paid in dollars? People are often getting bonused in Bitcoin. And that's just an acknowledgement of the current state of the world, which is that people's own family risks are denominated in

Starting point is 00:13:25 dollars. People need dollars to pay their bills. And so salary comes in USD typically, and when BTC is incorporated, it's in bonuses. What I think is important, though, and this, of course, is when a company has the ability to do it. I think it's lovely and very respectful of employees to be able to offer the option of being paid in BTC or being able to split your payments between BTC and USD to acknowledge that employees may have a preference to denominate their life in Bitcoin makes sense. And then beyond that, I think the sort of benefits that come with employment, offering those in BTC where you can, for instance, like allowing people to hold BTC and their retirement savings is something that makes sense. And we have the tools now to do that.

Starting point is 00:14:17 Yeah, it's fascinating when you think about balance sheets, we're talking about corporations, obviously, individuals also have used Bitcoin on their personal balance sheets. what's your take on central banks we obviously see uh inflation high uh we've seen uh places like el salvador go ahead and say look we do want some exposure it's small compared to their overall balance sheet but still some exposure uh and then we've got somebody like a vladimir putin talking about you know we're moving towards a multi-polar world and whether people agree with him or not that is one thesis of the future and in that world could we see central banks also becoming interested in kind of this neutral monetary network? Well, so that's the expectation. Of

Starting point is 00:14:58 course, that's sort of a moonshot expectation. It's further out there in the timeline. If we were to realize something like that, the timeline is very uncertain. I think that what we're starting to see is that countries that have the greatest need to diversify into BTC are taking it. We saw that with El Salvador. And my hope is, and I may have even said this with you before, but my hope is that in these early movers accessing BTC, you know, before the herd or before developed markets, that they'll be unfairly advantaged, right? That they'll get the first mover advantage to that. And of course, I hope that that is, that their populations, their citizens are included in receiving that advantage. It makes sense that countries and institutions will diversify into

Starting point is 00:15:48 BTC for the same reasons that people do. And then beyond that, I think that, you know, we may start to see the same sort of activity, but through mining and acknowledgement of mining as critical global infrastructure and participation in mining as a way to make sure that a country is able to fairly participate in Bitcoin. So these are trends that we're watching for. You know, it's probably pretty early. But, you know, in each bear market, we know that folks start to ask better questions about what Bitcoin is, how it differs from the fiat systems, how it differs from cryptocurrency. And so as those questions get better, we sort of get this accelerated rate of progress in adoption of Bitcoin. And that includes institutions and countries.

Starting point is 00:16:37 One of the things that's interesting, as I've been talking to a number of different people over the last, I don't know, eight to 12 weeks, I've heard a recurring theme, which is I'm becoming a Bitcoin maximalist. I'm becoming a Bitcoiner. I came in through NFTs, altcoins, yield farming, you know, some other aspect of kind of the broader crypto industry. And now in these market downturns, I'm spending more time on Bitcoin. And there's a whole spectrum of kind of severity of interest, whether it's a full on, you know, Bitcoin maximalist or just like it was a thing. Now I'm focusing more time on it. How have you seen that play out in kind of past boom and bust cycles? And how important is it that there is this conversion where people come

Starting point is 00:17:18 in via other means to the industry and then kind of float a Bitcoin in these bear markets? Okay, so pump behind the scenes stuff. I'm starting to spend my afternoons on the phone with executives from, you know, cryptocurrency teams or from NFT teams that are now, you know suddenly super keen to figure out what's open at the executive level and on the bitcoin side so i think you know i mean that was probably building up in the bull market too that people were asking questions and frankly i think that people generally do care about how they make money they do care and so you know i think that there's when people started to realize where the money was coming from and perhaps that's a conflict with their values you will see them question what's

Starting point is 00:18:02 next. And often what's next is Bitcoin. And I think all of those people should be welcome. People can do multiple cycles through Bitcoin and through cryptocurrency and, you know, having sort of a new aha moment about why Bitcoin is different and fits with what they want for themselves, for their families, for their work. You know, that's always welcome. And so, you know, for instance, this afternoon, I'm on the phone with one of the top executives at one of the top NFT platforms um you know and and these are the types of phone calls that are coming in and they want to leave i'm always they they they want to know what their options would be if they were to leave this is you know this happens every cycle and it doesn't i don't think it's the bear market

Starting point is 00:18:48 actually that triggers triggers i think it's the questions that are that they ask when they're at the peak of the bull market and they really start to understand what the work they're doing is And the comparison that I've made before is, you know, pets.com versus like an Amazon or an eBay, right? So there's lots of ways to make money. You can make money building the pets.coms of the world and exiting at the right time. Or you can make money with the longer haul in Amazon or eBay and affect cultural change and introduce options and value, long-term sustaining value to people. And most people's preference is going to be for the latter. And so I think that's a realization that happens, you know, towards the tail end of the bull market. And then people begin to pull the trigger on those decisions in the bear market. My last question for you is if I'm an executive working in a crypto company and I call you up and I say, hey, I'm at an NFT company, I'm at a yield farming, I'm in some sort of non-Bitcoin company. What's the pitch as to why I should leave and go join a Bitcoin company?

Starting point is 00:20:00 Well, the pitch is that there's an opportunity to do well while doing really good work, of course. And one of the things that we can do in a bear market on the Bitcoin side is to really dig into metrics and to start to understand what's working and what can be refined to produce a better user experience and to really drive growth. then the themes that are going to be valuable or newly valuable, where the technology has matured, where the ecosystem of stakeholders have matured to advance new opportunities in the Bitcoin space. And those offer more options to talents, to professionals, and also start to allow people to identify what they can be excited about. So an example of this that we've seen over the past, say, month and a half, and especially in the past week since we last spoke, is we're seeing a lot of activity around mining with sustainable energy. We're seeing that at the early stage, all the way up and through mature companies. And of course, that's attractive to a lot of professionals, both those in the energy space, those coming from the crypto space and people on Bitcoin. we're seeing a lot of movement around custody and around security and so and that's both at

Starting point is 00:21:15 an enterprise level and at a retail level as well and a lot of what those sorts of solutions can do is act as a platform for even more growth and utility of btc the asset and so some of these trends will not just recruit bitcoiners to them but will recruit people from you know the traditional, um, tech and professional worlds as well as the cryptocurrency worlds. And, um, everyone is welcome. Uh, Elise, before I let you go, everyone is enthralled with your cat. They can see the, uh, the eyes. They love the cat. I know. I'm sorry. I saw that in the background. So he only joins for important conversations with Bitcoiners. So here he is, um, with you and I this morning. Thank you for having both of us. He is, uh, he's internet famous now. Uh, where can we

Starting point is 00:22:04 send people to find you on the internet or find out more about Stillmark if people want to talk to you about the Bitcoin ecosystem or even potentially leaving their jobs and joining Bitcoin companies? Well, Twitter works. So I'm at Elise Killeen on Twitter and then Stillmark is just stillmark.com. We have email access there for both founders and for folks in general, including professionals that want to reach out and see how they can participate in Bitcoin. Amazing. Elise, thank you so much. We'll see you next week and we'll talk then. Yeah, you too. Bye-bye.

The Pomp Podcast - #1047 Alyse Killeen On Crypto Investors Coming Back To Bitcoin

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