The Pomp Podcast - 339: Brooke Pollack On The Blockchain VC Landscape

Episode Date: July 18, 2020

Brooke Pollack is the Founder and Managing Partner at Hutt Capital, a blockchain venture capital fund of funds and direct investment firm. In this conversation, we discuss the institutional LP world, how a traditional due diligence process works, common mistakes fund managers make, and the current blockchain VC fund landscape. =============================== The World Series of Trading (WSOT) is the first of its kind to bring the exhilaration of crypto trading competition to the global stage. WSOT believes in the importance of empowering traders who embody the passion and power for crypto trading. This bi-annual event aims to champion the spirit of competition, fair play, and cultivate camaraderie among crypto derivatives traders from around the world with the ultimate goal of creating positive change in the crypto space. This year’s prize pool is a whopping 200 BTC. Sign up here: http://www.bybit.com/wsot_warmup? =============================== Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

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. Let's kick this thing off. Brooke Pollack is the founder and managing partner at Hut Capital, a blockchain venture capital fund of funds and direct investment firm. In this conversation, we discuss the institutional LP world, how a traditional due diligence process works, common mistakes fund managers make, and the current blockchain VC fund landscape. I really enjoyed this conversation with Brooke, and I hope you do as well. Before we get into the episode, I want to quickly talk about our sponsors.

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participate in the World Series of Trading, you've got a shot at winning part of the 200 Bitcoin prize pool so go in the description of this episode and click on the link to sign up the world series of trading is there for you also don't forget that i write a daily letter to over 50 000 investors about business technology and finance i break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry you can subscribe at pompletter.com again pompletter.com all right let's get into this episode with Brooke. I hope you guys enjoy it. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions

and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. Super excited to have Brooke on. Thank you so much for doing this.

Yeah, it's my pleasure. Thanks, Anthony, for having me. For sure. So let's start with your background. Before you decided to go out on your own and start Hut Capital, what did you do? So before Hut Capital, I spent 10 years, I guess you might say, in the institutional LP world. So I started my career working here in Portland, Oregon for a family office consultant.

and yeah it's a consultant that helps wealthy families with their investments overall and building a portfolio and generational wealth and all the things you would think of but specifically i worked on the private markets team so our team helped these families to invest in private funds and that was effectively anything that was illiquid not a hedge fund so we're investing in buyouts growth equity venture credit real estate energy timber you know a whole host of private strategy is a pretty broad world um you know did that for a while and then actually moved out to the east coast for a few years uh first in philadelphia with a firm called hamilton lane which is now a public company but it's a massive private equity advisory asset management firm

based in philadelphia and a similar model on the advisory side except their clients are more like big pension sovereign wealth funds they have a very large asset base because of that and they also have a large discretionary business so they manage fund to funds vehicles co-investment vehicles where they're investing and directing companies alongside some of the managers, as well as secondary vehicles. And in particular, I focused on secondaries there. So we managed a fund that would buy out limited partners in different types of private funds. We would help GPs to restructure their funds, give them additional runway, help captive venture and equity funds to spin out, become independent. And this was when Dodd-Frank was really taking

effect in terms of a lot of financial service firms, you know, basically having to get rid of their, their venture arms or private equity arms. So you were involved in some things on that side of things. And, you know, basically anything where you're buying an existing portfolio of private assets, you know, from a managed by a third party. And, you know, did that for, for a couple of years and then had the good fortune to join a firm called Greenspring Associates, which, you know, is now over a $10 billion venture platform. And, you know, their model, it's all venture capital, you know, fund to funds, secondaries and directs. So they have a number of different vehicles. But, you know, generally speaking, spent my time investing

in venture funds. And that was funds like, you know, Benchmark and Excel and Bessemer and Foundry and folks like that. And then a lot of, you know, emerging managers, folks like, you know, ParaVentures or Pioneer Square Ventures up in Seattle. So really kind of the full gamut as well as internationally. On the secondary side, you know, we were buying with a partnership interest, as I mentioned earlier, as well as direct secondary. So buying stock from, you know, founders, you know, early employees, management, whoever it might be, but, you know, buying common stock from folks like that. And then also just doing very traditional growth stage direct venture. So it was kind of, you know, series B and later, we were, you know, leading

rounds you know very very involved post investments um so you know much more of a you know true venture strategy versus co-investment strategy like you might assume given the fund to funds model so you know did that for a few years in particular helped to build out their secondary business as well um and you know last year i was there spearheading efforts in the blockchain space and you know we can we can go more into that if you'd like but you know as you might imagine that's what led to starting Hunt Capital. Yeah. And so I want to talk a lot about like the process you use, right? You sat in the seat multiple times in multiple firms. So you kind of seen how many people do this. But one of the things when you're sitting in that kind of institutional LP seat is

there's people who have trusted you with their capital and are relying on you to deploy capital, but you're really doing the work of sourcing, vetting, and ultimately deciding or recommending, hey, this fund over another fund. And so maybe walk me through, like, what does that due diligence process look like? And then we can get into some of the intricacies as to, you know, where people kind of stumble and where people thrive. But what is the process of due diligence look like when evaluating fund managers? Yeah, so, you know, it's a very qualitative process. um you know unlike maybe i don't know maybe hedge fund investing which is maybe much more quantitative but it's a very relationship driven business overall you know if you just think about

the world of venture capital because these are people you're gonna be partnering with for 10 to 15 years so just you know getting to know people you know making sure these are people that you're going to you know want to work with over you know a very long period of time is kind of important first step and just getting to know these folks um you know from a quantitative perspective before kind of getting some more of the qualitative assessment, you know, there is some work you can do. And in particular, that comes down to analyzing the track record and cutting it a lot of different ways. So looking at, okay, you know, every deal they've done, you know, look at it by partner, look at it by geography, look at it by sector, you know, look at it by stage, kind of

all the different ways that you could cut the data and, you know, see what trends you can find from that. So, you know, maybe you see that there's one partner who's really driving all the returns. You know, maybe there's one geography that they're really horrible at, and they clearly just need to stop investing in? Or, you know, whatever that data tells you and look at, okay, well, how does that relate to their strategy going forward? You know, is that partner who has really driven historical returns retiring or whatever it might be, or maybe they're taking a bigger role and that's a great thing. And, you know, trying to draw conclusions from that and then, you know, using that to assess how their strategy is going forwards and, you know, hopefully, you know, that

it kind of supports their continued strategy. Or, you know, maybe that just leads to certain questions around, like, attribution, for example, and like, oh, look at this partner who's not there anymore, and somehow they are attributed all the bad deals. Like, that's kind of a little questionable. So, yeah, it tells you a lot from that perspective. But, you know, generally speaking, it is much more qualitative, right? So, you need to dig in, understand their strategy, what's their approach you know what's their process to doing investments how are they sourcing deals how are they working with companies to you know as a board member and you know helping to you know provide value post-investment and here's jelly speaking like who who is who are the most uh sought after

vcs by founders you know who's seen the best deal flow who do you know founders really want to work with and you know kind of top founders that you would want to have have access to and you know how do they differentiate themselves in the market? Why are founders going to choose them versus anybody else? You know, a lot of, a lot of that stuff, which is, you know, you just learn through conversation, um, you know, it's very important. And then there's also, you know, the operational side, right? So what does the firm look like? What does the team look like? You know,

what does the organization look like? Um, you know, are you comfortable with them, you know, their ability to run a firm and run a business and build a team and bring on talent um and you know all of that is is very important including you know back office and a lot of kind of the more uh you know less sexy but important operational things um i guess one other key thing is is portfolio construction so you know generally speaking you know i i certainly have a preference for example i'd say most lps do for you know slightly more concentrated portfolios versus like a broad spray and pray approach and you know how many deals are you

going to be doing you know how do you think about reserves for example and you know you see you see that as a big issue with a lot of first-time funds where they don't realize they need to keep a lot of reserves to continue backing these companies and they end up with you know very small ownership and you know they don't have the ability to keep investing in their best deals um you know what kind of ownership are they targeting just kind of how are they planning on allocating the portfolio in different ways like that. And it seems like it's this weird balance between when you first go in to do the due diligence, you're really kind of a detective, right? You're trying to understand what's good, what's not. But then once you say, hey, this is somebody that we want to invest in,

at times you almost have to become a salesman now, right? Now you've got to convince them to actually take your capital. And so how do you kind of experience that balance between, you want to be able to do the diligence that you want, and sometimes that requires hard questions, have comfortable conversations, you know, kind of asking for introductions to people that you can go do reference calls with, like all of the things that generally take work and time and effort. But then at some point, you want to turn around and be like, hey, we're gonna be a really easy LP, right? And you should take our money. It's like, how do you kind of balance that? Yeah, so I think it really comes down to the relationship that you build with these folks,

and not just being, oh, we have this LP who gets our quarterly report and, you know, they come to our annual meeting, but we don't really know them, but really building like a true personal relationship with the GPs that you're investing in. And I, you know, that helps in a ton of ways, just in terms of, you know, they're being open to you asking tough questions and, you know, kind of the ability to increase allocation to, you know, top funds in the future and stuff like that. um but uh sorry can you repeat the question again yeah so just like how do you basically balance between um you know being overly uh kind of investigative on the due diligence process but then also at the uh at the back end being able to um you know convince them to take your money over

maybe another lps yeah so i mean i think gps generally understand you need to go through your diligence, like, you know, just because you're having a conversation with them about the fund, that does not mean you're going to invest in the fund. It's just kind of the process of diligence. And, you know, honestly, sometimes you, you do that, you, you go through your diligence, you end up with a negative assessment and the GPs are not pleased with it. And I think that kind of, you know, tells you, you know, tells you something when that happens. But yeah, I mean, really, really comes down to, to the relationship. And, you know, if, if, if you build strong relationship with these folks,

they're much more likely to be helpful for you to want to make introductions for you, you know, to help you with direct investments, for example, and, you know, just kind of, you know, help you out in different ways. And, you know, also about what I mentioned about being, you know, being a passive LP, like, you know, people want LPs who are going to provide value to them as well. So like, you know, providing feedback, seeing on LP advisory boards, you know, helping them with LP introductions, you know, even providing them with deal flow when you see it and stuff like

that and finding different ways to provide value as an LP. And I think, you know, if you build that relationship, if you're providing value as an LP, you know, like the idea of convincing them to take your money becomes a lot easier because you're not just any other passive LP, but you're like a real partner for them. And, you know, there's someone that you, they really value you having as an LP they want to have as an LP and then you know the the kind of sales process well you know that is always a part of it for you know really hard to access funds you know becomes becomes a lot easier because you know they can really see that it's important to you and that you'd be a great partner for them and you know I've definitely been on both sides of

that you know in my prior experience I've you know been at places where you know we we lost access to really good funds because you know we didn't properly build those relationships and we we're not, you know, an ideal LP in certain situations. And then, you know, I've also been on the other side of that, you know, like Green Spring, for example, where they focus very strongly on those partnerships. And, you know, I've seen how that can really, you know, you know, really provide value as an LP and, you know, kind of increasing your allocations with really hard to access funds over time. Yeah, that's awesome. And I guess, what are like the major points where you see fund managers fail the due diligence process? Like, is there one or two things that

you're like, these are just the most common mistakes that people make? So yeah, a couple of things. I mean, one, you know, they're, you have to have a certain level of confidence that they can be successful in what they're doing based on, you know, past history, right? So for a lot of first time funds, and often it's not, it's not, you know, they're not at fault for this, it's just kind of inherent in, you know, in the process. They don't have the proper investment experience or track record or the ability to say, hey, I've done this in the past. I can continue doing this. And here's the proof of that, right? So that's often an issue. You know, I'd say another thing is just, you know, differentiation, right? I mean, there's

literally over a thousand early stage venture funds out there. And I mean, if you're an LP, you just have your choice of so, so many funds. You know, you really have to figure out how are you differentiating yourselves? Why should I be paying attention to this fund versus the thousand other funds that are coming and talking to me? You know, why do you stand out? Why are you going to get better deal flow? And, you know, you really have to be able to, like, tell that story and make that very clear in an initial conversation so that when people come away for that, like, oh, this is really interesting. I think this really stands out. And, you know, kind of just that, like, standing out from the crowd, given how busy LPs are, how many funds

they're seeing it was really important just in terms of you know getting kind of second conversation and progressing that conversation forward um you know obviously from a track record perspective you know there are definitely funds that have done well without frankly having an amazing track record but yeah i'd say for you know for the most sophisticated lps you know having that good track record you know and you know being able to dig into that and say hey you've been very successful in doing that obviously is a is a key thing um yeah and there's there are certain you know certain things that specific lps look for maybe it's like they don't they don't like having single gps or you know other kind of specific criteria like that where maybe it's

just a small fund and they don't they don't want to be a you know above a certain percent of the fund which you know similarly managers can't necessarily do things do things about but you know there are certain kind of criteria like that that lps look for as well look for as well which can kind of be a negative signal. Yeah, it makes sense. And then I guess, what have you seen maybe the best fund managers, right? So kind of the top 1%, what do they do that separates them in the eyes of institutional LPs from even the ones who are really, really good? So like the, you know, kind of five best in the world from everyone else, what separates them? Aside from just having the brand, having the reputation, you know,

kind of the typical stuff you would expect. I'd say one big piece of it is just building like a lasting repeatable institution. So, you know, there are plenty of good investors out there and a lot of groups who like, okay, I'm gonna do this for a couple of funds and then I'm gonna retire or whatever it might be. But I think LPs are looking for,

and you know, the top funds are, end up being these long lasting institutions that can weather generational transition and really, really building out you know, for the longterm. So firms like, I mean, you know, once I mentioned earlier, like Benchmark and Excel and Bessemer, they'd all been around for, for a long time, they'd gone through generational transition.

They've continued to be a sought after partner for LPs. And, you know, that's, that's not an easy process. You've also seen firms that have, you know I guess I don't, I don't want to name certain names, but have not done well with that where, you know, they have these amazing brands and then that, that brand has really declined, you know, whether it's maybe bad performance, or they haven't been able to, you know, continue to build out the team, continue to build out new talent, and you know, how people want to want to come

there. So I think that's kind of a underrated, but very important piece of it. Yeah. And so you at some point decided, hey, I'm going to leave and go kind of full on into blockchain and also start your own organization. So maybe talk us through like, what was the um accelerant for wanting to do that and ultimately deciding to yeah so for some background i guess and how that came to be uh so i might i've been tracking the space for a while prior to capital and i i went to school with a couple guys who were early in the space and you know we graduated before bitcoin existed but you know they were doing some interesting stuff uh later on it caught my attention they were doing you know doing well and um yeah to be honest at first i didn't fully

dig into it i i certainly dismissed it a little um but then i started so i started green spring mid 2014 so i started doing venture full-time and you know that space started becoming a little more relevant for my day job so i remember catching up with one of those folks and i think this is late 2014 and you know walking me through you know how they use their platform and you know just moving crypto around for example i was just kind of blown away by how easy it was and how you know just how smooth and seamless it was and i remember sending a note out to the full team at the time. And it's like, hey, we should be tracking this company. This is really interesting. And I didn't get a single response, which was kind of a sign of the times. But yeah, I was paying more

and more attention to that space as I was doing venture full time. But the problem is it wasn't at all relevant for my day job. So that really changed in 2017. We started seeing a lot of these dedicated blockchain venture funds emerge. You had a couple that had been around for longer, but we saw a much, much larger in terms of fund size and number of managers and quality of those managers. And so I went out and I was like, all right, I'm going to go, go out, get in all these funds, build those relationships, you know, just build relationships within the space more broadly, spend a lot more time in education. And so I went out there and did that. And, you know, that led to spearheading Greenspring's efforts in the space, as I alluded to earlier. And,

you know, Greenspring, you know, it wasn't a, you know, it wasn't a key focus for them. And I got to the point where I wanted to spend my full time and attention on it. And yeah, really felt at Greenspring, we had a pretty broad purview into all things venture between the fund of funds and direct investments and whatnot. And, you know, I just really felt like, you know, if you looked at where a lot of the innovation and venture returns had come from for the prior 10 to 15 years, areas like software and e-commerce and marketplaces and on demand and stuff like that. Yeah. I feel like a lot of that was, you know, somewhat played out and opportunities between more niche and, you know, much more saturated competitive market, obviously,

which has also been flush with a lot of capital. And so I was looking at like, okay, where, you Where is real innovation going to come from in the next 10 to 15 years? Where do I want to spend my time? Where are true venture returns going to come from? And I came to the conclusion that blockchain and crypto was that space. Unfortunately, I couldn't spend my full-time attention on Green Spring, so left to start at Capital, which we can go more into if you want. But it's effectively taking Green Spring's model and applying to the blockchain space.

So, you know, it's for the venture fund funds and direct investment firm focused on blockchain VC. And so help me understand, like, what is the argument for fund to funds versus going direct to managers for investors? So people that you go talk to and say, hey, you should work with us versus go to a direct manager. What's kind of that pitch look like? Yeah, so I guess to provide some background just on fund to funds in general to give context, maybe. I mean, the fund-to-funds idea has been around, I guess, since the 90s. So it's a model that's been around for a long time. And it really started as more like, I should call it traditional fund-to-funds.

So folks that were giving you access to a lot of buyout funds and kind of general private equity. It's like, hey, you don't know this space very well. Come give us your money. You can just make one commitment and get broad exposure to the space, and you don't have to worry about it. and you know that was that became a pretty pretty popular model you've seen a lot of you know kind of pretty sizable businesses built around that over time but as lps have become more and more sophisticated and you know do more and more of this in-house and just your product has been around for longer you know that that expertise and relationships and access are

important so areas like you know venture capital or small buyouts for example or international like you know, if you're sitting here in the U.S., investing in China and emerging frontier markets is, you know, is often difficult. So, you know, you've really seen fund-to-funds thrive in areas like that. And, you know, so why would you use a fund-to-funds in venture capital or in blockchain VC, for example? So, you know, there's a couple of reasons and depends what kind of LP you are, you know, for smaller LPs or, you know, smaller teams, I mean, it really just comes down to, you know, bandwidth and efficiency, right? So if you're a, you know, if you're a smaller investor, doesn't really make sense to write five or 10 even smaller checks. Probably it's not a feasible

thing. For other LPs in general, I think folks in a space like this really value the diversified model and saying, hey, I can make one commitment, get exposure to, let's say, 10 funds. And especially in a space like blockchain venture, I think having exposure to different parts of the market is very important. So different structures, different views on the market, different geographies you know different structures and you know it's often you know difficult for people to take the time okay I'm going to spend you know whatever you know significant amount of time is required to you know really dig into the space get to know all those funds you know make those assessments and you end up making you know a handful of

commitments and it's just much more efficient to outsource that to someone who has the expertise has relationships you know has the inside baseball on on the market and the funds and you know the the ability to you know really do a lot of referencing you know not just the ones they ask you to we're all going to say good things but you know have the network within the space to really dig around and you'll get to the bottom of what's going on so you know there's a handful of different reasons and you know i think over time as as this space emerge you know sorry you know kind of progresses you'll see what you see in the traditional venture space which is access also becomes a key a key thing right because you know if you're if you're you know an lp in you know

sequoia or benchmark or graylock or whoever um you know that's that's not something that's really repeatable so you know if you're a new lp coming into the space having access to these funds that are you know impossible to access is also you know a key differentiator and being able to provide that access to lps is you know obviously a highly valued resource yeah it makes uh makes sense and And I guess, how do you look at kind of the blockchain fund landscape, right? Meaning that, first of all, are you looking at just VC or are you looking at kind of the entire landscape, even liquid traded funds, et cetera? And then inside of the blockchain fund space, like how do you think about that difference

between structures and strategies? Yeah, so I guess when we look at the blockchain VC landscape, we're focused specifically on what we focus out at Hook Capital, which is only closed-end venture funds that are focused on blockchain. So it excludes hedge funds, excludes hybrid funds as they're called, and I could get more into that, but these are all closed-end venture funds. And that universe, I think we're currently tracking 66 or 67 funds that meet that criteria globally. So I think it's a lot more than people realize there are quite a number of funds out there. You know, what that landscape looks like though, is it's about 70% U.S. So in terms of location of those funds, you know, certainly

majority are in the U.S. You know, the other 30% are generally speaking split between Europe and Asia. And the landscape overall, I mean, it's a landscape of emerging managers, right? Most of these funds haven't been around for very long. And the oldest funds have only been around for maybe six years, which, you know, for a venture fund really, really isn't that long. So, you know, you just don't have, you know, kind of these, you know, legacy institutions that have been in this space for a long time. Everyone's effectively an emerging manager, which, you know, also kind of to the fund to fund point, you know, increases the value proposition there since selection risk is really high when you can't look at a 10, 15 year track record. And, you know, overall, you

know if you look at the you know total amounts that these funds are either have raised or are trying to raise if they're raising right now you know that number is about 4.2 billion which probably sounds like a lot of money but you know relative to the overall VC landscape it's like nothing you know it's a very very small amount on a relative basis so you know there is a fair amount of money you know being raised by these venture funds but it's a very very small piece of the overall venture landscape. So yeah. And as part of that, like when you look into the different structures or VC funds, right, it sounds like most of the structures all actually line up for the most part. On the manager side, like, do you see the emergence now of pre-seed

seed, kind of series A, series B, growth stage, you know, kind of the mirroring of what you see outside of the blockchain landscape in venture? Or is it still so early that you're actually getting firms that are kind of playing it all of the stack, mainly out of necessity because the companies need their capital and their backing? Yes, I guess for quick context before answering that directly, most of the closed-end venture funds are investing a majority in equity. um i say most also do not all but most also do some level of token investing but it's a generally speaking a smaller piece of what they do and on the token side that tends to be you know very early stage in need in nature because while those are still private you know inherently

they're kind of more like the equivalent of of seed stage um but on the equity side specifically you know you definitely see the exact same um you know exact same things you see in the traditional venture world where you have you know the same series of rounds pre-seed seed series a series to be or whatever it might be for a specific company. And in terms of the venture funds focus, it really started where basically everyone was a seed fund, right? Because if you look a few years back, I mean, that was where you were investing just inherently as an investor in this space. And you've really seen that evolve, especially in the past two or three years where there's much more of a bifurcation now. And I'd say it's largely driven by fund size. So you have

you know a handful of funds that are on the larger end of the spectrum and you know those are kind of acting you know although they'll still do you know some seed investing like you know most larger venture funds would you know they're really most of the capital is going to more like traditional series a rounds um you know maybe there's a series b mixed in there whatever it might be but you kind of think of those as like your traditional series a investors um you know i'd say the the bigger portion of the market and most of the smaller funds are seed, pre-seed investors. But you definitely are starting to see that bifurcation. And especially as some of the larger funds have moved up market in terms of fund size over the past couple of years, there's been an interesting

opportunity for new funds to basically fill that gap at the pre-seed and seed level and establish them as kind of next-gen firms, I guess you could say, at that part of the market. Got it. And then how do you think about kind of the blockchain funds interacting with the traditional venture funds, right? Meaning that if you've got most of the blockchain-focused funds being kind of seed, pre-seed, maybe even up to Series A, obviously those companies are going to need large amounts of capital later in the stage of development. development. And so you're going to have to rely on non-blockchain focused funds, at least right now, to kind of continue to fund those businesses. And so do you do anything in terms of understanding kind of the relationships between traditional venture funds and the early stage blockchain funds? Or just how do you think about that kind of interaction? Yeah, I wouldn't say it's a key part of our focus from a Delta's perspective in terms of like specifically what are those

relationships i mean it often does come up during diligence just given a lot of a lot of groups that they're co-investing with in their existing portfolios for example but i i would say that i mean it is something that we pay attention to in general for a really really series b and later because you have you have plenty of funds that are doing seed investing and series a investing but you know generally speaking the funds in this space are pretty small it's not like you have you know, NEA, who has, you know, $3 billion or whatever it is, and they can continue to fund companies forever, you know, they are clearly reliant on outside investors to continue meeting future rounds, you know, Series B, Series C, Series D. So, you know, I'd say,

you know, given there aren't a ton of companies that are later stage in this space, it's still kind of TBD in terms of exactly how that plays out. I do think, you know, they will be reliant on generalist firms. There aren't any, you know, sizable or maybe at all, but sizable later stage venture funds dedicated to this space. So, you know, looking at funding rounds for some of the companies that have raised like series B rounds, for example, recently, I haven't seen the issue raising capital, but it is definitely something that is a potential concern. We're watching closely going forward. Got it. And then I guess another piece of this is you also mentioned that you guys may do some direct investing. Maybe explain a little bit about what you guys would

do there. Yeah. So, I mean, so there's a conversation around kind of the fund-to-funds model. Another, I'd say, important development in the fund-to-funds world is that you can't really just be a fund-to-funds anymore. So, you know, the groups that have been most successful have effectively built platforms around the fund-to-funds. And if you think about what the fund-to-fund model is, you're an LP and a bunch of underlying funds. You have access to all sorts of very unique non-public information on the underlying portfolios.

You have access to board members of these companies. You just have very unique access in terms of relationships and information. And if you're thinking about how can we utilize that for the benefit of our LPs, you know, clearly, you know, the key answer to that is doing direct investing. And in particular for us, you know, so we're, we're not competing with early stage managers. We don't do early stage investing. You know, that's, you know, that's much harder. We leave that to our partners, but you know, what we look to do is track their portfolio companies and then, you know, try effectively try to invest in their best companies once they're

really series B and later. And, you know, we only do equity, so we're not making any token about token investments but that could be anywhere from doing you know a series b round with a few million revenue on the early side all the way through buying pre-ipo secondaries and everything in between and you know also to the earlier conversation around you know the relationships you build with these funds you know we're not like we don't ask for co-owners and rights for example right we everything we do is just built off of the relationships we have with these gps and the information we have and you know having them like want to help us on deals and you know just having that kind of be a regular part of the dialogue right so I think that's a much better

approach than trying to structure it where they're like forced to give you co-investment and you know we're also not co-investing per se you were kind of coming in I guess technically after our early stage managers would. But yes, that's, you know, that's part of our focus as well. And, you know, we'll also find other ways to, you know, create value based on your relationships information we have, whether that's buying LP secondaries, you know, that could potentially be buying like GP stakes, underlying funds, you know, and just looking for different ways that we can, you know, use our position to our advantage and for our LPs. For sure. And then talk to me a little bit about your interactions with founders, obviously on the direct investing side, that may come up some,

but also in the due diligence side, right. Of kind of diligence in the managers themselves and kind of what does that relationship look like and kind of how do you normally go about those conversations? Yeah, that's a good question. So it is definitely important part of diligence and, you know, typically as part of that, you will talk to, you know, portfolio company CEOs. So, you know you'll typically they'll give you a reference list and it'll have you know some number of names on it so you know those are good people to talk to um obviously they're you're you're going to assume they're any positive but you know it's important to talk to those folks and get their perspective um you know it's also important to talk to people who aren't on that

list and you know to your earlier comment around like you know being an easy lp you don't want to just call all their CEOs and like clearly disrupt business from that perspective. But, you know, it is important that you talk to folks and figure out who would be good to talk to, who, you know, is not on that list. Or, you know, maybe it's, you know, instead of just talking to the three CEOs who are their best portfolio companies, also talking to ones who have been, you know, have not done as well and seeing how they serve as a partner through that process of things not going well, right? That's obviously very important as well. So, you know, in terms of what you talk to them about, I mean, it's typically, you know, where did the relationship come from? You know,

how did you get to know that person? How did they get interested in the company? You know, why did you choose to work for them? Or sorry, why did you choose to work with them, you know, and choose them as a partner? Was it because they just gave you the highest price? Or, you know, was it because you really valued them as a partner? Maybe it was a pre-existing relationship. and you know maybe you went with them even though they they weren't the best price you know what how they've been like to to work with you know post-investment what's the cadence of communication look like how are they as a board member whatever you know whatever that might be you know just generally how are they viewed by founders in the space and just kind of really digging into that

relationship and figuring out you know why did they choose to work with them how did they get access to the deal what they've been like to work with post-investment and you know kind of what's their reputation amongst founders yeah it's really interesting and then I guess before we finish up I want to talk about your LPs right and kind of the conversations you're having on that end so you go out you talk to people they give you money and then you go make these investments we've been talking about but like what is that environment been like as you talk to investors you know kind of let's talk maybe pre-pandemic and then post the start of the pandemic kind of what's changed What are you kind of hearing and what does it look like?

Yeah, so pre-pandemic, I'd say trend-wise, things were good in terms of LPs being increasingly interested in the space and generally just being much more educated going into conversations. So if you compare it to a couple of years ago, the level of education, generally speaking, that we have to do in a meeting is much less than it was two years ago. and it's much more about, you know, what's our focus, you know, et cetera, rather than what's blockchain, what's crypto. So that, that's been a really good development. And I think for a lot of groups, it's just been a very long education process, especially on the institutional side, you know, and they have, they have to get up to speed and then they have to convince their,

you know, their team and then their board and whatnot to actually allocate capital. So that's a long process. And, you know, it's been good to see institutions kind of get, you know, go through that process and kind of closer to allocating capital you know broadly speaking um you know definitely when the when the pandemic hit you know so let's say back in march you you saw a lot of folks basically just go on hold like okay we you know the market's down 20 percent over the past couple weeks you know we need to kind of just put the brakes on here and see what's happening um you know for large institutions where you know they were looking at this space but maybe it wasn't like a true priority it was just kind of something that they were looking at but um

you know, not a, not a, like a key focus. They definitely reverted a bit back to kind of key priorities and, you know, kind of their existing portfolio and kind of managing the current environment. You know, over the past, I guess, what, four months now, you've definitely seen things go a bit back more, more to normal in terms of LP conversations. Obviously having the public markets recover is helpful. You know, the fact that it's not necessarily tied to our underlying economy um you know is a separate conversation but you know in terms of their portfolio values having them recover is obviously helpful and um yeah i'd say also given you know some of the tailwinds over the past four months that have been created in in this space um you know just

kind of increasing focus around crypto as a potential macro hedge you know a lot of you know certain folks who have come out like qualitative jones for example who has come out you know saying he's allocating to you know to bitcoin or bitcoin related investments you know things like that have been very helpful and just generally you know a lot of the technology technological um you know tailwinds that you know you're seeing as well and you know that's been good for you know for certain corporate companies and i think also just has brought additional attention to the space and kind of made people say hey i need to be you know looking at the space to have if i haven't been already so you know that's helped to offset some of the uh

I guess, some of the, you know, folks who were kind of on hold during, you know, part of the pandemic. And, you know, generally speaking, we're definitely seeing things recover from that perspective. Got it. And I guess as part of all of this, what's been your biggest learning, right? As you kind of went out, started at Hutt Capital, and have kind of gone through the process that you've gone through, what's been the biggest learning that you've had, or maybe the biggest surprise yeah the biggest learning has definitely been fundraising so yeah I was not I mean to be clear I was not responsible for fundraising in my in my prior you know prior roles you know I was very focused on investing so you

know going out and raising a first-time fund as someone who has not fundraised before has been a huge learning experience in terms of you know like what that process looks like of building relationships and you know how long that takes you know who you should be talking to you know how you go about fundraising just you know like who you should you know what are the different uh like what are the different avenues to try to raise capital and find you know folks that you should be talking to um it's like just the the idea of how you fundraise has been like a probably massive learning and there's definitely been you mistakes i've made through that process that i i've learned like okay maybe i wasn't doing this

the right way and i need to kind of refocus on maybe this part of the market for example from fundraising perspective and i've definitely adjusted our strategy um you know since since we got started but yeah i think uh people underestimate you know like the the challenge of raising raising a first-time fund and um yeah it's uh it's definitely been a big learning It always is. Where do you think all of this is going, right, in terms of kind of blockchain venture? Does this grow into something that remains kind of a subset of venture? Does it kind of get as big as maybe the way people look at fintech or consumer social or something like that in the venture world? Where do you think it's going? Yeah, so I'd say partly that's dependent on your view of the space. I mean, my expectation is that it's something significantly bigger than FinTech and eventually kind of ends up eating FinTech, you know, given my very bullish view on the space in

general. But I mean, if you look at it today, you know, you largely have these dedicated funds who are investing in the space and it's developed very differently than what you've seen in different areas. When you think about, you know, like parts of the market like AI or, you know, I don't know, marketplaces and like different other waves of recent technology, you've largely had the dedicated funds come in and, you know, continue to get a lot of the gains and returns and, you know, continue to do very well with these different ways of technology. and you know there's certainly some dedicated funds that have been in there but you haven't seen like you what you see in this space where you have this huge number of dedicated funds who are really you know the experts in the space they're where you know most of the top founders

are going to for for capital and you know really kind of being like you know where you raise venture money from in this space so you know with with that in mind I do think that is going to continue for the foreseeable future. I've actually been honestly surprised by that you haven't seen traditional venture funds come into this space more aggressively, just, I guess, given my view of it. Although at the same time, if I look back at myself like three years ago, it is a big hurdle to kind of say, hey, I'm going to allocate capital into this space for the first time and something I don't fully understand. So I do think that's going to take time. But I think we'll continue to see you know a large number of these dedicated funds you know the like the the way that these

funds invest also is very different than in the traditional world we have to worry about things like tokens and you know like are you going to stake your tokens and a lot like a lot of the kind of crypto specific infrastructure that a lot of these generalist funds are definitely just not set up to handle um you know the expertise is very different and you know if you're not spending your full time in this space, it's really, really, really hard to really keep up with what's going on, making sure you have the access relationships to, you know, to be a successful investor. So, you know, there's always going to be exceptions, but I do think you'll continue to see the generalist fund, try the dedicated funds thrive and, you know, be the

sought after partners in the space. Eventually, I mean, surely you will see the generalist funds spend more time in this space, become more active. And, you know, I think that'll be good for the market overall because it means you know more capital will come in um yeah i don't think that's uh you know tomorrow but eventually that will definitely happen and you know i think that'll be good for you know good for startups um in terms of how that plays out over time i think you know if you look at the long term you'll have you know a lot of dedicated funds in this space and i think you'll have a lot of generalist funds who are also investing in the space much more than they are today but i do think that the dedicated funds give a unique nature of this space will you know

continue to thrive and be a key piece of the market yeah i love that um before i wrap up i ask everyone the same two questions the first being what is the most important book that you've ever read hmm that's that's a good a good question um yeah i'm i'm not much of a reader i'm much more of a of a music person um so i spend yeah i spend much more time listening to music than i do reading, but my most important book I've ever read, honestly, I'm not sure. I can't say that there's one that's, you know, particularly influenced me, you know, more, you know, like in a profound way or, you know, more than others in that sense. You know, there's plenty that i've i've enjoyed but um you know generally speaking i'm much more you know much more into

listening to music as um a way to spend my time i've never had anyone say that but that is an awesome answer uh the next question is a little bit more fun which is uh aliens believer or non-believer uh i mean absolutely believe right i think just if you think about how massive the universe is the fact that we exist here it's just it's incomprehensible to me that there couldn't also be life somewhere else that's evolved so i mean i i have to think that there is life somewhere out there in the universe and probably quite a bit of it you know if you think about the massive scope of the universe and how you know you could have literally thousands of civilizations and not never have one ever ever make contact with the other um so yeah my i think there has to be life

besides us out there tend to think that you're probably right we'll see we'll see but i i tend to think so uh to finish up you could ask me one question what's the one question you have for me um so for your for your podcast series how much preparation does it take to get ready for for a podcast i apologize if you've been asked this before but i'm curious how much preparation goes into it so i try to do as little as possible actually um and uh it's this weird thing i've talked to other people who have similar types of podcasts and in the beginning i would like do all this research and show up and like i basically in my head already had like oh this is what we're going to talk about and um what happens is it just becomes kind of robotic and it's kind of like

okay i'm going to ask this question i pretty much already know the answer that's why i'm asking the question then I'll ask the next question and like it's just I don't know it was less rewarding for me because I kind of had already done all the work and learned everything before the episode started so now you know I understand who the guest is kind of their background usually I'll have a couple of talking points but then I just want to have a conversation and really ask the questions that I'm curious about right and kind of just naturally let that play out and so it's become much more rewarding experience for me to do less preparation um and uh and it seems like there's a couple other people that uh are kind of in the same uh same boat and so um yeah i just

always remind myself that like you never want to come unprepared at the same time you don't want to uh show up and have like every single question scripted out and it's just you know like anyone could sit down with a piece of paper and basically fire off the questions and and do the recording yeah yeah i have to imagine like the more of these you do you know the more you're comfortable uh not having everything mapped out as well so that's interesting so my friends sometimes will be like hey man we're not recording a podcast right now like stop asking me so many questions but look i'm just trying to learn it's just trying to have fun right yeah awesome where um where can we send people to find you on the internet and

find out more about a hud capital yeah so hud capital you can find us at hudcapital.com we've also been doing a webinar series featuring leading blockchain vcs which you can find at hudcapital.com slash webinars you can find you know me on twitter at bh pollock although i'm not super active on there as well as hud capital which is at hudcap on twitter we've also done some uh some writing on medium which is at you know medium.com slash at hud capital um and yeah that's a good way to find us. Awesome, man. Well, thank you so much for taking the time to do this.

I think that you were leading the way in terms of fund to funds in the blockchain space. So hopefully, you know, more people will come check out what you guys are doing and we'll get some more capital into, into the space. Yeah. Thanks so much, Anthony. A lot of fun and appreciate you having me on here. So thank you.