[ MUSIC ] Welcome to Balancing the Ledger where tech and finance intersect. I'm Jen Jen Wieczner. And I'm Robert Hackett. And today we're joined by Jalak Jobanputra, the founding partner of Future Perfect Ventures. Thank you so much for being here, Jalak. Well, thanks for having me. So tell us a little bit about your strategy and your fund, you launched in 2013 and now you're launching a second fund, so what's happening? I've been a VC since 1999, started off investing for Intel out in Silicon Valley during the boom and the bust. of the internet and I thought most US VC's were not looking globally enough for the next wave of technology innovation, and I started digging around what was happening in different places in the world, thinking about bigger trends. So, we have 6 billion people in the world, only half of those are internet enabled. We have more and more smartphones coming online which means a lot of data that's being collected. We still have 2 billion un- banked people around the world. 1. 5 billion people without identity. And so while I've been excited about what Internet and technology has done for many of us, I thought the next wave of technology was going to hit those people who have been underserved by the institutions and technologies that have been created And in that vein I went to my first BitCoin conference just out of curiosity. I was just very intrigued by this whole idea of trusting code versus people. As I began digging in and learning more about the technology powering BitCoin I started thinking of all the different applications. Keeping our health care data secure, around banking transactions, and doing micro transactions. And was just so excited by the talent and the entrepreneurs I met and I started investing in many of them. And built a fund around the thesis of decentralization, Blockchain And data science. You mention that you started as a venture capitalist in 1999, which was a crazy year. It was just before the . com bubble burst. Right now, in crypto, we've entered a winter period. What are the similarities and differences that you are picking up on between then and now? And the really beginning stages of the ICO boom, I think it was April of 2017, we started seeing the prices of Ethereum and BitCoin rise. And you could just feel the energy. And I remember saying at a conference, I starting to feel like 1999 in Silicon Valley. And, sure enough, a few months later, everybody was ICOing. There was so much speculation and frenzy that was very similar to what happened in the late '90s, right before the Dot- Com crash. It took everybody surprise, even those of us in the industry that had been in the industry. Straight for several years, just the hockey stick and the level of interest, and the frenzy, there was at least some regulation in place when we saw the IPO's happening in 1999. These companies, while they were early stage, they still were more formed than a lot of the companies that were going for ICOs. Often, companies were ICOing just based on a couple paragraphs on a website, and not even a white paper. And it was also way more global. We've because of the internet have more connectivity than ever before. And the internet didn't exist in its same form in the late nineties. It was much slower. So people didn't have access to information And ability to invest very quickly in companies they were able to in 2017. I took a step back from the market at that time and wanted to see it level off. Because there's nothing in history that's been able to sustain that kinda growth. And while technology is unpredictable, humans can be unpredictable. I believe human nature is actually quite predictable and we saw that happen. Now given the bear market and the amount the press Prices have come down. There have been some reports that it's also affecting the valuations of some of the private companies. In Funds, there was reports that Circle's vaulation, which was over $ 3 billion, or almost $ 3 billion last May, is now trading on the private market about 75 % discount. Are you seeing that? Is that a trend throughout the industry? Are valuations really being discounted? Well, we're not an investor in circle and so I can't comment on that valuation. But what I do know is a lot of companies raised large sums of money last year based on the volumes that they were seeing in the liquid crypto markets and at some point Companies were signing up a million customers a day or close to a million customers a day. And so the evaluations were being driven by revenues and profits during a very frothy market. So given how much the volumes have decreased in the last year I wouldn't be surprised if we are seeing valuations come down on the secondary markets for some of these companies. Now I think that solid companies and solid management teams, even if they have taken a hit in valuation will Will eventually come out okay, because as the end of the day it's human talent and human capital that is what builds these companies and keeps them around for a while. Monetary capital can only get you so far. There have been hundreds of crypto currency- related hedge funds that started, especially during the mania and frenzy around the investment in Bitcoin and other assets. They seem now to be pivoting into venture capital, your area. What do you make of this trend? Well I'm not surprised. When I started investing in this space it was another crypto winter, it was 2014 and 15. Silk Road, Mt. Gox had happened, I mean people thought I was crazy for starting a fund focused on early stage investing in this sector at the time. And there were only A few funds, a handful of funds worldwide doing that. And most venture funds stayed away from the market. Because people thought crypto was dead. People weren't really even talking about underlying blockchain technology, but that's when a lot of these companies that are now at scale, were built. And they survived that time period. They're actually very capital efficient, they had to be to survive because they didn't have a lot of choices in terms of capital raising. And so when the growth happened, they were prepared. They had the products in place. They had the technology and people. And had enough to attract the people that were in it for the right reasons. They're thriving. You made a conscious decision early on not to invest directly in BitCoin or other cryptocurrencies. Tell us a little bit about that decision and what was happening during the initial coin offering craze, when people seemed to just be buying everything they could. During that time, everyone was looking for the next BitCoin and the next Ethereum. So when everybody wants to start follow or replicate, that's when you see this frenzy. And then A lot of the entrepreneurs, they thought this is free money, why not take advantage of the market and take it. And what they didn't think about is the fact that they were essentially going public. They had hundreds, thousands Of investors around the world who were on telegram chats and who were emailing them and saying why isn't the price going up or what's going on? And so they weren't thinking beyond the short term. The investors weren't. The entrepreneurs weren't. And that's just not what we do in Venture. It's all about the long term and long term value creation. So the fund itself does not directly own cryptocurrencies. But did you invest in ICOs or was that something that you considered? I did not invest in ICOs, either personally or through the fund. I did participate, personally, in BitCoin and Ethereum and other cryptos, but not In the ICO process. And has that turned out to be a good decision? I think so. I think I was on record at the ethereal conference in 2017, saying 90 to 95 percent of ICO's back then, before the craze were going to go out of busines and we're starting to see that happen where development Teams are splintering. If they've run out of cash, a lot of them hadn't managed their treasuries. So they were still holding ethe. They had taken money. So they were exposed financially to the downturn in the crypto markets as well as from a technology standpoint. And A lot of my experience investing in the internet days informed the decision to stay out of the ICO market. I also didn't think as a fiduciary to my LPs it was the right use of capital. Now you get to say, I told you so. [ LAUGH ] You said it, I didn't. Well Job thank you so So much for being here. Well thanks for having me. I'm Jen [ UNKNOWN ]. And I'm Robert Hacket, for more Balancing the Ledger, come to fortune. com. We'll see you next time. [ MUSIC ]

Balancing the Ledger: Are Crypto Hedge Funds Pivoting to Venture Capital?

Finance

A discussion with Future\Perfect Ventures Founding Partner Jalak Jobanputra.