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Avichal Garg

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2022-04-11
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2022-04-11
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  1. “Go just because the industry itself is so nascent. Like, we're at the bottom of that S curve and we're just starting to go up the S curve, and we're not even close to being at the top yet.”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “Yeah, so there are a couple things there. So, one, today at least, the size of opportunities and the growth rate in these things is so phenomenal that the multiples that you're talking about over compressed periods of time are still excellent. If you just think about token networks, for example, the infrastructure that you need to participate in anything, let's say beyond Bitcoin or Ethereum, which you could buy on Coinbase, how do you do diligence on that thing? How do you actually go and buy it if it's not on a US exchange? How do you custody that asset if it's not supported to custodians? How do you take that asset and generate yield on it if you want to be able to do that? So like the infrastructure required to do these things basically means that the landscape of people that can participate either from the institutional LP side or the sort of VC side is very, very limited, which actually means that given the growth rates you're talking about, the return profiles are very, very dramatic in a way that I think venture used to be 25 years ago when you're talking about the birth of the internet, the multiples in those early funds through the 90s were just so phenomenal. And I think that's kind of where we are right now. And so you have the ability to generate returns that I think were the venture returns of 25, 30 years ago.”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “And so, what that means is the project might need to sell 10 or 15% of their project, but you really don't want any individual investor to own more than 3%, 4%, 5%. And so then as an investor, you're saying, okay, if I can buy three or five percent of this network, who else do I want at the table? Like, what is the other 15% going to go towards and who do I want at the table? And given the option between people who are just sort of deadweight on the token cap table versus people who are really experts at this stuff, like would I rather have Chris and Ali and Katie and Namatt, right? Absolutely, right? Like I'd much rather have those people at the table than others. And so it creates this sort of collaborative dynamic where everybody wants to own a couple of percent of the things that really break out.”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Yeah, so if you look at what is crypto and what is crypto investing, often what you're doing is you're building crypto networks that are token powered and token incentivized and they're effectively markets that are trying to replace corporations, right? You're trying to take the corporation and replace it with some sort of a marketplace. In that sort of a distributed system, you can't have concentration of ownership. So like in a traditional business, you want to buy at least 15% of it, maybe 20%, and double down over subsequent rounds. And by the time the thing IPO is hopefully you own 20 or 25 or more of it, right? And the traditional VCs have really perfected this. In a distributed system, in a distributed network, if you own 20% of the network, your liability to the resilience of the network, the entire value proposition is that distributed ownership makes the network resilient. And so you actually, like in our case, we try to not own more than 5%. And often we're talking about like low single digit percentages of ownership in these networks because that's actually the right way to have resiliency in these systems and to incentivize the community to come in and actually adopt them. And so if you have too much VC ownership, the community will just reject you, right? It's sort of like organ rejection or like”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “The fact that these are distributed systems at their core when you're investing in a crypto network. The dynamics around round construction end up being very, very different where you actually, you can't have too much ownership. And so actually we end up collaborating with the big funds a lot more than traditional VC.”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “I think that's generally true. I mean, I think general venture, right? There's sort of this barbelling effect, and there are people that have small teams and you're sort of constrained in the amount of capital you can deploy and kind of what your model is and how you work with founders. And then there are these platforms that emerge that can take in a lot of scaled capital. And from the LP side, those relationships and the ability to deploy scaled capital is really valuable. And from the founder side, being able to have all these services that the firms can offer, differentiated services are extremely value add, and that lends itself to scale. So I think a similar thing is happening in crypto. Andreessen and Paradigm and Electric, and I think Katie Hahn's new fund is going to be sort of in this billion dollar plus kind of tier. But the number of people in that tier today, I think, is relatively small, and I think you'll continue to see that. What's nice though is the dynamic.”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “Nobody knows the answer, and everybody's trying to derive what the answer is to some of these questions might be. Oh, and totally, especially when it comes to, as you said, the fun formation elements, a lot of stuff we'll dive into today. But yeah, 100%. And man, I sucked at it in the early days. So at least you're not alone there. I do want to start there. Top down”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Now Changed your perspective quite a lot. That's a great question. I think the biggest is that in order to really run this kind of a business, when your annual investor, you're really thinking about deploying capital and working with the founders. And that's really what pulls you in. When you're running a venture business so much of it in the early days until you build out the staff and the infrastructure is like fund formation, accounting, legal docs, taxes. And so I feel like I've gotten a master's, I've gotten a CPA and a master's in international law and like tax accounting. And there's so many nuances there to get right in terms of running the business. It's very similar to when a founder starts a business and you're sort of a product-centric CEO. And then the thing starts working and all of a sudden you realize that you get really good at customer support and ops and you have to be the CFO until you have a CFO and you have to understand like the business levers and you have to understand all these other things that really make the business work. It's painful. And so I feel like over the last three years we've actually become accounting and tax and law experts as much as we are sort of investors, especially with crypto, right? I mean, I think crypto sort of sits at the nexus of pushing the boundaries on a lot of these things. And so a lot of it is.”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “I think we weren't nervous. It's sort of like the classic entrepreneur naivete. You kind of don't know what you're getting into. And so you're naive enough to not really understand the journey that you're about to embark on, which is why it kind of works. Because if you really understood all of the challenges that you were going to face, you probably wouldn't go through with it. But I think there was certainly a little bit of naivete there in terms of understanding what needs to happen.”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “It was a fantastic business model. Why would you give up doing SaaS and FinTech and marketplaces and so on for this new thing? So a few people approached us and said, hey, you guys are really good at this. You're in all of the good stuff. Can we just give you money? Can you just deploy our capital alongside yours instead of just doing angel checks? And so that's how electric happened in 2018. So we formalized what we were doing early mid-2018, raised our first fund. It was a small fund, 16 million, and then raised our sort of first proper institutional fund in 2020 at $110 and then just closed a billion. And so we scaled up pretty fast over the last sort of three and a half years. I mean, scaled up incredibly. Can I just start saying?”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “Yeah, good question. So my background is mostly as an entrepreneur, so my co founder and I, we started and sold two companies. We sold the second one to Facebook. We were there for a few years and had a great time, learned a bunch. And while we were at Facebook, we had some liquidity and so started doing some angel investing. So circa 2015, we started angel investing. And kind of our passion area was crypto. We dabbled in some Bitcoin mining and Ethereum mining and played with Monero. And so in 2016, we were just spending a lot of our personal time there. And I love Facebook at the end of 2016. And Curtis, my co-founder at Electric and co-founder at my last startup, we were dabbling all the way through 2017 and we started getting inbounds from the traditional VCs here in Silicon Valley, people who had invested in our companies or co-invested alongside us over the years. And they all were just asking for advice on crypto. And by the end of 2017, most of the VC firms said, you know what, that's really not in our wheelhouse. We don't really understand it. We don't know how to do tokens. We don't know how to do custody. And frankly, like the core venture business model four, five, six years ago, 2016, 2016.”

    2022-04-11 · The Twenty Minute VC · 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital · IDENTIFIED FROM THE TRANSCRIPT · source