# 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

20VC · Apr 11, 2022 · 58 min · 14,482 words
Speakers: Harry Stebbings, Avichal Garg
Source: https://www.996.fm/episodes/20vc--ep-529c9ab6/

## Cold open

**Harry Stebbings** [0:00]:

This is 20 VC

## Intro

**Harry Stebbings** [0:00]:

with me, Harry Stebbings, today, I'm placing a bet. I think this is the best episode that we have ever done. Hit me up on Twitter at Harry Stebbings with your thoughts and if you agree. And so to our guest today, and we dive into the world of crypto, DAOs, and Web3. And who better for this than Avichal Garg, cofounder and managing partner at Electric Capital? Last month, Electric announced that they had raised $1,000,000,000 for their new fund, making them one of the largest independent and crypto native VC firms in the world. As for Avichal, prior to Electric, he was an investor in crypto such as Anchorage, Bitwise, Lightning Labs, and OpenSea, and unicorns such as Airtable, Cruise, Deel, Figma, Notion, and many more incredible companies. And on the operating side of the table, Avichal successfully sold his last company to Facebook where he became director of product management for the local product group, a team of 400 engineers responsible for billions of dollars in revenue. Today's episode was also special because I knew very little, and Avichal really, let's just say, walked me through the learning curve on crypto and on DAOs and on Web3. Incredibly patient, and I wanna say huge thanks to Eli Gill and Avichal's partner, Curtis. Some amazing question suggestions today really did make it so special. But before we dive into the show today,

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## Conversation

**Harry Stebbings** [3:29]:

Avichal, this is such a joy to do. We did one many years ago. I've heard many more wonderful things from Ray, from Aladd, from many more. So thank you so much for joining me today.

**Avichal Garg** [3:38]:

Yeah, pleasure to see you. Thanks for having me.

**Harry Stebbings** [3:40]:

I want to start with a little bit on you and some context here. We see Electric today, new billion dollar fund. But where did the career and venture start, and how did you make your way in initially?

**Avichal Garg** [3:49]:

Yeah. Good question. So my background is mostly as an entrepreneur. So my cofounder and I, we started and sold two companies. We sold the second one to Facebook. We're 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 I left Facebook at the end of twenty sixteen. And Curtis, my cofounder at Electric and cofounder of 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. Like, we don't really understand it. We don't know how to do tokens. We don't know how to do custody. Like, this is different world. And frankly, like the core venture business model four, five, six years ago, 2016, 2017, it was a fantastic business model. Right? 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 twenty eighteen, raised our first fund. It was a small fund, 16,000,000, and then raised our sort of first proper institutional fund in 2020 at a 110 and then just closed a billion. And so we scaled up pretty fast over the last sort of three and a years.

**Harry Stebbings** [5:13]:

I mean, scaled up incredibly. Can I just start saying, were you nervous about making the move to institutional? It's different investing your own money. Were you nervous about making the move institutionally? I think

**Avichal Garg** [5:21]:

we weren't nervous. It's sort of like the classic entrepreneur naivete. You kinda don't know what you're getting into. Right? And so you're naive enough to to, like, not really understand what the journey that you're about to embark on, which is why it kinda works. Because if you really understood all of the challenges that you were gonna 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.

**Harry Stebbings** [5:39]:

When you look back now, what do you think that you didn't know that you now know that would have changed your perspective quite a lot?

**Avichal Garg** [5:45]:

That's a great question. I think the biggest is that in order to really run this kind of a business, when you're an angel investor, you're really thinking about deploying capital and working with the founders. Like, 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 infrastructure is like fund formation, accounting, legal docs, taxes. And so I feel like I've gotten a master. I've gotten a CPA and a master's in like international law and like tax accounting. And there's so many nuances there to to get right in terms of running the business. I think it's it's very similar to when a founder starts a business and you're you're sort of a product centric CEO. And then the thing starts working and all of sudden you realize that you get really good 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. And 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 even nobody knows the answer, and everybody's trying to derive what the answers to some of these questions might be.

**Harry Stebbings** [6:42]:

Oh, and totally. Especially when it comes to, as you said, the fund formation elements, a lot of stuff we'll dive into today. But, yeah, I'm 100%. I'm man, I sucked at it in the early days of the running company. So at least you're not alone there. I do wanna start there. We're gonna start, like, top down and then move more and more granular. But when we learn top down and and discuss the landscape today, kind of the crypto venture landscape, really, there's, like, three to four key big funds, Andreessen, Paradigm, now Electric, and then a bunch of the smaller $2,030.40, $50,000,000 funds. So landscape's bifurcating. Do you agree with this summary in terms of that current state of play? And is there anything that you'd add or change?

**Avichal Garg** [7:20]:

I think that's generally true. I mean, I think general venture, 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. From the LP side, those relationships and the ability to deploy scaled capital is really valuable. From the founder side, being able to have all these services that the firms can offer, differentiated services are extremely value added, that lends itself to scale. So I think a similar thing is happening in crypto, Andreessen and Paradigm and Electric. And I think Katie Haun's new fund is going be sort of in this billion dollar plus kind of tier. The number of people in that tier today, I think is relatively small, I think you'll continue to see that. Now, what's nice though, is the dynamics in terms of how we cooperate in this industry are a little bit different. People always say it, but it is actually legitimately true that I think because the crypto side of things is growing so quickly, and as an offshoot, I think of 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.

**Harry Stebbings** [8:22]:

Well, talk to me about that, actually, because I'm going off schedule completely. But, like, you know, venture's less collaborative than ever, I think, now, actually. So why and what is it about crypto that allows it to be much more collaborative from that ownership standpoint? I I don't get it. Sorry.

**Avichal Garg** [8:37]:

Yeah. So if 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 marketplace. In that sort of a distributed system, you can't have concentration of ownership. So like in a traditional business, you wanna buy at least 15% of it, maybe 20% and double down over subsequent rounds. And by the time the thing IPOs, 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, you're a 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 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 an immune response. 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%, 45%. And so then as an investor, you're saying, okay, if I can buy 3% or 5% of this network, who else do I want at the table? Like what is the other 15% gonna go towards? And who do I want at the table? And given the option between people who are just deadweight on the token cap table versus people who are really experts at this stuff, would I rather have Chris and Ali and Katie and Matt and Thread? Absolutely. I'd much rather have those people at the table than others. And so it creates a collaborative dynamic where everybody wants to own a couple of percent of the things that really break out.

**Harry Stebbings** [10:05]:

I get you, but then my question is how do you deliver venture sized outcomes with much more constrained percentages on ownership?

**Avichal Garg** [10:12]:

Yeah, so there are a couple of 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 by custodians? How do you take that asset and generate yield on it if you want to able to do that? So, 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 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 twenty five 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. So you have the ability to generate returns that I think were the venture returns of twenty five, thirty years ago just because the industry itself is so nascent. Like, we're at the bottom of that s curve, we're just starting to go up the s curve, and we're not even close to being at the top yet.

**Harry Stebbings** [11:13]:

You mentioned that the structures that prohibit maybe in traditional venture funds. What is it about traditional structures that prohibit the token buying and the tokenomics to be a large part of the portfolio construction? Oh, there are couple

**Avichal Garg** [11:23]:

of things. So I think there are some regulatory constraints. So for example, in a traditional VC fund, at least in The United States, most of these funds are, you can't go above a certain percentage of liquid assets. You have a venture exemption at the SEC that allows you to sort of deploy capital without having to register as an investment advisor, whereas we're an RIA with the SEC as are the major crypto funds. And so that really constrains how much capital you can deploy into the sector. Secondarily, it's less about the structure and it's more about the organization. So if you look at a traditional VC firm, the way that the firm is set up is really optimized for a certain kind of workflow. Are you deploying equity investments, you have a series a, you do a partner meeting on Mondays, you go to happy hour to go source deal through your associates. Like there's a pattern there, right, of how organization works. Now what's happening with crypto is that at a 100,000 foot view, it's software eating money, right, to borrow an Andreessen phrase. It's software eating everything, and crypto is software eating money. And if you believe that crypto is software eating money, then crypto is also going to eat capital markets, right, which is the deployment of money and the deployment of capital. And if crypto is gonna eat capital markets, it's gonna eat venture capital. Venture is just one form of capital deployment. Right? And every time software eats an industry, you notice that like the corollary in my opinion to software is in the world is that software engineers will run the world. Because every business, when it becomes a software business, your critical lever is can you build good software? Right? That's actually what allows you to have a scalable and defensible business. And so the way we operate is we hire a software engineer. So half the team is software engineer. So of the 20 people, we have about 10 engineers. We have two designers. Everybody on the investment team has an undergraduate and graduate degree in computer science, in engineering. The sort of DNA of the firm is very different in the operations. Like, if I showed you our org chart, engineers, designers, and like one BD person, one ops person, one finance person. And I said, like, what is this organization? You wouldn't say VC firm. You'd probably say, oh, that looks like a fintech company or that looks like a marketplace or SaaS business. And it's very much by design. So, therefore, we end up doing things very, very differently. Our processes are different. Right? Everything from diligence to, well, how do you even find the thing? Right? Well, it's not happening at the Ferry Building. It's happening in Discord. So what you really wanna hire are six engineers that are sitting in Discord all day. We don't have associates and principals. We hire engineers. And we comp them as investment professionals. We don't comp them as, like, back office. And then when you're doing diligence, how do you do that? Like, you gotta get the code and compile it and run the node. You actually make the investment. You might have to go onto a DEX, and so you might have to write a little bit of code to, like, accrue the thing. K. Well, now you have potentially tens of millions of dollars or something. How do you actually custody that? If the custodians don't support it, you might actually have to write some code and do that. If you have those assets, whole point is these are distributed systems, you have to use them productively on chain because that's the whole value. There's no board. Right? You have to do governance. You have to generate blocks and blockchain. You might have to put your money into an automated market maker to help boost up the liquidity. And so you need infrastructure to do that. Like, you can do that with your own money in MetaMask, but doing that with a billion dollars of other people's money requires software and infrastructure. And most of that does not exist from third parties. Once you do that, how do pay your taxes? Like, can your accounting team actually track where your money is? At the end of the year, can you do an audit? Can you show to your auditors where the assets are sitting? And if you're investing in certain kinds of assets or certain kinds of protocols or expressly, it's designed to be more private, how do you do that? So literally through the entire life cycle, software is baked in to doing a good job. So, you you have to build your firm differently. And so for the traditional VCs, there is a structural challenge of, like, how do you run your processes and get the ratio with SEC? Do your LP sign up for being a part of this thing? But there's just the like day to day, like, literally what you do to run your business effectively is different. And I I liken it to the difference between Amazon and Walmart. Like Walmart still has a great business. Amazon had to build its business fundamentally differently from the start. And I think that's kinda what's happening with crypto VC versus traditional VCs. Like, I think the crypto VCs are just building their businesses differently from the start.

**Harry Stebbings** [14:43]:

So what I think about when I hear you discuss this is, like, bluntly, is so paradoxically different to traditional venture structures. I speak to many GPs today and they're like, Harry, help me find a crypto partner. Crypto part everyone wants a fucking crypto or a Web3 partner. My question to you is, I don't see that working. I don't see this crypto partner being able to bring all that you do into an existing structure. That's not outdated. It's just very different. But into a very different structure and be able to provide the same. And so for me, I'm like, actually, the firms trying to integrate and mesh into existing won't work. And it has to be a defined isolated structure in its own right. Do you think that's fair and right?

**Avichal Garg** [15:23]:

Yeah. I think you're absolutely right. And I think there will be a set of opportunities that I think when you try to do it as a part of a generalized venture firm, you can certainly do. I think equity based opportunities in, like, series b and beyond where there's a real business and there's cash flow, can evaluate as a business, and and you can create a lot of value for those things. But in my opinion, most of the really interesting stuff is not that. So I think if you're gonna make that transition, I think Sequoia now has a separate standalone fund. Andreessen, Chris, Katie, and Marc sort of pioneered this by breaking off. I think it's exactly the right way to do it because I think you have to build your organization differently. I think you have to incentivize people differently. The LPs that are opting into this have to sort of approach it differently. That is really the only way to do it. And I think it's a very hard thing to do. Right? It's it's actually the other sort of challenge here to think about is, like, I think that's the right organizational structure. But then how do you think about this over the next five to ten years as these Web3 primitives get baked into everything, as tokens get baked into marketplaces, as NFTs become a part of the creator economy, as distributed systems become a part of developer tools. But it sort of like backs into what most VCs consider their core business. So it's sort of classic innovator's dilemma, in my opinion, which is like there's this small and nascent thing that's growing really, really quickly, which is actually requires a very different skill set and organization to your core business. How And do you sort of disrupt yourself and how do you change your organization? And historically speaking, that's been extremely challenging and a relatively small number of organizations are able to do that from the incumbent side. Now some absolutely can, and I think some will. Like, I think Andreessen and Sequoia will likely make that transition, but it's gonna be extremely challenging.

**Harry Stebbings** [16:44]:

Man, there's so much I wanna unpack. You very kindly said about my preparation pre show. Clearly, you didn't fucking need to do it because I'm totally running running with this one. Thanks, mate. But my question to you is you said kind of casually that software is eating capital markets. I mean, that's a big statement. Just so we don't, like, gloss over it, Can you unpack that for me? How you see that playing out and just expand a little bit on your thinking there?

**Avichal Garg** [17:05]:

Yeah. Totally. So here's how I reason through it. If you sort of believe this this premise for a second that ones and zeros are now some sort of value capture and value exchange, right? You look at something Bitcoin, it's a potential store value. I don't think it's a store value today, but it potentially has all the characteristics of a fantastic store value. You sort of are faced with a really interesting set of questions that you can ask yourself. So the first is, well, this is supposedly money that I own. Like, how do I own it? What does that actually mean? How do I own ones and zeros? Like, wasn't the whole premise of the internet that I can copy paste ones and zeros and send them to somebody else? And the way you own them is through this private key and through this wallet. And there's a sort of API and this protocol that says only transaction, you've officially moved the money, you've moved the ones and zeros, and now somebody else has that money on this chain. And so there's actually a social consensus layer that needs to emerge there, which I think a 100,000,000 people who bought into Bitcoin and crypto is a social breakthrough as much as it is a technical set of breakthroughs. Then you say, okay. What does it mean to own the ones and zeros? Okay. I can have this private key. What is that? Well, that's itself a set of ones and zeros. And so you said, okay. Well, where did that set of ones and zeros come from? That allows me to own the other ones and zeros. Well, that came from some piece of code. And then you said, okay. Well, what if the code didn't give me the one and zeros? What if it didn't spit it out to the screen and say this is your wallet address and this is your private key? What if it just wrote it out to disk and encrypted it and it knew the password and I didn't? And what does that mean? Well, what that means is you could send money to the smart contract. You could spend money to that wallet, and you don't own the money anymore. Now a piece of code owns the money. And that, I think, is a very underappreciated breakthrough because that piece of code is an entirely new entity. Right? It's not a person. It's not a Delaware c corp. It does not exist inside a jurisdiction. Jurisdiction. It's not in Delaware. It's not in India. It's not in China. It's not in Europe and the EU. It just lives in the cloud. So now you have a nonhuman, nonbusiness entity that doesn't have a Social Security number or TIN. It, like, doesn't exist as as far as the government is concerned, and it doesn't live in a jurisdiction. And it can custody billions of dollars. And you look at that and you're like, wow, that's kind of crazy. What are the implications of that? And I think the implications of that are, what can you do now that you have code that owns money? Well, you can program it. Right? You can write code around that thing. The ability to write code is really powerful because you can control access to a thing. You can control what happens to that money over some period of time in some predetermined ways. And you look at the entire world, you look at all the capital markets in the world, and fundamentally, what are they? Here's a pile of money. Here's a bunch of rules around who has access to that money. Here is what I need you to do with that money over the next ten, twenty, thirty years. It's like wills, trusts, escrow, REITs, mortgages, HELOCs, derivatives, credit markets, securities. It's like a 100,000,000,000,000. If you count the notional value derivatives, it's like a quadrillion dollars of stuff. And instead of it being nineteen seventies infrastructure and PDFs and Excel and email that is sort of moving all this stuff around, which is, mean, you've done venture for a long time, like how does ventures happen? It's like it's email and it's Excel sheets, there's like a cap table coming through and you sign some PDF that gets put up on top. You like, can't believe we're doing this. It should all just be code. And, like, think about the amount of money that's been wasted doing NDAs and, like, every law firm recreating the NDA and then, like, people marking it up. Right? Millions and millions of dollars wasted. Really, it should just be sitting in GitHub, and you can fork it, and everybody understands there's essentially, like, 10 versions of an NDA that we all agree to. And this is what software is so powerful. Right? This is the composability of it. And this is what made the Internet work. And so I think all of that is gonna happen here to crypto and all of the capital markets in terms of just like moving money around. All of a sudden, you have the perfect infrastructure. And I think we saw this in 2017. Right? The ICO boom, people looked at as a speculative thing, which there there was a lot of speculation there. But to me, the magical thing was we created a twenty four seven global capital market that anybody in the world could participate in. And that's why I think things like DAOs are really interesting. I think that's why all this on chain activity, I think, ultimately is gonna be extremely disruptive to venture and to our business. And so I don't think it's so crazy that ten or fifteen years from now, a lot of electric activity actually just happens on chain. Like, do I really wanna have a bank account and I have to, like, deal with the overhead of, like, not being able to send money on a weekend? Like, we probably do about a fourth of our investments in USDC because it's just faster. I can just send it on a weekend and it shows up. And so, like, I think at every part of our business, I think it's gonna sort of disrupt us. And I think it's just gonna disrupt the entire way venture works. I mean, I used to look at things like Ethereum, look at where the value capture has been in NFTs, look at the value capture that's happened in Bitcoin. It wasn't the VCs that captured the value. Right? It was actually globally people could participate in a way that just hasn't been possible before. So to me, it's one of the most sort of amazing, but also sitting in plain sight kinds of things that this stuff is just totally gonna disrupt all the capital markets of the world over the next twenty

**Harry Stebbings** [21:11]:

I think one of the reasons the show has been successful is because I'm not afraid to ask the dumb questions when I don't know the answers. Which mean that I'm gonna be out of a job in ten years? Like, for me as a traditional venture manager Yeah. What does this mean for me?

**Avichal Garg** [21:24]:

Great question. I don't think you're out of a job. I think it's equivalent to Microsoft still had a fantastic business despite Google breaking through, and Google still has a fantastic business despite Facebook breaking through. So I think we just invent a new thing. And I think a lot of these traditional businesses coexist alongside, then and they slowly decay, and some of them can evolve. And it depends a lot on which part of the markets you're talking about. I think in venture, there are real human network effects. I think there are, at the top, people who create real differentiated value, and those people will not be replaced. So I think you'll be okay. Sequoia will be okay. Andreessen will okay. The people I think should be worried are if you're like VC firm 15 through 1,000. Right? Like, I think you get disrupted because capital as it becomes a commodity. If you're a venture firm 25 and you're like not breaking the top decile in terms of returns, and I'm an LP and there's somebody who's on chain and is generating better returns than you, I think the capital markets tend to be pretty rational about this. The money will find its way to those people. And so your competition set just went through the roof. Right? I think it's the equivalent of what's happened in a lot of markets, which is there used to be essentially local and regional monopolies. Like, newspapers used to work this way. Venture used to work this way. Like, people had to come to Silicon Valley to get the money. And all of a sudden, it's going global, and it's going global in a way where if they don't have to come to you, you're now competing against every other human on Earth that has actually pretty reasonable venture investor, and there are guaranteed people sitting in India and China and Nigeria and Italy and Greece and Brazil and Turkey that are better venture investors than like the fiftieth best venture firm. But I don't think you have to worry, but I think like venture firms like twenty five and beyond should be really worried.

**Harry Stebbings** [22:51]:

What a relief. I was was listening to you, fuck.

**Avichal Garg** [22:56]:

I need

**Harry Stebbings** [22:56]:

a mom.

**Avichal Garg** [22:57]:

And these things I mean, I fully appreciate too that this sounds kind of crazy, but I think it would have sounded crazy to say that about the media industry in 1995. Or I think it sounded crazy to say this about all the information businesses or ecommerce or whatever. Right? But, like, I think that's the power of software. It, like, destroys these local and regional monopolies and turns them into global markets. And once you're competing at a global scale, it tends to have this sort of concentration effect. It creates a power law, and it creates concentration in the head. And it unlocks a really long tail, and the middle kinda disappears. That's why we were talking about this on the venture side. Right? I think you get this natural barbelling and this long tail effect that happens, and I think a similar thing probably happens to venture.

**Harry Stebbings** [23:29]:

So then do you think the three, four dominant players that could be your Paradigm, Andreessen, your Katie with her new fund, do you think they consolidate power, concentration happens, and it's that barbell? Is that how you see it happening?

**Avichal Garg** [23:41]:

I suspect so. If the Internet is any guide in terms of information businesses, I suspect you will get some interesting scale effects and network effects here, especially I think for the businesses that don't think of themselves necessarily as scaling through humans, but think of themselves as where can software give you leverage and are able to do that. I think you're gonna be able to apply leverage to the venture business in a way that you haven't been able to historically. And every time you do that through software, you tend to get this sort of, like, power law dynamic that happens.

**Harry Stebbings** [24:06]:

The crypto networks and crypto opportunities, do they need the services layer that venture provides for you? Like, do you think about building out a massive services arm over time? And the crypto networks really need that all because of the decentralization. Do they not need that and it's a fundamentally different services model required?

**Avichal Garg** [24:22]:

Yeah. Not a dumb question at all. That's an excellent question. So I think crypto protocols and businesses need an entirely different kind of services layer. And so you don't need a board member that helps you figure out how to interview a VP of sales. You need people sitting in your Discord helping you do distributed governance. You don't need somebody doing intros portfolio to set up partnerships. You need somebody to go run a validator in some data center to help decentralize the network and produce blocks, or you need somebody to bring liquidity into your marketplace and help bootstrap, be the first couple of million dollars of Ethereum or Solana or whatever into your marketplace. So I think there is absolutely a place for people who are value add, and I think that's always the case. Like, if you create real value for people, you will be able to accrue value back to yourself in some way. But I think the forms of value that are necessary are very, very different. I mean, so the way that you end up then building your firm is is very different. And to your question around kind of like what does that mean in terms of an army of people, at least the way we think about it is twofold. One, that army of people is unlikely to be accountants and finance people and recruiters because much of this stuff just gets standardized and operates in a very transparent way on chain and at scale. More likely that you need, for example, engineers to build software that allows them to interface with these systems at scale. And so is it possible that we end up with thirty, forty, 50, a 100 engineers in time? I don't think that's crazy. But also what it means is that these systems operate in a much more open and transparent way. And so what we're constantly thinking about is where is it that we need to build out a team internally, and where is it that we plug into the ecosystem and the market to solve these problems for us? So, you know, the observation here is all these DAOs that are on chain are starting to deploy capital. And I think the best venture firms are likely going to build communities around them. So, like, all the communities are becoming investors, and all the investors are trying to build communities. And so, maybe what you actually do have is an army of people, but they're not your employees. Right? They're not people that work in your firm full time. They're this sort of community people around you that really trust your judgment and themselves can somehow make money because these markets are transparent and open. And so, the ability to participate in the markets in transparent and open way means there's a very collaborative sort of market based way to have a thousand people engaging around your community to create value for all the things that you invest in. But that doesn't look like a thousand employees sitting in an office.

**Harry Stebbings** [26:25]:

You mentioned that kind of feasibly seeing maybe thirty, forty, 50 engineers. From a financing perspective on the team side, are the structures the same as venture in terms of the business model? Is it the two and twenty? Like, is it the lockup periods? How does that look given especially also the liquidity that you have available?

**Avichal Garg** [26:41]:

Yeah. Also an excellent question. Yeah. We actually look pretty vanilla on that stuff. And the reason is, I think from a product perspective, it's much easier to tap into institutional capital at scale if you're not trying to invent something new there. And actually, I think the lockup periods, ten year lockups, despite the liquidity, I think is actually better for LPs because it is a venture asset class. The returns are extremely asymmetric and you can generate many multiples on your fund if you're patient. The liquidity is a double edged sword, right, in a couple of few different ways. So one, a lot of it is actually not real liquidity. Like, can you actually get hundreds of millions of dollars out of some of these protocols? Unclear. You might shoot yourself in the foot on the way out. So it's a little bit of a misnomer. Two, I think the ability to sell early is as much a curse as it is a Right? Because too often, I think the mistake that people make is they sell too early rather than too late. This is why Sequoia is doing this new fund structure is actually, if you just held on to these things, you would have gotten another five to 10 x. It's because there's human cognitive bias, which is we don't really understand large numbers. We don't really understand exponential growth because we're just primates. Primates can understand five. Primates cannot understand a jar full of jelly beans. Like, we don't know if that's 200 or 5,000. Right? It's just like our brains aren't wired to do that. And we don't understand exponential growth because as we weren't in the jungle and all of a sudden, just a tree sprung up next to you overnight. Like, at at macro biological scale, you don't have an intuition for exponential growth. And these businesses are billions of users with exponential growth in, so our intuitions around the stuff are really wrong. So I think the real risk with liquidity is you sell too quickly. And so, actually, I think it's advantageous to sort of force people to not be able to sell for a long time because I think that's actually how you're gonna generate the best returns.

**Harry Stebbings** [28:14]:

Is it tough for you, though? I have a company that's fucking ripping. Amazing. I can't touch it anyway. Mean, yeah, secondary markets, and we both know that's different. Yeah. Is it tough from the investor psychology perspective for you? Yeah. How do you deal with that?

**Avichal Garg** [28:28]:

Really hard. It's hard. It's just a muscle you have to build. In the same way that you have to get comfortable with 80% drawdowns, your portfolio literally might be worth 80% less one day. And that's okay. Like, you just have to get used to it, and so you just get emotionally and psychologically sort of sort of dealt to it. But

**Harry Stebbings** [28:42]:

you mentioned tokens earlier. I really need your help on this one. Sure. I there was an amazing company I met the other day, and they were like, you have to do one for one equity to tokens. And I was like, okay. What does that mean? And, like, should I be more excited about one than the other? How would you actually advise me on this, and how do you think through that?

**Avichal Garg** [29:00]:

Yeah. It depends a lot on the company. We see a lot of companies where there shouldn't be a token. Actually, it just doesn't make sense for there to be a token. We see some really interesting opportunities where you could potentially have a token. And so as an investor, you sort of have to structure the investments such that you might be able to participate in a token network if one emerges and makes sense. And we see cases where actually, yes, today there's a company, but the real value clearly will be in the token. And actually, you want the company to dissolve and not exist. So effectively, you're going to invest in some equity. Over time, you'll get some tokens, which then you'll have to sort of mark on your books, and then you sort of write off the equity. The equity investment, essentially, the company shuts down. And so it depends a lot on what the protocol is and and what you're trying to build and what the the needs are of that particular user set. One of the reasons that investing in this space is challenging is part of the reason we have a business is there's a lot of tribal knowledge here around what is the instrument that you're investing in and where will the value capture be and what are your intuitions around where that will be and how do you structure that in the right way to do the right thing for the company and do the right thing for the users ultimately.

**Harry Stebbings** [29:53]:

As I said, I was like, okay.

**Avichal Garg** [29:56]:

Well, you're you're not gonna go wrong with the option value of, like, alright. Well, I get to invest in both equity and tokens. That's great.

**Harry Stebbings** [30:01]:

Yeah. No. This is totally true. I do wanna ask because when we chatted before on the token side, you said in terms of scale of cash, investing in tokens at the institutional scale, especially say that you have, is hard. Why is it actually hard doing that token buying at scale? And what makes it so hard?

**Avichal Garg** [30:16]:

Yeah. Absolutely. The entire life cycle of from identifying an opportunity to doing the diligence to accruing into the asset to holding the asset to generating yield on it to paying your taxes on it and marking your books to doing your audit to divesting, there is not a lot of third party infrastructure for that. You actually have to be able to figure out how to actually build some of that infrastructure. So that involves potentially writing code, potentially involves, let's say, if you're gonna acquire it and maybe it's only available overseas, so then you have to have processes to get KYCed on a bunch of overseas OTC desks. You might need to have some legal infrastructure, you might need to have some subsidiaries overseas that you create to be able to execute on these things, or maybe it's only on a decentralized exchange, so then you have to run your own custody, you might have to write your own software to do taxes. Every step of what is traditionally a venture process end to end, you have to do something slightly different. And so the infrastructure that you need both legally and operationally and organizationally and from a software perspective, there aren't third party tools that you can just turn to. And often you're sort of having to build these things and figure them out from first principles. I mean, even something as simple as like your audit at the end of the year as a VC. And we spend a lot of time with our auditors and they spend a lot of time with us and other firms figuring out how do we apply tax law. Like, what does the tax code say about something that just got invented this year? Right? How do we think about staking? What are the implications for how we recognize that income? And how do we pass that through on the k ones? Like, actually, there's just none of this stuff. None of the infrastructure doesn't exist, and so you have to create the infrastructure as you go.

**Harry Stebbings** [31:33]:

But I listened to this. Is this not an investable asset class in itself? Maybe for me in a traditional SaaS based model, which is like the infrastructure to power the next generation of crypto deployment. Like, as you say, as to reconciliations, everything. Yeah.

**Avichal Garg** [31:44]:

Absolutely. Yeah. They're fantastic businesses here, BVNK. And we invest in some of those as well.

**Harry Stebbings** [31:48]:

Are they crypto businesses or are they more traditional SaaS businesses?

**Avichal Garg** [31:51]:

They're traditional SaaS businesses from a business perspective. When you look at a business like Anchorage, or we look at a business like Bitwise, or you look at a business like Kraken or Coinbase, they are traditional businesses, but understanding the product strategy or understanding what you need to build and how you need to build it. As a crypto investor, we're very close to it because we have had to solve these problems ourselves. And so our ability to sort of understand what the business needs is there's sort of one foot in both worlds. And so you still have to be relatively deep on the crypto stuff, at least in the early stages, I think of this. By the time you're at a series c or series d, they look like you can evaluate them as traditional businesses. But in the early days, like, getting your product strategy right, your go to market right, still requires some pretty significant understanding of what's happening in the crypto markets.

**Harry Stebbings** [32:28]:

Sorry. I just wanna make sure that I've actually got this on the token versus the equity. When does it make sense to have a token versus not have one? You said a lot of the time it doesn't actually make sense. When does it make sense? When does it not make sense?

**Avichal Garg** [32:40]:

Yeah, generally speaking, if you think that the company could go away and just shut down and everybody leaves and the value creation to the end users will persist, there might be some opportunity for tokens. If you think the company is going to be around, it needs to be around in order for the thing to work, I get a little bit more skeptical. That's not to say it can't exist, but I get a little bit more skeptical. And in those cases, often the fundamental question you're really asking is, are the tokens in pursuit of supporting the equity and the cash flow that gets captured by the company? Or is the company exist in pursuit of making the token network valuable? And if you sort of like an answer that question, then you can figure out where the value capture will be and why. And a lot of the times what you see, especially in this part of the market cycle, you see companies that are eat their cake and have it too. They have a core business and they think that by adding a token network, they'll basically get non dilutive financing or they'll get a new business line that will be additive to the core business. But a lot of the time, what you're really doing is not building a sustainable token network. It's often gonna be the case that it's sort of a customer acquisition channel, and it behaves a little bit more like loyalty points than it does a true distributed system where the value capture and the tokens is larger than the company. Generally, the limit test we're using is, does the company just go away? And if you shut down the company, would you still have a significant amount of value capture and creation that happens on the token side? And if the answer to that is yes, then really the company is in pursuit of making the token network successful rather vice versa.

**Harry Stebbings** [33:56]:

Is the most obvious opportunity not a Y Combinator token?

**Avichal Garg** [34:01]:

Well,

**Harry Stebbings** [34:01]:

there

**Avichal Garg** [34:01]:

is OrangeDow. I think something like that will exist. I mean, actually, if you look at even what's happening, there are businesses on or or there are sort of these DAOs on chain. You look at things like seed club or Flamingo DAO or E Girl Capital. Like, people are really playing with this idea of what does it mean to have a token network. And when you as a founder receive investment, you receive tokens in this new community, and everybody's incentives are aligned. Like, people have talked about this for years. Why can you not do equity swaps as an early stage founder to, like, derisk your business a little bit? Or, like, if I really create value inside a community, right, like, I've created a ton of value for, you know, not me personally, but somebody has created a lot of value for the Y Combinator community, like, how do they get compensated for that? Or how do they receive reward for that beyond sort of social capital? And I think some of these token networks are sort of playing with that idea of are there actually ways to align social capital with, like, financial capital?

**Harry Stebbings** [34:45]:

You mentioned DAOs there. I was actually just on holiday with my girlfriend in Italy, and she's into Web3. Wonderful. It's where I kind of drift off. But I said to her, like, DAOs, this idea that you have this restricted group of people that have governance for a certain limited number of time, and everyone gets incredibly excited about this revolutionary new leadership structure. It's called governance. We've had it for many years. There's nothing innovative here at all. Am I wrong?

**Avichal Garg** [35:08]:

Is she right? Yes and no. I think what to me is interesting about a lot of these things is I absolutely think we will recreate a lot of the known governance structures in society. We will recreate representative government, for example, where there are experts and you sort of delegate your votes to them and then they go off and make decisions that need to be made. But to me, what's really interesting about really a lot of these L1s or these DAOs or these blockchains is that you can now run economic and governance experiments in parallel at a scale that was not previously possible because there's real money involved. So, rather than some economist writing a paper or some political scientist writing a paper about theoretically how might some form of governance in some country or some economy work, or if you pulled the lever in this way in a central bank, here's what would happen, if you change the economy in this way, wouldn't it be great if, we can actually empirically run these studies now. Right? So to me, the interesting thing here is at the market level, all of these DAOs will be created. You'll have millions and millions of DAOs created. Many of them will fail. Many of them will look very similar to what we would expect just reasoning through it. And some small percent, 10% of them, will wildly break our expectations about what's possible. And that to me is a really interesting set of stuff because there's a lot of learning in there. Right? There's these sort of new metastable states of what kind of governance is possible or what kind of economic models are possible. And now we can just run these millions of experiments and see what emerges. And to me, that is like the fascinating thing at the market level.

**Harry Stebbings** [36:21]:

This is so great. I'm learning so much of the countless impressions. Why does some DAOs fail and some succeed? I don't understand.

**Avichal Garg** [36:29]:

That's a great question. I don't think anybody really knows the answers to that. And I think we'll only be able to know that in retrospect. And I think it's still so early that we don't even know what the successful DAOs are exactly. I mean, we have some inkling that some of these DeFi DAOs, for example, are trending towards more success and are healthier than others, but we're only like two years into this. And I think for us to really know which of these experiments from a governance or economic game theory perspective are durable, I think it's gonna take seven to ten years. So we're in the very early innings of even figuring out which of these things are are successful. What does a successful DAO look like? Like, impact, but, like, in what way? Yeah. It depends on the use case. If you're talking about an investment DAO, it might be something that has broad global participation and is actually in covering new founders founders and new markets that are creating very disruptive technologies or new forms of innovation that otherwise would not have been funded by VCs or actually able to compete with the VCs to earn a space on the cap table. In the case of NFTs and artist DAOs, it might be that you can actually, you know, have effectively new museums, like you have a new form of public good where a bunch of people can buy this art and put it up on display, and it doesn't need to sit inside a museum in London or New York. And so only the people who live in those cities can go to them. You can now have global digital museums of the world's best art and music and writing and so on, and they're publicly available on chain. Case of their service DAOs, which I think are really interesting. So people are saying, you know what? Let's get all of the designers that understand crypto into one place, and we'll share best practices and learn from each other, and that becomes sort of a hiring marketplace. And the success of that DAOs is can you find all of the world's best designers and bring them into one place and identify this talent and open up economic opportunities to them? Like, the Internet was if go back to the nineties, one of the things people always talked about was the amazing thing with the Internet is we're gonna find all these brilliant people all over the world. We're gonna find the designers and the engineers and the writers and the mathematicians, and then we'll let them sort of bubble to the top globally and give them opportunities that they wouldn't have otherwise had access to. To. And the critical thing that was really missing there was like the money couldn't flow very easily. And now what we actually have is the power of the internet to identify these people, but the ability to actually have the money flow to them. So, you know, in the service out case, like, there's a sitting out there. You just run the numbers. Right? Just look at like IQ is not perfect by any means, but you run the numbers and you're like, okay. Roughly speaking, about 2% of the world is considered highly gifted. Right? You're, like, two plus standard deviations out on the intelligence curve. That's, a 160,000,000 people globally speaking. I suspect we've tapped no more than 10% of those 90% of the highly gifted people in the world, have just not been able to find yet. And so from like a service DAO perspective, it was like, can we find the other 90%? So I think it depends on like the use case of the DAO, but I think now that we can run all these experiments in parallel, think you're just gonna get this explosion of people doing these explorations.

**Harry Stebbings** [38:56]:

So I love talking to you because it's like, it's part of you. It's authentic. It is so clearly your passion. I tweeted sometimes some less positive things on Web3 and crypto because I get so fucked off. Sorry. I'm very honest here. Love it. Can tell that my interview has changed a lot. I'm so I got authentic. I love it. Yeah. Well, I guess, if I talk everyone tweets a picture of, like, a dinner table, and they do, hey. We're doing a Web3 crypto dinner. Who does, a direct consumer dinner? It's just awful the way that people are latching onto this.

**Unknown** [39:27]:

Yeah.

**Harry Stebbings** [39:27]:

What would you like to change if mine is like the attachment to it as some sexy accessory for people? What would you like to change? You know, it's a good question. I don't

**Avichal Garg** [39:37]:

love that stuff either. There's a lot of sort of tourists. There's like a lot of conferences that happen when the market goes up and a bunch of people start coming out of the woodwork that are not long term minded. They're not builder oriented. They're not fundamental value creators. They're sort of extractors. And I personally, I recoil a little bit, I sort of cringe a little bit at a lot of those things too. But the reality is, I think it's just a natural property of markets and innovation. You can't have exponential growth and experimentation and exploration without a bunch of this sort of speculative cringey kind of activity. And so I think you just sort of have to swallow it as part of the process of figuring out what's really valuable. And so you kind of have to take the good with the bad. It's kind of like in order for us to find that 10% of stuff that's truly revolutionary and breakthrough, we kind of have to deal with a bunch of stuff that's just kind of cringey and, like, short term and speculative and all that stuff. So I don't know. I don't love it either, but I think you kind of have to accept that it's sort of a natural property of high growth markets.

**Harry Stebbings** [40:29]:

Does it make your job harder? Like, tourists and venture make my job harder paying stupid prices that shouldn't be the way. Does it make your job harder having tourists?

**Avichal Garg** [40:38]:

Yeah. Yeah. Absolutely. It does. Because you have a bunch of of people that are, in some sense, irrational actors. Like, if a VC firm that feels like they missed out on the last wave of crypto for the last four years comes in and is starting to buy logos, then they're gonna overpay because their motivations are not just that they want to do the investment at a fair price and make a good return, but the motivation may be we need to make sure we have the right logos so that the next set of deal flow that comes in comes to us and we're not left out of this. We're not boxed out of this new and growing market. So, it does create some kind of market distortions. And then you sort of have to just be patient, right? As an investor, I think you have to be willing to say, you have to be disciplined, you have to be patient, and you have to sort of bet that the market is gonna grow in such a way that there will be an abundance of opportunities. The people who are really long term minded, the founders who are really long term minded, and the projects that are really long term minded will want to take capital from the people who are actually creating a lot of value and creating the most value and not just go to the highest bidder. And so you sort of have to bank on that a little bit.

**Harry Stebbings** [41:29]:

What are the pricing dynamics that, like, on crypto assets? Like, for us, there's, like, benchmarks and then there's outcome scenario planning, you know, traditional venture. How do you price equity in crypto assets and tokens even more so? Like, what's fair and right? Yeah. It's

**Avichal Garg** [41:42]:

actually very similar to traditional venture. You're not trying to do some sort of, like, discounted cash flow, NPV, like, is the thing worth today? Right? So take something like Stripe. If Stripe comes to you with a series a and has some revenue curve and some customer curve, you're not looking at it and saying, hey. This thing is only worth 25,000,000 on paper or 35,000,000 or 40,000,000. The way it really works in practice, as you know, is the founder says, want to raise 10,000,000, I want to take this percentage dilution, therefore, my company is worth x. And the math that you're doing as a VC is, okay, well, if I own this percentage of this company, is there a path for it to have a multiple such that at the end of the day, it's worth 5,000,000,000 or 10,000,000,000 or 20,000,000,000 or whatever return you need to underwrite? And it's actually, it's nice because then you don't have to figure out what the company is worth in some sense, you just have to figure out what the company could be worth and what do you believe such that if those things were to be true, then the company could be worth that amount of money or that protocol protocol could be worth that amount of money. So, the process is actually very similar for us. Right? We're trying to underwrite is what is our belief? Like, what do we have to believe needs to be true such that this thing could have the multiples in order to be end up being worth whatever it's worth? And the shape of the path along the way, the shape of the value might be up and down along the way as long as it sort of, like, ends up roughly where you need it to be to generate the returns that you need. Venture is not about what is the thing worth today. Right? It's it's really about what could it be worth and what do I have to believe for it to be worth that, and can I underwrite that?

**Harry Stebbings** [42:53]:

Are there any investing lessons you have from your traditional angel investments that you've applied with you to crypto investing today with Electric?

**Avichal Garg** [43:00]:

Yeah. Probably the biggest one is that I think our intuitions about how big markets will be is wrong. I think it's probably my number one lesson from the last ten years is I worked at Google and Facebook, and just to me, the fact that Google is a $2,000,000,000,000 company, it's unbelievable. Right? And I think our intuitions when we start getting into that many zeros are just wrong. And so when somebody says something like Bitcoin could be worth a million dollars, obviously not investment advice, go do your own research, but you look at that and it sounds like a silly statement, but actually if you'd said similar things about Google or you'd said similar things about the revenue of these companies or how many Android phones there would be or how big Apple would be. Like, these sounded like stupid statements ten or twenty years ago, but I think the lesson from the markets is that our intuitions about what happens when there are 3,000,000,000 people involved and 3,000,000,000 mobile devices involved and trillions of dollars involved. Like, our intuitions are actually quite wrong. And so one of the things we always think about is how do we have reasonable estimates that we can justify? And so we never oversell to the LPs. We're very sort of deliberate in being conservative about what we think is possible. But in the back of my head, I'm what I'm always thinking is like, am I actually being too conservative? Right? If the number one lesson is that these markets are actually gonna be 10 x bigger than everybody thought. And I think it's entirely possible. It's just there's a great article a couple months ago, think, from Paki McCormick. I think it was him. So I apologize if it wasn't to whoever wrote it. But the crux of the article was basically in technology and markets, they're exponential. And when you're sitting at a moment in time and you look behind you, it's very clear that it was exponential. Right? PCs, Internet, mobile, cloud, like, it's just clearly technology has been exponential forever. Right? For the last hundred years at least, let's say, two hundred years, you know, industrial revolution and beyond. When you look back, it's clearly obvious that that was the case. Now when you look forward, if you extrapolate exponentially and you continue to extrapolate exponentially, you feel silly because you get to these sort of seemingly ridiculous conclusions five, ten, twenty years out. And so our instinct is to extrapolate linearly rather than extrapolate exponentially because the conclusions that you reach to seem ludicrous in the moment. But it's turned out that every moment in time on that curve, whether you're in 1980 or 1985 or 1990 or 1995 or 2005 or 2010 or 2015, the correct thing to have done at every moment in time was to extrapolate exponentially. And so that's always in the back of my head. It's like, actually, our instinct is to extrapolate linearly when really we should be extrapolating exponentially.

**Harry Stebbings** [45:08]:

I mean, why fucking stop now on asking stupid questions? What does

**Unknown** [45:12]:

it

**Harry Stebbings** [45:14]:

I mean, what does it mean to extrapolate exponentially?

**Avichal Garg** [45:17]:

It really, in reality? I think what that means is, like, you can end up in really crazy places. So for example, could Bitcoin actually be a reserve currency that central banks are purchasing that could be bigger than the yuan or the euro in central banks? I don't think that's crazy, actually. You know, just look at the growth curve of these things. Is it possible that Ethereum is not just some sort of commodity like silver that's worth a trillion dollars one day? It's actually a third digital government. Right? Like, you have the The US fear of influence, the supply chains, and the money system, and the US dollar, and all those things that will happen. And as we're seeing kind of with the Russia situation in Ukraine right now, there's going to be a Chinese sphere of influence. Right? There's gonna be a yuan denominated system that will have Russia and China and some of those countries aligned. And you say, okay. What does that mean for a place like Brazil or India or Turkey? Right? They don't wanna be allied with the Chinese system, you know, and be beholden to that. So they're more likely to be allied with The US system, but they also don't wanna be a 100% beholden to that system, which creates this opportunity for a third system. Right? An incredibly neutral third system, which might be Ethereum, which effectively starts to behave like a digital economy and a digital settlement layer for all the transactions that need to exist in a third place that is not The US and not the Chinese. And through its credible neutrality, you start to look at it as a digital country that has a trillion dollar GDP and is as actually a credibly neutral third place to settle all these transactions. And you can get there very quickly if you extrapolate these things exponentially. But that sounds like a ludicrous statement to make that there's gonna be a thing that is on par with, like, the Chinese government or the US government that is a third thing that doesn't exist inside either of those jurisdictions. Any of these things, I think you can very quickly extrapolate in such a way that you get to these kinds of conclusions despite how ludicrous they might at seem the moment.

**Harry Stebbings** [46:47]:

Does that not just mean you invest in everything? I could extrapolate out companies to be the nice Amazon. And do know where does the barriers or limits incur?

**Avichal Garg** [46:56]:

Well, it's a great question because actually the answer might be yes. The lesson from the last ten years of investing, you look at it and you say, who played that right? Who really got that right? And maybe it was actually Tiger and Andreessen. Right? And in the moment ten years ago, it was like, what is Tiger doing? And it turns out they were totally right. Right? And so, yeah, that might actually be the right conclusion. That really should be doing is putting money into everything credible because our intuitions about how big the things that are really gonna work are off by an order of magnitude. I actually think that is probably one of the lessons from the last fifteen years, twenty years of venture investing. Now, there's a whole backdrop there. We've existed in like a very unique bull market with specifics or monetary policies, and we exist in this amazing window post World War II, post Cold War where you had certain properties. I don't think it's an unreasonable conclusion to say, actually, like, you should be investing a lot more money. And you being a GP or an LP or an individual human, you should be investing a lot more in technology as a percentage of your total assets because your intuitions about how big these markets are gonna be are totally off.

**Harry Stebbings** [47:54]:

This is what I tell all of my LPs.

**Avichal Garg** [47:58]:

I mean, to to be fair, I'm talking my book too. Right? So ask me in ten years if I was

**Harry Stebbings** [48:01]:

right. Final one before the quick fire. We mentioned LPs there. I get a ton of LPs doing reference calls on new crypto crypto managers. Everyone wants to allocate to crypto today and new crypto funds. What advice do you give traditional LPs looking to allocate to new crypto managers?

**Avichal Garg** [48:17]:

Yeah. I think just getting up to speed and getting your head around it and actually understanding it before you start to deploy. There are a variety of strategies or variety of approaches. There's a lot of nuance here, and I think we're still very early. So I wouldn't FOMO in. I wouldn't worry about missing it. I would be very deliberate about sort of cost averaging in over a couple of cycles. I don't think people need to freak out about it because there's just so much runway in this. And so I think the more important thing is actually to start getting deep on it and actually understanding it. And there's a lot of work there to actually get deep on and understand it. So I think it's more about, like, doing the work to understand what's happening more so than, like, rushing to deploy capital.

**Harry Stebbings** [48:47]:

I totally get you. And just to deploy to existing great SaaS managers in the meantime, right over here, Ben. 100%.

**Unknown** [48:54]:

Right over here. Right over here.

**Harry Stebbings** [48:55]:

And I have to say, I love your brain. This is wonderful. So we're gonna move into my favorite, which is a quick fire round. So I say a short statement, you give me your immediate thoughts. So let's start with the favorite book and why.

**Avichal Garg** [49:05]:

I'll give you two. I'll give you an eastern one and a western one. I think it's the bible and the Gita from the Eastern side. Like technology humans, people who do math and science and physics and people that invest capital, I think, underweight the value of stories. And these are probably the two most important stories in like eastern and western culture.

**Harry Stebbings** [49:21]:

I know how to tell a story. No idea what your token shit is, but I know how to tell a story.

**Avichal Garg** [49:25]:

It's a very powerful skill. Right? It's if you understand storytelling, it's a very powerful skill. I I think

**Harry Stebbings** [49:31]:

it's actually it's also lost in such a world of proliferation of capital where it's so superfluous that people don't need to tell stories because people will still give you money. Correct. And

**Avichal Garg** [49:39]:

and those are the two most important stories in human history, in my opinion. So Listen. Love it. What

**Harry Stebbings** [49:42]:

have you recently changed your mind on?

**Avichal Garg** [49:44]:

I think I've recently changed my mind on the uniqueness of the period of time that we lived in from roughly 1990 to 2020. Like, I thought we were trending towards that was basically the state of the world where we would have this sort of, like, globally stable travel is open to everybody everywhere, like free market society. And I think I've come to the conclusion that that was actually probably a unique moment in time, and we're gonna revert to the mean at least for a little bit in the next twenty to thirty years. It'll look a lot more like the fifties to the eighties. So reverting to the mean means constricted travel, less freedom, less movement? Correct. Less physical movement, balkanized supply chains, like two spheres of influence that are competing against each other economically, politically, culturally, less of a sort of broad open free market global economy. I think that sort of moment in time is likely not gonna be here for another twenty to thirty years until we sort of get a resolution to what happens with the Chinese economy. And it's so hard to get data about what's happening in China. Like, is it durable and sustainable and the growth is gonna be here for a long time? Or you take more of a Peter Zahan, if you know him, geopolitical strategist approach of actually demographic bust coming from China, and that is gonna cause an economic cratering, but that will take twenty to thirty years to play out.

**Harry Stebbings** [50:47]:

I think we have slightly different reading styles. I'm more thinking. So anyway, you call that in Peter, me and Peter, we go way back. Tell me, what does work life balance mean to you? I heard that it was a weakness of yours.

**Avichal Garg** [50:58]:

Yeah. Well, I don't really have work life balance. I don't really believe in it in some sense. I just think I'm fortunate in that way and that my day job is the thing that I just love to do and I'm obsessed with. And so I just I turned my hobby into my day job, I just get to do it twenty four seven.

**Harry Stebbings** [51:10]:

What do you know now that you wish you'd known when you started electric?

**Avichal Garg** [51:13]:

Yeah. It's it's what we're talking about before. How much of it is really about accounting and the finance and the tax and the legal and, like, all those other things that go into actually building a venture firm. And I could have prepared myself a little bit better for those, I think. And so we've learned a lot of hard lessons along the way, and I think we're in a great spot now. But the first two years and getting your head around that is it was we came up the curve pretty fast, Had to. Who's your closest mentor, and what have you learned from them? Oh, that's easy. Well, I'm fortunate I have a lot of really good mentors, especially in this space. A lot of general partners and a lot of big firms have helped us along the way. Folks like Chris Dixon and Marc Andreessen and Josh Kushner and Haun over at General Catalyst and Ray at caffeinated. The person I sort of give thanks to most is Elad Gil. We wouldn't exist if it weren't for Elad and him helping us to really just get off the ground. And and frankly, just learning from him about how his brain works.

**Harry Stebbings** [51:55]:

Respectfully, that's a big statement.

**Avichal Garg** [51:57]:

What did he do? He was the catalyst. He was the person who came to us and said, you guys are really good at this, and there's a real market opportunity here for a thing that's not a traditional VC firm and that's not a hedge fund that's built differently, and you guys have the right DNA for it. And I think you should go do this, and I'll give you the first million dollars to go do it. In fact, not only will I do that, but I will make all of the intros that you need in the early days to get your first 10,000,000 in the door. And then he pounded the pavement for us and with us. Literally, it came to our first probably, five pitches and, like, sat in the room and took notes and helped us close those LPs and then gave me a bunch of feedback on what to do better.

**Harry Stebbings** [52:30]:

What a great guy. That's amazing. Tell me, penultimate one, what's your biggest insecurity as an investor today? I

**Avichal Garg** [52:36]:

don't know if I have an insecurity necessarily. I don't know, is it fears maybe the right word? The thing I'm always worried about that is both fortunate and unfortunate is I'm worried that the opportunity that we have in front of us is going to be very short lived and ephemeral and maybe the last one that we get. And so there's sort of constant, is this the last opportunity sort of feeling deep inside me, which I know is not true. I think that the world is a very fast growing market and so on and so on. But that sort of like fear that it might end and it might go away sort of is like a big driver that sort of work through that I worry that, you the whole thing might not be here in six months or twelve months or twenty four months. And so there's sort of a sense of urgency that comes from it on the one hand. On the other hand, I think it's not a particularly healthy way to live. It's part of the reason we've been able to scale as quickly as we have, but it's something I'm learning to sort of manage.

**Harry Stebbings** [53:19]:

What's the most recent publicly announced investment, and why did you get so excited? I think

**Avichal Garg** [53:24]:

the last one that we just announced was a company called Magic Eden. It's an NFT marketplace, the the number one NFT marketplace on Solana. And the reason we got excited was the founding team. It's just very rare There's there's four of them, and the founders are just really exceptional. We knew one of them from, he was the COO at protocol called dYdX and and has an early investor there and and sort of met him there. But it's one of these meetings where I'm sure you've had this and other investors have had this. 10 into the conversation, you have burned through the questions that normally take an hour because the person and the team just has such intellectual throughput that you've gotten through. And then all of a sudden and all of the answers are deeply insightful and thoughtful. And then you spend the next fifty minutes like going so much farther and so much deeper than you do in any typical conversation that by about ten or fifteen minutes you're in, you're like, I just need to give this person all my money. We just had that conversation. We're like, I just can't believe this team is so stacked and so deeply insightful about all of these things. And we're only ten minutes into this conversation. And literally, I remember I was having this conversation with, Maria Shen, one of my partners. I messaged Maria, and I said, we need to give these guys so much money, literally ten minutes in the conversation. And she OMG, yes. It was so, so clear.

**Harry Stebbings** [54:28]:

Man, you know what's funny for me? I think this is probably the best interview I've ever done, and I think it's the one where I've asked the most stupid questions.

**Unknown** [54:38]:

No.

**Avichal Garg** [54:39]:

They weren't stupid questions at all. I mean, you and I both basically ask stupid questions for a living. Right? But I mean, those, like, first principle questions, those are the important ones. I don't think they're stupid questions at all. These are, like, the foundational questions on why electric can even exist.

**Harry Stebbings** [54:53]:

I really believe that was one of the best shows we've ever done. If you couldn't hear from our tone, I just loved doing it as well. I mean, it was just hilarious to do. I can't believe some of the dumb questions. Avichal was amazing. Thank you so much for listening. If you'd like to see more from us behind the scenes, of course, you can on the twenty minute vc.com or 20vc.com. But before we leave you today,

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**Harry Stebbings** [55:13]:

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