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My Thoughts on the Current Market: on 20-Minute VC



Several years ago I made an appearance in a burgeoning new podcast called “20 Minute VC,” which by now needs no introduction. Harry was gracious enough to invite me back so this past week we recorded an episode discussing the current market environment.

Please download the episode here, if for no other reason than to make Harry happy 🙂 but I’ve also included some quick notes below including a few notes I didn’t share in the podcast (and vice versa by the way — if you listen you’ll pick up much more than my quick notes below).


Topics we covered:

B2B Companies

You haven’t seen the full extent to how the correction is going to affect you. We discussed why in Q4 you will see large renegotiations of SaaS contracts and increased churn rates. We talked about what startup CEOs should do in these situations and how to think about these renegotiations. Nobody will be immune because in a bull market executives are paid to “innovate” so they sign software contracts and run projects. In a bear market executives are paid to: consolidate the number of contracts and renegotiate prices.

What Do You Need to Prove to Raise an A Round?

Should you focus on growth? If you go more slowly will you die anyways because you haven’t shown more traction, more quickly? Harry posed these questions. I pointed out that throughout history building companies has always taken time and we as a market have put an urgency to rush growth rates. It takes time to sell in your software, get it implemented, prove the value, build a business case, gain executive support and then roll it out more broadly. In a market where people aren’t just paid to “innovate” but will need to show real economic value, expect gains to come more slowly. Burn through your cash quickly at your peril.

B2C Companies

We talked about how some companies saw an immediate decline in purchasing (for example if you’re in travel or hospitality). Other companies have only seen a slight decline and may be expecting demand to return to normalcy later in the year. That may happen. But I doubt it. The reality is that when unemployment sinks in demand is likely to get worse. 22 million filed in just 4 weeks — for comparison there are only 17.6 million people EMPLOYED in California. And only 8.7 million people lost their jobs in the whole of the Great Recession. When the dust settles from the initial joblessness and people have lost savings, don’t immediately find new jobs and this weighs on the stock markets, people will inevitably cut personal spending.

Biggest Advice I Give to Portfolio Founders?

We know that marketing dollars have fallen dramatically in Q2 so if you’re reliant on that, you have no choice but to act immediately. This is not a 2-month v-shaped correction. Get your costs down, renegotiate your supply contracts and extend your runway. Some people tell you not to waste your time talking with VCs right now. It won’t surprise you that I disagree with that. I stand firmly on “Lines, Not Dots” and think that if you want a decision in the Fall, planting seeds right now is sensible. It may take much longer to close deals than you’d like.

Do I Believe VCs Are Really Open for Business?

In a word: Yes. But not all deals are equal. Seed deals, for example, are easier to get funded than a late-stage deal for obvious reasons. A seed deal hasn’t already been “priced up” to a range where a new investor might be concerned about the valuation relative to performance. A seed company hasn’t ramped up its cost base. A seed deal requires a $2–5 million commitment, which is easier to consummate in a series of Zoom calls than committing $50 million, which calls for some in-person contact. But there are some deals that will get funded even though not necessarily seed:

  • If you’re in an anointed category that will serve a post Covid-19 world well. Food production and distribution, group collaboration, remote training or education, sensor technology (tracking people movement, temperatures, etc), certain biotech deals.
  • If you’re a clear “market winner” like Stripe, Robinhood or Airbnb. There are large sums of money to be invested and if investors can get comfortable with “downside protections” they’ll still write checks.

Of course I believe the market has slowed down massively. That’s not surprising since VCs are going through triage and also waiting for more certainty to return back to the market. I spoke about that more in this deck that I wrote for the SaaStr conference in early March 2020.

How Do I Advise People When Raising Money in a Hard Market?

Be humble. Raise when you can. A strong balance sheet will matter in the years ahead. Optimize for a 1 not a 0 more than exact valuations now. Valuations may have changed and “price discovery” in private markets is harder to determine. Public markets are transparent and resetting mental mindsets is easier because market expectations are very clear. In the private markets it’s much harder to know and you’ll have VCs who don’t want to take “mark downs” so may not immediately encourage you to accept a new reality.

We also discussed what the M&A market looks like now but I’ll leave that if you listen to the podcast.

We Talked About VC Reserve Strategies

This is an “inside baseball” topic for VCs. But when a fund writes checks into a portfolio company it typically “reserves” money to invest in future rounds. Every firm has a different reserve policy but reserves are especially difficult for smaller funds. Many solved this problem by writing “SPVs” (special purpose vehicles) to fund their best deals as they scaled. But you can’t easily raise an SPV in a downmarket to help bridge a company going through a transition so firms that haven’t set aside proper reserves may find themselves wiped out in some deals in a down market. We spent time talking about why “pay-to-play” deals are back on the table and why these deals happen.

The podcast also has a detailed discussion about how we at Upfront think about reserves in terms of:

  • The importance of diversity across time (to pick up technology shifts / platform changes and market changes)
  • Why we create a portfolio with some diversity on the “J curve” (we do 89% Seed & A, 11% B’s. Of our early-stage deals we do 33% Seed, 66% A’s)
  • Why recycling is important, but why without exits you might even be forced to stop paying management fees for a while

What Will Happen with LPs in this Economic Market?

Harry asked me whether I thought LP “defaults” (not funding the VC commitments it made) would go up. I discussed why I didn’t think this would be a widespread problem. What will happen is that some LPs will need to scale back the number of VC managers they have on their roster.

What is the Most Important Role a VC Plays?

  1. Picking great talent. We are fundamentally in the business of backing exceptional people, and knowing how to find them, judge their skills and future potential and then earn their trust IS the job. We of course need to understand markets and market dynamics but many people understand this from an analytical perspective. Understanding markets AND people (and earning the respect of the most talented people) is much harder.
  2. Knowing the limitations of the founding team. Every great player from MJ to Kobe to LeBron needs a supporting cast. Our job is to know the strengths of the leaders of the companies we invest in and knowing their weaknesses. We need to be able to show them why complementing their skills with other talented executives and sharing in the power will yield better results. We need to have access to great executive talent and they need to trust us to join the companies we back.
  3. Paying close attention to the psychology of founders. We need to know when teams need to be left alone to work and know when they need help sorting out problems. We need to spot when a founder is hitting a major stress phase in life or work and be there to help and also know how to get the most out of people through being great mentors.

We Discussed My Biggest Weakness

Being jaded by seeing what “didn’t work” and assuming it therefore won’t work now. I discussed that extensively in my post about being fooled by your expertise (which is really worth reading). In short, many founders have “naive optimism,” which is to say “they don’t know what they don’t know.” So sometimes the fact that they haven’t learned what ISN’T possible makes them try anyway and have a blind belief it can be done. We discussed that in the show.

How Do I Encourage Dissent Between Amongst the Partners?

At Upfront we value conviction over consensus. We are looking for a strong opinion, well researched and with strong conviction. We are willing to underwrite deals where a partner has conviction (usually with at least a second supporting it) even if some others disagree. They have to be “down the fairway” for Upfront: a $3–5 million check, 19–22% ownership in a sector we know well. But if they are we don’t mind dissent. We actually encourage it.

Do I Think That the Days of Owning 20% as an Investor are Over?

In short: No.

Some founders prefer to spread their investor base across many different VCs in an early round. That’s ok. That’s a decision every founder gets to make. If that company does incredibly well from start to finish that may work out better for them because they kept stronger control over governance and may have been able to negotiate better personal economics.

But when companies go through tough moments — and let’s face it most companies go through tough moments at one time or another — having a strong lead who has long-term conviction in your business can be a large benefit.

So there are different approaches and different kinds of founders. There are also different kinds of VC firms and not all are worth taking that bet on.

Ultimately we look for founders who want to go on a long-term journey with us. So I say that at Upfront we really look for three things:

  1. Product-Market Fit
  2. Founder-Market Fit
  3. Founder-Upfront Fit

I discussed these extensively in the podcast.

Quick Fire Questions:

  1. Favorite Book: (For the times I recommend: The Accidental Superpower, The Absent Superpower, Disunited Nations, all by Peter Zeihan)
  2. A Great Board Member I Worked With: Rory O’Driscoll: (did the work, rolled up sleeves, cared, had great humor)
  3. Hardest Thing in My Job?: It’s hard being a VC right now. Not anywhere nearly as hard as being an entrepreneur. But since asked, I covered some reasons why it’s tough out there being a VC right now.
  4. Is It Important for a VC to Build a Brand?: Yes, critical. To win the best deals entrepreneurs need to trust you and want to work with you. Decisions on whom to work with are very emotional and the intangibles of brand plays a big role in the final decision.
  5. What Do I Know Now That I Didn’t Know When I Started: Sometimes it’s ok to let a problem simmer, even when I think I know the answer. Let founders work some things out for themselves.
  6. A Recent Company I Invested In: Solve. A “true crime” video game. Here’s a bit more about the company but tune in to the podcast if you want to hear me talk a bit more about why I was so excited to back Tom Wright.

My Thoughts on the Current Market: on 20-Minute VC was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.



Crypto Co-ops and Game Theory: Why the Internet Must Learn to Collaborate to Survive



If the internet was a person, ARPANET was its first tooth, Facebook was the pubescent rage of middle school and Bitcoin was the key to its first car. Today, we find ourselves riding shotgun, unsure of what direction the internet will take next.

There are those who feel we’re about to careen off a cliff, and others who write off the internet’s dangers as inevitable growing pains of innovation. 

The internet allows us to work together while simultaneously incentivizing us to tear each other apart. That dynamic isn’t sustainable for long. Perhaps over the next 10 years the internet will go through one more phase of reckless adolescence (who could forget their post-college twenties?) before arriving at the plateau of middle age and all of the wisdom, maturity and better judgment that comes with it. 

Elena Giralt is product marketing manager at Electric Coin Co., the team that launched zcash. She runs Blockchain Latinx, a monthly meetup group that discusses blockchain, cryptocurrencies and emerging technologies. This post is part of CoinDesk’s “Internet 2030” series about the future of the crypto economy.  

Positive-sum games

At any given time on the internet, more than four billion people have the ability to collaborate or compete with one another. Through social networks, memes and subcultures take on a life of their own, iterating off of each other like a psychedelic fractal. On the internet, we create, play and share new games that have never before existed.

These games are helpful frameworks to model out the tension between selfish incentives and community benefits. Informally, a zero-sum game is a competition where one player’s gain is the other player’s loss. In contrast, a positive sum game is generally thought of as a win-win situation. 

What is the optimal balance between cooperation and competition?

The key feature of positive-sum games is that collaboration leads to better outcomes than competition. That sounds great doesn’t it? But, in practice, collaboration often gives way to competition.

A decade ago, many people considered social networks like Facebook and Twitter positive sum games (look at all of the connections! all of the value generated! how fun!). Now the pervasive narrative is that our attention, our data and democracies around the world were a dear price to pay for the explosive growth of digital advertising.

Credit cards were also once considered positive-sum games – until you factor in predatory loans, crippling interest rates and discriminatory scoring systems. And for a moment it looked like liquidity mining was turning out to be another zero-sum wolf in positive sheep’s clothing. Or was it?

As communities shift from the monolithic platforms of Web 2.0 to the decentralized protocols of Web 3.0, it raises the question: what is the optimal balance between cooperation and competition? 

See also: Yearn, YAM and the Rise of Crypto’s ‘Weird DeFi’ Moment

Platform cooperativism

“Platform cooperativism,” coined in 2014 by New School Professor Trebor Scholz, establishes a framework for digital platforms that are cooperatively owned and governed by their users. Advocates of cooperative business models say they are more resilient, more equitable and more sustainable. To a crypto audience, this narrative should sound temptingly familiar. 

More and more, people are demanding input over how platforms are governed and managed. They want to weigh in on content moderation on Facebook, ad standards for children on Youtube and predictive AI models used by law enforcement. 

In his essay “Exit to Community,” Nathan Schneider said platforms should let the users decide these questions. He extolls the benefits of platform cooperativism and cites examples of big tech companies like Twitter considering this option. Vitalik Buterin seems to be a fan of this approach as well.

Governance tokens and auditable open-source code allow individual contributors to work together to determine the direction of a project. Airdrops and developer funds align incentives between end users and developers. Don’t think that cooperative models mean the absence of competitive mechanisms. In proof-of-work mining, individual nodes are pit against each other to compete for the block reward.

What makes these systems cooperative is that projects can update rules and redefine the game so long as they reach (and maintain) consensus among their members. On Ethereum, what started with gerbils in 2017 morphed into sushi three years later.

As we get better at coordinating, we will get better at reinventing and redefining the world we want to live in. 

Twitterswap: What does this look like in practice?

Is platform cooperativism the way to turn a zero-sum game into a value-add system? It’s probably part of the solution but you can’t just shill some tokens and expect the community to follow. Let’s consider a hypothetical to better understand what positive sum games and participatory business models look like in practice.

See also: Jack Dorsey Details Twitter’s Blockchain Strategy at Oslo Freedom Forum

From Twitter to Uniswap

In December 2019, Jack Dorsey announced that a special R&D team at Twitter was developing “an open and decentralized standard for social media.” Imagine if such a standard was released and widely adopted within the next decade. 

This move could help correct some of the challenges faced by social media today. For starters, it could assuage antitrust concerns. It could also cut down on bot activity and ad fraud. These platforms already have enormous developer communities who could quickly start building, hacking and integrating these networks to other services, spreading more open, decentralized standards across the web. 

Uniswap’s new governance token illustrates how powerful aligning incentives can be to protect a cooperative platform. By rewarding its users, Uniswap not only doubled its liquidity but also ensured the continued cooperation of community members. While people have been writing about crypto coops and Ostrom’s principles for years, examples like Uniswap prove that these models can bear fruit and are worth implementing.

It is imperative that we consider a better future is possible without deluding ourselves into thinking it will happen naturally and without sacrifice.

Now, imagine a governance token for Twitter. Imagine a mechanism that would allow users to weigh in on protocol upgrades, community rules and business strategies. While this scenario is extremely unlikely given that the top three investors of Twitter are Vanguard, BlackRock and Morgan Stanley, it is still fun to consider. 

In this world, Twitter users would not only have an incentive to improve the platform, but they would also have to coordinate with each other to do so. Developers would need to coordinate with each other to maintain a reliable and secure standard. End users would need to coordinate to understand the impacts and second-order effects of community decisions. If users in the United States want to remove all political advertising on the platform or censure politicians for violating community guidelines, how does that impact political dissidents in China or Belarus?

There are challenges with decentralized governance and cooperativism. Earlier this year, when a single hacker hijacked multiple high profile accounts, Twitter admins were able to freeze accounts and isolate the issue. This would have been a feat more difficult to coordinate in a decentralized system.

Keep your hands on the wheel

Whether you believe the internet is driving us through dark forests or digital gardens, this is not going to be a smooth ride. It is imperative we consider a better future is possible without deluding ourselves into thinking it will happen naturally and without sacrifice. 

See also: Jonathan Beller – How We Short Capitalism – And Finance the Revolution

In his latest post on Coordination, Buterin describes an unsettling feature about cooperative games, “We can prove that there are large classes of [cooperative] games that do not have any stable outcome … In such games, whatever the current state of affairs is, there is always some coalition that can profitably deviate from it.”

The internet in 2030 will be exciting and in flux. However, if we keep our hands on the wheel, focusing on shared objectives and aligned incentives, we should be able to steer ourselves in the right direction.

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Bitcoin Difficulty Ribbon Could Indicate Imminent Price Increase



One is called the difficulty ribbon, and it has just broken out of the green buy zone for the first time since March in terms of compression. The metric was reported by analytics provider Glassnode, which added that historically, these had been periods characterized by a positive momentum indicating significant price increases.

Historical Bitcoin Buy Signal

The Bitcoin difficulty ribbon was created by chartist Willy Woo. It consists of simple moving averages of network difficulty enabling the rate of change of difficulty to be easily seen. Periods of high ribbon compression, such as the current situation, have been historically good buying opportunities.

There have been several significant price increases over Bitcoin’s lifespan that followed this ribbon compression breaking out of the green zone. The most recent was around April 2019 when BTC prices surged from below $5k to top out over $13k just three months later.

It was also observed that there had been a massive divergence in difficulty ribbon compression and Bitcoin price over the past six years. However, the chart has used a logarithmic price chart, which may have caused that anomaly.

Bitcoin’s hash ribbon is a similar metric, and CryptoPotato reported that it was flashing buy signals back in July. In the five weeks that followed, BTC price surged 34% to make its 2020 high.

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BTC Price Action Update

Looking at the shorter term, Bitcoin’s price chart has just printed another ‘Bart Simpson’ pattern with a sharp 2.3% decline in just over an hour, wiping Monday’s gains.

Prices had recovered to $10,725 at the time of writing, and sentiment appears to be bullish for BTC, according to a recent poll by analyst and trader Josh Rager.

Bitcoin is currently trading right on the 50-day moving average, which is acting as resistance at the moment. The next step above this is a break above $11k, while on the low side, there is strong support at the $10k level. Analyst ‘CryptoHamster’ added:

“After the breakout the resistance line became support. Now it is getting tested. If it holds, it would be a very nice sign. But it has to hold, otherwise the whole growth is just a short squeeze.”

Short term charts suggest price could go either way, but longer-term on-chain analytics, such as the difficulty ribbon, are more bullish.


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Bulgarian National Convicted For His Role in a Bitcoin-Related Crypto Exchage Scam



The owner of a cryptocurrency exchange has been recently convicted in a transnational scheme of defrauding people through an online auction fraud. Court says the scam reached a multi-million dollar scale.

At Least 900 Americans Victimized

As per a recent report, people who suffered from the fraud were probably more than 900 American citizens. According to the official statement, 53-years-old Rossen Iossifov, formerly of Bulgaria and reported owner of a Bulgaria-based Bitcoin exchange R.G. Coins, was convicted of both conspiracy to commit racketeering and money laundering. After a two-week trial, the jury in Frankfort, Kentucky and U.S. District Judge Robert E. Wier scheduled the sentencing to Jan 12, 2021.

Reportedly, some of the Romania-based members of the group posted a false advertisement to promote an online auction and sales websites, among which Craigslist and eBay. The ad promised its victims high-cost goods (typically vehicles) that did not exist.

As per the release, members of the scam would use stolen identities to promote and convince their victims to send money for the advertised items via “persuasive narratives”. For example, some of the ads had impersonated a military member in need of selling the advertised item before deployment.

The scammers also provided invoices with trademarks of reputable companies to their victims, making the transactions seem legit. The legal document also reveals that members of the conspiracy set up call centers, offering customer support. This way they would provide advice to client questions and “alleviate concerns over the advertisements”.

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Converting The Stolen Funds Into Crypto Assets

According to the official statement, once Iosiffov received the victims’ funds, he and his fellows would convert them into crypto assets and transfer them to off-shore money launderers.

As per the court documents, “since at least September 2015 to December 2018, the Bulgarian exchanged crypto assets into local fiat currency on behalf of his Romania-based partners in the scam, knowing that Bitcoin presented the proceeds of illegal activity.”

According to the court statement, in just two and a half years, Iossifov exchanged more than $4.9 million worth of Bitcoin for only four of the members of the criminal team.

A total of seventeen defendants have been convicted in the case. Three others are fugitives. Police departments in the U.S. and Romania have led the procedures on the case.

It’s worth noting that the US DOJ is becoming increasingly active in pursuing crypto-related fraud. As CryptoPotato reported earlier, it went after 280 cryptocurrency accounts related to hackers from North Korea.

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