The secret of Multicoin Capital’s success

Deep Wave Tech Flow Note:

Looking back at this round of bull market, one of the biggest winners in the crypto world is all types of crypto VCs. If you have to give them a classification, my order is like this: fame and fortune, favorable and unnamed, favorable and inferior name, unprofitable and unnamed…

Some encrypted VCs love money more, and some encrypted VCs cherish their feathers more. The VCs at the top earn money and gain the respect of entrepreneurs and investors in the industry, such as a16z\Paradigm\Multicoin Capital……

a16z is the chief helmsman of WEB3.0. Paradigm incubates and innovates at the application layer. Multicoin Capital, driven by papers, is one of the biggest VC winners in the new public chain era. It has invested in Solana, Dfinity, Algorand , Hedera Hashgraph, NEAR Protocol ……Layer 1, the core investment is Solana……

In March 2018, Multicoin Capital led the Solana seed round with a unit price of US$0.04/ SOL . As of November 3, the unit price of Solana exceeded US$230, with a total market value of more than US$69.8 billion, ranking fifth, and calculating the return on investment is no longer significance. Multicoin Capital’s investment methodology and portfolio are still worth learning and researching.

Deep Wave TechFlow compiled the audio notes of the podcast of Blockcrunch’s interview with Kyle Smanani, the co-founder of Multicoin Capital. I hope it will be helpful to you.

1. How has the investment theory of Multicoin Capital changed and developed?

Kyle Samani: Our company’s three core investment theories are open finance, Web3 and non-sovereign currency opportunities. These theories point out the direction for our investment. If you want to add an investment theory, it might be something around the monetization of creators or the meta-universe. I think the three core theories will be the themes that need to be followed in the next ten years.

2. Will you look for projects that fit the three core themes or will it be more of a top-down approach. In this approach, do you see that the founder has a very good team before investing?

Kyle Samani: Both. In most cases, companies will focus on theoretical research, because we are good at analysis, and during the investment committee, we will spend 80% to 90% of our time discussing market structure, some of the more important ones Questions such as whether the existing problems in today’s world are solved, what are the weaknesses of the current model, whether the team can propose innovative ideas, and whether there is a network effect project, relatively less attention to products and teams will be less.

3. Investing in Solana is one of your most successful investments. You are investing in a contrarian situation, and you wrote on your blog why you started investing. What made you have this belief to double your bet?

Kyle Samani: I have a firm belief that the Ethernet Square, lack of progress on the issue of expansion. Ethereum was launched in July 2015. With a history of 6 years, the expansion problem has not been effectively solved. But we also see some smart people working on some projects, such as starkware and dydx and some other projects. In 6 years, Ethereum has not had a good expansion strategy. We expressed that we did not have 100% confidence in this. This gave me more confidence to Solana. Although Solana has many technical risks, it is true for Ethereum. Some problems were also solved, which is why we doubled our bet on Solana.

4. When you make a new investment, what is your process. For example, do you know the main thing that must be done?

Kyle Samani: This is the same as most venture capital institutions, but we will spend more time analyzing the market structure to understand how the market works and what leverage the team can use to move forward.

5. Will you never invest in certain products because it may be contrary to your thesis?

Kyle Samani: I am very skeptical about the long-term value capture of certain products, such as revenue/liquidity aggregators. We always receive similar market segment projects, but we have no investment. There is a delicate balance between being completely paper-oriented and truly open to opportunism. For example, for projects like Helium, when we started to enter, we couldn’t predict. We analyzed its sick leave and economic mechanism based on history. From the study of Helium In the product, we have gained some courage to participate in this kind of project.

6. I heard you say that the initial predictions of Solana and Helium are conservative compared to the actual results. How important is the ability to predict the actual results for investing in cryptocurrencies?

Kyle Samani: I once believed that Solana would become the top five cryptocurrency, and I said it in private several times, now it is very close to sixth. It is difficult to predict for Helium. They have different networks and are developing the Internet of Things, 5G networks and other networks, and these networks do not have a unified success standard. I realize that it is difficult for you to predict when you first enter. You need to establish a minimum threshold for yourself.

7. Before your theory is invalid, what do you need to check to determine this conclusion?

Kyle Samani: It is difficult to generalize this point because it is a gradual process to prove that the theory is invalid. Some teams such as Starkware are solving technical and mathematical problems. This is extremely difficult and requires patience. They only need to have enough focus and investment. Is the most important, especially when the product is before it is formed.

8. In the interview three years ago, you thought that the success rate of Ethereum was 20%. Have you changed your opinion now?

Kyle Samani: I don’t think the price of Ethereum will become 0, but its relevance will decline in the next three years. This probability is 50%.

9. What do you think is the best investment thinking framework and how to determine the probability of an event?

Kyle Samani: I think it is very difficult to determine the probability of an event, but the most scientific method is to try to list the main types of risks that are being taken. There are roughly the following risks:

  • Technical risk (problem unresolved/close to unresolved)
  • Execution risk (what is the market)
  • Leverage (how the agreement gains traction)

10. What do you think of opportunity cost?

Kyle Samani: It is generally believed that 90% of all decisions made by everyone are destroying value. We usually don’t try to re-evaluate our entire portfolio every quarter. Instead, what they do is review the decisions made every quarter to analyze whether this is due to skill or luck.

11. For team members’ mistakes, criticism will hurt morale. How do you balance criticism and praise?

Kyle Samani: This is a basic management problem. Different people respond to criticism and praise in different ways. For example, I actually prefer criticism to praise. People who criticize me will make me angry but at the same time encourage me to work harder. . Going back to this question, as a team, we have known each other for more than ten years. We are very good friends. We know each other and cultivated the ability of emotion and collaboration, and we are sincere to each other. As the final decision maker of the investment, I usually give feedback to other team members without becoming so emotional. I will let them know how we made this mistake and give encouragement to do better next time.

12. How do you limit your portfolio to a certain number of positions, that you can make a certain amount of investment at any time, or how do you ensure that you are sufficiently focused rather than diversified in the highest-conviction paper?

Kyle Samani: Multicoin prefers concentration rather than diversification. There is no special method for this, it is just a function of risk tolerance.

13. In the past three years, do you think that most of your returns are driven by personal strength? Do you foresee that it will become your advantage this time or will weaken over time?

Kyle Samani: Solana is clearly the best investment in the last cycle. Most of the core expansion issues, key governance issues, data storage issues, and any similar issues have been resolved. The remaining issues are about bridges and some zeros. Knowledge-proven, investable opportunities are shifting from technological solutions to consumer products. Investing in the “next Snapchat” is completely different from investing in things like Solana, which may not be our style.

14. If you can only focus on one vertical field in the encryption industry to dedicate your research in the next one to three years, is there a vertical field that immediately comes to mind?

Kyle Samani: I think the most interesting area is the agreement that looks like Helium, an agreement that motivates people to do things in the real world by generating real-world value.

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