VCs Weigh In On Crypto Treasury Companies

Transcript

[Music] Rob, I saw your tweet the other day. You said, "As you can tell, I'm not a fan of these public crypto treasury strategies, which are clearly just point- in time solutions that have no reason to exist over any reasonably mid to long-term time horizon." So, maybe you can expand on that thought. Yeah. Um, so that's why we call him Spicy Rob. I didn't know I didn't know we did call him that, but I can start. As a matter of fact, I didn't I did not know that. And I wish I knew that. I didn't either. We're all learning. We can make that stick, Rob. We can make that stick. Yeah. Okay. I can't can't wait for that. Thanks, Diego. Um, no, I listen, I they they make perfect sense

for the right pool of capital who wants to trade into these things. And what do I mean by that? I mean, you you're you're very likely to make money because you trade into the you you know, you give these people $300 million and they lock you up for 40 days, 30 days, maybe 60 days, very short periods of time. They go out and they say they're going to buy, you know, an asset that you are maybe long that asset anyways. And in some cases, they're taking inind contributions. So, it's almost a way to like monetize like your ETH or your Bitcoin or whatever else because you can send that to them and then and then take this um you know, lock up. And you know they're mostly trading today at you know some premium to NAV anywhere from you know uh a little bit over one all the

way to I think ESP when I looked yesterday was like 10 times uh premium to NAV and you this usually has something to do with you know what what the exact capital structure looks like but also um you know who's on top of it and if there's a lot of excitement around you know a specific person or a specific group that is running this thing. Um, but over time these are going to trade back down to NAV and in a distressed market they are probably likely to trade below NAV. many of them are anyways and you can get yourselves into a situation where you know it depending on you how you finance this thing especially if there's debt involved where you may need to sell the underlying to pay off your debt and

which means that you may and because then your value will go down and you may have also people converting into equity and diluting the broader shareholder base. you get into this situation where you're in a death spiral and that's going very likely to happen for some of these vehicles over you know certain types of of market cycles and so I don't think they need to exist but I understand why people are doing them to make money I don't think it's right for our pool of capital which is why we haven't invested in them Rob we could have been sitting here talking about the exact same playbook happening for micro strategy two three years ago and it didn't so so like that would be the push back that someone would be like wait a minute like this clearly hasn't played out for micro strategy. So, what would

you say to that? Like I I ascribe to your view, which is like 99% of these vehicles unwind really nasty and trade below NAV in a in a down scenario. We're not there yet. Uh but what would you say to someone that's pointing a micro strategy that has clearly defied gravity? Listen, I I think if you if you point to a single example and then you abstract that out to what is happening now, which is a significant amount of new vehicles that are all capitalized somewhat differently that are loosening the lockups that are, you know, in many ways they're usually the offerings are kind of looser and are um more or they're more punitive on the actual equity holders. Like like it's it's clearly there's like a mania and people are just trying to to monetize. By the

way, you know, people had the same conversation about the GBTC trade, uh, you know, way back when, right? And there was many people was like, hey, listen, the premium has existed for two years, like why would it ever not exist, right? And then all of a sudden it blew up three arrows and, you know, a couple of other funds and we know what happened then, right? And so I I think it's it's the wrong conclusion to look at what Sailor has done and and you know, incredible like he deserves all the the everything we could say about him that's good. Um and then say okay well like all these other people can do it on all these other assets in all these other ways and that we won't have adverse selection. Yeah. Well by the way my view here is mimics Rob's but it's I think

it's simpler which is it's a trade and I'm a venture investor even though you know I'm not really but there capital engineer a venture investor but it's a trade. And so I think we we have to tell ourselves the real story is the right holding period for Bitcoin was 15 years. the right holding period for Solano was uh through FDX all the way to the other side. And so as a venture investor, we're not looking for trades. I do think in crypto you get early liquidity and maybe you have holding periods that are not 10 to 12 as a private markets are kind of like aiming towards maybe like closer to 7 to 10, but but still you're taking a long-term position and you're working with these teams and you're trying to help them out. At least that's like, you know, the that's the the pink

view uh rose tinted glasses view of venture that I very much subscribe to. That's what I have fun doing, not really doing trades. I think in crypto because everything trades, everything becomes a trade. Uh but I I do think that that's there's different vehicles for that. There's people that are going to make money out of it. There's hedge funds. Um there's there's all these things. As far as we're concerned, we're we're venture investors. And yes, we have a liquid portfolio because a lot of the value capture happens in liquid tokens, but we still look at holding periods that are venture holding periods. [Music]