Chain Reaction

Crypto VC space may be on the cusp of recovery (w/ David Pakman)

Episode Summary

For this week’s episode, Jacquelyn interviewed David Pakman, managing partner and head of venture investments at CoinFund. Before CoinFund, David spent 14 years at the venture capital firm Venrock. He also led the Series A and B rounds at Dollar Shave Club which was acquired by Unilever for $1 billion. And in 1991, David co-created Apple Music when he was a part of Apple’s system software product marketing group

Episode Notes

For this week’s episode, Jacquelyn interviewed David Pakman, managing partner and head of venture investments at CoinFund.

Before CoinFund, David spent 14 years at the venture capital firm Venrock. He also led the Series A and B rounds at Dollar Shave Club which was acquired by Unilever for $1 billion. And in 1991, David co-created Apple Music when he was a part of Apple’s system software product marketing group

We discussed the state of the crypto VC environment, areas he’s focusing on for investments and what he thinks investors are missing. 

We also talked about: 

Chain Reaction comes out every Thursday at 12:00 p.m. ET, so be sure to subscribe to us on Apple Podcasts, Spotify  or your favorite pod platform to keep up with the action.

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Episode Transcription

Jacquelyn Melinek  0:01  

Hey everyone, its Jacqueline melanic Welcome to chain reaction, a show that unpacks and dives deep into the latest trends, drama and news with some of the biggest names in crypto breaking things down block by block for the crypto curious. Today's guest is David Pakman. The head of venture investments at Coin fund a crypto focused firm. Before coin fund, David spent 14 years at the venture capital firm Venrock. He also led the series A and Series B rounds at Dollar Shave Club which was acquired by Unilever for a billion dollars. And in 1991, David Koch created Apple Music when he was part of Apple's system software product marketing group. We're super excited to have him on to talk about the state of crypto VC, his investments and thoughts on 2023. And what he's expecting in the pipeline for 2024. With all that said, David, welcome to the show.

 

David Pakman  0:52  

Thanks, Jackie. Good to be here. Thanks for having me.

 

Jacquelyn Melinek  0:55  

Yeah. And to start we like to start off with asking our guests. Can you tell us about someone in crypto you've met in the past 12 months? Who has inspired you and what did you learn from them?

 

David Pakman  1:04  

Okay, well, does meeting in real life does have to be meeting in real life? Because meeting virtually I've met Yeah, I

 

Jacquelyn Melinek  1:10  

feel like with crypto, no, it doesn't. We're all kind of nomads all over the place.

 

David Pakman  1:14  

Yeah, well, I've met him a bunch. But you know, at our annual meeting, we had Joe Lubin come and speak to our limited partners. And he just had a very long view about what was happening. This was sometime in the late spring, early summer. And you know, in the depths of a bear market. And in a bear market, it really tests you know, your conviction about what's gonna happen in the long term. And just having somebody with a long view, which is what I try to be for our firm, having been through multiple bear markets is an inspiration because most progress is not a straight line. There's a lot of noise up and down. And Joe has a very long term view and expects continued consternation challenge setbacks in his space, but has high conviction of where crypto goes in the long term. So I found that super inspiring.

 

Jacquelyn Melinek  1:58  

Yeah. And that's Joe Lubin from consensus? Yeah, one of the cofounders of Aetherium. Right. And speaking of the bear market, obviously, we're kind of still in it. I don't know who's to say, but the crypto VC space isn't that hot still, last I checked, the investments declined for six quarters straight in q3, there was $1.8 billion invested across 309 deals. I'm reading this off, don't worry, it's not at the top of my head. And that's according to PitchBook data. And that's a 28% decrease from q2. So what do you think is kind of driving this? And like, what are the odds that we're gonna see more declines for seven consecutive quarter for q4? Well,

 

David Pakman  2:35  

I think your stats could be applied to pretty much everywhere in tech, except for maybe a couple AI companies. You know, it's been a challenging couple years, let's call it you know, profitless companies, when interest rates go up, risk comes off, and companies that don't make money valuations fall, and we've been through this now for, you know, a couple of years. And we seem to be maybe on the cusp of coming out of it, at least we think so the market seems to think so to that interest rates are going to start to come down next year. And that will change I think some of the clouds to a little bit more clarity that we're you know, we're moving forward again, that evaluations will be able to increase and there'll be more capital flooding into early stage venture investing. But specific to crypto, I think we're Kryptos had the same macro headwinds as everyone else, high interest rates, but it's also been confronted with, you know, a bunch of regulatory uncertainty in United States, maybe you'd even say regulatory hostility. And now I think mostly behind us a bunch of bad actors. So for instance, here's one interesting tidbit that I learned today, if you look back over the price of Bitcoin, and you take a look at the moments when the CEOs of some of the largest crypto exchanges resigned, because of challenges, you can see that the price of Bitcoin responded positively and started to zoom. So the first example of that was back in October of 2020, when Arthur Hays stepped down from bitmax, the second of course, is SPF in November of 22, being removed from FTX. And then finally, just a week or so ago, in November of 23. We have CZ stepping down from by Nance. And you see subsequent to these things, you know, sort of Bitcoin ripping, and it's just an example of the market speaking that it prefers the cleanup of bad actors and maybe even welcoming of some regulation. Okay,

 

Jacquelyn Melinek  4:23  

so with the kind of flushing out of bad actors, how does that correlate to investors re entering the space or deploying more capital into the space? Obviously, we're seeing a little more regulatory enforcement and the price of Bitcoin go up. But for you, what are you kind of seeing in your world? Well,

 

David Pakman  4:40  

the only way to make a lot of money and be for your LPs, as a venture investor is to be a non consensus investor, you have to be betting on places that most people think are unlikely to produce big outcomes. If it's consensus. If everyone believes that it's a place where everyone's going to make a lot of money then way too much capital floods the zone, increasing price ices in lowering returns. So you have to have a differentiated view, there's no question that crypto venture capital is still a non consensus bet today. It doesn't mean we're the only venture fund in the world investing here. But we're one of a few. And we're certainly one of the biggest and one of the most experienced, but there's not 1000s, you know, and there's probably not even hundreds anymore, there's probably scores of venture firms investing in the space. And now that will change as valuations go up, and we see progress. So I would just sort of first say that, like, you need to have some conviction. But why maybe is your question like, Why still invest in space, it's not just because prices go up. It's because I think the use cases that are unlocked by crypto are really almost impossible to build any other way. And they're so big. So we just heard today that Coinbase announced that their wallet now this is not their mobile app, right? Not their centralized trading exchange. This is a decentralized, noncustodial wallet that a user owns by themselves. Anyone can open one up, you can't be D banked to can't be taken away from you, you can't be unbanked. All you need is an internet Connection, you have a wallet, you can now send directly in WhatsApp or iMessage. Or any place where you can send a link cross border payments, currency, using Stable coins, that's us dollars anywhere in the world 24 hours a day, seven days a week for free. So you know cross border remittance is a major use case for the financial system. But you can only do it during banking hours, you need to have bank accounts, or need to pay Western Union extremely high fees that this is a almost a universal use case that cryptos unique to solve that type of massive unlock is what gets me excited. Okay.

 

Jacquelyn Melinek  6:37  

And kind of going back to what you were saying before about the number of funds and firms in this space. It's kind of dwindled from maybe the 2021 bull market. What do you think is the state of the crypto VC landscape right now, I

 

David Pakman  6:49  

think it's mostly a case of firms that built let's call it institutional LP support, and have track records. So if you are the combination, those two were a bunch of your capital comes from traditional institutional LPs, as opposed to like individuals, right, you know, high net worths or family offices, then you probably have a more patient capital base. And if you have a track record, what I mean by track record is like realized returns like you've created, you made more money for your LPs, then you probably have a group of investors who still believe in you, and are willing to take the journey through a bear market with you. But if you were a brand new fund created in the raging market of you know, 2020, and you had no returns to speak of, and most of your investors were high net worth or individual founders, that's a really hard couple of years to sustain. And so a lot of funds go away, they're not successful at raising their next fund. So I think that's one reason why we've had a pair down. We also had a couple funds, firms get injured by investing in like FTX, right, or tokens that crashed and burned. And so some self harm happened because of that, and not every firm recovered from that. And the last category of it's called more institutional investment in crypto came from traditional VC funds, who had one or two partners focused on the space. I'm an example of that when I was at Venrock. And I think for the most part, that almost entirely evaporated in this last market, I can name like five or six or maybe 10, traditional venture funds that still have one or more people doing crypto. So we just had this huge constriction of capital and firms. And that's okay, because we've had a lot fewer deals. during this timeframe, only the true believer founders are left. But that has led us over the last two years, really get a jump on everyone else, find all the best projects and the best ecosystems and try to make a bunch of investments. And as the markets come back, hopefully will benefit.

 

Jacquelyn Melinek  8:38  

Aside from interest rates and the things we kind of talked about before, what do you think it's going to take to have more money flowing back into the crypto VC environment,

 

David Pakman  8:46  

I think it's a very conservative view of this, it is demonstrated use cases. So where crypto is being used by either institutions or enterprises or consumers. And that usage is generating some economic value either fees, you know, when you do a transaction on Aetherium, it costs a little bit of ether, you create some fees when you trade on an exchange from one cryptocurrency to another that allows fees to be created when you use uniswap. And do an automated swap from one crypto token to another no humans in the middle, no companies in the middle that creates fees. So usage drives fees, and we will need more use cases that drive fees so that we can prove that these are real businesses, not just interesting software. On

 

Jacquelyn Melinek  9:30  

that note, though, how do you kind of see this becoming more accessible, whether it be to a retail investor or someone who knows nothing about crypto or institutions, because you and I understand why this may be a better use case than what exists in traditional finance. But if I just go and say this to someone on the street, they'll just be like, who cares and walk away? You know? Yeah, sure.

 

David Pakman  9:49  

I'm not as focused on figuring out how do we get more retail investors into crypto because to be honest, Kryptos ownership There's largely been driven by retail investors, you know, in each of the bull markets. And that usually followed a bear market. It was consumers retail investors are the ones buying and using crypto, the real question many have been asking is when will we see institutions or enterprises or traditional finance adopted? And I think there's some evidence we can talk about in a minute that that's happening right now. But I'm less interested in like, hey, how do we get more people to own this? What I care more about is how do we get more people to use it? It can't be just for trading tokens. It needs to be an ecosystem that creates compelling, you know, software architectures, and applications that people use. And I can give some examples, if you'd like of where we're seeing that happen.

 

Jacquelyn Melinek  10:37  

Yeah, definitely. I was gonna say like, where do you see signs of promise with this, or what's even exciting you right now with these use cases?

 

David Pakman  10:43  

Well, I mentioned the Coinbase cross border remittance application that launched today. Yes. But just a few months ago, we had PayPal, which is one of the largest money transmitters in the world, they have 430 million monthly active users around the world. And they announced that 40% of their users send money across border, it's a remittance product. So it's, you know, US dollars moving to Mexico or anything like that, as I mentioned before, it's a very expensive proposition across, you know, 10 to $60. To move money across borders, it takes multiple days, sometimes the fees can be much higher than that you can only really do it during business hours. And PayPal has been doing it for some time. But they've had to use traditional banking rails, the correspondent banking system, and that requires multiple steps. It's expensive. So this is not me making this up. This is what PayPal said publicly the publicly traded company, they said, We're switching for cross border remittance, which is 40% of our users to crypto, we're going to use crypto as the rails for moving money, we're going to make our own Stable coin, which is just a digital version of the US dollar. When a customer says I want to send money from the US to my friend and Mexico, we're going to use crypto rails, it's going to happen relatively instantaneously, it's going to reduce cost by more than 90%. And we think it's reliable and transparent. It's traceable. So to me, that is an unbelievably loud signal, that crypto is good for something, but in this case can be good for something at really large scale. So there's just two examples, I think of where you see a more interesting alternative to traditional banking system that brings benefit to users.

 

Jacquelyn Melinek  12:17  

Yeah. And you touched on this before and I don't want to miss that point on institutions. I want to go back to that. How do you kind of see institutions playing into this? As someone who's investing in this space? What do you think they want more of then maybe on a similar note, or separate? What about LPs? So

 

David Pakman  12:32  

the first use case of crypto is really been buying and holding and trading digital assets, right? Crypto created digital assets. And then we created the original created all the infrastructure for owning them and buying them and trading them. And there's been a lot of demand for that, right? We know there are hundreds of millions of people in the world or at least 100 Millions of wallets that hold crypto, spend a lot of research on how that skews younger, and it's a global phenomenon. And so well when you have and fees can be generated from the purchase and ownership of crypto. So what do we have? We have the institutions saying, hey, let's make it even easier for people to buy crypto, let's let them buy it on the stock market. And so we have a whole bunch of ETFs. And they're coming to market most people think just in a few weeks time in January, and they're coming from like seven or eight of the biggest institutions in the world. We've got fidelity and Invesco BlackRock, Vanek, Ark invest just a few examples. And so these are traditional finance companies that are going to create traditional financial products that will buy digital assets that is kind of shot heard around the world as the first step in it's Bitcoin first and then Aetherium. And it's just a short step from there to exchanges custody, all the different services around the ownership of digital assets. And I think this is sort of hard to overstate in its importance. It is the first significant involvement of traditional financial institutions coming in. So your question about LPs. So venture as an asset class has been around for more than 50 years, and many of the largest professional investors institutions have been investing in this asset class. So it's, you know, part of the alternatives bucket. And obviously, the foundation's the college endowments, the giant public pension funds, and a lot of fun to funds were created to access this asset class. And what is unique about this asset class is it tends to invest and the leading edge, the vanguard of whatever new technology will be popular five to 10 years from now, right? That's the timeframe of most venture. And so it's no surprise that sometimes in the last six or seven years, a bunch of LPs said well, crypto sounds interesting, and started to experiment in the space and I think some have stayed with it. And some have backed off less because prices went down and more because of you know, the bad actor problem. And so that's why I referenced it early on, as you have these sort of global bad actors exiting the stage and replaced by kind of regulatorily Applying to management teams and operating companies. That is the unlock for more institutional capital, more traditional LPS investing in the space.

 

Jacquelyn Melinek  15:08  

Okay? And what areas do you think people are missing when it comes to web three and crypto, whether it be investors, LPs, just general users? What do you think is something that you're looking at? And you're like, I wish everyone else was paying attention to this the way I am or I wish this existed and it doesn't yet love

 

David Pakman  15:26  

the question. And I haven't answered because I had been perfect talking to our LPs and investors about this for quite some time. So what is the biggest tech story of 2023? It's AI, it's in everyone's life. It's on the front page of every mainstream newspaper or publication, you guys have covered a much longer than The New York Times has. But now Now it's everywhere. Right, right. Yes, we've been investing in it as venture investors for more than a decade. It's been around for 30 or 40 years as technology. But now it's tipped into the mainstream in a big way. And for me, there are two wildly underappreciated fragilities of what's going on with AI right now in the mainstream. The first is how were these incredible large language models built, they were built by training on most of the internet, the bots went out and scraped text and images from across the Internet to train these giant models on millions of parameters in order to enable Chet GPT. To to do what it does. And no one asked our permission. I'm sure they scraped the TechCrunch website and read every article that you've written. I know it probably, you know, scrape, I've

 

Jacquelyn Melinek  16:34  

seen things like that, yeah,

 

David Pakman  16:35  

sure. Scrape to my blog, it scraped a lot of words, in order to train itself. And none of us they didn't ask permission for that. And they didn't give us any compensation. I didn't get any open AI shares. I'm not sure if you did for all your great writing, Oh, y'all help train these models. And we got no competition for that is patently unfair, and possibly illegal, possibly a copyright violation. And the courts are going to sort this out? Well, this is a great example of something that web three has thought a lot about, how do we create systems where many, many people or creators can contribute content to them in exchange for some piece of ownership of them. So we can imagine a decentralized version of open AI where all of the people whose websites were scraped, got some tokens may be in proportion for the amount of content that they contributed photographers, artists Brah, the visual that we're about to hit the age of LVM. So larger visual models or large image models, and all of those creators deserve compensation. So you can imagine getting paid and tokens. And then in order to use these networks or products, you have to buy tokens, and that could create a sort of commons based ownership model for AI where everyone's getting compensated. So that's one thing that no one's talking about, by the way, except The New York Times, and the big media companies, because they're all suing open AI over this exact problem. I was

 

Jacquelyn Melinek  17:55  

gonna say on that note, we had Stanny, Kula Kavon, from Avara, formerly Ave on. And we talked about creators content and monetization, and like the web three world with social media, and how like what you were saying anything we have out there can be scraped and used and aggregated, but we're not being paid for our content. So a follow up question to that was, where do you kind of see this integration of AI and web three happening? Is it through content monetization of tokens? Or is there something bigger that will also happen that will kind of make crypto maybe have their mainstream moment like chat, GBT? Well,

 

David Pakman  18:31  

I wish I could say, and here's the perfect crypto solution to this. But I'm disappointed that I can't point to it. It's a crypto concept of shared ownership through tokenization. But we've looked at a few. But I can't point at a great example of tokenized data contributions into LLM. There's some people thinking about it. But there's nothing like that sort of happening right now that I'd point you to. But it is a massive unmet need, it will be hard to get adopted. But boy cryptos thought about how to solve this problem for some time. And I wish it was sort of able to have its crypto moment. But I'll give you another example of where crypto is making progress related to AI. So to train these large language models, you need many, many billions of dollars of GPUs, some have estimated, you know, five to $10 billion worth of compute resources, GPU resources to train these giant models. It's why open AI has the partnership with Microsoft that they have we have invested for instance, in a decentralized network of GPUs, that anyone can put their GPUs in this network and get paid in tokens in exchange for this, which would let anyone train models on large, decentralized, cloud based GPU networks. So that's one example where you can see crypto apply to try to make you know AI more democratized. The last example I'll give you is the information that had a great piece on this you guys might have written about it too. There was something like more than 10,000 And companies that have built on top of open API's API. And there was an article that Morgan Stanley, for instance, has significantly integrated chat GPT into their workflow. I forget what the exact use case was. It may be like, you know, when they're talking to their clients, it may suggest things. But over the course of 48 hours because of a leadership dispute, a governance dispute between a board and a founder, the entire company almost melted down. Yeah, you know, sort of in the last minute, it didn't. But literally 10s of 1000s of companies would have been impacted, including like a global, too big to fail financial institution. And there were panicked meetings at 1000s of companies all weekend long, what are my alternatives, and some folks covered this. Well, this is a great example, where Aetherium, which is a decentralized global compute network, that 1000s or 10s of 1000s of companies have built on top of has never had an issue where it's about to go down, because the founder is not getting along with the board. And this is why many decentralized compute networks are anti fragile. They are built to withstand these sort of short term perturbations that can wreck a company, and I think is another great example why the largest, most important compute platforms of our time should not be subjected to the whims of Sam Altman, and his disagreements with his board or co founder, but should be governed by the users through Decentralized Governance model. And this is something Kryptos done really well. Yeah,

 

Jacquelyn Melinek  21:23  

I agree with that, too. And I think governance is a massive thing. That's not just applicable to crypto, but as you said, you know, AI, other tech sectors or even I don't know, like your local book club. Like you don't need to have one leader to rule it all. And if they don't like it, then it all can crumble underneath. So I think that is also extremely valuable. And maybe there's something that could be intertwine there as well. Yeah,

 

David Pakman  21:45  

I agree with that very much. And so I just think that here are just two or three examples of where crypto kind of intersecting with AI, which is the biggest piece of Tech's excitement today has some relevance. And

 

Jacquelyn Melinek  21:57  

on that note, we're going to take a quick break before we get into the rapid fire segment.

 

And we are back now it's time for our rapid fire segment where David will answer some of my questions and quick responses, hopefully, to get the hang of it. Sometimes people are really good at this. Sometimes people you know, like to give longer responses. But I have faith in you, David, I believe in you for this one. So to start, what's the crypto investment you're most proud of?

 

David Pakman  22:27  

Personally? Well, I love that I backed the dapper labs team and the creators of crypto Kitties and MBA Top Shot and also the flow blockchain. And while NF T's are down at the moment, I have high conviction that in the long term, this will be one of the most important companies in all of crypto,

 

Jacquelyn Melinek  22:42  

okay, would you rather coin fund be the lead investment in a few rounds or participate as an investor across a bunch of smaller rounds,

 

David Pakman  22:50  

we prefer to lead in the most significant companies and their rounds, largely because our LPS expect us to try to help and do more than just spread our money really thin. So I would opt for that. So the

 

Jacquelyn Melinek  23:01  

former, okay, on a scale of one to 10. One being the least 10 being the most how important is the founders background and experience? When it comes to considering an investment? I would

 

David Pakman  23:12  

say the founder is the most important so 10. But it's not just their experience or domain experience. It's a little bit more just about like, who they are, what drives them, why they're doing what they're doing personality type history. So I would say 10 with a caveat.

 

Jacquelyn Melinek  23:28  

All right. Would you rather invest in more quote risky startups or safe startups?

 

David Pakman  23:33  

All I do is take risk for a living so risky love that.

 

Jacquelyn Melinek  23:36  

That's all crypto is sometimes you know, for sure. What's the biggest challenge crypto startups will face in 2024? If you could use one word to describe it.

 

David Pakman  23:46  

I think it's still regulation. Yeah. All

 

Jacquelyn Melinek  23:49  

right. You did great there. You also talked about dapper labs. And that investment I wanted to ask you, what did you see in NF T's at the time, because that was before the big boom that we saw a few years ago. And as you mentioned, you know, NF T's are kind of down. They're kind of getting a little more momentum recently. But I feel like a lot of VCs, you know, they look at the 10 year five year horizon. So when you invested in it, what did you see at the time,

 

David Pakman  24:12  

I have to sort of thank my partner Jake Brockman for helping me see the importance of NF Ts. But you know, a lot of my career in tech was centered around digital music and media on the Internet. And so I spent a lot of time around content creators and content owners and I learned that media, or intellectual property in general, is something that we as a species have owned for a very long time, we've owned the physical output of intellectual property for a long time books, pieces of artwork, drawings, but when everything went digital, we couldn't own it anymore. Because you can't enforce scarcity and ownership of digital items. It's too easy to copy them. So we changed to this access model for a brief period of time. It's been like 15 years or so where you've had to stream Mubi stream music, but NF T's let us go back to the way we've consumed intellectual property creativity for 1000s of years, and that's through ownership. So NF T's are the mechanism by which we can own digital intellectual property, its property rights for intellectual property. And to me, that's just too big an idea to not invest in particularly when you have a team as ambitious and competent as the dapper team. So it was combination of Team plus big market that got me excited, doesn't mean it's going to work out. You know, if it takes 20 years for NF T's to be mainstream, then that won't work. But we've had a few bright shiny moments, right of success and 10s of millions of people experimenting with NF T's and you know, 40 $50 billion of sales. So I have some conviction that this is a real market.

 

Jacquelyn Melinek  25:40  

Okay. And going off of that in the NFT space, obviously, we talked about how it kind of got a tight even from crypto kiddies days, which was like one of the first NF T's out there to the most recent boom, and even now we're seeing things like NBA, Topshop, Disney create things, other groups. And I'm curious, like, what do you think would be another cycle of boom for NF T's?

 

David Pakman  26:03  

I think there's a couple of candidates for what this is going to be I don't have a super differentiated point of view here. So those of us who follow NF T's will probably say some of the same answers to your question, but one is that I think, in app purchases, or digital purchases in games is something that's extremely key part of gaming, but all the things we buy there, we don't actually own, we sort of rent to us in a game, it just doesn't make sense for those items not to be owned by us. And if T's let us own in app purchases, take them out of the game, resell them, stock them somewhere else use them in other games. So I think NF T's as a key part of gaming, so that we can own our in game items. It's just too obvious. I hope it happens in this cycle, I have some high conviction that it will it didn't happen in the last cycle. So we'll see, I think we get way more than just collectibles. And the last category is I would call them dynamic. And if ts nfts can be software. So you can own a collectible or an in game item or an NBA Top Shot moment. But it can change over time, it can even take on personality or attributes of its owner. And that's kind of a whole new breed of intellectual property that morphs given who the owner is, and maybe how long you own it, it could increase in value for a bunch of different reasons. So I'm excited about dynamic NF T's. Okay.

 

Jacquelyn Melinek  27:18  

And to shift gears a little bit. We've talked about this briefly before, but I want to dive into it before we wrap things up. A lot of guests we've had on have touched on crypto regulation, it's been a massive conversation this year, whether it be through enforcement requests for policy, etc. What does meaningful crypto regulation look like to you as an investor,

 

David Pakman  27:39  

I was president sort of the creation of the Digital Millennium Copyright Act and some of the early pieces of legislation around the internet. And a key piece of that was a safe harbor that let startups doing stuff around media rights, as long as they were listening to the needs of copyright owners operate without fear of being sued. And today in the United States, you can't do anything with the token without having the fear of being sued by our government. But in the UK, in all of Europe, and Singapore, and a bunch of places in the Far East. In Hong Kong, you can operate without fear when you create a token and experiment in web three that you can operate without fear of being sued. So creating some type of safe harbor some clarity, if you do X, Y, and Z, your entire company doesn't go to zero if you know some aggressive enforcement agency decides to sue. So I think the first thing we need is some clarity or safety around what it is, how do we experiment here. And I think it's critical that the US eventually reached this stage, it is being left in the dust. Currently, there's way more innovation happening outside the US than in the US today because of policies of US government, I have high conviction, it's going to change but there is a regulatory arbitrage happening outside the US. And so that would be my wish is some clarity to let startups experiment. You want to be pro innovation just doesn't make sense as a country or any municipality to not be pro innovation, like let people try to make the world better and create economic value. And we're not doing that here. So that's got to change. How does

 

Jacquelyn Melinek  29:09  

the current crypto regulatory guidelines or lack thereof in the US kind of shift? Coin funds, strategy or considerations, especially within the US?

 

David Pakman  29:18  

Well, we travel a lot outside the US. So we have people stationed outside the US where almost all of the most important crypto events are held outside the US now developer conferences. There's a few in the US that are important, but most of them outside the US. So we're attending all of those. I just came back from Solana breakpoint in Amsterdam and spent a couple of days in London where I'll be there at least every two or three months. There's lots of crypto startup activity in Berlin and in Lisbon, and even in Paris. So we're traveling the world looking for the best teams who are locating in jurisdictions where again, that safety, that clarity, at least at the beginning exists, and about 45 of our 105 are So investments that we've made since 2015, are in companies headquartered outside the United States. And I expect that number to grow rapidly.

 

Jacquelyn Melinek  30:07  

All right. And to wrap things up, David, since it's almost the end of the year, what are you most excited for? And looking towards in 2024? Yeah,

 

David Pakman  30:17  

I would say like a better macro just makes it a little bit easier. I'm a long term investor, I invest over like six to 10 year periods. So like, stock prices go up and down, interest rates go up and down, crypto goes up and down. I try to sort of stay away from that noise. But the environment has been so challenging the last two years at the macro economic level, and also macro crypto, you know, the headlines that it scares good entrepreneurs away from taking a serious look. And so my wish for next year, my hope for next year is we're in a slightly improved environment that just attracts more credible entrepreneurs for us to meet with who may not have crypto native backgrounds.

 

Jacquelyn Melinek  30:53  

Yeah. And those are people we could bring on the podcast then. So it'd be a win win for everyone. And they all read TechCrunch Yes, of course. David. Lastly, can you leave us with a piece of advice that either you follow or share with your portfolio companies?

 

David Pakman  31:05  

Yeah, so this is a hard one to internalize. But it makes a lot of logical sense. So as a CEO, one of the hardest things for me to learn how to do was to examine the sort of competence level of my direct reports, my senior management team every year or so and see if I could upgrade. So you know, it's controversial, because you're like, hey, if someone's doing a good job, or they were loyal, they came when the company was doing nothing, shouldn't they stay in that role forever. And I think the rule of high performance is that you actually want to add more and more talent to the senior parts of an org as you grow. So training or teaching our CEOs every year or 18 months as the company grows, and as successful, you have access to a new level of talent, and your maybe even more credible accompany than you were before and trying to bring them in at your direct report level to grow the org. It's a real hard thing to get good at. But the CEOs that do this, tend to win.

 

Jacquelyn Melinek  31:59  

All right. Well, thank you, David, for taking the time to talk today. It

 

David Pakman  32:02  

was absolute pleasure. Wonderful to be here, Jackie. Thanks for having me.

 

Jacquelyn Melinek  32:10  

We'll be back next week with conversations around what's going on in the wild worlds of web three with top players in the crypto ecosystem. You could keep up with us on Spotify, Apple Music or your favorite pod platform and subscribe to our companion newsletter, also called chain reaction. Links to the newsletter and stories we talked about can be found in our show notes. And be sure to follow us at chain underscore reaction on Twitter. Chain Reaction is hosted by myself Jacqueline melanic and produced by Maggie Stamets with assistance from Nishad Kulkarni and editing by Kel Bryce Durbin is our Illustrator and Henry pic Yvette manages TechCrunch audio products. Thanks for listening in. See you next time.

 

Transcribed by https://otter.ai