Crypto Venture Capitalist Breaks Down the Likely Winners and Losers of the Ethereum Merger

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Paul Veradittakit joined Pantera Capital as a partner in 2014, where he focuses on corporate venture capital and seed token fund investments. He helped launch Pantera Venture Funds and the company’s token funds, which have made over 100 investments. Paul also sits on the board of Alchemy, Blockfolio and Staked, is a mentor at The House Fund, Boost VC and Creative Destruction Labs, and is an advisor at Audius, Ampleforth and Set Labs.

In this interview, we discuss how Pantera is approaching this new bear market, the best ways to diversify a portfolio, and what he’s looking for in terms of potential investments. He also shares insight into the investments he’s most proud of as well as a major opportunity that slipped away. Finally, we touch on who he thinks will be the winners and losers of the Ethereum “merger” and which crypto verticals are poised to succeed next.

Forbes: How would you say being a crypto venture capitalist is different from being a traditional VC?

Veradittakit: There are a few key differences. On the due diligence side, you sometimes get anonymous founders. Plus, many of these deals aren’t just based in Silicon Valley, they’re global. So you have to work a little harder to understand the mutual connections and do your due diligence on them. I would say that since a lot of these companies are going to go public and issue a token maybe sooner rather than later, it’s good to assess the community first maybe by jumping on the Telegram or Discord servers. Transaction structuring can also be different and we want to find the right alignment between equity and tokens for each specific transaction.

Forbes: How is investing in a crypto winter different from investing in the crypto bull market?

Veradittakit: First of all, we have a little more time to evaluate the offers. There also seems to be a bit more leverage for investors to create more reasonable valuations, but also structures that make sense. Knowing that tokens are not launched as often during a bear market, a large portion of the rounds right now will be stocks. I would also say that a greater percentage of deals are based in the United States, because many of the sectors that are being focused on right now are infrastructure. We’re also starting to see a return to more companies formed by guys leaving established companies like Facebook and Twitter. Generally, a lot of the deals right now are aimed at helping institutions get into the space, and we’ll see a slight slowdown in consumption.

Forbes: What is your approach to developing the diversification of your portfolio?

Veradittakit: We try to invest in the winner of each category that we find interesting, but we also believe in geographic diversification. When we invest in Layer 0, 1 or 2 protocols, we take a global perspective. But once you start getting into the infrastructure side of things – the custodian of a certain geography or exchange wallet – these can be geographically specific, especially when they involve regulations and decrees. on the ramps. It’s also interesting to see that there seems to be some diversification between platforms. For example, there are people who invest in similar businesses in different chains. And that seems like an interesting diversification and segmentation, where it’s almost like iOS and Android, looking at it as completely different ecosystems and huge market sizes.

Forbes: What markers are you looking for in a potential investment? Plus, are there any red flags that immediately rouse your Spidey senses?

Veradittakit: When we’re presented with a deal, we first try to figure out if there’s some kind of validation we can get through that connection. For example, what kind of introductions has this person made for us in the past, and how did they go? What kind of relationship does this person have with the company? Are they already customers or investors? These are very strong signals compared to just a college buddy. From there, I would say it really depends on the use case and our competitive positioning. The next check I would do is look at things like what are these guys doing? What market? Is it big enough? Does it conflict with what I’m doing right now? I also look at their technological differentiation, the quality of the team and customer service. At the end of the day it comes down to “Okay, this all sounds great. What can I do? Am I the best investor for them? What can I do to really increase the value of this company, because it also makes me want to see if I can add a lot of value to them.”

A major red flag would be a question about the character of an entrepreneur. I think that’s the most important. Another is when people overpromise and underdeliver. I also like people to be humble, and if people are a little too over the top in terms of marketing, that will push me to dig deeper.

Forbes: Are there any offers you’re really proud of or any offers you regret passing on?

Veradittakit: There are so many in our portfolio that have done very well, and I don’t want to pick favorites. But the chemistry is worth mentioning, maybe since I’m on the board. We led their Series A, and the whole team has been just tremendous in helping them get to where they are right now. They’ve reached a valuation of $10.2 billion, which really shows that we’re committed to funding great teams that are building a product that meets a huge use case and a need for the entire industry. ecosystem. Regardless of the channel, these guys focus on the customer and they only ship on the product side. This is exactly what you need, especially if you’re in the service of developers. To be able to go there, to be the right partner for them and to be able to bring them so much value, from hiring to business strategy.

As for the ones we missed, I really wish we invested in FTX early on. We ended up having some exposure through some acquisitions of portfolio companies like Blockfolio, but at the time we weren’t quite sure how things were going to change in terms of regulations.

Forbes: Do you think the Ethereum merger will take place in September? If so, which tokens are about to rise or fall as a result?

Veradittakit: It looks like the merger is going to happen, and I think it’s going to bring a lot of exposure and development to Ethereum. The Ethereum ecosystem will thrive and people will turn to Ethereum, Layer 2s. I also think it could be useful for DeFi and potentially even push other use cases like NFTs on Ethereum. So that will probably shift the focus a bit more to Ethereum. The other Layer 1s will need to assess how this is going and determine what their differentiators will be after the merge.

Forbes: The SEC has been very active in recent weeks, especially in asserting that many tokens available for sale on exchanges are in fact securities. What do you think of this recent activity?

Veradittakit: We will continue to try to help educate and advance the regulations. Clarity is better than being in the dark, especially for our entrepreneurs. I also think there’s also an opportunity to invest in infrastructure and technologies that look at the more regulated world, like things around know your customer (KYC), security and assurance.

Forbes: Do you have any parting thoughts?

Veradittakit: First, I see so many great entrepreneurs coming out of traditional technology. It looks like there are a ton of people coming from Robinhood, Google, Stripe, and DoorDash. Maybe some of them were fired, maybe, maybe not. But now that stock prices are falling, there is less incentive to stay and people are choosing to build in a crypto bear market. In addition, a lot of capital has been raised on the venture capital side. Many funds have been poured in and many of them are focused on the seed stage. So I see a lot of great ideas and a lot of great companies being created.

One area I’m particularly passionate about is NFTs. It’s still very early days, but we’re going to see a lot more opportunities for creators and brands to engage with NFTs. I’m also very excited about the games, but I think we’re still too early here. It takes time to make great games and I think the best games will be made by game entrepreneurs. But there is an opportunity for some of the infrastructure to be provided to help those game developers harness the blockchain. So those are the areas that I think are primed for more and more disruption. I’m also excited about the opportunity to invest globally in regions like India, Southeast Asia, and Latin America, especially around NFTs and games. These areas are great for a lot more fiat on ramp options, a lot more payment infrastructure, and then also things around NFTs and games.

Forbes: Thanks.

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