Podcast Summary: E152 - The Peter Thiel Mistake This Crypto VC Won't Make

Podcast Information:

• Title: How I Invest with David Weisburd
• Host: David Weisburd
• Guest: Evan, Founder of Portal Ventures
• Episode Title: E152: The Peter Thiel Mistake This Crypto VC Won't Make
• Release Date: April 4, 2025

1. Introduction to Evan and Portal Ventures

Evan, a former star associate at Insight—a prominent $90 billion fund—shares his journey of transitioning from traditional venture capital to founding Portal Ventures in early 2022. With a robust background from Goldman Sachs to Insight, Evan's expertise spans software, internet, fintech, and notably, cryptocurrency.

Notable Quote:

"One of my favorite things about investing is it's really like psychological warfare in some ways."
— Evan [00:00]

2. The Decision to Start Portal Ventures

Evan discusses his motivation to establish Portal Ventures, emphasizing the emergence of cryptocurrency as a distinct asset class beyond Bitcoin. Recognizing the unique de-risking mechanisms, sourcing strategies, and return profiles in crypto, he believed traditional venture funds wouldn't translate their success to this new domain.

Key Points:

• Early Involvement: Evan's passion for crypto ignited during the DeFi boom.
• Asset Class Recognition: Identified crypto as more than just Bitcoin; a multifaceted asset encompassing various protocols and tokens.
• Launching Portal Ventures: Raised $40 million for Fund 1 in early 2022 to become a leading first-check crypto investor.

Notable Quote:

"Blackstone is not the world's best venture capital fund. And so I have limited reason to believe that the world's best venture funds will be the world's best crypto funds."
— Evan [02:22]

3. Investing as First Check in Crypto Protocols

Evan elaborates on the strategic advantages and inherent risks of being the first institutional investor in emerging crypto protocols.

Advantages:

• Early Insight: Ability to witness a protocol's evolution from concept to potentially multi-billion-dollar valuations.
• Game Selection: Investing early aligns with selecting high-impact games that can yield outsized returns.
• Optimal Risk-Reward: Belief that early-stage crypto offers superior risk-adjusted returns compared to its volatility.

Disadvantages:

• Extreme Volatility: The crypto market's rapid evolution mandates constant reinvention to avoid obsolescence.
• Limited Longevity: The shelf-life of relevance in crypto is short, necessitating perpetual innovation and adaptation.

Notable Quote:

"Investing in general is all about game selection. You have to choose the games that make sense."
— Evan [02:29]

4. Building a Crypto Investment Portfolio in a Volatile Industry

Evan outlines Portal Ventures' approach to constructing a diversified portfolio amidst the ever-changing crypto landscape.

Core Principles:

• Unique Insight and Execution: Backing founders with distinct perspectives and the capability to scale within large markets.
• Thesis-Driven Investing: Quarterly evaluations of emerging theses related to markets, technologies, or business models.
• Deep Dive Strategy: Limiting investment scope to thoroughly understand and capitalize on selected theses.

Notable Quote:

"Our job at the end of the day is to produce outsized returns for our LPs."
— Evan [07:34]

5. Developing and Operating on Investment Theses

Evan delves into how Portal Ventures formulates and operationalizes investment theses to identify promising opportunities.

Process:

1. Idea Generation: Continuous compilation of potential investment ideas.
2. Prioritization Rubric: Assessing theses based on market size and actionable factors.
3. Deep Specialization: Gaining world-class expertise in selected theses to narrow the investable universe.
4. Portfolio Construction: Targeting a diversified portfolio of at least 30 assets with a minimum of 5% ownership each to ensure fund return through a few multi-billion-dollar successes.

Case Study: Bitcoin Economy Thesis

• Initial Belief: Bitcoin will surpass merely being digital gold, necessitating enhanced capital efficiency and programmability.
• Outcome: Successfully invested in Arch, leveraging the Taproot upgrade for efficient smart contracts on Bitcoin, leading to substantial returns as the protocol gained prominence.

Notable Quote:

"If you have a couple of assets that are multi-billion dollar outcomes, we're happy with our fund math."
— Evan [07:34]

6. Lessons Learned from Fund One and Strategies for Fund Two

Reflecting on Fund One's successes and areas for improvement, Evan shares pivotal lessons that shaped Fund Two's strategy.

Successes:

• Conviction Investing: Backing unpopular or early-stage ideas that later proved successful, even during market downturns.
• Proprietary Deals: Approximately 70% of Fund One's investments were proprietary, meaning Portal Ventures was the sole institutional investor at inception.

Areas for Improvement:

• Double Down on Winners: Recognizing the need to increase investment in high-potential companies when initial progress slows.
• Flexibility in Valuation: Learning to occasionally pay premium valuations to secure positions in promising startups, despite initial aversions.

Adjustments for Fund Two:

• Increased Fund Size: Doubling capital from $40 million to $80 million to allow for doubling down on successful investments.
• Enhanced Follow-On Capabilities: Actively leading subsequent funding rounds for top-performing portfolio companies.

Notable Quote:

"We raise like from 3 or 4 companies in Fund one... we would have really liked to have led follow-on rounds to increase our ownership."
— Evan [22:01]

7. Comparing Crypto Investing to Biotech Investing

Evan draws parallels between crypto and biotech investing, highlighting similarities in evaluating probabilities and milestones.

Comparison Points:

• Stage-Based Risk Assessment: Just as biotech investments progress through phases (preclinical, clinical trials), crypto protocols evolve through development stages (idea, testnet, mainnet, adoption).
• Probability Gates: Assessing the likelihood of a project advancing to the next stage, akin to biotech's success rates at each trial phase.
• Valuation Challenges: Similar to early-stage biotech where revenue isn't predictable, crypto valuations are speculative and based on potential milestones rather than immediate financials.

Strategic Insight:

• Valuation Framework: Instead of relying on early revenues, Portal Ventures focuses on the probability of success and market potential when valuing crypto projects.

Notable Quote:

"If you have a world class team and you have fast iteration, you have a world class."
— Evan [28:50]

8. The Importance of Team Dynamics in Investment Decisions

Evan emphasizes the role of internal team debates and partnerships in refining investment choices, ensuring high-conviction, contrarian bets are well-vetted.

Key Strategies:

• Encouraging Debate: Promoting vigorous discussions among partners to challenge and validate investment theses.
• Sparing Consensus: Valuing outcomes where not all partners agree, fostering an environment where contrarian ideas can thrive.
• Mutual Accountability: Ensuring that investment decisions are robust through collaborative scrutiny, enhancing portfolio quality.

Notable Quote:

"If we're not debating and we're not disagreeing, we get concerned."
— Evan [29:05]

9. Long-Term Investment Strategy in Crypto

Evan outlines Portal Ventures' vision for enduring success in the crypto space, akin to building a lasting franchise.

Strategic Drivers:

• Protocol as Business Models: Viewing protocols as new forms of businesses with minimal fixed costs and scalable potential.
• Market Evolution: Anticipating trillions in market cap creation as the crypto industry matures over decades.
• Survival Focus: Prioritizing strategies that ensure the firm's longevity to capitalize on future fund cycles and compounding returns.

Challenges:

• Market Volatility: Navigating the unpredictable nature of crypto markets, where success metrics rapidly shift.
• Valuation Uncertainty: Addressing the lack of consensus on valuing crypto assets compared to traditional venture investments.

Notable Quote:

"It's about game selection then. ... with the ownership we're getting if a handful of our companies are multi-billion dollar outcomes."
— Evan [35:04]

10. Addressing LP Concerns and the Future of Crypto Investments

Evan responds to skepticism from Limited Partners (LPs) regarding the sustainability of high returns in crypto.

Rebuttals:

• Alpha Potential: Crypto remains a frontier with opportunities for outsized returns due to information asymmetry and evolving market structures.
• Liquidity Profile: Contrasting traditional venture's long lock-up periods, some crypto investments offer quicker liquidity events, attracting LPs seeking faster exits.

Future Outlook:

• Continued Innovation: As the industry demands intrinsically valuable projects, Portal Ventures anticipates a healthier market structure fostering sustainable growth.
• Institutional Adoption: Growing institutional involvement in Bitcoin enhances its stability and prospects, indirectly benefiting the broader crypto ecosystem.

Notable Quote:

"Crypto is a relatively new product that still has the potential for outsized returns."
— Evan [35:15]

11. Insights on Bitcoin Dominance and Future Trends

Evan analyzes the current dominance of Bitcoin in the crypto market and projects future trends through 2026.

Current Dynamics:

• Institutional Influence: Increased institutional holdings in Bitcoin influence market behaviors differently than in past cycles.
• Capital Allocation Shifts: Unlike previous cycles dominated by retail speculative investments, institutions now approach Bitcoin with different strategies, reducing the flow into altcoins.

Future Projections:

• Altcoin Resurgence: Alts are expected to gain traction as fundamentally valuable projects emerge, driven by a shift towards intrinsic utility rather than mere speculation.
• Market Structure Evolution: A move towards profitability and sustainable business models in crypto will likely balance Bitcoin's dominance with the rise of high-value altcoins.

Notable Quote:

"We don't think there's consensus even on how these assets will be valued if they are successful."
— Evan [37:19]

12. Reflections and Final Thoughts

Concluding the conversation, Evan shares personal insights and regrets, emphasizing the importance of conviction and strategic double-downs on high-potential investments.

Final Lessons:

• Triple Down on Conviction: When confident in a thesis, increasing investment can amplify returns.
• Early Signals of Success: Monitoring team iteration speed and adherence to the thesis helps differentiate between transient setbacks and genuine challenges.

Notable Quote:

"If you can survive, you build a franchise where you build 10-15 funds into the future."
— Evan [31:21]

Conclusion

Evan's discourse provides a comprehensive look into the strategic intricacies of investing in the volatile crypto sector. From foundational decisions to nuanced investment theses and portfolio management, his insights underscore the balance between conviction and adaptability. Portal Ventures emerges as a forward-thinking entity poised to navigate and capitalize on the evolving crypto landscape, ensuring sustained success and value creation for its investors.