How Set Protocol Raised $2M from Craft Ventures, Scott Belsky & DFJ

Finding investors, structuring a seed round, and more

NASA scientists attempt to read an entire white paper (1961)

Despite lousy macro crypto markets, VC investment continues to flow into crypto markets, especially at the seed stage. Indeed, in the past few weeks alone companies like Risk Labs and Argent Labs have announced large seed rounds led by top tier VC funds. While these announcements tend to be well covered in the press and on Twitter, one thing that’s struck me is how rarely founders go into detail on how they successfully fundraised.

Over the past few months I’ve attempted to shed light on the fairly opaque process of early stage fundraising in crypto by writing about topics like how to diligence funds and finding relevant investors. As I thought about what else in that process remains challenging for founders, I realized that the most valuable perspective would likely be from someone who has actually gone through it.

Felix Feng is co-founder and CEO at Set Protocol, a platform to create, manage, and obtain baskets of tokenized assets. Earlier this year, Set Protocol raised a $2M seed round led by Craft Ventures and joined by an enviable set of investors including Vy Capital, DFJ, and angel investors like Scott Belsky. Felix was generous enough to spend an hour sitting down with me and discussing how he put his seed round together.

In this interview we cover (amongst other things):

📆 Sequencing: How Felix talked to angel investors first so that by the time he talked to VC funds he had already refined his pitch

🤝Meeting investors: How Felix leveraged the networks of his first few investors into over 100 conversations

💰Tokens vs equity: How some of the best investors in crypto view investing in equity vs tokens

🌎Raising money outside SF: How Felix would approach meeting investors if he were outside a major capital center


RB: Can you give me some background on yourself and Set Protocol?

FF: I’m the founder and CEO of a project called Set Labs. We focused on helping to build a more open financial system and we’re building infrastructure and tools around token aggregations, bundles or baskets of tokens. The most natural kind of use case for that is like index fund or ETF products. So we’re aiming to create infrastructure where people can create and issue these ETF’s in a fully decentralized manner in which there’s no intermediaries in between. And we aim to build the protocol in a way in which they’re rent, so there’s no charge from the company for people to use this protocol and it’s open to anybody.

I don’t know if you heard of projects like 0x or Dharma, but our go to market strategies are very similar — we’re kinda like Stripe in the sense that we focus on getting developers to build using our tools and they in turn, serve the end user, which might be the investor who’s trying to buy a token basket or a portfolio manager that’s trying to help rebalance a token.

But back to the original question. I came with the idea back in last October, so almost a year ago when I actually went to ETH waterloo, which was the one of the first ethereum hackathons. And I was thinking about or what kind of infrastructure was missing at the time. And I’d heard about stuff like 0x and I realized that no one was really working on a fully decentralized index fund or etf products.

RB: And you were at 21 [now earn.com] at the time correct?

FF: I was actually working at a machine learning startup called Radius as an engineer. I worked at 21 prior. I was starting to kind of explore the space — after I left my previous startup I was reading white papers and trying to understand kind of what’s going on and trying to hash things out. I did Consensys academy which was this developer program where they teach you how to build decentralized applications and about how blockchains work.

RB: Can you walk me through the journey from having the idea at ETH Waterloo to going to raise?

FF: Yeah. So I guess like part of it was I was lucky that I wasn’t kind of financially constrained , since I had savings. I had sufficient personal runway so I was able to continue to go to events, validating my idea, etc. I went to Devcon last year to talk to folks and people were very excited about and what we’re doing and eventually in October we just launched a white paper and a website without any intention to start a company or do a fundraiser. And it was something that we released just out of pure interest, something that we wanted to contribute to the community. But after that we just started to get an influx of interest from investors. like people were asking us, oh, can we give you money? This was before we had even thought about fundraising.

And so that led me to start talking to various potential investors. For example, Kyle Samani reached out to me on twitter and I ended up getting coffee with him in SF and other folks started coming up and having casual conversations with me. And so probably a month after I had released the white paper I started exploring ‘what if we made this a business’? What would it look like? So that kind of began a process of having coffee chats with various investors and kind of feeling out what the interest was and getting initial ideas of how this can be structured. And it wasn’t until the new year (early 2018) in which actually started a full fundraising process, which we ended up closing in about two and a half months. So even though there was a whole bunch of kind of leg work that was done in December 2017, I would say we officially started raising in January 2018.

RB: If you had less personal runway and so more pressure to get capital in earlier on, how would you have approached that?

FF: One way to go about it is kind of working on the project on the side. So, keep your daytime job and pursue this as a side hustle on nights and weekends, and use that time to validate the idea. Once you get a little bit more validation, maybe start with like a pre-seed or do a friends and family round first.? Get enough of runway, maybe tens of thousands of dollars to help you get to the next level. From there, go out and gauge the market, start talking to a few angels and see where the objections are. If you get enough conviction to move forward with a round, then you can go out and pursue the idea full time.

RB: This was your first time raising money — who did you ask for advice?

FF: Yeah, so one thing I didn’t touch upon was that back in 2017 I was actually also doing a lot investing myself in pre-ICO projects and equity deals. I was helping to run this angel syndicate called Turing Capital. It had about 30 people working on it. We were doing a lot of deals back then and that gave me a lot of kind of general context on how fundraising in the space worked. The founder was Michael Karnjanaprakorn who was the the founder of Skillshare and had raised a lot of money from some of the best VC funds on earth for Skillshare. And he’s been a really invaluable advisor for us in terms of helping with the fundraise.

Another one of our advisors is Paul at Pantera Capital. I started working with Paul on the side in consulting roles for Pantera back in 2015 and kept working with them until 2016 or so. Paul and I did a lot of investments together in 2017 and so we’ve built this really great relationship and he’s also an advisor for us. He’s seen so many deals and so has been really helpful for us when we went through process.

Finally, its funny how one of my investors ended up being a go-to person for advice. Over the course of our fundraise, Steve Jang at Kindred Ventures has helped refine our business strategy, pitch, and connect us to the right folks. He took a pro-active role in helping us review and negotiate term sheets as well.

RB: You presumably had some goal for the fundraise— let’s say it’s $3M for 15% of the company as example. How did you back that out to inform how you ran the fundraising process?

FF: I think a big part of it is knowing what valuation and amount raised is achievable. For example, when we went out to raise, we looked at what comparable projects had raised — for example, Radar Relay, dYdX, Dharma. They had all raised capital at similar valuations and similar amounts. So we thought we had at least a rough benchmark of what we should be able to achieve. So in terms of valuation and raise, we had a pretty clear idea from the beginning of how much we wanted him to raise, what type of runway that would give us, and what proof points that we’d need to be able to successfully execute that raise.

We tried to be very strategic about the actual raise itself. We ended up talking to 100 investors, but the types of investors we talked to along the way was very thought out. I guess the way to think about it in the beginning is that you want to talk to people who won’t necessarily reject you off the bat. For example, if you talk to a VC at a well known firm and you want them to be a lead investor, you really have one chance to pitch them.They’re very busy, they see many deals and so when they take a meeting with you, they expect your pitch to be polished and they expect you to be able to handle all the objections that they come up come up. If you’re not ready for that, the meeting may or may not go well.

So we started by talking to angels.Some of the early angels we talked to were people like Linda Xie, Steve Jang, David King, Jack Harris. Certainly some of them did not invest but it was good to talk to them early to get their feedback on what they liked, what they didn’t like, and that allowed us to continue to refine our pitch. I think it’s really important to focus on refining the pitch because your initial pitch is probably gonna be a really poor version of what you end up actually pitching towards the end. So in the beginning, you want to get validation and feedback (but also ideally at the same time get initial commitments).

So that’s how things began for us — we had a number of conversations with angels but at the same time we wanted a lead investor who had high conviction and could lead the round. And that was also usually a requirement for the angels who were coming in as well, they would commit to invest with the asterisk that there needs to be a lead investor who is pricing the round.

RB: I’m curious on the feedback you were getting — was it more strategic — ie this is the story you should be telling, etc? Or were there also people who were going through the deck or white paper with notes?

FF: It was a combination of both — it depended on how involved that investor wanted to be. For example, some investors that really try to add value on that front, we’ll send them the deck and they come back with a bunch of feedback on it. For example, some of the early feedback that we got was around how we thought about competitive moats, and how we were thinking about network effects and defensibility. That was a big part. Some other feedback was regulation — that was something that we didn’t think about until later down the line. Those were some things we had not thought as much about until we got the initial feedback from people and that led us to talk to lawyers and get their opinion on what they were doing.

RB: The way I tend to think about fundraising — or at least the way that I’ve seen a lot of founders do it — is they start with like this really big list of investors and they kind of qualify or disqualify them based off things like check size, thesis, whatever. Then they get introductions, they talk to them and then hopefully at the end they put together a round they’re happy with. Is that roughly how you structured your process?

FF: For us it was the complete opposite. We started with talking with angels and almost every meeting resulted in a few introductions to other angels. So we started with the list of maybe like four people and then every meeting resulted in introductions to three or four more people and essentially that let’s kind of grew over time to one that was over 100. At the time we didn’t know which which funds were investing in equity and so it was really the introductions from the angels that allowed us to create this list and then from there we were able to qualify, disqualify based on the meetings that we had.

RB: So it’d be like someone would say you should talk to these three or four people and you’d triangulate some data points and say yeah make an introduction to this person, actually that person maybe is not a good fit for it?

FF: Yeah. So our earliest commit was Cindy at Vy Capital. I had met her back in October even before I had a white paper and we kept in touch. She ended up getting enough conviction that she was our first commitment for us before we were even ready to accept money, and over the period of our fund raise she continuously made introductions for us, including people like Kartik at SV Angel.

RB: Yeah that’s really interesting, it actually sounds like a much more organic way to run a process than how I tend to think about it.

I feel like I’ve heard a couple of common pieces of advice on fundraising. One is to start speaking with the funds you don’t really care about that much first so you can get some feedback. Another one is potentially start with angels and get some momentum in the round and then aim to get a lead. I’m curious how you approached sequencing in the round.

FF: Yeah, the second one is kind of what we did — we got some angels onboard and then got a lead because at the end of the day for a seed round, it’s all about getting a lead investor. Once you have a term sheet [from a lead] that’s pretty much most of the battle. Once you have that and you’re able to figure out the terms, then it’s kind of just rounding up the rest of the folks who want to participate in the round.

I think the first half of fundraising for us was really building enough momentum to be able to have enough proof points or social proof points to be able to get a lead. And once we had the lead, we were off to the races. After that, it was just figuring out if there was another lead that we potentially want to come in and accelerate the conversations with them and and then once we signed the term sheet, it was more of a matter of deciding who was in given that the round was oversubscribed.

RB: In terms of qualifying and disqualifying investors, I’m curious what data points you use to do that. Was it we’ve heard good things about this person, we haven’t heard good things about that one? Was it this person doesn’t seem that knowledgeable about crypto or our business? Curious how you thought about what investors made sense to keep in the round.

FF: We generally tried to talk to everybody outside of short-term investors. In 2017 especially, there were a lot of crypto funds that were more interested in purchasing tokens and quickly flipping them in the market. Our one filter was that we didn’t want to talk to any investors like this — we wanted people who were aligned the vision of what we’re doing long term. And they also had to be open to investing in equity as well. Not many crypto funds or investors at the time were necessarily ready to do that, which is really interesting because many venture capital firms weren’t ready to invest in tokens.

RB: I’d love to touch on geography for a bit — you’re based in SF as is Craft Ventures [who led the round]. How much of a role did geography play in the round? Were there investors in New York or Europe that you didn’t meet in person but you wanted in the round?

FF: Yeah it helps a lot to be geographically situated close to your lead investor, and particularly in the same time zone — it obviously helps to be able to attend events and to meet them easily. Our first term sheet we used received was actually from a fund on the east coast and we did talk to angels and investors in Europe as well. There were a number of European investors that we would have been very interested in including including like Pamir at Libertus Capital and Stefano and Yannik. We also talked with some folks in Asia — like you mentioned, crypto has a very global investor base.

RB: So did you end up taking money a lot of investors outside SF?

FF: So most of our investors are SF based — we do have some investors like Scott Belsky who are NY based, but now that I think about it most of our investors are in SF.

RB: In your white paper, you lay out that, at least in theory that you could have a token at some point. It seems like you were pretty dead set on raising equity when you went about the round. It was almost counterintuitive then — I mean it was only eight months ago, but I feel like back then every VC fund was amending their limited partner agreements so that they could invest in tokens.

So two questions — one, why you made that decision and two, how did that impact investor conversations?

FF: So we decided not to do a token very early on because we thought that there wasn’t necessarily a native token that fit well within our protocol. Many other projects have artificially injected a token into their protocol and used that as a means to raise capital. I was more focused on trying to build infrastructure and useful tools for people instead of raising capital for the sake of raising capital. In addition, I felt that injecting a token needlessly would cause a lot of technical debt and organizational debt in terms of having to constantly work with token-holders and we would need to potentially think about how to engineer a token or continue to build our software in a way that our token actually accrues value and those things we weren’t ready to do.

We also don’t want to close ourselves off from introducing a token in the future and so just just decided that equity was probably what made the most sense. We also considered other funding sources such as like trying to get money from a foundation or even self-funding but there’s a lot of benefits to having an investor base including social proof, help with hiring, accountability.

In hindsight this was completely the right choice. I think a lot of the teams that have done tokens, they potentially have a fairly low quality investor basis. They have unsophisticated investors all over the world that they have to report to. We have a small group of sophisticated investors to understand the risks that we’re taking are open to, For example, can make strategic shifts without being under the public purview.

RB: Yeah, I mean it seems like a lot of companies that actually may have a good underlying business introduced tokens and kind of forced it into their models. They’re now struggling because it’s something that’s very hard to go back from — Quantstamp may be the best example, where they may have a decent underlying business but almost definitely didn’t need a token and now have thousands of people that hold their token. It’s unclear to me how they go back from that and so I think a lot of teams will find themselves in this downward spiral where people realize the token wasn’t necessary, the token will start decreasing in value, and a lot of employees that were compensated with tokens will start leaving.

Did you get pushback from investors on equity? Were there any investors who explicitly wanted tokens?

FF: Some investors we talked to were not able to do equity. For example, Multicoin at the time, they only invested in tokens. Funds with hedge fund structures tended to prefer tokens but actually most investors that we talk to preferred equity because at the time they hadn’t amended their agreements with their limited partners yet and were much more familiar with equity price round structure. We actually got a lot of praise for not doing a token and doing equity.

RB: You obviously spoke to a lot of funds during this process and it seems to have covered the spectrum from venture capital funds like SV Angel to crypto-focused funds like Multicoin. I’m curious whether there were there major differences in your experiences with those groups of investors.

FF: So we didn’t take too much money from crypto focused funds. Craft Ventures, who led the round, is traditionally a venture fund but they have gotten into crypto. We took money from venture capital firms and angel investors that were crypto savvy but didn’t take much money from funds like Polychain that are explicitly crypto-focused.

RB: For companies that are raising equity that may have tokens in the future, I feel like there’s a couple options they have in terms of like potentially giving those tokens to investors:

-They could just grant them a pro-rata share of tokens

-They could give them the right to purchase tokens at a specific discount or just generally the lowest terms.

-They give investors zero contractual right to tokens.

I’m curious what advice you’d give to founders in this position and if you had any pushback from investors here.

FF: That’s a good question. So I think that investors are much smarter now on questioning why a token should exist in the first place. Does it accrue value in the long run? Does it make sense within the protocol that you’re building?

The way that a lot of people are approaching it now is they can structure the entity as a holding company that may hold tokens on behalf of many other investors. Investors invest in the equity of that company which holds tokens on behalf of the investors and so that a nice compromise because (1) the investor can invest in equity and (2) it doesn’t have to worry about tokens but they still get the upside and the company also can be flexible about strategy.

I’ve also seen companies raising equity but doing a gentleman’s handshake with investors and saying, okay, well if we did a token, we’ll honor that you were an early investor in some way either through a discount or giving them an allocation of tokens

RB: How do you think the overall crypto market, or specifically fund’s or investor’s macro exposure to crypto impacted your conversations? Prices weren’t as bad then as they are now, but when you were raising, things had come from the peak for sure right?

FF: Yeah. So in terms of the public crypto markets, like things were coming down. Bitcoin I think peaked around January and then ETH had a peak maybe a few weeks later and then things kind of started declining from there. It’s really interesting because even though the public markets have been collapsing, that hasn’t really hurt the funds investing in equity. There is an unprecedented amount of capital that’s flowing into private markets. There’s a lot more capital and investors who have really gotten smart on investing in crypto and equity deals.

So in fact, I think there’s more capital that’s flowing into crypto through equity deals than before. So I think we had it tougher actually, when people weren’t as smart, weren’t as prepared to invest in crypto via equity. There are many new funds like A16Z crypto that are flexible around structure and are very thoughtful about how they decide to invest, and so I think these are a lot better for people who are really focused on building companies versus people who are just trying to do ICO’s.

RB: So the price of ETH today is about roughly 30% of what it was when you went out to raise. I’m curious, do you think if you were going out for a raise now that would change conversations in any way.

FF: I actually don’t. I think that market for token sales has maybe dried up, but I think the market for equity is stronger than ever.

RB: It’s funny — I feel like, you know, six months ago maybe all these funds we’re trying to amend their LPA’s [limited partner agreements] to buy tokens, but it seems now based on my conversations with people doing equity rounds that all of these funds that are structured as hedge funds actually now exposure to equity. And so it’s now like the pendulum is reversed.

In terms of meeting investors, it seems like you started with a group of angel investors and then it was this network where each person would introduce you to more people — almost like a tree structure. Is that how you would describe it?

FF: Yeah, it was kind of like this tree where we started with one investor and that led to a few more branches and those branches led to some more until I guess we kind of exhausted the investor base in silicon valley basically, or at least the base that was interested in crypto at the time.

RB: I feel like a a common question I get is how do you meet investors if you’re not in SF. If you’re a strong team in Prague for example, cold emails don’t really work. A Twitter DM is probably not going to work. I’m curious what advice you would give people — let’s use Prague as an example — where they don’t have a strong network in SF.

FF: So I was actually in Europe like two weeks ago and I was there for ETH Berlin and blockchain week. I was also there for this event that these crypto VC’s Stefano and Yannick were hosting in Italy. I think like there’s actually a growing number of crypto funds and interest in Europe. Even though European VC firms have traditionally been very conservative in terms of investing. They tend to require a lot more metrics, a lot more proof points in a business model to make a seed or series a investment.

I think on the crypto side they are now just as risk-taking as funds in SF. So I think that if you’re out in Prague, you know, if you go hang out in Berlin or London, there’s a lot of funds like Fabric, Mosaic, BlueYard — they are all doing a lot of crypto investment out there. And of course in Asia that there’s a whole host of crypto vcs and hedge funds out there as well.

So I think starting with your local geography is good. I mean maybe if you’re based out of Africa or Australia, it might be a bit tougher, but in those cases I think that twitter is kinda like a good place to start. In fact a number of people that I try to help out have come through twitter.

RB: So let’s say if you’re not in your continent’s capital center [ie in Europe but not in London], how would you actually meet these investors? Is it hackathons? Like how would you focus on breaking into that scene?

FF: Yeah, I think you’re right — the hackathons, devcon, the industry events are really great places to meet investors. I was in ETH Berlin and ETH Denver and usually these events are reserved for hackers. But I’m starting to see that a large amount of participants in these events are in fact investors. For example, we’re hosting an event called DeFi ahead of ETH SF and we’ve found that a large amount of the attendees are in fact investors. So I think that being able to demonstrate something cool at one of these events is a good way to get exposure and start talking to people.

RB: I’m curious — you said you had 100 conversations with investors. What software or workflow did you use to manage this?

FF: Yeah. I mean it was really basically just google sheets. We had a few spreadsheets in our google drive — we had a sheet with a whole bunch of columns, like you know, the fund name, who we were talking to the last conversation, what stage they’re in. We treated it was like a sales funnel- you had people that we had talked to, people that we had a first meeting with or a second one, people interested in leading the round, which people were interested/have already committed. So it was pretty primitive but it was basically using a spreadsheet as a CRM system.

RB: Yeah. I feel like that’s what I’ve heard most people describe.

What did the investment process look like at Craft or any of the VC funds you talked to? I’m sure the specifics are confidential but at a high level was it 1–2 conversations, partner meeting, technical deep dive, etc?

FF: Yeah, it really depends. With our lead investor, they worked closely with another venture capital firm called Vy Capital. I had talked to Cindy there extensively and she did a lot of diligence — we showed her their financial model, the progress we were making on the product side of things. That led to her making an introduction to Alex at Craft (now at Passport). We had coffee literally I think at the same spot as we’re having it now haha. He was excited and that led to me having a conversation with David Sacks at their office in Menlo Park.

From there they seemed interested and floated the idea of leading but first did more diligence on their end, chatting with Vy Capital and getting more data points. That led to a conversation where they said they were interested and asked us about what terms we were comfortable with. We knew at the time that that was the fund that we were most excited about leading and so we moved quickly from there.

RB: If you’re a SaaS company raising an initial funding round, you probably have a deck, maybe some financial models. But you had a deck and a white paper (like many teams in the space), there’s obviously a lot more of investors to dig into.

I’m curious how that impacted conversations, whether you were using both the deck and the white paper, and what percent of investors actually read the white paper?

FF: When we went and had a conversation with an investor, we only came with the deck. The white paper was public and it was up to the investor to read the white paper. I would say maybe like 30 to 40 percent of investors end up reading the white paper. White papers are pretty intensive and they require a large amount of investment in time to understand. So, it’s normal that only a certain percentage of them would actually end up making that investment. In fact, probably many of our investors did not read our white paper. I guess for a crypto company it was pretty much a requirement to have a white paper but it doesn’t mean that investors themselves actually looked at it.

RB: So for companies going out to raise, they have some set amount of time right? They could spend on product, they could spend it on the deck, on the white paper. Do you think it’s fair to say that your white paper is probably not central to a fundraising process generally, especially if you’re raising on equity?

FF: So I think it really depends. I know a number of other startups that raised money without a white paper, they went out with just the idea, but at the same time, for me I was more of an unknown founder going into a fundraising. So I needed more proof points. Whereas, some other founders I know might have raised money kind of on their reputation or on their personal name. If you have that [reputation or existing network] then you don’t necessarily need a white paper or a public code base. So I think i tranges, but I think generally the more unproven you are, the more proof you need.

RB: I feel like there’s this very open debate for companies that have a token, specifically around how value is going to accrue to equity holders. I mean at a high level in theory, equity holders own a portion of the company, which owns some percent of tokens, which will increase in value. Whether or not it plays out like that is still unproven, right? How much did investors push on that thesis or did most people seem OK accepting that?

FF: In our original business plan we did not have a token — and this is not what we’re doing anymore — but originally we were planning to build a decentralized brokerage actually in which we would run a trading bot on the back end and we would make a spread on that. In that model, any revenue ended up going back to the company, just like just like any other traditional equity company. So given that that was our near term monetization model, we had more questions around those mechanics and regulatory issues than questions around a token.

RB: So my last question on the raising part, I feel like you hear a lot about how story matters when fundraising. Specifically that companies need to paint a picture of what you believe the future is going to be, this is where we fit into it, etc. Did you find that to be true?

FF: I think the story is incredibly important. At the time we were raising we were seeing this explosion of tokens. Everyday there seemed to be new tokens issued and we believed this was part of a much broader kind of decentralized finance movement in which many of the existing centralized financial services will end up getting transposed into decentralized forms. And our lead investors are generally really big believers in this same thesis. Craft for example, incubated a company called Harbor that was working on security tokens and they have the same thesis there.

RB: So this conversation may not be as relevant to you because you didn’t raise that much from crypto funds, but you may have seen it through Turing where you have these token presale rounds that end up being these crazy party rounds where there are 20, 30 investors. I feel like especially a lot of high profile Asian projects, I look at their websites and there are like 30 investors listed. This is in stark contrast to the equity side where traditionally the rule of thumb was that party rounds are bad, you want someone to come in and lead it and price it. I’m curious if you see this, with the swing back to equity, it seems like a lot of crypto funds aren’t really set up to lead rounds. I’m curious if you’re seeing this.

FF: From what I’ve seen, this is right. I think part of is that because the round amounts are just so high that many individual crypto funds don’t have the AUM to take a large portion of it. So if a project is raising $30M traditionally, leading it would mean you put in like $15M or something like that. Most crypto funds can’t write those big checks.

I think another interesting thing is that in crypto, money has tended to flock to the highest quality projects, right. There are a certain number of projects that have stellar founders or groundbreaking protocols and everyone is interested in those particular projects. And usually there’s so much interest that they end up increasing the size of their round to accommodate everybody. So there, maybe even if an investor started as a lead, other funds end up coming in and creating this party round setup.

I think one exception to that is Polychain — they have the AUM to confidently lead rounds, especially on the equity side of things. And they’re also set up to do equity, so I’ve been hearing that they’ve actually been kind of monopolizing all of the good equity deals because they’ll take up a majority of a round.

RB: Yeah for sure — I mean you look at them leading a $60M round into Dfinity, there’s not many crypto funds that are set up to do that.

FF: Or let alone have the conviction to do that. I think many crypto funds are actually very risk averse. They rely on social proof in making investments versus digging deeply into the code and understanding whether a project will work or not because there’s only so many people who are capable of doing that technical analysis. Polychain has the capabilities — they hire really, really smart research analysts to perform this analysis. Whereas most crypto funds are maybe one or two people who have nontechnical backgrounds and aren’t able to dig as deeply.

RB: There seem to be all of these crazy instruments floating around — SAFTE’s, etc. It sounds like you didn’t actually have to deal with this because you were just raising equity but I’m curious if you have any advice for founders who are handling this where some investors might want equity and some might want tokens.

FF: At the end of the day, we wanted to create something that’s fair for everybody. In the event we do a token, we also want our early backers and supporters to be compensated for the risk that they took in the company. So I think at the end of the day the way to think about it, is that you’re creating a partnership with your investors and you want to create a good situation for everybody.

RB: To me there’s an open question in the space where it’s very unclear how companies are going to raise money in subsequent future rounds. In theory right, you have a white paper that lays out a token distribution schedule and many companies are selling all of there’s in the initial round. And so you see these things like the MakerDAO A16Z investment where there are still a lot of open questions around governance, etc.

FF: Historically, the way to think about token sales was that it’s just a one time fundraising event in which the capital that is raised is used for subsequent development into perpetuity. One example is 0x where they raised $25M. They were smart in that they converted it all into dollars immediately but they still have some 0x tokens which they can use to compensate employees.

At the same time, you have projects like District 0X that maybe started with a few million dollar round with the intention of doing subsequent rounds. For example, once we hit a certain milestone, we’ll raise our next round. I think that’s a much healthier type of fundraising process that’s more similar to how traditional equity works. Obviously with pure equity it’s not an issue because you can raise subsequent rounds in the same way that companies have traditionally done it.

RB: How do you think about fundraising in the future?

FF: Part of it is comparable companies — seeing what other similar projects have had been doing and it seems like kind of the path that they’re taking is generally raising a series a.

RB: Is that someone like Radar Relay?

FF: Yeah that could be someone like a radar relay or like some other projects that are maybe in market now that maybe haven’t announced yet. So we’re likely going to go down a path of kind of raising additional equity through additional dilution and I think that will continue to be the case until we have a better idea of what a sustainable token model looks like.

RB: My final question would be is if you had to do this again, what would you do differently?

FF: Yeah, I mean I’ve definitely made my fair share of mistakes when going out to market. A couple of pieces of advice I’d give — definitely start with angels. And make sure you’ve gotten feedback before you start talking to potential lead investors. I definitely talked to a few potential lead investors where I got a straight up no from the first meeting because I was unprepared. I wasn’t ready to answer certain questions eloquently or I hadn’t thought deeply enough about certain aspects of our business. So I think a big part is just preparation and very strategic about who you talk at what time.

RB: Awesome, I really appreciate you taking the time.


A huge thank you to Felix Feng for being incredibly generous with his time for this interview. Thanks to Peter McCormack (who runs one of the best podcasts in crypto) for his feedback on the interview.