Fred Wilson’s 6+ years as a Blockchain Investor
A Story of Resilience, Patience, and Constructive Criticism
Bitcoin was introduced more than 8 years ago. Since then it, and its underlying blockchain technology, have gone through cycles of hype and disbelief. Just like with any new advancement in technology, investors have been critical to the ongoing development of blockchain technologies. One of those early investors is Fred Wilson from Union Square Ventures. Since 2011, Fred has been bullish, yet critical, on the crypto market.
Early investors like Fred know that with high, potential, returns comes very high risks. They know that the road will be bumpy, but that those with resilience will be rewarded handsomely. Well, only if they bet on the right horse.
Here at Playbook, we went back on Fred’s incredible blog, avc.com, and found evidence of his resilience and confidence on blockchain technologies at times in which people had already deemed it a failed experiment. Here is that evidence:
I know that measuring something using y/y growth rates can be misleading because of the small numbers involved. But Bitcoin is the fastest growing area in startup investing over the past three years.
And yet not one VC in a room full of them (90 of them) raised their hands when asked how many would invest in a bitcoin startup.
Maybe the distinction is bitcoin vs blockchain. I understand that. But bitcoin and blockchain are joined at the hip. You don’t get one without the other. So I’m still scratching my head.
But I do know one thing. When not one hand goes up in a room full of VCs, go there. It is going to be profitable.
At a time in which every VC seems to be throwing money at anything that has blockchain in its name or description, it is strange to look back at a time in which 0 out of 90 VCs were willing to invest in the market. But despite this industry-wide disbelief on the market, Fred knew there was something big there.
Bitcoin and the Blockchain have yet to give us a killer app.
One recurring theme in Fred’s posts for the past couple of years has been his criticism of the market, despite his belief in it. Almost like a parent that pushes his kids to go further and further, Fred kept reminding the community that blockchain had yet to make an impact on the world.
I’m not ready to declare that Bitcoin has failed. But I’ve always viewed Bitcoin as an experiment that could fail and I still do. I personally own a material amount of Bitcoin, but in our personal asset allocation it is at the very bottom, below our wine collection. And I’m not a wine collector.
Being this realistic is perhaps one of the many reasons why Fred has succeeded for over 30 years as an investor.
And yet, standing here today, I cannot point to a blockbuster company that has been built on blockchain technology. There has been no lack of trying. There is no lack of funding. I am a true believer and yet I can’t help but admit that despite all the hype, all the effort, all the capital invested, there has not been anything truly transformative to society that has been built on the blockchain, except perhaps Bitcoin itself and likely Ethereum. But these are enablers. What have the enabled other than grey and black market activities?
You know you are in a unloved sector when you start getting hated on for your boosterism on Hacker News. I saw this comment there last week:
After every VC, every founder, just everybody is talking about AI and bots Fred is a bit late to the game but better late than never. Or maybe writing about the Blockchain kept him back.
Which brings me back to resilience. That is what keeps me excited about the blockchain sector and that is what all of us who are true believers need to have right now.
This is a Bitcoin price chart since Jan 2013.
If you draw a trend line from the start of that chart to the end of that chart, it is steadily up and to the right. And during that same time, we have seen so many things that should have meant the end of Bitcoin. And yet, it just keeps chugging along. That tells you something.
So just like the set of technologies we are working on developing and commercializing, we need to be resilient in our work. And personal and professional resilience starts with a belief system. We must remind ourselves of why we believe in open, resilient, distributed, and decentralized systems and the power of these systems to produce profound change for businesses, economies, and society at large.
There have been and will continue to be headwinds for blockchain based technologies. Fundamental change doesn’t come easily.
You can be realistic while still hoping for something better. This transcript of Fred’s keynote at Coin Center’s annual gala in 2016 is a must read to begin understanding how good investors think.
There was a time when I was a Bitcoin absolutist. That changed a while ago and I now believe that we are going to have multiple blockchains, multiple currencies, and a ton of app tokens, some with their own blockchains, some built on top of Bitcoin or Ethereum.
It’s a very interesting time in the public blockchain sector right now. Stuff is happening. Lot’s of stuff.
Rapidly changing times reward those with an adaptable mind.
For me, this ebook highlights the challenges of marketing the blockchain. We have done a poor job of it to date and the sector is full of technologists and mostly empty of marketers.
That needs to change. We need more people like Jeremy and William who can popularize deeply technical stuff and make it make sense to the average person.
I’ll know we are getting somewhere when my Mom understands the blockchain and why it is important to her.
We aren’t anywhere near there right now.
Constructive criticism at those critical times of incredible hype.
Which takes me to some things we have been thinking a lot about at USV recently. Things like Blockchain and Genomics. We think we are very early in these two important technological revolutions. We are investing actively (but not heavily) in one of them (blockchain) and trying to find the right entry point to the other one.
I think that the investing we are doing in these sectors right now is more likely to be like Psuedo Programs than YouTube or SoundCloud.
But I also think that you have to be early to learn the technology and the markets and build the networks and relationships that will allow you to see, understand, and invest in YouTube when it shows up. What you don’t want to do is lose patience or interest and move on, like the Lumiere brothers did. Early stage VC is a marathon, not a sprint. That is true in everything, from the hold periods, to the work you do with a portfolio company, to the patience you must show towards a sector you think will be important. It is hard to sustain the enthusiasm sometimes, but if you have conviction about something, you have to stay the course.
This whole post was particularly interesting as it is basically Fred rationalizing resilience and perseverance in investments that to many see as irrational.
So, while ICOs represent a new and exciting way to build (and finance) a tech company, and are a legitimate disruptive threat to the venture capital business, they are not something I am nervous about and they are not something USV is nervous about. We are excited about them when they are the right thing for our portfolio companies and we are encouraging those companies to use this new approach. We are also investing in tokens, through token funds, and directly on or own.
I have been a big booster of Bitcoin, blockchain, crypto tokens, and the like on this blog for the past six years. I am a big long term believer in this sector. USV is investing in this sector. We are investors in token funds and I believe we will start directly buying tokens soon. So we are bullish on crypto.
However, there are many things going on in the sector right now that are head shakers to us. We have been investing in startups and emerging tech sectors for over thirty years. We have seen this movie before . We know how it plays out and we know that all is not up and to the right forever.
When people are afraid, be greedy. And when people are greedy, be afraid. We are much closer to the latter scenario in crypto right now and while I am not afraid for my investments and USV’s investments in this sector, I am afraid for the sector and those who are being the most greedy right now. I am cautioning our portfolio companies to tread carefully and we are treading carefully. And I would advise all of you to do the same.
Good investors are not in it for the quick profits. Warren Buffet shares Fred’s views on this.
So, my gut says we are headed for a selloff in the crypto sector. But of course, I could be wrong about that. I am wrong a lot. But honestly, I don’t really care. I will keep buying into this correction or rally, whatever it turns out to be. Because the more important question is where these assets will be in five or ten years. And I have a lot more conviction about that one.
Once again, Fred’s self-criticism serves as a refresher to all of us just getting started. If one of the greatest investors of all time can be wrong a lot, then so can we.
I remember back in the late 90s, a reporter asked my partner at the time Jerry Colonna what he looked for in entrepreneurs.
Jerry said “I want to back people who are doing a startup because of the mission rather than the money, because someday the market will crash and the money will be gone and I want to be with an entrepreneur who will still be around then.”
Bubbles always attract people who are chasing the easy money. And those people come and go.
But crypto is about a lot more than making money.
And the people who are into crypto because of the mission, a global decentralized platform for innovation, are going to be around after this bubble bursts, and the next one bursts, and the next one bursts. They have been around since before the April 2013 bubble and the November 2013 bubble, building this important technology. And so have I and I’m not going anywhere either.
Disruption takes time, and Fred and Jerry’s words are great to keep in mind when thinking about who is going to actually have an impact at the end of the day.
We want to thank Fred for publicly documenting his thoughts on blockchain throughout the years. We encourage everyone to go read all of the posts we linked to above, and the rest of his posts. There has seriously not been a bad one since we started following it.
Learning from Fred’s resilience, patience, and self-criticism can give everyone in the startup world an incredible tool to battle the volatility that comes with the market we have chosen to be in.
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