Interview with Kyle Samani, Managing Partner of Multicoin Capital

By Daniel Dal Bello, Director.
January 17, 2020–7 min read.

Kyle Samani is a co-founder and managing partner of crypto-focused investment fund, Multicoin Capital (‘Multicoin’). Kyle began programming at the age of 10, and founded an enterprise software firm developing solutions for smart glasses prior to founding Multicoin in May 2017.

Multicoin is a thesis-driven investment firm that invests in cryptocurrencies, tokens, and blockchain companies. The firm manages two distinct funds. A hedge fund investing in public markets and a venture fund investing in private markets — together exceeding $100m under management.

In this post, we share a conversation with Kyle about Multicoin’s investment approach, venture capital in the crypto-markets, investment due diligence, and Arweave — a recent addition to Multicoin’s portfolio.

Daniel Dal Bello
Kyle, you’ve been fascinated by technology and software from a young age. Tell us about your journey into the blockchain world and about your current role today as a managing partner at a leading crypto-fund.

Kyle Samani
My Dad has been programming since he immigrated to the US, so I’ve been around computers my whole life. I really became passionate about technology during adolescence, and then became infatuated with the cross-section of business and technology as the first round of tech blogs flourished (TechCrunch, Anandtech, Ars Technica, etc). Since then, I’ve read consumer technology and business content every single day without exception. This has been going on for almost 15 years. The content has refined and changed, but the rigour has not.

After studying finance at NYU, I started my first tech startup in the health IT space called Pristine in May 2013. Pristine built software for Google Glass for surgeons; it was one of the only use cases for Glass that really made sense. After raising a Series A and growing to millions in revenue, Google killed Glass, which effectively ended my business. I pivoted the company, and Pristine was ultimately acquired. Through this process, I learned the hard way what platform risk means. And so when I discovered Ethereum a few months later, I was immediately drawn to it as an open development platform that no one could take away from me. That was in early 2016.

“And so when I discovered Ethereum a few months later, I was immediately drawn to it as an open development platform that no one could take away from me.”

Over the course of 2016, my interest in crypto grew from a curiosity to a passion, and by early 2017 I realized I wanted to invest in crypto professionally. At that point, Tushar and I made the decision to launch Multicoin, and we launched our hedge fund on October 1, 2017.

Daniel Dal Bello
As I understand it, you have a relationship-focused approach to your work. When you are evaluating a potential investment, what do you look for when speaking with entrepreneurs and founders?

Kyle Samani
Like most other venture capitalists, there are a few major criteria we are considering:

• Founder/market fit: What is it about the founder’s background that makes them uniquely suited to solve the problem at hand?
• Market size: How big is the market? If the idea works as intended, how big can it get?
• Defensibility: If the idea works and starts to grow, inevitably it will attract competition. How does the business/protocol develop moats that make it difficult for followers to catch up?
• Crypto: Our mandate is to invest in crypto-enabled businesses and protocols. So we need to understand the unique crypto angle to the investment thesis.
• Team: I think of three major sub-categories here:
  1. Do the founders have the background and skillset to pull this off,
  2. Are they coachable to learn what they don’t know, and
  3. Are they committed enough to make it happen?

Startups are hard, and the founders face all sorts of obstacles. They have to persevere in spite of obstacles. How can we be a value-add? We will not invest if we cannot add value beyond capital.

Daniel Dal Bello
You describe your firm as a crypto-native fund, what strengths does your team bring to the table, and what does your overall due diligence process look like?

Kyle Samani
We have a deeper understanding than most of the technologies, strategies, tactics, and market structure that make the crypto-ecosystem work. As such, we are uniquely qualified to make investments at the cutting edge of crypto-enabled technologies (e.g. Starkware, Near, Solana, and Arweave), the maturation of both developer and market infrastructure (e.g. Tagomi, The Graph, and dFuse), and new crypto-enabled applications (e.g. Helium and Livepeer).

Daniel Dal Bello
Since your founding in mid-2017, how would you describe the changes you have seen in capital raising strategies for blockchain companies? From your perspective, are the days of public raises over, with more concentrated strategic investments overshadowing any public participation?

Kyle Samani
For high-quality teams, none. The tourists — both entrepreneurs and investors — are gone. The real builders and high-quality investors are going through the same processes as traditional companies: preparing materials, sharing the vision, and articulating how they’re going to execute.

For now, high profile public raises are probably over. But I think they will return in some form or fashion at some point, but it’s unclear when or what the catalyst will be.

Daniel Dal Bello
Do you see the venture capital market within the crypto-ecosystem becoming more competitive as the space matures, and as traditional funds begin showing interest in blockchain technology?

Is it fair to say that an early financial backing is no longer sufficient in the current market, and have you always had a value-adding approach to your relationships?

Kyle Samani
In the latter part of 2017 and early part of 2018, a lot of generalist VCs entered the crypto market. Most have left, and now we’re left mostly with crypto-specialist funds like Multicoin. The only other class of new entrant into the market are the VC arms of some proprietary trading shops, such as Jump Capital and Susquehanna and Two Sigma Ventures.

Today, most of the major crypto-funds are looking at most of the backable deals. The ecosystem is more collaborative than competitive, although that will probably change in the future.

Daniel Dal Bello
The crypto-ecosystem from your perspective as a venture capital firm has a unique dynamic in that you might have the opportunity to invest in equity or tokens for a blockchain company. Which do you prefer, and why, or is the ideal actually a mix of both?

Kyle Samani
Multicoin invests in both equity and tokens, although we are generally token-biased. We don’t make our investment decisions based on the structure of value capture (tokens vs. equity). Rather, we invest in equity when we believe the opportunity justifies a business that provides a profitable service, and we invest in tokens when we believe there is an opportunity for a protocol to connect network participants in ways that were never before possible.

Daniel Dal Bello
We can talk a lot about what you look for in companies and founders, about who you’ve invested in, but what about when it’s time to exit and investment?

Can you talk to us about your strategy in that respect? At what point do you start to realize an investment and look to redeploy that capital elsewhere?

Kyle Samani
We exit our investments when our thesis has played out. This typically takes years, and can sometimes take upwards of a decade. We have yet to exit any of our private market investments.

Daniel Dal Bello
Multicoin has backed many impressive companies, including Algorand, DFINITY, Bakkt, SKALE, Solana and many others. For this conversation, I want to highlight a recent investment, Arweave.

This is a company building a unique data-storage protocol on a blockchain-like structure — the Blockweave. Arweave’s one-time fee for permanent storage is a perplexing concept for most people, as we’re used to subscription contract-based storage.

What is it about Arweave’s protocol and the team that ticked the boxes for Multicoin? What future do you see ahead for this company, and why is a permanent data storage protocol important today?

Kyle Samani
Arweave is pioneering a fundamentally new market. We don’t know how big the market is for permanent storage, but it’s our sense that this market need is larger than most people realize. Given how much content is lost from the Internet, and the rise of fake news and edits, we think there is a growing need for a permanent data store. Moreover, Arweave naturally benefits from the growth of the developer community around IPFS, which is thriving at this point. Arweave is not competitive with Filecoin; rather, it acts as a different economic layer–with different economic guarantees–than Filecoin, while being effectively compatible with IPFS.

Arweave is also clearly subject to network effects: as the Blockweave grows and people store more data in the system, that system locks up more value, making it more valuable, and justifying more miners on that chain. Even if someone were to fork Arweave and create a competitive network with an identical codebase, that network would be less valuable, and therefore the demand side of the network (people who want to store content) should rationally be more sceptical of the smaller, less-proven network with less capital at risk.

Effectively, as the network grows in size, the more valuable it becomes for existing miners and for people who need to store content in the future.

In terms of the team, Sam is a classic definition of having founder/market fit. With his background in distributed operating systems and passion for blockchains, it was just natural that he would launch something like Arweave. And in terms of the team, he has assembled a diverse team that’s executing on the technical, operational, and go to market goals to make the Arweave a reality.

Today, there are more than 100 applications live on the Arweave network, including tools to quickly archive Tweets and Wikipedia pages, mailing and communication systems, time-stamping systems, browsers, and more. Also, tools like ArQL make it really useful for users to query the Arweave network to understand the types of content being stored.

Hillrise Group supports ambitious Web3 startups with early-stage venture capital and fundamental research.

Multicoin Capital is a thesis-driven investment firm focused exclusively on the crypto-ecosystem.

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