The Inquisitive VC: Ash Egan — Accomplice
Ash Egan is a Partner at Accomplice, a seed led venture capital firm. Accomplice has been part of the origin story of AngelList, Carbon Black, DraftKings, PillPack and many others. Before Accomplice, Ash co-launched ConsenSys’ venture arm and started his career at Converge VC in Boston.
We talk about his journey to crypto and Accomplice, DeFi, technical DD on crypto companies, Balancer and more!
NA: Thanks for joining me, Ash. So, I wanted to start with your background and what got you interested in the crypto space for you to pursue it full time.
AE: Yeah. So similar to you, I’d heard about Bitcoin. I had friends who were involved with Bitcoin since really early days. When I graduated from school I wanted to start a company and looked at venture capital as a great way to learn about a bunch of different industries as an investor.
I ended up really enjoying the investing side and I was beginning to look for what was going to be the next platform? You have the internet, you have social, and around these platforms, you have basically trillions of dollars of wealth creation that happens.
This was probably 2015 when I was beginning to look into crypto. So, as a younger venture capitalist, I picked verticalized machine learning and crypto. Crypto at the time was really just Bitcoin or coloured coins. It wasn’t until Ethereum came around that I was like, okay, this is what I want to spend the foreseeable future focusing on.
So, at that time I invested in a company called Chainalysis, I invested in Enigma, I invested in a few others and then ultimately went over to Consensys to help co-launch the venture arm over there.
Then about two years ago, I joined Accomplice to lead crypto. It was really Ethereum, the concept of smart contracts, tying value to logic, for me that was absolutely fascinating. A lot of the things that are now coming to fruition that Vitalik highlighted, a lot of these things are covered in the white paper.
It was really the ERC-20 template that led to this Cambrian explosion of things being built on Ethereum.
NA: Right, and a bit more specifically about your role at Accomplice, I know Accomplice is a general VC, and you’re focused on crypto and blockchain for them. How does the process of sourcing a deal to making an investment flow?
AE: Yeah, it’s a super flat organization which was really important. As I was leaving Consensys I was thinking around do I want to go to a crypto-specific fund, do I want to go into the hedge fund world, because there’s a bunch of approaches there within crypto, do I want to start my own shop or do I want to be able to tap into a platform or a team that has decades of investing experience, but also is keen to deploy capital into blockchain/crypto?
Yeah, it’s super flat. I’d say the team is comprised of a select few investors. The way it works is each investor has sort of their focus areas. Mine happens to be crypto/blockchain. Given the flat organization structure from meeting an entrepreneur to investing, sometimes that process is extremely fast.
Other times we like to get to know the entrepreneurs or help out on strategy, or how they’re thinking around building the company protocol, application, whatever it may be. I think the other great piece is, Accomplice has a ton of portfolio depth within cybersecurity and eCom, and a lot of things that crypto is beginning to brush up against or already has, especially for cybersecurity. So, to me, I thought that was a value add that other funds weren’t necessarily capturing.
Part of the way we work with entrepreneurs is, hey, we have this whole suite of companies that are non-crypto but may one day maybe building on of top crypto networks or beginning to explore. Being able to say we have in our portfolio companies like Carbon Black and DraftKings and Angelist and Coinlist.
To me, that was one of the most compelling parts of joining Accomplice.
NA: Sure, the established general VC angle does seem to provide an interesting value add. Accomplice is part of the Spearhead program, do you happen to have much involvement with that?
AE: Yeah, there are a select few Spearhead leads who are running crypto companies. I’d say I interact with those folks a fair amount. Some of the non-crypto Spearheads are friends or folks who I’ve built out relationships with. It’s awesome because these are entrepreneurs who are looking to build their track record, invest in folks, their friends, their networks.
So, it’s a really nice symbiotic relationship there, you get exposure to things that you would otherwise never get exposure to. It’s been really cool being able to tap into that knowledge base.
NA: For sure, I think the program is a great option for founders looking at VC as the next step. So, I read that you predicted at the end of last year that the DeFi total value locked (TVL) would surpass $3B by the end of 2020. I think we’re past $4.2B now and it’s only been the first half of the year. Do you see that increasing exponentially at that same speed? Where do you see it going and why?
AE: When I made that prediction, I think this was before liquidity mining, this is before a lot of these launches. There’s a lot of friction in the relationship with your bank and in terms of what could get to product-market fit, finance seems to make a ton of sense.
It’s been honestly remarkable to see how fast it’s grown. I don’t think it’s going to be a straight linear shot up to 10 billion or whatever we land to at the end of 2020. It’s going to be volatile, a lot of people are chasing yield and whatnot, but it’s been awesome seeing that growth.
There are so many smart teams that are coming at it from a unique angle. There are new products, and there’s a ton of hurdles though, right? Gas costs being what they are, it’s just taking a way of higher value, lower throughput.
The hope is that you can have microtransactions and smaller transactions and DeFi can be inclusive of that type of commerce. There are layer two teams working on this, there are other layer ones building bridges, there’s gas optimization. There’s a bunch of different approaches to solve for these things.
I think this is just the beginning and it’s really hard to say what that number is going to look like. In my mind, the two metrics that we need to work on as an industry though, are unique users. So, right now we’re around 300,000 users. Which is a microcosm of Coinbases 25–30 million users.
And trading volumes, transaction volumes. It’s been a couple of billion in the last few weeks, which is great, but still tiny in comparison to what we’re seeing on centralized exchanges.
NA: Fair point, I agree that we are still in the very beginning. How important do you think it is to introduce Bitcoin into the DeFi ecosystem and do you think that would really create that exponential growth in terms of total value locked?
AE: Yeah, I think it’s already happening. You have a bunch of teams that are beginning to think around that. Wrapped bitcoin is growing enormously. You have, Keep, that team’s doing some awesome work around it and a number of other teams as well.
I also think DeFi will be happening under the hood in a variety of apps and for businesses. If I’m a business, regardless of where I am in the world, if I can take out a loan at a better rate via a DeFi interface or an aggregator then why wouldn’t I do that?
So, yeah, I don’t necessarily know if it’s Bitcoin coming to DeFi in a permissionless way, that’s going to drive it to that next stage. I think we’re just going to see a bunch of these things, whether it’s Bitcoin, bringing real-world assets, more complex financial instruments that are interfaces, workarounds for rising gas fees, I think it’s going to be a bunch of things.
I don’t look at it just like a single catalyst, because it’s still ultimately small numbers today.
NA: That’s a fair point. This whole yield farming hype, what are your thoughts on the sustainability of that and does it remind you of the ICO hype in 2017?
AE: I mean 2017 was crazy. There are some similarities there, but I think the product-market fit is more true with what’s happening in DeFi today. The reality here is there’s no DeFi related token in the top 25 market cap. Like we’re still living with the hangover of 2017 and what happened there.
Once there’s a few of these in the top 10, top 25 maybe I’ll have a different answer, but no, I think we’re just getting started.
In terms of yield farming, I think it’s super cool you know, being able to acquire users, users can be owners of the protocol. People are using Bal to go in and vote for where the protocol’s going and all these things, which I think is absolutely fascinating.
The other thing is every approach is different, but for Compound, there’s a four-year runway here, for Balancer it’s eight and a half years as of today for yield farming. It’s not like these incentives are going to dry up tomorrow.
There’s unquestionably going to be other teams that come in and they’re going to advertise more attractive rewards or whatever it may be, but ultimately, I think being able to make users owners and reward them by usage, I think that’s such a fascinating development.
We’re seeing obviously a ton of activity there and we’ll see even more approaches.
NA: Recently I’ve been seeing Venture DAOs and the investments they've made in a few interesting companies. What are your thoughts on Venture DAOs and do you see them becoming a legit thing and in the venture industry in the future?
AE: Yeah, I think capital formation and deployment is something that is ripe for innovation. We’re still going off the 2 and 20 venture capital model for the vast majority of companies and even the protocols that are raising.
In the past, let’s say six months you start to hear more about DAOs that are chatting with teams and whatnot. I think the question is, are there decision-makers? Typically, in a community or a forum, if you end up in equilibrium, it could make these DAOs not invest in the best things.
If it’s based on metrics, hard metrics, yield and you can codify it, I think that’s actually much easier, but for early-stage investing, a lot of times you just don’t have the metrics and the data. So, how does decision making happen?
Does it ultimately actually fall down to one to three people within the DAO or the ones that are putting the flag in the ground saying we shouldn’t invest in this and this is what the terms are going to be.
Yeah, I think it’s an area that’s ripe for innovation. I think we’re seeing a few models where they’re investing in some fascinating things. Again, it’s going to be easier if you take more of a data-driven approach versus more instinctual.
NA: Yeah, I seem to agree that capital formation is ripe for innovation. In regards to, technical due diligence that Accomplice or a general VC would do when looking into a crypto/blockchain company, how would you go about it? Is it all right to outsource that or do you reckon the team should have a level of expertise in blockchain/crypto in order to make good investments?
AE: It’s a great question. So, having been in this space for five years, having read hundreds of white papers, I can code up a few things, but obviously not to the extent that these teams are building at.
I think that’s part of it just understanding the evolution of the space, what are issues we’ve run into in the past and all these things have been helpful, but it’s definitely something we think about a ton.
We have a few folks in our team that are extremely technical, and we’ll dig in, but a lot of times we’re investing in things where there’s no code or anything like that. It’s sort of just an idea or a vision. So, it really comes down to the stage where the project is at.
For example, Near protocol. I read their white paper and I was thinking wow, these guys are thinking really differently around a few things like sharding. I set up a call and realized these guys are off the charts in terms of how sound they are from a technical front.
Sure there was some technical due diligence, but the reality is from the original idea to what ends up going main net or the real product, it ends up not being linear. Ends up being different from that original idea.
NA: You’ve been with a few VCs now, in your experience what’s the most common mistake you’ve seen early-stage VC backed founders make?
AE: Yeah, I think you’ve got to trust your gut as a founder. If you’re passionate enough to go and drop whatever you’re doing prior and start a company around that, I think you have to rely on your instincts to an extent. I think the last thing you want to do is just rely on your investors.
Of course, investors are going to roll up their sleeves and help out a ton. But I think relying on your instincts is super important. It also always comes down to the team. Just having a team that is competent, complementary and that you can trust.
Hiring folks that are smarter than you in their respective areas, to me, that’s the most important because there’s going to be hurdles, there’s going to be unforeseen events and you want to have a lean enough team where you can figure out product-market fit before having an implosion or anything like that.
So, there’s a bunch of times where you could be too early to market, be too late, have pricing model issues but I mean the team part is just so crucial.
NA: Yeah, those are some great points. You guys have been making investments in the blockchain infrastructure space, DeFi and open finance. Are there any other specific use cases that you’re looking at quite closely?
AE: Yeah, I think it’s a bunch of things. I still think the interfaces to DeFi are underexplored. I wrote that piece on aggregators. I actually think the next wave is curators. Who’s curating these? Whether it’s yield or liquidity or what’s happening under the hood and serving it in a way that feels like a game or feels super intuitive from the end-user.
The reality is we’re at 300,000 DeFi users today, how are we going to get to 10 million? I think some of these things are just simplifying it, streamlining it. I think with DeFi there’s tons of room to grow, but I also think there’s a number of other things that can happen at the liquidity layer, prediction markets, information markets, anything that is historically inaccessible or only accessible to a select few.
If it’s dominated with crypto networks and smart contracts, a lot of times you can create incentives and democratize that type of activity and make it more equitable for everyone. Any type of commerce that has game-theoretic type behaviours, that could all potentially get built on top of Ethereum or name your layer one.
So, I think we’re just at the beginning and we can go back to what Vitalik has written, what a number of other folks have written. I think the question is timing, when is the right time to build all these things? Infrastructure is getting built out and also you’re having all these interfaces that are getting built out as well.
DeFi has felt like an overnight success, in reality, it’s been happening for years up until now. But now people are starting to pay attention. I think we’re going to see the exact same thing across a number of other areas. It’s not just going to be programmable finance. It’s going to be a bunch of other things.
NA: It certainly did feel like it came out of nowhere. My final question is what’s the latest, publicly announced investment you’ve made and why?
AE: Yeah, so we’ve done a bunch of follow on investments. I’ve written a few angel investments recently, but our last investment was Balancer. The kind of approach that we have is, really working closely with the teams that we back and being very particular in where we’re deploying capital.
We don’t have a spray and pray model, where we’re investing in a hundred things and hoping one of them really hits it. We are still talking to 10–20 companies a week. I think we’ll probably announce a few more in the coming weeks and months.
It’s just crazy. I did not think DeFi would be where it is today. You know if you told me we’re going to shatter that $3 billion, I would tell you you’re lying. You know it seems like we’re just getting started.
NA: For sure, it’s definitely an interesting time. Thanks so much for chatting with me Ash. I enjoyed it.
AE: Likewise Nawaz. Thank you!
