The Inquisitive VC: Kenrick Drijkoningen — LuneX Ventures
Kenrick Drijkoningen is the Founder of LuneX Ventures, a spin-out from Singapore based VC firm Golden Gate Ventures. LuneX has a global mandate to invest exclusively in high-growth blockchain companies and cryptocurrency assets. Kenrick is also the Head of Growth at Golden Gate Ventures and has previously worked, invested and advised in a range of startup companies.
NA: Hi Kenrick, thanks for joining me.
KD: Hey Nawaz, thanks for reaching out, happy to answer your questions!
NA: To get right into it, I wanted to start the conversation with how you got into the world of venture investing?
KD: Through a couple of different routes. I've always been interested in investing, global macro, and different types of markets. Ten years ago post my MBA I started working for startups primarily. Started in a gaming startup, in Singapore when I just started out, where we had a successful exit to King Digital. Then did a travel startup and then got into GoldenGate as Head of Growth. On the side of that, I’ve always done my personal investing in public markets, and angel investing. So it's really personal passion that eventually drove me into that sector.
NA: Interesting journey, and with LuneX Ventures why was it formed? Why couldn’t you just invest out of the Golden Gate Ventures Fund?
KD: I started working on this in 2017. Because I like global macro and global markets and I’ve lived in many different countries and seen how inefficient the banking system is across all of them. Originally I got into Austrian Economics way back in 2008 during the Global Financial Crisis. I looked into Bitcoin and crypto a little bit in 2013 but skimmed over it so didn't really dig into it. But then in 2016–17 one of the Golden Gate portfolio companies, called Omise, started preparing for their token sale at that time and that's when I really looked into it again. I thought, “how did I miss this for so long”, this is really the next version of the internet and this will actually change the world in a significant manner that we haven't seen in a long time, starting with better money, which is Bitcoin itself. Following this, I pitched internally to set up a dedicated fund for this. It had to be separate because I wanted to hold crypto assets in the fund as well and obviously it's not something you can do out of traditional venture funds, you need to structure for that separately.
NA: Sure, so mostly it was to get the structure right to hold crypto assets as well as equity in these companies.
KD: Yeah, so a) you need a different structure to hold crypto assets, b) this whole industry is very specialised and very different from any other venture investments and c) most of Golden Gates funds were looking at later stage deals, Series A to Series B, while I think that most crypto deals are seed-stage at this point. So many different reasons why it had to be a different entity.
NA: Okay understood, when it comes to you doing the DD into companies you're looking to invest in, how do the DD requirements for blockchain/cryptocurrency companies/projects compare to the DD requirements of other companies you might have seen as part of Golden Gate?
KD: Golden Gate at the time were looking more at Series A to Series B companies, where it becomes more about looking at what the traction is, what is the revenue, what are the user numbers, whereas at seed level it is much more about the founders, do we think there is a big market opportunity, rather than the actual metrics. I guess in traditional venture investing you can look at proven business models or look at different countries with businesses at different stages of development. So things that are being launched in South-East Asia they have usually already launched in the US or China and now they are being explored over here. So you have some kind of benchmarks or comparable to look at those companies. In crypto, everything is blue ocean, its all different and new, which is good and bad. The bad is that it makes it much harder to assess, you need to think if there is still going to be a global opportunity a few years down the line because there is no historical precedent or any other geography to benchmark this against. But the good thing is that these companies have a global opportunity from day one. If you build and exchange or wallet in Singapore versus the US, that's much more global from day one than traditional venture companies that are focusing on geographical regions.
NA: Specifically when looking into crypto opportunities, is there a core question you ask when assessing the opportunities?
KD: I think it really depends on the different funds and whats the outlook of the GPs, how they see this ecosystem developing. My view is that the main application of crypto is going to be primarily financial and that we are building a new parallel financial system. If you are building a new parallel financial system, you will need to have all these different building blocks in place that service that whole ecosystem, that mimic or compare to the traditional financial system. Not necessarily the same but things that overlap, which is why we invested in a custody solution, an AML solution, a wallet, an exchange, all these different building blocks that you would expect in a future new financial system. So that is what I ask if in ten years we have a parallel financial system, is there a need for a company like this and do we think there is a large enough market for this at that point in time.
NA: Okay, so its mostly thesis informed. Are there any big red flags you’ve seen when analysing crypto investments?
KD: Strange token or equity combinations and together with sky-high valuations. Much less, fortunately, these days, but there are still companies trying to raise large amounts of cash with just a token sale. Even worse is if they do a token sale but the founders hold all the equity in the companies, that is just a misalignment of incentives which is a red flag to me.
NA: It's great you mentioned tokens, we have seen the phase of ICOs and last year we briefly say IEOs, do you think there will be a recurrence of token-based funding?
KD: In a different form. I think it will go into a more regulated structure. Because what is a token? Why are people selling tokens? It is either a form of money, like Bitcoin or Ethereum, people use at as money, or it is a voucher giving access to a product, or a token gives you rights to money, and the eyes of most regulators that would make it a security. By owning the token you paid out or rewarded in something else, Bitcoin, or ether, or some stablecoin, that would be considered a security. I think the whole fundraising landscape will change, but it will take another five years and then maybe you will be able to raise an equity offering through a securities exchange. I don't think those unregulated ICOs will come back.
NA: Sure, so potentially more security tokens rather than utility tokens. Of all the investments you have made, is there one common characteristic you have noticed your CEOs/Founders possessing?
KD: They are all super curious, driven, fairly non-conformist, they are go-getters. From the ones that we have invested in, they are in it for the right reasons. They are not in it just to make a quick buck, but because they really believe in the eco-system.
NA: I think you have answered my next question, which is where do you see the most opportunity with blockchain technology from here onwards? Is it correct that you think it is the financial ecosystem?
KD: Yes, I think so. That doesn't mean there won't be other applications, there will be. We just invested one, but I can’t talk about that one yet. But, yeah there will be other applications and those will be really interesting applications as well. I just think the biggest opportunity, the biggest pie is in the financial ecosystem.
NA: How important is the geography of a company to you? Being based in Singapore, do you prefer the company to be local or you are open to global companies?
KD: We can do global, we have done two deals in the US and one in Korea, but the rest are in Singapore. I prefer Singapore deals because you are closer to the founders, you can meet them more often face to face, you can often find these companies a lot earlier, rather than relying on someone else to introduce a deal to you from overseas and we can be much more helpful to these companies if they are local. We can do anywhere, but we very much prefer if they are regional or local.
NA: With this whole COVID-19 situation, how do you think that would impact the venture capital space?
KD: I think what most people would expect. The coming few months, at least the next two to three months, everything will be on hold. There is no other fundraising going on, you can’t even meet companies face-to-face. Any relationships that didn't exist before, it will be very difficult to develop new relationships now. So for the coming three months, I think a lot will be on hold and then it will depend on whether this COVID situation spills over into a larger financial crisis, which I personally think it might just do. If that is the case then valuations will drop and it will be more difficult to for VC funds to raise capital, which will then make it difficult for startups to raise capital, valuations go down and will be not a great period for everyone involved, but the jury is still out.
I do think that it also depends on the industry, which we are already starting to see. Some companies are doing really well now and others not so great, particularly physical stores versus online ones. Particularly crypto could do very well as it is all digital, gaming is an industry that could do very well out of this as well.
NA: Yes it very much seems like we might see a financial crisis as a result of this. Finally, what is the latest publicly announced investment you have made and why did you invest?
KD: The latest publicly announced one was Blue Wallet at the end of last year. Blue Wallet is a mobile iOS and Android Bitcoin-only wallet. We invested because these guys are a hundred per cent focused on building the best Bitcoin-only wallet. So they always have the latest features, straight out of the box. Their lightning solution is particularly nice, it is custodial which is not great but UI is super easy to onboard and use Lightning. I was a user myself for a long time and really like the wallet. They are pushing new feature every few weeks and I think its just a great product.
NA: Okay fantastic, really interesting to hear your answers. Thank you so much for joining me for a chat and I hope you enjoyed it.
KD: For sure, always happy to participate.
