The Inquisitive VC: Max Webster — Version One Ventures
Max Webster is an Investor at Version One Ventures. Max is focused on investing in and helping entrepreneurs build an open internet, financial system (bitcoin/crypto), and energy grid. Prior to Version One, Max founded Entiende Bitcoin, a consultancy focused on increasing access to bitcoin/stablecoins in Latin America. Max was also part of the founding team at Bright, the leading residential solar company in Mexico.
We talk about his journey to crypto and Version One, the Version One crypto thesis, his thoughts on DeFi and more!
NA: Hey Max, appreciate you taking the time to join me, looking forward to the chat. To jump into it can you talk about your background? Your journey to crypto and what interested you in joining a VC firm?
MW: Thanks for having me, Nawaz. So, I wasn’t necessarily looking to get into VC, but I’ve always been fascinated by technology. Particularly within a couple of areas, I think my first passion was energy. Solar energy to be specific. I believed in and still believe that climate change is one of the most important challenges our generation has to overcome. I also love the decentralized nature of energy, of solar energy, especially once we have scalable, cheap enough batteries.
So I spent the first six or seven years out of college working on various energy-related startups. I spent about four years as part of the founding team of a company called Bright, which is essentially the Sunrun or SolarCity of Mexico. We were Y Combinator’s first investment in Mexico and in solar. Through that whole experience, I learned a lot about startups, I learned a lot about bringing an idea to market, we grew the team from three to 70.
While I was down in Mexico I also rediscovered cryptocurrencies and Bitcoin. I read about Bitcoin first back in 2011 when I was a university student. I thought the idea was really cool, but I thought there is no way that it would work and boy was I wrong. Around 2016, I actually re-engaged with the space via Ethereum, because I was really interested in the idea of decentralised energy markets and decentralised energy grids, so I was curious.
And then while I was doing that research I realised that Bitcoin was still alive and that was just a huge aha moment for me. The fact that this thing did not die in the five or six years since I had last seen it was just remarkable. That led to a period where my roommates and I, we got really interested in this at the same time, we were literally just reading about Bitcoin non-stop.
Every night we’d come home and talk about it for hours, we’d watch all of the Andreas Antonopoulos videos, we read every publication we could get our hands-on. A few months into it I quickly realised that in my opinion, this was going to be the biggest technological shakeup, biggest revolution, most interesting thing in our generation, and I decided I had to be a part of it.
What really made bitcoin stick for me was living in Latin America, living in Mexico, having friends that were from Mexico, from Argentina, from Venezuela, from Columbia is that I found it was really easy for me to explain the concept of Bitcoin to them.
The reason is these are people that have lived through, or their parents have lived through two, three, four currency crises, and have very low faith in institutions, very low faith in their own currency, very low faith in the government, very low faith in the banks and so for them Bitcoin is a no brainer.
So that contrast to trying to explain Bitcoin to my friends back home in the States, or Europe or wherever, the reality is, for them and for myself I didn’t really need Bitcoin. The USD, while inflation certainly occurs, it doesn’t impact our lives year-to-year, day-to-day. We are in this privileged position of being the issuer of the global reserve currency, which has all kinds of interesting impacts.
So that’s what caught my attention with Bitcoin. I then left Bright and spent a couple of years, a year and a half or so doing some consulting. So I worked with GiveCrypto, which is Coinbase’s non-profit, doing user and market studies in Mexico. Then I did follow up studies with Bitso, which is the major exchange in Mexico and what I found was a couple of things.
One, people really wanted an alternative to their own currency to save it. The vast majority of people believe that the peso was going to devalue, but the only savings alternative they had to a bank account denominated in their own currency was physical USD. Most people were actually buying physical USD and putting it under the mattress. There was a huge appetite for digital dollars, so stablecoins, and also once they kind of start understanding Bitcoin, which took usually two or three sessions, to get the idea across. Most of them wanted to have a little bit of exposure to Bitcoin as well.
The other thing we saw was for payments. We worked with a ton of people that were migrants from Venezuela, Colombia, Argentina, even from Europe, even Japan and they all wanted an easy, fast, cheap way to send either remittances or payments back to their family and friends back home. Bitcoin and stablecoins were both very interesting for them.
So that’s how I got really deep into the space. I also taught myself how to code, I was not technical beforehand, but decided that if I was going to dedicate the next decade or so of my life to this I wanted to go down to the very base. So I took Justin Moons BUIDL boot camp, which was pretty cool. Learned Python, and we as a class rebuilt Bitcoin from scratch and that gave me a ton more confidence on how the peer-to-peer network works, how the supply curve is determined and yeah I still believe Bitcoin is the most interesting innovation of our lifetime and I think there’s going to be a Cambrian explosion of different experiments.
We individually and as a fund are very excited about DeFi, we are excited about Ethereum broadly. I am excited about Decred, I think Monero is interesting. There are few projects I keep close tabs on.
NA: You have had quite the journey it seems, and I completely understand how the value of Bitcoin is understood much quicker for people in those situations, compared to many in the Western world who have robust financial systems. Could you talk a little bit about Version One VC and what your mandate is?
MW: Yeah, so I forgot to mention that I joined Version One after doing some of that consulting work. Again, was not looking to get into VC, but got introduced to them by some folks at Coinbase and I really love the fund. I’ve only been with the fund for a few months, so I can give you a sort of an outsiders perspective on why I joined and then internally of how we evolved our crypto thesis.
So I joined them because I loved two things, one I loved that they were very focussed on crypto but not only crypto. I think that’s important because funds that are only crypto, I fear that some of them may invest in projects that are not necessarily promising, because that’s their mandate, they can only do crypto projects.
What I like about Version One is that we can be very selective, we believe in crypto, we think its the future, but we can evaluate the opportunity cost of putting money into a new token or an existing token or an equity project in crypto versus something in AI or healthcare or enterprise software company. So, I really like that we can invest in the best of both worlds, we have sufficient expertise in crypto so I think we can still get in the best deals there.
The second thing I liked about our fund is, we are a relatively small fund, we are about a US$45M fund. It’s our third fund and I like that the team is very small. I’m just the third person, Boris and Ang have been doing this together for six or seven years. I like that by staying small get to focus on the early-stage entrepreneurs, the pre-seed and seed deals. We will occasionally do some As or Bs if we really like the company but 80% of our deals are going to be in the seed/pre-seed sweet spot. I love that.
I’m an entrepreneur at heart. I’ve done this for almost a decade, this is what I enjoy doing. That is why I joined the fund, also Angela and Boris are great. I love that we are a distributed tight-knit team. Boris is In Vancouver, Angela is in Palo Alto, I’m in San Francisco. For us, it’s nice to hang out in person once a month or so but COVID hasn’t really changed much. We are already distributed and that works well for us.
In terms of the fund’s thesis on crypto. Boris has been looking at this for a very long time, he’s been around since some of the early crypto meetups. We are interested in a couple of areas, we see two major use cases for blockchain if you will and those two are, money wrapped in code, which I will call financial services, and then voting. Voting as a ledger of value and ledger of intent.
We think that the ledger of value is coming of age. Bitcoin is the most interesting project and will probably be the winner of 80% of the store of value piece of the market. We are interested in companies that provide fiat on and off ramps into that store of value.
So we were investors in Coinbase, we are investors in Lolli. The other big area that we are interested in terms of the money piece of this is DeFi. Boris has been in DeFi since the very beginning. We have been fortunate to work with some of the top teams here. We think that anything a financial services institution does today, whether that’s lending and borrowing or equity fundraising, or insurance, or derivatives, all of that is going to be done in a decentralised manner. That is our fundamental belief.
I would say that is our second big area. We don’t think it’s going to be nearly as big as the money use case, but we are also interested in non-fungible tokens (NFTs) as well. We did Dapper Labs which is Crypto Kitties and I do think there is a lot of interesting opportunities there, but the financial use case is probably the biggest.
In the future, I am very excited about this idea of a ledger of intent. With a new permissionless record of intent, I think that is going to lay the groundwork for a new wave of human organisations. We have these 20th centuries structures around corporations and nations, which have been up to date, but now that we have a new technological primitive, are no longer the best way to organise humanity in my opinion.
I think we are very early days there, we are yet to invest in a project in this space. We are probably where Bitcoin was in 2013 or something, but I’m following DAOs very closely, like Decred. Very interested in what they are doing. Bisq is very interesting as a DAO, we are looking at some Ethereum DAOs as well like Moloch DAO and Metacartel Ventures. I think there is a ton of opportunity there. In the next couple of years, we want to be more aggressive in that space.
NA: I like the point you made about how Version One isn’t crypto-specific, giving you a chance to look at the opportunity cost of investing in an opportunity, that is very interesting. I saw that a core belief of Version One is the importance of Network Effects. In your opinion what is the potential of blockchain and DAOs in regards to network effects?
MW: Man, I mean money has the strongest network effects of all. The US dollars network effects are insane. If you believe that there is a non-trivial chance, Bitcoin or another cryptocurrency could steadily carve away at those networks effects, and build their own network effects then you are talking about a market cap of trillions of dollars.
I think the network effects around money are the most powerful of all and this might be a once in a generation opportunity. Similarly for some of these other computing paradigms, or even layers built on top of some of the blockchains, like a UniSwap for example. What is really cool about DeFi is that you see this whole, money legos, or money building blocks thing going on. Once you built a primitive that someone else can use to remix and build a new financial innovation that hasn’t existed before, for example, flash loans, that wasn’t possible pre-DeFi. Those network effects are really strong as well.
We are really excited about the network effects we see in both those areas. The whole crypto revolution, network effects are just as powerful, if not more powerful here than they were in the Web 2.0 revolution. The difference is just that who benefits from that. Jesse Walden, who used to be a partner at a16z wrote a great piece about this.
That the only difference between the Web 3.0 network effects and the Web 2.0 network effects is who benefits. In theory, the distribution of value should be much broader and I think that’s a really good thing for society.
NA: That is definitely an interesting point. How far do you think we are from bringing Bitcoin into the DeFi ecosystem to the level that ETH is currently at?
MW: It’s a really good question. It’s hard to say but I think it’s an inevitability right. If I had to guess probably the next couple of years it becomes a much more normalised thing. There are some differences in philosophy here, there are certain people that say ETH is sufficient to be the store of value in the Ethereum based ecosystem. I do think it has interesting money like properties.
However, I don’t think any cryptocurrency short of some massive hack or technological failure with Bitcoin is going to be able to beat it on the two axes that I think is most important for having what I would call store of value or collateral, and that is liquidity network effects — I need to be able to get in and out, in a centralized, decentralized manner, anywhere in the world, as quickly as possible, from fiat currency into that currency and Bitcoin is dominant there. And then security right, the amount of hash rate securing the Bitcoin network is 5–10X any other projects in terms of cost to hack it.
I think this is where Decred is interesting, I think people are sleeping on Decreds security. They have a hybrid proof of work-proof of stake model, which apple to apples is at least an order of magnitude more secure than Bitcoin. Obviously it’s not apples to apples, they don’t have the same amount of hash rate, but I do think that the security piece is very interesting.
The other piece with Ethereum is that it’s all about tradeoffs. They have a Turing complete language, great, that allows all kinds of experimentation as a computing platform, but it also means you are exposing yourself to all kinds of unknown unknowns, all kinds of potential security vulnerabilities that Bitcoin, by choosing an intentionally variable scripting language is able to avoid.
I think a lot of people are going to be much more comfortable using Bitcoin as collateral for various assets, for various apps within Ethereum. You only need to look at the spot and futures market of Bitcoin versus everything else to understand that the liquidity is on a different playing field. I think it’s inevitable.
Now how it gets done is interesting. We have seen some sorts of centralized versions of this, I think wBTC is the most common. That hasn’t really taken off, I don’t think people like that centralized model. The most interesting projects I have seen use a decentralized bridge, with something like a tBTC, I think those guys are really smart. Ren, I don’t know them yet but they seem to have an interesting idea as well.
The other possibility, of course, Is that you could basically do it one of two ways. You could build a bridge that locks up Bitcoin and ideally trustlessly mints Ethereum based representation of that Bitcoin as ERC-20 tokens, or you can try and rebuild some of the financial primitives on top of Bitcoin. Which is technologically much more difficult but also not impossible.
I think there are a few really smart people that are exploring this idea. Basically building a decentralized contracts for difference (CFD) platform on top of Bitcoin or Lightning, I mention a few of those projects in the article. So, my best guess is that both are going to happen. There are going to be bridges built between both, both are going to thrive in the long run. It’s hard to say what’s going to be better without seeing them play out in the wild.
NA: Yeah, I see why you think a lot more people would probably be more comfortable using BTC over ETH. I also have a deep interest in democratizing investing and microfinance. Apart from lending offered by current DeFi platforms do you see new forms of finance and investing arising?
MW: Yeah, absolutely. The 2017 bubble, you know most of those projects were, unfortunately, scams, were unfundable projects at best and scams at worst. But the concept behind the ICO was actually quite cool. I think we need to change the name because ICO is so tainted right now. The idea of crowdfunding at scale, absolutely some version of that is clearly the future.
In my mind, I get why SEC and these various bodies in different countries put regulations on normal people investing in projects, but at the same time, it’s also extremely arduous and frankly unfair. I am someone that was not an accredited investor for most of my life and yet I spent a ton of time thinking about this stuff. I would argue, relative to the general population I’m quite sophisticated. It was frustrating to me that I couldn’t participate and start investing. I think there are a lot of people like me out there.
I don’t know what the right balance is going to be between protecting people from frankly scam projects and allowing them to go out there and invest as they wish. If its a spectrum we are way too far on the side of preventing people from enjoying the upside of private companies. Some version of crowdfunding at scale for equity projects and/or for future cash flows of projects, which is kind of what we see in the exchange tokens, is very obvious for me.
I think beyond that you are also going to see some really cool things. There is a really cool company called Roll that is allowing people to issue their own personal tokens. Some guy issued a token, where he is selling access to his future cash flows and that’s interesting.
Again I feel kind of about this how I feel about DAOs, I feel like we are pre-AOL right now. I don’t know if any of these particular versions are going to be the final versions, because we are so early, but some version of allowing someone to sell tokenised cash flows or equity in themselves is absolutely going to exist. Those are two examples I am excited about.
NA: I have seen Roll as well, I think that’s very interesting and have the same feeling towards the restriction of potentially sophisticated investors. When comes to doing due diligence, does your process change when analysing crypto/blockchain investments compared to general investments?
MW: It really varies on a company by company basis. Having a deeper background in crypto means there is less general market research we need to do because we have a pretty strong thesis on where things are and where they are headed. Although we are always open to being surprised, which is great too. Whereas if I get a company in a space that I am not familiar with I need to do a lot more background research.
At the end of the day, we are in the business of picking people right. I think our diligence ultimately comes down to — Do we believe this is directionally correct? Do we believe the market is big enough? And most importantly for any kind of company crypto or not is this a person that sees the future but is stable and disciplined enough to get from the present to there?
NA: Fair points. What is the latest publicly announced investment Version One has made and why?
MW: We participated in the round of Lolli, which was recently announced. This is our second, we did their pre-seed as well. We really love this thesis of onramps to crypto but for people that are not necessarily going to buy it. So we have been in since day one.
It’s a great business to be the on-ramp. Coinbase is awesome and all the exchanges are awesome, but the reality is that there are a lot of people who are not going to go and buy Bitcoin. A lot of “normal people”- I think it’s much more realistic for them to acquire their first Bitcoin via a rewards program, via a gift, via some kind of earning and that’s why we like Lolli.
NA: Thanks for your time Max, great to understand your background, how Version One invests and your thoughts on the future of DeFi.
MW: For sure, thanks for reaching out. Appreciate you thinking of us.
