The Inquisitive VC: Soona Amhaz — Volt Capital
Soona Amhaz is a General Partner at Volt Capital and co-founder of Token Daily. At Volt Capital, Soona invests in the brightest builders from the Token Daily community to help usher in the next frontier of tech. Prior to Volt Capital and Token Daily, Soona was an early hire at Alation.
We talk about her background, how she developed her investment thesis, her experience raising a fund, contrarian investing, DeFi, inflationary vs deflationary shocks, and her investment in Magic!
Thanks to Colleen Sullivan for the intro!
NA: Thanks so much for joining me Soona, I’m looking forward to the chat. To start off with, can you talk about your background and how you entered the crypto space?
SA: Thanks for having me. Yeah, I am an engineer by academic training, I graduated from the University of Michigan School of Engineering. While I was in college, bitcoin was a major topic of discussion for all of us because we spent way too much time on Reddit. A lot of our conversation was about whether or not the government would “allow it to happen.” The space wasn’t mature enough, in my opinion, to carve out a long-lasting career, it seemed like it was in its super early days. Most people who were interacting with bitcoin then probably had what many might call unsavory interests.
After college, I was hired at an early startup called Alation — at the time they had just raised a Series A from Andreessen Horowitz, Data Collective (DCVC), among other great firms. I joined as the 20th hire and over the years, the company experienced tremendous growth. At that point, I started experiencing this itch to start my own thing.
I became the resident crypto expert there, showing people how to set up their wallets, teaching them about interesting projects that were going on, guiding them on who to follow in terms of industry leaders in the space — at the time the space was pretty noisy. People largely got their news from Reddit, Coindesk, and Twitter. I wanted to bring together a community that felt vibrant and high quality, and that people could trust.
So, we built Token Daily and launched it as a community platform, scaled the newsletter out to over 16k readers without any marketing, we threw events and unconferences with builders across Bitcoin, across Ethereum, and across other verticals. We were also publishing research on market trends and tech developments. Over time, projects started reaching out to me before they would launch. Before they started raising they’d ask for feedback in terms of product strategy, helping source talent from our community, and they’d ask for help with distribution via the newsletter. There were a ton of great companies that I was seeing first hand — it just made sense for me to invest in the founders and companies I wanted to see shape the future of crypto.
So, I started investing, and have been investing for the last couple of years. I went on to launch Volt Capital to do what I was already doing, at scale, with institutional capital. It’s been an efficient way to invest in high-quality founders, support them with bigger cheques, and help them build relationships with larger funds downstream.
NA: It definitely makes sense for you to capitalise on seeing early deals and starting to invest. Could you talk a bit more about Volt Capital and what the firm’s thesis is?
SA: Volt Capital does a few things. To start with our thesis: we invest in companies that are helping crypto cross the chasm. This often looks like startups that leverage digital assets but have more traditional business models that make sense in today’s market. The three directional bets we’re taking here are digital asset intermediaries, end-user infrastructure, and open finance. For example, rails that move bitcoin around different countries, like our most recent investment Valiu. We also look at end-user infrastructure as well. Solutions that categorically fall into this bucket include identity solutions like Fortmatic (now Magic) which we’re an investor in, data/analytics tooling, etc.
We are largely investing in equity, so we do not focus on liquid tokens, but we do think that it’s important to provide infrastructure to these projects early on to learn about the networks and what they are doing.
In this vein, we have a staking arm called TD Labs, where we participate in networks as validators. We often aren’t investors in the network, but we’ll stake on behalf of other investors. So, right now we are the number 10 or 11 validator group Celo in conjunction with Staked. It’s been a great experience in terms of learning the types of scripts to run and how consensus is reached on the network. We think it’s important to provide infrastructure, but we take a long term view.
NA: That’s interesting, I like how you are validators and firms that you haven’t invested in. How did you go about forming your investing thesis?
SA: It was a culmination of analysing various parts of the space. Current market demand, what our readers were interested in using — understanding where both big market opportunities and user needs aligned. We then distilled those trends into 3 major buckets: digital asset intermediaries, end user-facing infrastructure, and open finance.
If you think about it, funds usually have anywhere between a 2–3 year investing period based on their time diversity. And the life of the fund will be anywhere from 8–10 years. So, yes you want to be taking futuristic bets, but you need to also ask yourself how far into the future these bets are.
You can’t take 15-to-20 year bets while your fund has an 8–10 year lifespan. If the market hasn’t materialized by the time your portfolio company needs to find product-market fit, then the idea was too early. And that, of course, is the same as being wrong.
I was analyzing, historically, which companies did best when the internet was coming about and oftentimes the best-performing companies were not internet native companies, but companies with traditional business models that became more valuable as more people came online. Many companies with internet-native business models didn’t really succeed until “Web 2.0.” It was primarily companies that supported the internet or allowed people to access it better in the ’90s that ultimately found traction and repeat users.
The next wave, of course, were the Instagrams or Reddits of the world — the internet native companies that people were envisioning in the ’90s but that didn’t really come to fruition until Web 2.0.
I think that it’s important to crawl before you sprint, and right now, it’s important to think about who the winners will be as we phase out of what we call a closed financial system to a more open financial system. It’s a transitionary period.
NA: That sounds like it was a great way of going about your thesis formation. How was the fundraising process for you in regards to raising funds from LPs?
SA: Fundraising is a zoo. There are some people that love your idea and think you’re a genius and some people that are going to hate it. It really depends on their experiences, how they view tech development, and how they view market trends. Many investors also have a habit of outsourcing their conviction — so they might follow what they think their smart friend thinks.
There are always conflicting opinions. It’s best to find folks that understand your viewpoint or, if they don’t, can meaningfully challenge it with an open mind. Look at the content the investors you’re pitching are publishing, and if it aligns with your view of the world, those are usually easier conversations to have.
There’s a lot of literature on strategic ways to go out and raise as an emerging manager. Samir Kaji is one of the most prolific writers here. One rule of thumb is: reach out to your first-hand contacts. From your immediate network, can you raise 25% of your fund? If you’re able to do so, then it’s a good indicator that you’ll be able to raise the proportional target size.
Fundraising is largely a persistence/numbers game. You’ll receive many rejections but it’s important to stay the course. In the end, it’s ultimately rewarding because you get the ability to put your finger on the scale in terms of “I want to back these phenomenal founders,” “this is the future that I want to see in crypto”, but of course it’s always a journey to get there as an emerging manager.
NA: That is very insightful, it does seem like an interesting process. What are your thoughts on contrarian investing?
SA: I think that everyone wants to think that they are contrarian (laughs) but most people are not. It’s easier said than done for most people. That’s not necessarily a bad thing. Being contrarian in general means you are going to be wrong most of the time, but when you are right you are very right. That is something important to consider — to be selectively contrarian.
I do think that what a lot of people consider to be contrarian investing is just a matter of having done the work to research what a startup or idea is all about. Sometimes it’s not a matter of being contrarian but just being better informed. Contrarian becomes mainstream a lot more quickly than people think, just in light of new information.
Michael Lewis has this excellent point in Liar’s Poker where he says, most investors fear solitude more than they fear being wrong, so they’ll gladly stand at an edge of a precipice so long as they’re joined by a few thousand others (laughs). That is a point that does capture a lot of the sentiment around contrarian investing.
NA: That is a great way of explaining it. What do you think is the future of DeFi?
SA: It’s anyone’s guess where it’ll be long term. We’re early so it’s wise to avoid getting too confident or limiting the possibilities to a narrow scope. That’s how you miss the moonshots. We started the Chicago DeFi Alliance partially to discover, and help shape, the future of DeFi.
The Chicago DeFi Alliance is a new initiative that we launched alongside Jump Capital (which powers Robinhood’s crypto trades), Cumberland DRW, and CMT Digital.
The purpose of the alliance is to provide entrepreneurs and start-ups in the decentralized finance (DeFi) space with meaningful support and guidance. We provide start-ups with “real world” trading feedback as early as possible to help them attract liquidity and offer products trading / financial firms are likely to adopt.
The firms we work with on CDA are incredibly excited about stablecoins, as many in the crypto space are beginning to call it, “crypto dollars.” They strongly believe that stablecoins are going to become the new rails around how money will move around the world. They increasingly believe the FX market will be based on stablecoins.
Personally, what I’m excited about is adding a Robinhood layer on top of community platforms. This idea of fractional ownership over communities — for example, in the case of esports teams — where users can help teams make decisions and have skin in the game with respect to the results, is going to get more popular over time.
One company that I’m advising is working on this: Matrix League. They’ve experienced hockey stick growth with this model. It’s a pretty sticky product with a high retention rate.
Conceptually, it’s not unlike owning a share of a physical sports team, which a lot of people are excited to do. I think that crypto will increasingly be powering the backend of that.
NA: For sure, fractional ownership is definitely very interesting. In a general sense, as a VC how do you look at growth versus profit?
SA: Growth versus profit for investors is often dependent on market conditions, in terms of which is weighted more heavily. In periods similar to what we are going through right now with COVID-19, in terms of being risk-on or risk-off, most investors are more closely looking at unit economics, EBITDA, variable costs, MRR/ARR, etc. Oftentimes they are massively over-indexing on what unit economics and current profits look like as a means to “derisk” their investments as much as they can. There’s a skew towards immediate profitability versus growth, and that’s just a consequence of the environment.
When the market is more frothy, and the cost of capital is closer to zero, you see investors index more heavily on growth. They are more open to the idea that you can figure out user growth first and you can slap on a business model later (laughs). I do think that what investors focus on depends on the market and environment they are operating in. Also, the stage they are investing in. I think you should take into account both.
The answer for me, the optimal one, is somewhere in the middle. You want to be sure there is a clear path to monetisation, but you also want to make sure it’s a pretty sticky product that has a relatively high viral coefficient.
NA: That’s a great explanation. What changes do you see COVID-19 accelerating and how does that impact your investment perspective?
SA: I think that we overestimate the changes that will happen day-to-day, but we underestimate the change that will happen years out. The changes of course are also industry-specific. On a macro level, I think that the future of work will be probably changed non-trivially. Many non-tech companies who’ve gone through implementing work from home policies, buying subscriptions for Zoom, and accommodating various needs to make work from home viable likely won’t eliminate these policies once the economy is turned back on. In fact, remote work has probably illuminated how much more work can be done purely online vs. in person.
When things get back to “normal” and you can be in the office, I think more companies will incorporate some aspects of work from home or at least make it a more viable option, but I’d be surprised if it’s a day-to-day, permanent change.
What I do see changing significantly, however, is our approach to biotech/health: investing in at-home diagnostic kits, more decision making power allotted to the private sector versus the public sector, etc. The changes in health and biotech probably can’t be understated.
In terms of what this means for crypto, I wrote a piece called Inflationary vs. Deflationary Shocks. The crux of essay: I explain why a pandemic is generally classified as a deflationary shock. Everyone stays home, people are spending less, as demands for goods go down, prices for those goods go down too. Companies have to lay off many of their employees, and since people are being laid off, people are spending less, so the cycle continues.
The question then becomes, is a deflationary climate “good” or “bad” for bitcoin? The value of the dollar isn’t immediately at risk, right? Cash is typically king during deflation because as general prices go down, the purchasing power of your dollar is actually going up. The store of value narrative goes out of the window, but the problem which does jeopardise the dollar’s value is that the US has an affinity towards booting up the money printer. This printing is largely predicated off of arguably arbitrary equations. Looking at the equation of money: MV=PQ, where M is the money supply, V is the velocity of the money, P is a price level and Q is economic output, we’re modeling our economy on Newtonian physics, which is absurd, right?
The problem with economics that tries to present itself as physics, is that the same solution yields different and unexpected results in different markets. Also, there are several solutions that can work for one market. It’s not as elegant as physics, this is the economy.
The premise of the argument is that the subsequent inflation that results from a deflationary period is what will ultimately help Bitcoin’s value prop within the US. Look at places external to the US, look at the weakest sovereign borrowers, what are they turning to when they lose their currency’s peg to the dollar?
It could very well be Bitcoin, or they could be looking to stablecoins, but I do think that in the short term this is going to meaningfully impact the future of crypto.
NA: In one of my other conversations, a VC had done a lot of research in Latin America and they were talking about how, the population there really quickly understands the value prop of Bitcoin and stable coins, just because of the fact that the local currency is just so untrustworthy and heavily inflated. So yeah, I completely see your point there. What is the latest publicly announced investment you have made and why did you make it?
SA: The latest investment we made was Magic. It’s a seamless (read: magical) way to access applications both in and outside of crypto. Magic’s SDK allows developers to design login experiences that are similar to Medium and Slack — across desktop and mobile — without building them from scratch. For authentication, Magic leverages blockchain key pairs. It allows users to securely log in across devices without relying on incumbents like Google or Facebook.
I’ve been especially delighted to see Magic scale to products outside of crypto. To me that is one test of crypto’s success: is it integrated so well into an experience that, to the user, it’s invisible?
NA: That is an interesting company. I really enjoyed the conversation Soona. Thank you so much for your time.
SA: I really appreciate it. Thank you so much
