The Inquisitive VC: Spencer Bogart — Blockchain Capital
Spencer Bogart is a General Partner at Blockchain Capital. He was formerly on the Internet Equity Research team at investment bank Needham & Company where he led the firm’s research efforts in all things bitcoin and blockchain. He also conducted fundamental investment research and analysis in the broader Internet Marketplaces and FinTech industries.
We talk about what he likes best working in venture capital, what got him interested in bitcoin, DeFi, Nexus Mutual and more!
Thanks to Brooke Pollack for the introduction!
NA: So, I wanted to start with your background and what got you interested in Bitcoin and crypto?
SB: Yeah, sure. So as an economics student and coming out of university, I personally worked on the buy-side at a fund of hedge funds. So, reading a lot of investment research, especially a lot of macro research and talking about global affairs, especially looking at FX rates and things like that. The research I found absolutely fascinating, and I couldn’t believe that people were paid to write such interesting research.
So from there, I went on to start the CFA program, worked at a FinTech startup called ETF.com for a few years. We built that first of its kind ETF analytics platform. They were ultimately acquired by Factset. From there, I went to Wall Street and I worked at a midsize investment bank writing sell-side equity research.
So I was covering SaaS and internet companies, companies like Salesforce and LinkedIn and things like that, in theory, the fastest growing and most disruptive companies in the world, which in large part is true, except that on the side I had this hobby of following all things kind of crypto and blockchain-related.
By the time we got to 2015, I started to realize that the industry was gaining traction to such a significant degree that it was going to become increasingly relevant to more mainstream and Wall Street investors. So, in 2015–2016, published Wall Street’s first industry report on blockchain technology. Laying out what is the technology? where might we see its impact? Who are some of the major companies in the space? what types of industries might be disrupted? And who are some of the big investors? Which is actually how I got to know that the crew here at Blockchain Capital.
From there I kind of segued into writing quite a bit of Bitcoin research in Wall Street, which was in 2016. It was a fun time to be writing bitcoin research because there was understandably a lot of sceptics, and that helps harden your kind of thesis. By late 2016, early 2017 I started to realize that the industry was moving at such a fast clip, that this is an area that really demands specialization.
So something where if I wanted to continue to excel at understanding everything that’s happening with crypto and blockchain technology. I was going to have to dedicate myself to it. So spending 40% of your time is not sufficient to stay up with all the developments that happen in our industry.
I realized that by late 2016, early 2017, so I came over here to Blockchain Capital. As I said, I already knew the team here. So it was a very natural home and I get along really well with the team.
Since then, we have raised and deployed to two funds. So that’d be fund three and fund four since I’ve joined. We are now deploying capital from our fifth fund. So yeah, in total across all the funds, we’ve made north of 85 different investments in the space that includes both equity investments in companies that you’d all know and recognize. Like Coinbase and Kraken. It also includes token investments, we are seed-stage investors and 0x, as well as Nexus Mutual and UMA and some of the DeFi protocols that are popular today.
NA: So you mentioned that you looked into bitcoin as a personal interest. How did you actually come across Bitcoin?
SB: Yeah, so it’s funny actually when I was working at ETF.com we used to have a standing morning research call, where we discussed anything that happened in the past 24 hours and how that was impacting various exchange-traded funds. So if there was news in a particular region, you might see some of the country focused ETFs trade up or down based on that news.
Anyways, when we were just taking a look at FX for the day, someone had mentioned that Bitcoin had hit parity with the dollar. I didn’t even know what Bitcoin was and so a little bit of a discussion ensued with the research team. The fact that there were people that already understood about this crazy new experiment, and I didn’t know about it was frustrating. So I started digging in and learning more and trying to use it and purchase small amounts of it. That was really helpful for getting up to speed and getting that first initial interest.
NA: Obviously, you’ve been working and analyzing this space for a while, in your opinion, how has the crypto ecosystem changed? So, two parts to the question, internally what is the difference in how crypto companies are being developed now, and also the perception of the crypto space in the time you’ve been in it?
SB: Yeah, let’s see. So there’s a lot of ebbs and flows here, particularly in the way that people view it. So one of the things that I find most favourable in the industry is that it goes from extremely misunderstood, and completely untrusted at first and as time goes by, people’s understanding improves, and it moves from this untrusted, untested, unproven, untrustable new thing to something that’s actually proven itself at scale.
So, that’s a favourable tailwind I’d say for the industry as a whole. In terms of the company’s overtime, we’ve certainly seen an increasing calibre in terms of the talent of entrepreneurs that are entering the space. I think, particularly as the industry has gained a lot of credibility. It’s less of an opportunity cost for particularly talented entrepreneurs to kind of step into the space and build something here.
What I see now are companies that are, increasingly run by repeat, successful founders and professionally managed from the board level all the way down. Whereas in the very early days, all crypto was a band of misfits and I think that was a fun time, but a natural part of the industry’s growth and evolution is that a lot of that has become professionalized over time.
NA: Sure. Those are some great observations. I’m not sure if you were part of Blockchain Capital when the tokenized VC fund and BCAP were launched, but do you have any insight around the reason you went through with a tokenized fund and how that’s doing now?
SB: Yeah, sure. So we started to notice a particular theme here. I came on in very early 2017, as we kicked off those efforts. So the work had already begun but had not been public yet. One thing the team here started to realize was that increasingly, a lot of entrepreneurs were skipping venture funds altogether and going straight to this ICO market. We looked at this and realized that there’s a potential here that blockchain technology disrupts the business of venture capital, and if anybody should be partaking in that, it should be Blockchain Capital.
We decided to go ahead and do our third fund as somewhat of a trial and an experiment. I’m happy to say now, years later, that experiments panning out very well. But the entire idea here was, let’s see if we can change the way the venture models are both raised in terms of liquidity profile.
In terms of raising capital, we’re able to raise amounts from a far larger number of LPs and we otherwise would be able to and able to access much broader parts of the world. So, it wasn’t just Silicon Valley investors that were participating here but, we had people on every continent I believe. So, aside from that, there was also that like look in traditionally in a venture fund when you invest your capital is locked up for eight to 10 years.
So, what if there was an ability to have this digital asset that could easily be transacted on the secondary market so that LPs could have some sort of additional liquidity if, in year five, they decided that they wanted to, for example, move homes or send their kids to college or something. Hence the reason for having a tokenized fund.
Today actually, that fund as of the time of this chat is very close to it’s all-time high, which was hit otherwise in January 2018. So, we raised originally a US$10 million fund, and that fund is now in the ballpark of about a US$50 million fund. So, it’s got about 5X over the past almost three years.
NA: Wow. It’s doing very well. I wanted to get your thoughts on the new trends that we’re seeing in the crypto space and if it reminds you of the previous trends we saw, specifically, the hype around, DeFi. How do you feel about that and does it remind you of the craze of the ICO bubble of 2017?
SB: DeFi is one of these things that has been building for actually a long time to become that overnight success. So the classic story of, I think the industry has been building out the DeFi ecosystem for really the past three, four years, and then all sudden, it’s kind of become an overnight success here in 2020.
We’ve been very constructive on that from going back to 2017. We invested in a lot of the first wave of the protocols that we saw here. So the 0x team, for example, kind of pioneered the DEX space, Bancor who kind of pioneered the AMM model. We invested in Radar Relay and Paradex, which were two early DEXes built on top of the 0x network, one of which was acquired by Coinbase, and one of which is alive and well today.
Then over the years, we’ve continued to deploy capital into that space. A couple of years ago, we made seed-stage investments in some of the popular protocols today like UMA and Nexus Mutual and then more recently have deployed capital to a number of investments that aren’t public yet.
In general, big fans of the DeFi space. I mean, this entire industry began with a financial asset in Bitcoin and with financial technology in terms of the Bitcoin blockchain, and so I think it’s most natural that we will see the impact of blockchain technology in the financial services space first.
We’re overall tremendously high conviction on the growth that we’ve seen so far. Actually, at the end of last year, we put out a list of bold predictions for 2020, one of which was that we would see the total value locked in DeFi top US$5 billion. I think at the time, it was maybe US$300 million, or something like that. So that was a pretty massive increase.
That was the number one thing actually that I got questions about when we published that was how in the world can total value locked in DeFi go to US$5 billion? I wish I could say we saw all the ways that it was going to get there, but we can certainly see directionally that it was headed there. So again, really excited about the growth we’re seeing there.
NA: Yeah, the total value locked has exceeded many peoples expectations. I wanted to understand what’s your favourite thing about being a VC?
SB: It’s the excitement of working with founders that have identified a problem or something that they really want to build and that excitement is infectious. So, each day working pretty closely with a couple of our different founders, and each day, whether it’s something new and exciting that’s happening or a new challenge they’ve encountered. It’s just a lot of fun to look at those problems up close in real-time with them and just trying to tackle it and grow the company. So it’s a lot of fun working with the founders.
NA: Sure, no, that’s definitely an exciting part. What’s the latest publicly announced investment you’ve made and why did you make it?
SB: We have three investments out of our fifth fund that all of which have not been announced yet, except some of our LPs. One of the last ones was actually another investment in the Nexus Mutual. That was our second investment in them.
Just really big fan of view and the concept that they’ve they’ve pioneered, I mean, when we look at the evolution of DeFi, and we looked at, a lot of the risks and figured that one really useful utility to have here, considering all the value that’s been deposited into these various DeFi protocols would be insurance. I think they have a very straightforward model for how to apply insurance principles to DeFi and I think they have a lot of room for growth.
NA: Okay, Nexus Mutual definitely is an interesting company. Those are all my questions, Spencer, I really appreciate you taking the time to chat.
SB: Yeah, of course, thanks so much.
