Crypto

Episode 91: Crypto Liquid and Venture Fund of Funds with Greg of Scenius Capital

Ben Lakoff, CFA
October 31, 2022
57
 MIN
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Greg is a co-founder at Scenius which runs a hedge fund of funds and is launching a venture fund of funds in the crypto space.

He shares his bird's eye view on how the industry's best fund managers are allocating their capital and thinking about the future of the Crypto space.

We talk about trends he’s seeing in the liquid markets and upcoming changes venture funding patterns. We discuss some of the potential advantages / disadvantages of the fund of funds model - especially in nascent inefficient crypto markets.

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Show Notes

0:00:00 Welcome and context

0:02:15 What is your background?

0:09:00 What is the Fund of Funds model?

0:14:08 Where do you think the crypto space is going?

0:19:41 What sort of positions are you taking with crypto?

0:22:59 What is your most common red flag when doing your due diligence?

0:26:45 What are your thoughts on liquid asset allocation?

0:30:41 Can you explain the venture fund of funds?

0:33:38 What are the differences between crypto VC and traditional venture capital?

0:39:07 What sorts of other values are you looking for in your venture investments?

0:43:52 What is the liquidity in Senious?

0:48:05 What will be the next defi summer moment?

0:54:00 What risks about crypto keeps you up at night?

0:55:20 Where can people find out more about you?

Show Links

Greg's LinkedIn

Scenius Capital

Helpful other Alt Asset Articles

Episode Transcript

[00:00:00] Ben: Welcome to the Alt Asset Allocation Podcast, exploring alternative investment opportunities available to the everyday investor. Here's your host, Ben Lakoff. Hello and welcome to the Alt Asset Allocation Podcast. Today's interview is with Greg d'Incelli. Greg is a co-founder of seniors, which runs a hedge fund of funds and is launching a venture fund of funds.

In the crypto space, I wanted to have Greg on because he's in this unique position with seniors to have a bird's eye view on how the industry best fund managers are allocating their capital and thinking about the future of the crypto space. We talk about trends he's seeing in the liquid markets with their hedge fund of funds and potential upcoming trends as seen from the venture side.

We talk about the fund of. Model overall, some advantages and some potential disadvantages of this structure, which is especially in these nascent inefficient crypto markets. I should note and I do in the interview, but upfront that I'm an actually an LP of the hedge fund of funds and I'm an advisor and likely an LP of the venture fund of funds, so I do have a bias.

But I still wanted to have Greg and seniors on here because they are in this unique position to see and talk to all of the industry's best fund managers and get a little bird's eye view of how these guys are thinking about allocating capital in the space. Before you listen, please don't forget to like or subscribe to the podcast or even better leave a review.

If you're watching this on YouTube, please subscribe to the channel and or give the video a thumbs up. This really helps people find the video and I really appreci. All right. Excited to have Greg on and discuss some of the trends he's seeing within the crypto space. Enjoy it. Greg, welcome to the ALT Asset All Application podcast.

Been a long time coming. Excited to have you on today, sir. Welcome. 

[00:01:56] Greg: Thank you, Ben. It's great. It's great to join you. Excited to share about seeing this and what we're doing. 

[00:02:01] Ben: Awesome. We caught up a little bit before this and then obviously we end up talking a lot more than just occasionally these days anyways.

But I think what you guys are doing is super unique in that you run this venture fund of funds that you've just launched and then a hedge fund of funds. So you have. Like unique perspective of bird's eye view of what's happening in the liquid secondary markets, how funds are allocating their funds, their liquid token allocations, and then also like pre-launch how venture is working.

So, super excited to get into all of that with you, but you know, before we dive right into it, wanted to start off just a brief background view how you got into the space, which I also think is pretty interesting and relevant to this convers. 

[00:02:48] Greg: Yeah, no, completely. And yeah, for seniors, So obviously I, I co-founded in a general partner of Seniors Capital, which is a digital assets investment firm.

We specialize in fund to fund, so multi-manager strategies. Right now we have the hedge fund to funds that we launched in May of 2021, focused on liquid strategies. And we are launching, actually, it'll open in the next six weeks, Ben. Is the, the, the fund of venture capital funds. So we have the very complimentary private and liquid funds.

But before I got into crypto, I was a practicing lawyer for, for 13 years. Like you, I lived in Thailand for a year. So after I graduated from, from Dartmouth College, I spent a year in Thailand and teaching English and teaching tennis. And then came back and attended law school at the University of Miami.

And I still, I still live in Miami. And practice as a lawyer doing litigation for 13 years, which I worked primarily in representing injured, injured people against hospitals, doctors, nurses, and medical providers. I, I really enjoyed that job, but along with my brother Ben and now my, my co-founder and other partner, David Hennessy, who's this long time friend, had been investing in crypto since 2015, 2016, and really was very passionate about it in terms of, And became sort of the, the taking people from Zero down the rabbit hole person for our network of, of, of people.

So started buying and holding Bitcoin, then got into Ethereum and Chain Link early and we were, we were really interested all the while obviously, of course working, working in law. But I'd say where the light sort. Turned on for me was right around Defi summer, and we started, you know, we had the ICO media and you know, Bitcoin and then everything kind, you know, getting above 20,000 and then things crashing.

And then when defi started happening, we sort of, Ben, David and I sort of looked at each other and we, we saw this new tooling and this, you know, these you know, sort of smart contract enabled blockchains and you could do all this different peer-to-peer transacting. We were really, really impressed.

We're like, Uni swap is a complete game changer and now we can swap tokens, and now you can do borrow and lending and this is really going to bring in a tremendous amount of interest. Beyond speculation as smart contracts can, you know, do a lot of what traditional financial intermediaries do. And so as part of seeing this huge wave of, of influx on defi, we decided that.

This is a very nascent asset class. There's a lot of money pouring in, but there's all this idiosyncratic risk around crypto. People don't know how to use it. You know, I, I would tell people, you know, go buy a token. And if it wasn't on Coinbase, they literally had no idea how to, you know, log on, you know, create a meta mask, wallet, or, or do any, anything in, in decentralized finance.

And so, We were like, well, in that scenario, who generally has an advantage in terms of finding the best opportunities and capitalizing on them? And it really is professional, professional investors and crypto had Wild West aura about it, which it very much still has. But our thesis was, That active asset management would meaningfully sort of outperform the ability of the average person or retail to find and pick winners in the space.

And so we did a deep dive on all the hedge funds. We started with the hedge funds and the space to understand how they were allocating. And after spending time, d you know, many, many hedge funds in the space, we were very impressed by the caliber of the teams. They're both, you know, trained traditional financial veterans, combined with people that understand, you know, solidity and smart contract code.

And these are engineers and product developers. So they, there are these hybrid animals that can really suss out quality in the crypto space. And with these unique token mechanisms and a lot of good project staffing tokens, they can invest in tokens early and, you know, hold them for many returns on invested capital.

So that was, you know, when we, when we, when we developed this conviction and the quality of the active asset management in the space, we thought we should create a product around it. That's where seniors was born. And so it was really, we wanted to take our own money and invest it into a basket of hedge funds that were diverse.

Diversity is important. Anytime you, you make an investment, if you can, and that we would then, you know, create a diverse basket of multiple managers that were all managing liquid strategies. So investing in tokens, but using different strategies. And we would, you know, create a product. In this case, we, we launched the fund in Delaware.

We would open this up to our friends and family and because, you know, at that time there was a lot of interest in crypto as you know, is it a non correlated asset? Is it, you know, is it going to become legal tender or a sovereign, you know, currency for many more nations? What can this all bring about? But it was, it was unclear, but what was clear is that it was a different paradigm of finance that was potentially being ushered in, that there was gonna be an influx of utilization and investment.

People really wanted to participate in it and they wanted to do it in a risk mitigated way, and we tried to provide a product that mitigates some of that risk that's actively managed and that should outperform sort of what the overall asset class would do if you're just passively invested. So that's really where senior was, was born.

So we launched in May of 2021 with my brother Ben Jacobs, who's a co-founder and David. And since then we've been operating the, the fund with sort of a record of outperformance in terms of our managers have done really well. We've shown that we have the ability to, to identify. Good managers and as a result, we've learned a lot about how these expert asset managers pick tokens, the processes that they go through.

We've learned a lot about how to risk manage risk manage the space. 

[00:08:33] Ben: That's awesome. And there's a lot to jump into there, but I think that's a good, good overview. And I, I should throw out a disclaimer that I'm an LP and the liquid market fund, and I'm an advisor for the Venture Fund fund of funds.

So throwing that disclaimer out there probably should have led with that, but probably important, but wanted to have you guys on either way of as completely unbiased. Interest. 

[00:08:57] Greg: We're happy to have you, by the way. Yes. Yeah. 

[00:08:59] Ben: Well, yeah, so like talking about fund of funds, let's start off fund of fund model at first just because I think it's, I mean, obvious.

You get this diversification benefit, you get this access that, you know, you do one investment and this fund of funds and you get all this access to all these sub fund of funds. So like from a capital perspective you're. A lot of access, but let's let's like double click on the fund of fund model, fund of fund's model overall.

Some of the crows obviously that I touched on, but also some of the cons and fees and, and some kinda like drawbacks of that sort of model.

[00:09:42] Greg: Yeah, absolutely. And so the, the fund of funds model was created around traditional hedge funds and equities. Before there was a lot of efficiencies in the markets and transparency and, and sort of understood institutional guardrails around investor protections and things like that.

So, you know, the more further out on the risk curve you are, I think the more active asset management you, you go and the more. Inefficiencies or fragmentations in the markets. And the more difficulties there are to maneuver markets, the more active asset management is appropriate. So the fund, the fund of funds model is adding an intermediary between the investor and the hedge fund.

So you've actually got a hedge fund of funds. So now we are adding an additional fiduciary level. We act as a fiduciary to our investors. And in that role, We actually do do diligence on the sub fund managers. And the reason we do that is because in crypto it's a new asset class. It's very volatile asset class.

And then there's idiosyncratic risks around crypto. Things like exchange risks. Custody risk, hot wallet risk, rigs of risk of rug pulls, risk of you know, exchange hacks, smart contract risks. There's, there's tremendous amount of risk that has to sort of be underwritten by a particular manager. And so, We in our role we're saying we wanna make sure that every single fund manager that we invest in is being thoughtful and doing a full level of diligence around all these risks that they've partnered with best in class service providers.

That they've created a fund wrapper that. Meets all these criteria. So we have a, a diligence process that we go through that we consider to be reliable and repeatable. We do that for all of our funds. We do background checks and, and go through, you know, internal due diligence requests and, and then operational due diligence, and we get through that.

Process. We're comfortable to make an investment if they, you know, if they have the track record, if we like the team, if we get good references, if everything else checks out. But we, in, in crypto, there's still a need. We believe until the, the asset class grows and there's greater transparency, there's still a value add to doing that diligence on an individual manager basis.

And so that's a lot of the value in fund of funds is. That first piece, which is doing the diligence that an individual probably won't do. Then the, and the second piece is creating a diverse portfolio of hedge fund managers who have strategies that are complimentary to each other and not overly, you know, Repetitive.

So you don't want managers that all have the same top 10 tokens in their portfolio. So you might find a fund that's more defi focused. You might find a fund that's more gaming and metaverse focused. You might find a fund that's more large cap focused. So we, we find different strategies. And blend them together.

So that's a lot of our value is the diligence that we do. Then creating a portfolio strategy that's complimentary that's diverse and that's risk mitigated, and we do actively reallocate capital consistent with our portfolio strategy. And I'll, I'll, I'll pause there and just say what one of the draw backs of fund of funds is the added layer of fees.

So our standard fees been, as you know, are one in 10. The sub funds also charge fees, so there's. Our fees on top of the sub fund fees, and we think we earn those fees because of the benefits that we provide. So one benefit is we're invested in 10 portfolio funds right now, so one investment and our minimum investment gets you access to 10 funds.

Our investment, our investment minimum is much, is 250,000. It's much lower. And the average investment minimum for a single portfolio fund, right? So you get that, that access. We're also able to from time to time negotiate better terms than if you went direct into a fund. And so, so, and, and because we have a diverse and we have a strategy, a diverse strategy, we we think we can outperform any single manager.

So for example you know, last year our best performing fund is our worst performing fund this year. So it's really just, you know, you want to have that diversity and avoid that single manager risk. Hashtag 

[00:13:54] Ben: Luna. Thanks. This is part of it and part of this, this like frontier very nascent, inefficient market and part of the reason why active management Makes so much more sense in this sort of market.

 When allocating amongst these sub funds and talking strictly about liquid tokens in this way, you have to have this kind of overall crypto macro thesis of, you know, game five is gonna be the next big thing. We're allocating a bigger portion to that, or alt L one s, you know, as a bigger portion.

Because like you said, if all of these funds kind of follow the same one. It's perhaps not the best in terms of diversification. Let's talk into seniors like overall crypto thesis on where you think the space is going longer term, which kind of determines the way that you're allocating to these sub funds.

And again, we're talking about liquid and then we'll jump into venture a little bit later. 

[00:14:51] Greg: Yeah, I think what we saw sort of over the last year was. We saw an emergence in alternative layer ones, right? And then, so you have Ethereum, as you know, you have, you have Ethereum and blockchain and Bitcoin as the, you know, the, the real sort of established layer one blockchains, Ethereum really is the main programmable smart blockchain.

But then you see. You know, Solana and Avalanche and Cardo and you know, Tara Luna at the time and, and a number of other layer one blockchains that are, that, that launch with tremendous liquidity incentives and trying to drive developer interests. And then you, And then, so then we had these new layer ones that come that.

Essentially told developers, Come build on us. We'll give you incentives to build your Ds, your decentralized applications and autonomous applications on our blockchain here. We'll give you some liquidity incentives and you know, we will build on this. And so that, you know, in polka do it was was another big one that we saw a lot of funds.

And so I think we saw this huge explosion in layer ones last year. So, last, last year, layer one. Was a large theme among our hedge funds. And then we saw scalability and Solana as of course is another one. And so scalability and interoperability among different layer one blockchains was a huge theme among you know, the the funds that we invest in.

So, you know, some funds may have been more committed to Solana because they think. You know transaction throughput is, is, you know, a little bit more important than necessarily being the most decentralized and the most secure because, you know, you're not you know, you're not necessarily doing the same sort of transacting that you might do on Ethereum.

And speed is more important. So we're gonna build Nasdaq or like a NASDAQ equivalent on Sal. Sal doesn't need to be as decentralized or have as many validators. And so we'd see some funds that would be like, a little bit more focused or a little bit more polka dot focus. Then we'd see some funds that might be more infrastructure or payments focused.

So they'd say, Well, we're not, or scaling an interoperability focused. So we'd see, you know, a protocol that helps build between chains. You know, something like a chain flip or you know, something like something like that, or AOR chain, something like that would become a major focus. But it was all about this multi chain thesis.

Which is that you're gonna have multiple layer ones that are going to sort of carry the day. And so I would say last year what was largely the case is that. They were picking amongst the layer ones that they had high conviction on because they knew the teams and they would pick projects that were building on the layer ones where they had a strong affinity for.

And then you know, in Defi it was still largely Ethereum defi. You had them picking, you know, you know, maybe decentralized gaming. You know, there was a large emergency NFTs in gaming and NFT financialization certain funds. Had a more of a gaming metaverse focus or an NFT focus. So we would also allocate strategically to maybe a fund that's more niche oriented.

So our goal is always to find the best in class sub fund managers in whatever vertical we invest in. So, for example, we invested in a fund that's based out of Hong. Because we also want to be geographically diverse where they have a pretty large gaming and nft, you know, sort of metaverse focus. So we invested there in that fund because we wanted that kind of exposure and diversity element to our to our portfolio.

But it's very much, I would say changed more recently given sort of the, the macro environment in terms of where the funds have been focused, which is as they become a little bit more defensive, they tend to rotate a little bit more into large cap tokens, at least the long to funds do. So you'll see maybe more into ease.

More into Bitcoin you know, still, still some of the layer ones, but less further into the smaller market cap tokens. Because when you know when things sell off, those tends to, those tend to move a lot more. Crypto is a very reflexive market, so when things move, you know, the further out the risk curve you go, they tend to move even more violent.

So I think the, the funds have gotten positioned somewhat defensively now raising cash, sometimes using derivatives when they're able to, you know, out of the money, put options or you know, even shorting the market at certain times to be defensively oriented. 

[00:19:07] Ben: Yeah, I'd be curious, most of these liquid funds are like long bias, right?

If you're operating a, a, a hedge fund in the space, like you pretty much believe that in five years this place is gonna be a lot bigger. So like, being short more often than not is probably like a recipe for disaster. But like, how often do you see, do you see a lot of like pretty sophisticated hedging with like long, short, or is it pretty, pretty long bias only, and 

[00:19:37] Greg: by the way, you know, I, I.

I left law last January and went full-time crypto and seeing this as my full-time job as it is with my two co-founders. And the reason is because we think this space is gonna grow tremendously. And the, the, the upside going from here is where we think you know, this is all going so very much bullish on the space.

We're unabashedly long. It's senior and bullish. The space, it's senior as well, so, Yeah, I do think there's strategic shorting and derivatives exposure to protect the downside that happens with all these funds. And I think that's prudent as is raising cash. And I think the derivatives market is something that's growing a lot in crypto as well as the ability of US based funds to use derivative products.

So I see that growing a lot. You know, regulation is obviously an investor. Protection is obviously a very fluid area where we're seeing sort of a lot of regulatory interest from, you know, whether it's the SCC or the cft C inbound to crypto. And so that's, I'm sure we'll touch on that later, but I see a lot of action around that.

So, generally speaking, the funds are long. They do have the ability to strategically short and use derivative exposure to protect the down. One thing I'll add that is a little bit unique about the way we express the view at seniors is that we we allocate about 20% of our portfolio, our intended portfolio allocation to lower beta, more market neutral strategies.

So these are. Funds that capitalize on inefficiencies in crypto markets. So these can be arbitrage funds, so they can, you know, find mispricings between exchanges or between fu you know, between you know, spot and futures and arbitrage those differences. Or they might be trend following momentum based traders or quant traders.

So, Those funds are not gonna have as much upside, but they tend to be much more protective on the downside. So by having that exposure and our, it's a meaningful exposure we tend to protect the downside a little bit better and protect capital. Our view at Senior is that, you know, we're okay.

Lagging a little bit on the upside as long as we you know, protect capital on the downside so that we can compound from a higher basis, which is you know, to the benefit, the long term benefit of all our, our investors. 

[00:21:51] Ben: All, all of that makes sense. We talked about this nascent market, lots of inefficiencies, a bit of it being like the wild West with cowboys.

I wanna like go back to due diligence amongst these fund managers. And then, so with this, like what's the most common red flag of like, Pops up in your diligence hey, this hedge fund makes zero sense. These guys like, don't do this or don't do that. And then also talking about like fee differences if it's pretty standardized or like, you know, you see some guys charging 4% and at 50% or whatever.

So just touching on those two. 

[00:22:30] Greg: Yeah, totally. So, you know, the, the diligence process is is really important on the crypto side, and that's part of our value add. And so, you know that's important and that's why we, you know, the fund to funds model is kind of like training wheels to crypto.

That's why. You know, our family members, our people we recommend it to. And there's basic things that sometimes come up in the diligence process, and then there's more nuance thing. It can be something as basic as, you know, the, the portfolio manager is the one answering all the emails and answering your phone calls.

The portfolio manager should be, you know, focused on the portfolio, right? So you think about risk management you can't have your portfolio manager also be the head of I. You know, that's a, that's a very basic thing, and it actually happens, and you don't want fund managers being overwhelmed by menial tasks.

You know, that's, It's an obvious thing, but it's actually happened on a number of occasions and it's like, well, you know, you should have a cfo, you should have a head of ir. You're running you know, outside capital, it's important to have all the right resources in place and to have you know, dedicated team members with their own responsibilities for you know, things like that.

So that's, you know, that's, that's one example and you'd be shocked how much it comes up. And I think it's largely because there's a lot of new fund managers in the space. There's now, I think, over 1800 crypto funds, including venture. So when you consider how many new funds are coming into the space, you have a lot of people that are wearing multiple hats.

And so you wanna make sure that everyone has a clear deline delineation of responsibilities. And then, you know, something that's a little bit more nuanced is, you know, what exchanges are they using and how much of fund AUM can they have on an exchange at a given time? Because it is possible for exchanges to go down.

Things can get frozen. You know, we saw that happen with FTX not long ago, or essentially they had a, they had an outage in their user interface. So, you know, if they, if a fund has a hundred percent trades all of their assets on FTX or on Binance, or whatever the exchange may be. It creates a concentration risk.

We wanna make sure that they're diverse across not just their investments, but also in their counterparties. And so the diligence that they do in their counterparties and making sure that they don't have undue exposure to any single counterparty is really important. And also, You know, on the counter, the counterparty part is extremely important.

You know, who are the counterparties that the funds use? Like who are their custody, their exchange providers their wallet providers. What do they use? You know, do they use fire blocks and copper or like, how, you know, how do they shd their private keys? Like these are. Nuance crypto things that you want to ensure.

Each fund is thoughtful about and you know, is there a policy? Do they follow the policy? Do they have a compliance manual? How long have they been around? What's their level of expertise? Who makes the decisions? There's a lot that that goes into that. So I think on the more crypto specific things, you really do want to drill down a little bit and ensure that the fund is thoughtful in how they approach those things and, and, you know, very risk averse.

[00:25:30] Ben: Yeah. And that stuff is terrifying. I mean, honestly, it's like some, some of these guys, they have great performance, but then you look into it and it's like one guy, no multisig, like not best practices with their private keys and like custodying, it's it can be, it can be very terrifying. The due diligence is extremely, extremely important, especially with this upset sort of things.

Yeah, a hundred percent. Okay, so that's liquid tokens. Anymore comments, things about kind of liquid token allocations that we should talk about? Oh, actually one more thing. E as a smart contract platform, L one has been like a jug or not el E two has launched, like there's a lot of.

Momentum, it seems like within the e ecosystem, and I'd play a lot more within the e ecosystem, but like within these funds Where, where are they? What other kind of alternatives are they most bullish on? Just by kind of looking at allocations across the funds or anything to note like on, on those sorts of topics?

[00:26:37] Greg: Yeah, I mean, first off, I do think it was a transformational moment for crypto that. The transition from, you know, proof of work to proof her stake for Ethereum was conducted successfully. You know, that was a major, major accomplishment. It had been on the roadmap for, excuse me, for a long, long time, and it opens the door to first of all, you take away sort of the ESG fund narrative by reducing emissions by 99 point, like 5%.

Second off, you know, you raise the ability to scale the, the blockchain tremendously over time so that it can. You know, it can really vibe to be the global settlement layer for the internet. You know, if you're transaction with money on the internet transaction, settling on a layer one blockchain, Ethereum wanting to be that layer one blockchain, you know, this all sort of bodes well for the possibility of that happening.

In terms of the, the fund managers, what I'll say is that they're you know, they get in deep with the developers. So, you know, for example, I know that they attend, you know, if there's an AVAs conference in Lisbon, Portugal, they're there. If there's a Salata conference, they're there and they report back.

They meet with their teams. They, you know, one interesting thing, and this will sort of segue into venture, is a lot of. The, you know, established liquid funds also have venture funds. And what that means is that they have sort of this virtuous cycle of they get in with the teams even before the tokens.

They build with them, they help develop their go to market. They, you know, they, they hire, they, they really know the tech very well. And so by the time the project has a token, they've known them and really fostered their growth. And so that provides them a really early look at some very promising projects.

And I would say you know, there continues to be a lot of support for alternative layer ones. I mean, I think even, you know, Polka dot Ava you know, AVAs is a very interesting one recently. Kkr, you know, the, the mega investment firm tokenized one of their private equity funds and made it off, made it publicly available as a digital token on AVAs blockchain, which is very, very interesting.

And I just think, you know, there will be different. Use cases like I think that KYC sort of permission blockchains where you have you know, privacy enabled you know, take, you know, on, on a single blockchain to be, you know, a very big unlock for institutions to start using the product at scale. I think that's a major sort of theme that we have to watch closely is, you know, you know, a, a arc and sort of these types of products that bring in like kyc on limit, you know, on a, you know, specific basis so that big players can start to really get involved.

[00:29:11] Ben: Okay, so venture venture is this whole other thing. So firstly, let's introduce the venture fund of funds, like how perhaps that's slightly different than the hedge fund of funds and kind of how they work together or subtle differences that might, might exist. 

[00:29:29] Greg: Yeah. And, and we're grateful to you, you know, for, for being an advisor on, on the, the venture fund that we're, we're planning to launch here, probably in the sa in the next six weeks.

I think, you know, on, on the venture side what we've seen from managing the liquid fund is that there's. In crypto, there's sort of this novel token mechanism. And funds launched to, you know, projects launched tokens very early in their growth cycle as opposed to sort of publicly traded companies that trade stocks.

Like, you know, it can be years before they can IPO and have a, you know, a publicly traded security. But for for crypto, You can have tokens that launch quite early and a lot of funds invest in these tokens before they launch through saaf agreements. And there's this. You know, common hybrid agreements where you buy equity in a company with tokens, and that's sort of been the venture model.

And as there's been volatility and liquid tokens, we have, and by the way, we have very firm con conviction that the risk reward on the liquid token side is very attractive going forward. But we also recognize that in a, in a bear market or a crypto winter, if that's what we're in, that private market, valuations are going, are going down materially.

And that it's a very attractive environment for venture capitalists to be deploying money into and beyond that. We think that the next wave of innovation is going to happen in this time. And you hear a lot about, in the bull market, there's all this noise, but in the bear market, there's all this quiet.

And what people should do when, when it's quiet is focus on what they're building and, and what they're passionate about, and create things that drive value long term for, for users and customers and whatever the case may be. So at a high level, Firm conviction that this time. In the market will yield, you know, groundbreaking innovation.

Further, we have conviction that because of that, it's an opportune time for venture capitalists to be deploying comp, deploying capital into private deals. And to layer on top of that, what we've also learned from talking to managers, you know, we've talked to hundreds and hundreds of managers, is that.

At the earliest stages of the best projects, you get the best return on your investment. So, you know, if you invested a sub 50 million fully diluted valuation and that project does well, you know, that's gonna be, you know, potential 50 x, right? And so we wanted to create a project, a product. That would offer that kind of return potential through a turnkey product like the one we've developed successfully in the fund of hedge funds on the venture side.

And so Senior Ventures one is a fund that we hope will be open in the next six weeks or so. Same structure with the Delaware LP and the British Virgin Islands offshore feeder. So we can take us and non-US investors and tax exempt investors. And the idea we're, we're, we're setting out to raise 25 million.

And we're having some very encouraging conversations around that. And the idea is to deploy into 10 to 15 portfolio funds who are investing in early stage soe, ande venture capital, you know companies in the blockchain and crypto space. So same focus for us. I'll, I'll pause there. 

[00:32:36] Ben: Yeah, no, that, that makes sense.

Let's start off just by talking a little bit about how some, some of my listeners are familiar with traditional venture capital, which feels weird to say that, but let's talk about some of the differences between crypto venture capital and like traditional venture capital in terms of time to liquidity risk portfolio selection, whatever's kind of applicable there.

[00:32:59] Greg: Yeah, so I, I think there's a number of, so, you know, caveat that I was not a venture capitalist in traditional equities, but I have some understanding of, of, of how the processes work and general dynamics in crypto. What I think is, is quite unique is that you have this. Token token dynamic, right? So a lot of these companies will be launching a token and and it happens pretty early in their life cycle as a company.

And so you're investing not only in equity, but into the future token of the company. You'll receive tokens and in subsequent evaluations you know, the they'll continue to be you. More and more tokens released. And so the earlier that you get in, obviously the better valuation that you can return to your investors.

You know, on the venture side sorry, I'm kind of losing, kind of losing my thought there, Ben, but I think that. You know, for us, what we've seen is some differentiation and sub-sector expertise in crypto. And so you know, for example, we've seen defi and financial infrastructure players develop.

So that's, you know one side of things. And then on the other side of things, you've got maybe NFT financialization and NFT infrastructure. We've seen funds that are launching as investment dos. We've seen hybrid vehicles where you've got sort of. Venture and hedge fund strategy wrapped into one.

Where in venture in crypto you. Liquidity that comes in tokens and because this is one of the differences, the traditional venture that I was looking for, which is because they receive tokens, they then need to manage that liquidity. And because these are crypto tokens, they create like some nuanced risk in terms of custody, if you choose to trade them, how you trade them.

And so you have to ensure that you're managing the risk and the operational issues that come with that token liquidity and. Why we thought this product was also not just highly complimentary or existing fund, but also within our core competence is because A, we already. Think we're very good at finding and sourcing and identifying great managers and d in them, but we also understand this idiosyncratic risk around managing the liquidity.

And some of these venture capital funds admittedly have to hold on to these tokens. And so how they do that is important. And then, you know, just like with any fund, one of the things that we, we've learned is. The founder relationships that the venture capitalists have is really important. So you know, the track record in crypto is not gonna be as long as in traditional equity.

So we really wanna find venture capitalists who have an established track record in crypto, who understand the space. So they're either blue chip managers or their spun off from blue chips. But our goal is to target again, you know, really 250 million in AUM or. Because that allows them to make meaningful on a percentage of portfolio basis allocations into smaller deals and really move the needle.

Because if you're an A 16 Z, you know, and you have to, your minimum check size is 5 million, let's say, or $2 million. How do you invest into a 10 million round? It's very hard. And so that's where we see you know, real value being created by, you know, funds with, you know, 75 million that they're raising and you know, but still leading and co-investing with these best in class investors.

So we're, it's a product that we're extremely excited about. Our goal is to hit. Sort of the entire sector and really be in the category defining sort of blockchain projects that get created. Like I said, I think this is gonna be a time period where category defining projects are built. We wanna be selecting the venture capitalists that can identify them and.

Through sort of an investment in our vehicle, you have exposure to 10 to 15 venture capital funds who meet our diligence, who we believe are best in class. We think the chances of hitting, you know, those real, you know, best, you know, best projects that come out are, you know, exponentially larger. 

[00:36:52] Ben: Hmm. No, that makes sense.

And like totally hearts on the token aum or the, the fund aum, I mean, Shit, like good luck deploying a couple billion dollars into the space and, and that, that kinda leads me into my next one. I mean, it seems like there's, there's so much venture fun money on the sidelines and kind of a scarcity of good investible products right now.

And this is what I talk to with founders all the time. It's like, Hey, you're the scarce resource man. Like you, Like it's a, it's a bear market, but it's not a winter. There's still funds on the sideline to deploy in this space. So I'd be cur curious like. How, I mean, a lot of the coaching I do with founders is about like, don't just take money.

You're looking for, you know, add value from the venture capitalist. What's, what's kind of like the way that you see a lot of these venture managers kind of adding value in addition to a check into these startups that they're investing in? Because, Capital no longer is the scarce resource. So like what other kind of value add levers are you looking for in your due diligence process to make sure that this is a good manager to allocate funds to?

[00:38:06] Greg: Yeah, completely. I think that's actually really where the rubber meets the road, which is you want managers that founders want to work with because the founders can really provide deep value. And I think this the same thing. Same thing goes for you know, are they desired as a co-investor by funds that typically lead rounds.

So we don't need to invest in funds that lead rounds, but we want them to be desired co investors by funds that do because that that's important. So, So certain things that we'll look at, and a fund that we talked to recently, you know, they have 15 engineers on their team. Each project that they invest in, they assign manpower to and they help them build.

You know, and so that, you know, when we do a founder reference, because we wanna do founder references on all these funds as part of our diligence, we think that's really important. You know, on the hedge fund side, we do LP references and professional references on the venture side. You know, the founder reference is really important.

Like, how did they support you? Did they make introductions for you? Did they help you with hiring? Did they help you otherwise with team members or resources to help you build your product? Did they really help you, you know, get in the weeds with the go to market? You know, did they have connections to, you know, some influencer that you thought might be important or you know, did they you know, help you rethink you know, do code.

Like, there's all these things that are differentiated that can be important. Or did they connect you to Wall Street Money? Like you were building a D five financial payments platform. And really what you needed was you know, a couple large investment firms to, you know, beta tested and then potentially you know, allocate some funds to it.

You know, did they have the connections to Wall Street money? So that's, you know, all of those things that founders look for, like you pointed out. I think that's really important because. If there is an abundance of capital for the best projects. How are you? We need to pick the funds that are going to be the earliest money into the best projects.

Our goal is to be participating in a large swath of funds that are the earliest money into the, the category winners. And so that's, that's really what we're doing. So we're going really deep on these funds. We're trying to find funds that, you know, others may not be thinking are, that are small. That other people might not know as, you know, household names, but that have the pedigrees and, you know, the, the reputations to really get into these deal.

And so we're, we're really, really, really excited about that. And you know, think that the turnkey sort of model, right? So again, same minimum, $250,000 if you wanted to recreate our portfolio, you know, any one of these funds, their minimum is a million dollars. So we really think about, you know, sort of providing access to people Also, like, you know, people wanna.

To category winners in blockchain and crypto, but maybe their bite size is not two, $3 million. Maybe it's a million, maybe it's something else. We wanna sort of provide that access and we think you know, by being in a fund of funds. On the venture side, what's also really interesting is you see. The investments that they're making.

So we have all this, this very rich data and information, and we curate it and provide it to our investors on what these best in class managers are doing on both, on both funds, you know, what are they investing in, how are they analyzing these projects? You know, why are they making these investments? And then you see this inf you have a front row of this, this, you know, this information as an LP and seniors.

And then we as the manager have that. And we really value that. You know, we think we have a front row seat to sort. Like the cutting edge innovation at some of the brightest minds at least on the asset management space. And it's really exciting. I mean, there, there's a lot of talent in the space. We're very excited to sort of, you know, be in the, the role of stewarding capital into these people.

Hmm. 

[00:41:48] Ben: Yeah. The next question that comes up with this allocation of sub funds, like little bit different the versus liquid tokens. So would also be curious on fees, like of the sub funds and fees of senior overall. But then like liquidity is another big thing. So the liquidity lockups of these sub funds and how that kind of rolls up to senior overall and how you kind of manage the liquidity.

Difference in lockups amongst these? 

[00:42:17] Greg: Yeah, completely. So on the, on the fund of hedge fund side, our fees are one in 10. We have a 24 month soft lockup on that fund. And, and that is, you know, a slightly longer lockup and some funds shorter than others, but, You have to avoid a liquidity mismatch. You know, if you have redemptions from the fund, you don't wanna be in a situation where you then can't redeem from your underlying funds.

So that is a much more liquid vehicle than on the venture side. Again in the venture side, this is a long term vehicle. We really expect people to sort of invest this and almost forget about it until you see a memo or you get a quarterly update because you know, that's a 10 year lockup. And what that is because a lot of the sub funds have tenure.

Fund terms, so we need to match the longest term of our sub funds, and most of the best blockchain based venture funds have 10 year lockup. Beyond that, our fees are still indicative. We're finalizing some of these terms, but it's expected that we'll have one in, one in 10 and then an 8% annualized preferred return, which means we don't take, we don't take any fees until.

That is met and then we'll have a performance based incentive that goes up. So if we return like a five x on your net invested capital, our incentive fees goes up. Goes up, because of course we wanna participate in the upside. We, we believe that the upside in this venture fund is tremendous. And so our fees will scale up, you know, to one 20 if we hit a five x net return on, on invested capital.

You know, the, the sub funds also have fees. In some cases, we will try to negotiate, improve fees, but there's no guaranteed that we'll be able to do that. So really the benefit is again, the term key access to the best in class funds and the reduced minimum. And, you know, By the way, a lot of these funds are gonna be oversubscribed.

We, we, we have the ability to get into a lot of these funds because we know them. You know, we've either met them through, you know, conferences or being invested in funds. We're a value add investor, you know, we really try to push them to do the best work that they can. Good reporting. To be transparent, we have our own deal flow because we've been in this space.

You know, one of our co-founders also launched a metaverse called Wilder World. Dave Wolin. He's not a co-founder, he's a general partner now in the business. So we have a lot of connectivity and because we have connectivity in this space, we think we can provide value to these. So they want us as an LP and their funds, which means we can get access even when they're oversubscribed.

And so there's a tremendous amount of value to sourcing and getting into these funds. You know, before you start talking about what the returns will be. 

[00:44:59] Ben: Yeah. That makes sense. And then the sub fund fees, most of them are two and 20, or they kind of vary wildly 

[00:45:06] Greg: two and 20 is the standard. And then some of them will have you know, scaled incentive going up if they return some, some multiple three x or five x.

So since we don't, we don't know exactly what funds will be invested in since we haven't launched yet. We have a list of target funds, but generally it's two in 20. And then some of them have, you know, scaled up waterfall structures where their fees can go up, which is standard in the standard in the industry.

[00:45:31] Ben: Okay, that makes sense. Well, super exciting and, and coming down the line to launch that one. Next I want to dig into your views. So you see these liquid allocations, you talk with fund allocators all day long on the liquid side. Now also on the venture side, hearing these, you. Best in class managers talk about their macro thesis for crypto and where it's going and where they think it's going to go.

 This can be you personally or seniors overall, like your views on where you see the crypto market overall going, what it's gonna look like, what's the next 10 x moment to get crypto awareness, or the next like, defi summer moment that gets more people in kind of where, where do you think this whole space is?

[00:46:15] Greg: Yeah, man, completely. So on the, on the venture side, you know, there's a little bit more sort of, it's more price agnostic to what the market's doing because it's so early stage. So, you know, I don't expect as much sort of volatility in those valuations. I think we're, we're so early on those projects that picking the winners is.

Drive outsize returns if we're in those projects. From a macro standpoint, you know, I'm not an expert on, on macro, but I do read a lot and obviously I think we've had sort of a confluence of difficult events on, on the worldwide scale. You know, inflation has been stubborn. You know, the, the Central bank has understandably been.

Raising rates. And so we're in an environment where money is getting more expensive and therefore I think people have been risk off. And, you know, there's still no resolution to war in, in Russia and Ukraine. And so you know, these things make for difficult environments for, for macro. So my view is that.

In the short term, there's gonna be volatility in markets. But if you zoom out a little bit, you know, time horizon solves for those things. So, long term, I, I do believe that fundamentals for crypto are improving. We're seeing more use cases of blockchain. We're seeing the technologies start to scale. You know, the more implementations of the technology that we see that actually scale, the more decentralized applications we see that actually work.

I think the more. More valuable accrue to the underlying tokens. I do think there's you know, been a flight to large cap quality, safer tokens. I think that will continue until we probably see a change in the macro environment. So, you know, whether, you know, if the, the Fed pivots and stops raising rates, you know, at some point that will happen.

And I think, you know, you want to be allocated to. You know, your best projects at that time because the market has the ability to move very quickly. So, you know, we're always looking. Our, our fund managers often tell us that they're positioning themselves to have larger than usual cash cash balances because they want to deploy once they see the market starting to turn.

When we see that signal is a little bit unclear you know, some of the things that I, I look for. Is sort of regulatory clarity. I think what we see is you know, CFTC or s e c regulating by enforcement a lot, and I think that puts a lot of builders in the space and investors in the space in you know, unsure, uncertain territory.

So what I'm encouraged by is we have, like the blockchain association, we have other lobbyist groups that have bipartisan support that are in favor of sort of you know, thoughtful regulation that doesn't stifle innovation, but rather encourages it. So, you know I think that will be positive for the space.

Well, big institutions and, and it's, it's senior. What we'd like to do is be. Training wheels for sophisticated investors that want allocations in the space. So institutional investors, they want to know that the work has been done, the diligence has been done, and you've eliminated as much risk from the investment except the investment risk.

And so in order for that to happen, you need built in investor protections and you need regulatory clarity. You know, things like Terra Luna and Celsius and three ac, What those shine a light on like the CD underbelly of crypto, right? It's like we all knew it was there, but when you get exposed and the, the expositions happen in close, you know, co sequence to each other, it's a lot for any market to absorb.

We had a lot of liquidations happened and a lot of selling that needed to be absorbed by the, by the markets, and it happened very quickly. So I think, you know, the crypto. Has had to absorb some pain. But crypto is, I think, very resilient and I think we, we see that from the building in the space. So there's unfaltering sort of conviction in the long term growth of the asset class.

You know, I think we'll be 10 x, you know you know, the next time we record a podcast, if it's in a period of years. I can't, I can't predict it. But, you know, that's where I think we're, we're going. Is that the best project? We'll accrue enormous amount of value. It's hard to predict exactly where the puck is going.

But I think this is the direction that we're going in, and I think as we have, you know, clarity on these key issues, if I could wave a wand, you know, I would want, you know, some regulatory clarity around you know, things like stable coins and Central, central Bank, digital dollar, digital currency. You know, what are those, How are those things gonna unfold?

Those things are I. Do we need Tether and U SD C or you know, is something else going to replace it? Will central banks allow those things to happen? So I'd like to see those things sort of run their course. I think they are, and I think we have notable tailwinds to us from a regulatory standpoint.

I think we'll end up somewhere that's better than where we are currently at the end of the day. And I think we need investor protections. And I think you. Those things will all support the long term health of the, of the. 

[00:51:14] Ben: Nice. You know, you, you ticked off like a lot of my next questions when with that, but no, I appreciate it.

And with your, with your legal background, come on, you're not gonna escape this, but you touched on it a bit, and you talked about a few of these, but like, What existential risk in crypto that like, keeps you up late at night, worries you most. You talked about stable coins, investor protection, so a number of these, but like, what's the biggest one given your legal background that just scares the crap out of you?

[00:51:43] Greg: Yeah, I mean, I think it's, you know, like, Some of the SEC's enforcement actions, you know, just like enforce infor, creating really difficult precedent by, by filing actions against you know, dows and centralized exchanges and declaring things of security without having created a framework to even evaluate whether or not it could potentially be a security.

I think, you know, I do think there's a lot of trepidation around what is the security, what will qualify as a security and. You know, the s e C has jurisdiction or the CFTC has jurisdiction. So what keeps me up at night is, you know, Gary Ginsler deciding that he wants to bring an enforcement action against you know, a well known exchange.

And then in the process finds that a number of well-established tokens or securities you know, without any precedent or real guidelines in place to make those types of pronouncements. And then creates a very difficult precedent for the industry to sort of maneuver through, because what you're doing is you don't have sort of clear framework or guidelines to bring these actions, but then he brings them and they create difficult precedent.

So, you know, I, I wor I definitely worry about that. But like I said, I do think that the likelihood. Thoughtful legislation that's balanced and bipartisan, that encourages innovation has increased dramatically as we've seen sort of lobbying. I mean, you know, Sam Bankman Freed is a, you know, large party donor, right?

And I think he was the largest donor to any political party in the last. In the last presidential election. So, you know, crypto you know, is taking a financial stake and putting down a flag and saying, you know, these things are important. Like, would you have legislated out the internet in the early nineties?

Okay. Like, Well, what if you had, well if you had, that would've sucked for all these other, you know, developers and all these products. And we wouldn't have had all this great wave of American innovation and Google and Apple and Facebook and all these other things. And you would, that's not an outcome that anyone wanted.

And I think in America at least, there's definitely. Recognition that we don't want that to happen. We want to continue to be a hotbed of innovation, developer activity and growth and, and investments. And if we're not balanced and reasoned, thoughtful in how we you know, we legislate these things, what we can do is we can alienate all these people when they leave.

And maybe they never come back. So, you know, there's definitely a land grab that's gonna happen in the next few years, and you see that with, you know, different jurisdictions trying to be tax havens for crypto and whatever the case may be. So there will be a land grab for people to have crypto friendly legislation.

I think the US just needs to, you know, be thoughtful in how they approach it. I think this will happen. I know there's, there's a lot of bright people that talk about it, a lot of smart legal minds. And I think you. So I think we're in a better place than we have been previously. I feel very positive that we'll get thoughtful legislation but I think we need it.

And I'm hopeful that it happens sooner rather than later so that you know, we have that peace of mind. 

[00:54:42] Ben: Yeah. Greg really enjoyed it. Super excited for both funds and honestly honored to be included in a small way. So it's been great having you on. Where can my listeners find out more about you, about seniors?

Where would you like to send them?

[00:54:55] Greg: Yeah, so I'm on LinkedIn. Gregory and Shelly you know, always do your own research, but I share some ideas. WW dots.capital is our website. You can reach out to us there through the contact form. You know, we're we're super high touch group. We love just having high quality conversation.

So if you want more information and you're a qualified investor, of course, please reach out to us and you know, Thanks Ben. Appreciate your time. Appreciate it. Always good to see. Always, and 

[00:55:21] Ben: I'll link up all of those things in the show notes. Been great having you on, man. All right. There you have it.

Thank you for listening. I really appreciate your support. Show notes, transcript, links and more can be found on our [email protected] If you'd be so kind, please share this with anyone you think might be interested or get some value from this conversation. If you have any questions or comments, please reach out.

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Happy investing.

Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.