A Venture Studio for DeFi
Get venture returns, faster
Venture studios succeed by producing extra unicorns. According to CB Insights, about 1.28% of funded companies go on to become unicorns. Idealab reports a 5% success rate, and Flagship Pioneering reports a 25% success rate.
Flagship Pioneering companies take 6–8 years to reach IPO. One of their most successful is Moderna, which stepped up to save the world with Covid vaccines. They started the company in 2010 to work on RNA therapeutics. Eight years later, it was on track for success when its IPO raised $620M at a $7.5B valuation. Eleven years later, in 2021, Moderna reported its first profit.
DeFi succeeds by increasing velocity. Many DeFi protocols reach scale and liquidity within one or two years after founding. Faster returns mean higher IRR.
Advantages of a studio model for DeFi
A venture studio earns a large share of each startup by founding and leading. This allows venture studio investors to get a great pre-presale price on the resulting tokens.
We are getting terrific ROI at the earliest stages. In our initial cohort of projects, we spent about $25K each on creation and validation. This process can take a long time and involve a lot of high priced talent. But, it’s not expensive. In return, we’ll get (about) an initial 50% share of a project that might have a valuation of several million dollars in a token presale.
More importantly, this process is FUN. We are rebuilding financial services on the blockchain. It’s a compelling mission. We are able to attract industry experts that want to rebuild their financial service.
Shared capabilities create competitive advantage
A venture studio develops specialized skills and capabilities to give its launches a competitive advantage. We’re building a launch team to rapidly deliver beta implementations, and a recruiting capability to add long-term contributors.
One distinctive capability is our structure for creating and validating products with industry-focused teams.
Another distinctive capability is compliance tactics. Compliance tactics can reduce risk and expand options for US investors.
Capital to get to token sales
Token-based projects have a difficult time at the beginning of their life when they need funding, but do not have enough software to offer a system that is “sufficiently decentralized” to comply with US securities law. Many of them ignore this problem. However, it creates a risk of SEC enforcement actions if the project becomes successful.
A studio provides capital and resources to fund a development team until they can sell a token for a “decentralized” system. This ensures that projects are raising money at good valuations, with liquid tokens, rather than with cheaper equity deals or non-compliant, non-US tokens. The savings go to the venture studio owners and investors.
Improved chance of a big win
The expanding portfolio of a venture studio gives investors more chances of getting a big win. Early stage investors make most of their money from about 1% of deals that have unicorn payoffs. To get the payoff, an early stage portfolio should have at least 100 investments, and ideally will have 500 investments. A venture studio investment is an easy way to expand a portfolio into a hot category.
Our goal is to launch about 10 products per year, producing at least one $50M exit.
Lower risk for team members
Entrepreneurs take a risk by working on one product at a time. We can give them a chance to swap some of their shares into a portfolio. If we produce at least one big win, the shared portfolio will become very meaningful.
Higher hit rate
With the support of our colleagues, we can dare to dream. We can break into categories that are beyond the scope of a hackathon team. We can break into categories of DeFi for the real world that have limited competition, and increase our probability that every project can become a big winner.
The venture studio spinout model is right for DeFi
DeFi grows by spinning out protocols that have independent governance .A company like Amazon can grow by expanding the number of products it controls. It develops markets and platforms by adding products inside one company. That doesn’t work in DeFi. DeFi is open source. The Ethereum Foundation does not own the protocols that use its platform.
A DeFi team that is producing multiple products will naturally create spinouts. A venture studio model is their natural state. Some teams have created billions of dollars of value in the last year by spawning protocols, including Andre Cronje’s Yearn group, Compound, and Terra.
It’s our mission to produce DeFi for the real world, rather than for crypto traders. With the studio model, we can focus immediately on this attractive category.