Dec. 3, 2021

166: Joey Krug | Pantera Capital, Being Early in Crypto and Shipping Fast

Joey Krug is the Co-Chief Investment Officer of Pantera Capital, the first institutional investment firm focused exclusively on bitcoin, other digital currencies, and companies in the blockchain tech ecosystem. Joey joins Pete Townsend on this episode originally recorded as part of the Techstars Web3 Convo Series of fireside chats powered by the Launchpool Web3 Techstars Accelerator program in Ireland.

Joey and Pete riff on how being early in crypto impacts how Joey thinks about Web3, building the right founder-to-VC relationship from the start, and what makes a great Web3 project.

This episode of MoneyNeverSleeps is sponsored by Philip Lee, one of Ireland’s fastest-growing corporate law firms and expert advisors at the heart of the Dublin and London start-up, fintech and crypto communities.


 Joey Krug on how he got started in crypto:

“I got started in this space initially just through mining bitcoin back in 2011 and then didn’t really do a whole lot again until 2014 when I came across Ethereum. I thought that Ethereum would be really transformative to the financial system and the way finance works, and I wanted to be part of that however I could.

“I ended up coming across this niche problem that needed solving, which is called the oracle problem: how do you get data about the real world into the blockchain in a secure way? So, I created one of the very first projects building on Ethereum called Augur which was basically a solution to that problem, and we used that tech to build a peer-to-peer betting marketplace.

“From that, I fell down the rabbit hole of investing in early-stage startups because people started reaching out to me for advice on building on Ethereum - back then, it was extraordinarily difficult to build on Ethereum.”

Joey Krug on partnering with Pantera Capital and becoming co-CIO:

“Two of the first products I worked with were Numerai, a quantitative hedge fund that also has a token they use to incentivize users, and 0x, which was the first decentralized exchange.

“How I met Pantera was through 0x specifically, as Paul [Veradittakit] from Pantera was interested in investing in 0x.  There were only three [investment] firms in the space at the time – Pantera, Polychain and Blockchain Capital.  I introduced 0x to all three and they all ended up eventually investing in 0x.

“Over the next few months, Paul eventually introduced me to Dan [Morehead], and Dan explained that they're looking to bring in a co-CIO and partner who had a technical background and an operating background in this space.  I had been building stuff in the Ethereum space, and that’s where they saw a lot of cool development starting to happen versus just Bitcoin like it was when the firm was started in 2013.”

Joey Krug on how being early in crypto has impacted how he looks at Web3:

“Being early in this space definitely shapes your perspective on what's possible with the tech today and what's not.  You see people saying we should create a decentralized Uber or a decentralized Facebook, and that's a really, really difficult computer science problem if you want to solve that problem today.

“That’s one [benefit] of being early in the space – you can see what the actual limitations are, so you know what’s realistic and what's feasible to invest in or not.”

“The other thing is you can see all the mistakes you might make, mostly because I made most of them myself at some point, whether that’s as a founder or as an investor.  You can [learn from] those mistakes, and ideally not make the same mistake in the future.

“Also, you’ve seen all the ups, downs, the [market] cycles - everyone feels like a genius when you're at the peak, and you know that you don't want to feel like that. If you start feeling like that, just smack yourself and tell yourself that you should be more moderate with the prices you're paying.”

“With NFTs in gaming and a lot of the metaverse stuff that’s happening right now - two years ago that was very uncool and there were only a few people doing it. Some of those companies became massive businesses like Flow (protocol behind NBA TopShot) and the people around that project have been super successful.

“But now, we have this huge influx of companies and it feels similar to the ICO boom – just a few percent that are really great and then you have a lot that are people coming into this space trying to make a quick buck because it's the thing that's hot.

“We also try to have a decent eye for what infrastructure needs to be built.  With DeFi, there were a lot of things we invested in based on the need for infrastructure that seemed obvious to us, but maybe not to others.  For me, that was because I faced those problems as a developer.

“These are all things that color your perspective when you've been using this stuff for a long time. You run into the problems that actual users face, which makes it easier to know what’s good to invest in. If you just came into this space a year ago, you might hear an idea pitched, and it sounds like a great idea, but it's something that no one would use for some simple reason.  Or, it's something that’s useful, but nobody in this space would ever pay for it.”

Joey Krug on how Pantera builds relationships with the companies they invest in from the start:

“What we can do as investors depends on the project, but there are a handful of things we can help with. One example is the general strategic advice and help that any startup would want, like when founders are trying to fire someone and they need advice on that, or even a seasoned founder that wants help trying to close a candidate.

“When a founder is trying to hire somebody from a FAANG company, and they're a really senior product manager or designer and they're sold on crypto, but they want to be sure that the company they’re joining is going to be the one that dominates in that field, they want to talk to someone who led the Series A. Why did we put our money in that basket as opposed to any of their competitors?

“There’s also the hands-on stuff like helping projects with technical things.  Founders send us their design or architecture or the way they're planning to solve some incentive problem all the time and ask us to look at it and say, do we think it actually makes sense? Do we see any obvious holes in the design that people would try to attack?

“The other areas are similar to the technical side, but it's the flip side, like with regulation.  The regulatory environment is very unclear and vague, especially for DeFi projects, or basically anything that's built on top of Ethereum.

“It can be anything from reviewing a legal memo their counsel sent and telling them ‘Hey, your counsel clearly doesn't understand what you're building, you might need to get new counsel’ or just refer them to the right person.

“The last thing is networking, and this is what my partner Paul is really good at. If a founder needs to talk to another founder in the space or they want to raise money from a specific investor, whether they’re in or outside of crypto, we can add value on a lot of that because we have a lot of companies in our portfolio.

“So it's a wide range of things, but I liked that tweet [from Jason Choi] because you can take someone's money for their brand, but it's also nice to be able to just give them a text once in a while or hop on the phone and ask them for their thoughts. And it's better to have an investor who will actually pick up the phone.”

Joey Krug on the kinds of problems he likes to help founders solve:

“With the game theory questions, you read something that somebody sends you, and usually you have one of two responses: one is, ‘this isn't going to work and it's obvious and here's why’.  Or it's ‘this seems like it could work’ and then you go think about it in the shower over the next week. Then you'll probably come up with something that may be a very theoretical issue, or it may be something where it's a real issue that they should fix.

“Those problems are fun to think about because it reminds you of all the problems we solved early on at Augur, especially with the oracle problem, that you’re just constantly having to think through…this incentive issue, that incentive issue.

“It requires a lot of focus too – often, somebody will walk up and talk to me and then I'd be like, ‘Oh no, I just lost this like mental palace of game theory actors fighting each other and now that's going to take like three hours to get back there.’”

Joey Krug on a leading indicator of what makes a great Web3 project:

“For me, it’s shipping velocity. Projects that I've talked to who shipped product quickly, they tend to be higher quality teams.  With a very early-stage project, you're not always going to have a team with massive pedigree. If you only invest in pedigreed teams, you're going to miss out on a lot of the upside.

“If I think back through the 75 to 100x investments I've made, very few of them, in fact almost none of them have that classic ‘two people who went to Stanford’ and previously launched a startup and sold it.  They were people who had a good background and seem smart, but you didn't really know for certain how well they are going to execute.

“I think the best signal is how fast is someone? Say you meet a founder, and it's really early, and they say they’re going to build something in a couple of months. When you talk to them a couple of months later, have they built it, or are they saying it's going to be six to nine more months? How well calibrated are they internally for when they can ship product, and can they actually do what they plan to do?

“Time to getting a product into the market is also a strong indicator. We invested recently in these two founders in college, they were both 18, and they were building a DeFi insurance protocol.  Between having the first call with them and giving them the term sheet, they built a huge amount of product in that time window.  By the time we had our fourth weekly sync call, they launched the product on their mainnet. 

"In total, it was maybe two to four months’ timeframe from when I first met them, then invested, and then they launched.  That’s a really strong signal, and you don't even have traction data at that point, but you know that they can ship product fast.  That’s my number one thing.”


Episode originally recorded as part of the Techstars Web3 Convo Series of fireside chats powered by the Launchpool Web3 Techstars Accelerator program in Ireland

Follow Joey Krug on Twitter and learn more about Pantera Capital

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Joey Krug

Co-CIO, Pantera Capital