The last two years and the next two
I have been actively investing for 2 years now, focusing on deeptech and crypto. My portfolio is up 7x overall (33x on tokens). Here is what I will focus on next, and how you can be part of of it.
Dear friends,
Two years ago when my previous startup got acquired, I didn’t take time off. Instead, I created a new company, Zama, to work on a technology most people thought was impossible: homomorphic encryption. In its first two years, Zama has built the most powerful development framework for FHE, gathered the largest developer community in its field, grew to 35 people (including 21 PhDs), raised over €50M from amazing investors.
I started angel investing at the same time, focusing on deeptech and blockchain. I learned many things in the process, most notably that being a founder is an incredible advantage when it comes to dealflow. I also found my sweet spot as an investor: early-stage projects with deep technical challenges, where my background as a scientist enables me to assess the actual technical risk.
Today I would like to share 3 things:
my performance as an investor over the past 2 years
my investment thesis for the next 2 years
the fund and DAO I’m thinking of doing
Performance review
I have made 49 investments, of which 16 are in tokens, and 33 are in equity. Amount wise, my initial allocation was 20% in tokens and 80% in equity. I have reinvested some of the proceeds of my first exits.
In terms of verticals, my focus has been on blockchain, healthtech, hardware and developer tools, although I also opportunistically invested in other verticals, typically when I knew the founders personally:
Geography wise, the majority of my deals are in Europe, followed by the US and the UK. I chose to focus on Europe first because I strongly believe this is where many of the best deeptech and web3 startups are emerging at the moment. My goal is to be the best deeptech investor in Europe, the one founders go to first when they think of building a company.
In terms of performance, I am up 7x so far:
In comparison, the S&P500 returned 1.7x and good early stage VCs 2.5x in the same period. It’s fair to say this was an exceptional period for everyone!
Of note, the performance I’m showing here was driven by only 1/3 of my investments, the other 2/3 having been done too recently to have raised follow-on funding or list yet. I did count them in the overall performance though, which actually drags down the real performance since my latests investments were typically bigger than those that already played out. This means I should hopefully see a nice markup in the coming years!
If I take my token investments only, I managed to return 33x versus ~16x if I had bought 50/50 into Bitcoin & Ethereum on the same period:
My strategy for the next 2 years
I have been aggressively investing over the last 2 years, capitalizing on the incredible growth of deeptech and web3. My focus on deeptech and blockchain has paid out, and I am confident it will continue to do so over the coming years.
As such, here is what I will be focusing on:
Semiconductors
I will continue to invest in high-performance computing, as I see growing demand for dedicated chips in everything from AI to crypto mining to cybersecurity. Companies run more and more complex algorithms on their data, and they need the infrastructure to support it.
I would also like to start investing actively in the RISC-V ecosystem, both on the semiconductor side, and on the developer tooling side. The shortage of chips that we are currently experiencing will be a catalyst for an open source alternative, of which RISC-V is the most promising solution. Let me know if you know good founders or companies that I can look at!
Health
I have never seen so many people suffering from mental health issues than since Covid. At the same time, the stigma associated with mental health is starting to fade, as more and more people are openly acknowledging what they are going through. One of the most promising avenue of treatment has been psychedelics, which I have been investing in actively and will continue to do so in the coming years.
I’m also going to start looking deeper into how AI is being used in healthcare, as I hear an increasing number of AI researchers interested in working on healthcare problems. This includes the use of AI in treatments, diagnostics, health logistics etc. Covid has changed the game in healthcare, as governments are now under pressure to upgrade their medical infrastructure, which means more willingness to adopt innovative solutions from startups.
Finally, I will dig deeper into longevity and related topics, making a few “learning” investments to get familiar with the space, ahead of investing more actively in it.
Developer tools
I am a big believer that developers are the real influencers when it comes to technology adoption. After all, they invented the computer, the internet, social networks, smartphones and now blockchain. And behind every digital product a consumer or company uses, there is a developer who coded it, using tools to help them do so. So it’s natural that the more technology we use, the more tools developers will need. And if it’s open source, even better!
Blockchain
The growth we experienced in the past 2 years was fueled by fundamentals, but also by FOMO. The consequence is that nobody knows the real price of crypto assets, as it’s still very much based on expected future value. This means we will likely enter a price discovery period in crypto, which is something I have been expecting for a few months now, and that I had shared early December with some of my co-investors:
crash then sideways for a couple years while investors figure out the real value of assets they paid for and companies catch up to their valuations.
volatility and arbitrage tokens will do great, and be amongst the rare cryptos to gain value.
tokens and major cryptos will crash 50%+, and range trade from there.
NFTs will crash 80%+ as people try to sell and realize there isn’t enough liquidity for them to exit. It will be interesting to see which NFTs will stick long term and which ended up being just a fad.
Something else that I noticed is that many professional entrepreneurs are now starting companies in crypto. This means there will be many opportunities to invest in incredible web3 projects over the next few years. This new generation of projects will be even better than those we have seen so far, with better user experiences and more sustainable business models. Valuations will no longer be based on scarcity of deals, but on quality.
My crypto strategy going forward is as follows:
invest in early-stage web3 projects, particularly around developer tools, on-chain privacy, decentralized identity, on-chain compliance and scalable web3 infrastructure.
invest actively in market-neutral tokens (such as CrunchDAO).
wait until premium tokens and NFT have crashed and stabilized before buying into them.
To summarize, I believe there will be opportunities to invest at more rational prices, and I intend to take full advantage of the situation to build my portfolio over the medium to long term!
Until then, HODL!
Cheers,
Rand
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Nothing above is investment advice!
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Forgot to mention my road to Regenerative Blockchain tech began with an initiative for a Regenerative AI which I’d very much like to discuss with you as well. Here’s a link to the protocol or what I called the Prime Directive: https://link.medium.com/c2kzYIACocb I was the first to coin the term in the context of living systems and biosphere life-support systems!
Hi Rand, Kyle here (@REOS_Kyle on Twitter) If you are interested in creating a DeepTech fund might I suggest one dedicated to ReFi (what I’ve DeFi 3.0) or Regenerative Finance. For which I’d like to put myself forward as lead researcher and scout. I believe that over the next two years ReFi will not only turn the whole of blockchain regenerative (by design) but will also seed the new protocols and cross-chain integrations that will serve as the foundation and intrastructure for an entirely new, regenerative, restorative and ciruclar global econony. REOS, the Regenerative Economics Operating System, will be a part of this, which in turn will be part of #TheGreatRegeneration. This is the ultimate DeepTech play! If this sparks your curiousity I’d be keen to dive deeper into the subject to define the opportunity more clearly. I’m Reos13 on Telegram and khence@icloud.com. All my best, Kyle