Billions Made From 80 Unicorns

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How do you actually get into the top venture funds that are closed to new investors?

In this episode of Making Billions, I sit down with Matthew Le Merle, managing partner and CEO of Fifth Era and Blockchain Coinvestors, a blockchain and AI fund of funds now in its 10th year, backed by more than 400 investors and holding positions across 50 venture funds, 1,500 companies, and 80 unicorns.

Matthew breaks down the exact playbook he uses to access top-tier managers, build a fund of funds, and position for what he calls the autonomous digital economy, the convergence of internet, blockchain, and AI that he believes will capture most of the alpha over the next 20 years.

He also makes the case for why the next two decades of returns will be captured at the intersection of internet, AI, and blockchain, and why most portfolio managers are dangerously under-allocated to it while overpaying for late-stage names they could have owned years earlier.

[THE HOST]: Ryan Miller is a fund manager, capital strategist, and former CFO turned angel investor in technology and energy. He is the founder of Fund Raise Capital and Aequor Capital Partners, and has mentored over 1,000 fund managers across private equity, private credit, venture capital, real estate, and alternative assets globally.

[THE GUEST]: Matthew Le Merle is managing partner and CEO of Fifth Era and Blockchain Coinvestors. He is the best-selling author of six books. He holds a double first from Oxford and an MBA from Stanford.

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Transcript

Ryan Miller

Hey, welcome to another episode of Making Billions. I'm your host, Ryan Miller, and today I'm with your friend Matthew Le Merle. Matthew is the managing partner and CEO of Fifth Era and Blockchain Coinvestors, a blockchain and AI fund of funds now in its 10th year, backed by more than 400 investors worldwide, invested in over 50 venture funds and even more. He spent 21 years advising Fortune 500 CEOs and boards at McKinsey, A.T. Kearney, Monitor, and Booze. He has served as chairman or director of 15 public and private companies and is the best-selling author of six books, including The Intelligent Investor, Silicon Valley, and the Ministry of Bitcoin. He holds a double first from Oxford and an NBA from Stanford. So what does that mean? Well, it means that Matthew and his leadership team have had a depth of experience at the top of the food chain in the tech world. And he's about to teach you and I how to do this thing. 

Ryan Miller

Before we dive in, just a word from our sponsor. When doing deals, we all know that raising capital is the one thing that unlocks everything. That's why I've partnered with Reef Pass Investors that are actively funding deals right now. So if you're a deal syndicator or founder thinking about launching an M&A focused buy and build platform, reach out to Reef Pass Investors at reefpassInvestors.com.  They are one of the best investors in the game that are helping you launch a new long-term holding company. So here's what I want you to do: click the description in the notes and contact them for a discovery call and potentially get an invite to pitch your next M&A deal. Now, let's get back to the show. 

Ryan Miller

So, Matthew, welcome to the show, man.

Matthew Le Merle

Great to be here, Ryan. And I hope this is going to be informative for your audience.

Ryan Miller

Yeah, absolutely. So let's dive in, man. Your investment strategies are in their 10th year. They're backed by more than 400 investors with positions in over 50 venture funds, 1500 companies, 80 unicorns. You have done it all. So for all the allocators listening, how does an investor actually get access to top-tier funds that are close to new LPs?

Matthew Le Merle

Yeah, so it's a journey and it's about relationship building to the general partners. As you correctly point out, in the early stage, we use fund to funds to get direct access. And then we do concentrated direct investing ourselves, mid and late stage, all and then all the way through into the pre-IPO phase. But in early,   the most accomplished venture capitalists, the top quartile often show a high persistency rate. And getting to know those folks and building relationships to them. One of the components of gaining access, unless you have a lot of capital. Obviously, if you're a pension fund, sovereign wealth fund insurance company, access is much more easy. For people like us, we've been in Silicon Valley for 40 years. We know a good number of the GPs of the top traditional general purpose funds, and we've made it our business to know the GPs of the newer AI peer play and blockchain peer play funds.

Ryan Miller

Brilliant. So getting into that, we talked about reputation on this show. We talk about reputation relationships and results, and you really hit on an important part, which is building those relationships. Did you find on your own experience then that that is or that was one of the key building blocks that enabled you to do so much that you guys are doing now?

Matthew Le Merle

Yes, I mean, both times around, we launched our first Blockchain fund to funds. It was actually the first fund to funds of its type in the world  back in 2016-ish, I think it was. And  at that point, very few people were investing in blockchain at all. We'd started back in 2013  off our own account. But , it was a process to meet as many of the new dedicated VCs. We met the Stevens brothers, Bart and Brad, and became early investors. In fact, amongst the earliest investors in blockchain capital, Alison became chairman of their advisory board. Alison is my partner and wife. We knew the DCG team, the Pantera team, and were fortunate to get into their funds very early too. And we carried on that process. We probably screened more than 100 funds to pick the 20 or 30 that we really wanted to be in. In the case of AI, we've done that same process last year, screened more than 100 AI pure play early stage funds, and have picked the 10 that we're in  today. And obviously, if an innovation is new, because you said , you know, relationships, reputation, and results, you won't always get results because they may be in their first or second fund and they're still in the  process. But that tends to be true of any new innovation. By definition, there are very  few peer play investors investing into brand new innovations, and they're not going to have a lot of track record. So, you know, a lot goes into the equation to figure out who to invest in and so on.

Ryan Miller

Yeah, it sure does. And I love that you talked about relationships. You know, we talk about raising capital in a lot of areas, and that's the big one, as I always say, it's the one thing that unlocks everything. Skipping that and going right to transactions, I think is where a lot of people, when they're first starting out, make a mistake, they blast their deck out. Here's all the numbers. And yeah, you obviously you got to do that. We've got to talk about numbers. This is finance. But building that relationship, and I'm so glad to me, just have been doing this for almost five years. I could tell you, everybody who's a pro like you, they always talk, they go back to the relationship building is one of their key tenants in their success. So I love that you're talking about that, man. Now, my next question, I'm curious, what are you seeing out there for different stage investments? What's looking good? What's maybe keeping you up at night, or maybe other people? What are you seeing out there?

Matthew Le Merle

Yeah, so we have a very clear investment thesis. And I would say for the investors who are listening in, you know, you should not be a venture investor or indeed a private markets investor unless you have a clearly developed investment thesis for why you think value is going to be unlocked around a specific innovation technology or an area of emerging business. And I am very focused here on innovation investing, I should say. For us, we wrote down our investment thesis 15 years ago, but it was after 15 or so more years, 15 to 20 years prior to that, beginning in the 90s, when we really lent into the internet. It's our view that all of the world's business activities are going to be digitalized, and pretty much everything hands do is going to run on natively digital rails. And that phenomenon got kicked off with the internet, digitalizing communications and content. But we haven't yet digitalized value exchange, you know, commerce and finance and financial transactions. And we haven't really digitalized decision making, which at the you know, at when you get to the end of that process is about digital intelligence and the ability for computers to do work  digitally. And we're now in that phase. So we believe that the most important defining driver of the next phase of, in the next 20-30 years is the digitalization of everything else that humans do value exchange, identity provenance, intelligent decision making and the execution of work, at least as much of it as can be done with devices. And, that all leads to what we're calling an autonomous digital economy. Right? So it doesn't mean that everything is done by machines, because hands can act autonomously as well if we don't require them to go through intermediaries and layers of complexity to get things done. If you and I can do stuff together, we can act autonomously between the two of us, peer-to-peer. And so for us, when we say autonomous digital economy, yes, of course, we expect the machines to do lots of the work, but we will too. So going all the time so that's our investment thesis in a nutshell. And you know, we've held that for a while. We're seeing it happen today, and it's really about the convergence of internet, blockchain, and AI and agenda coming  together. And like I say,  it drives pretty much all of our investment decision making.

Ryan Miller

Brilliant. And you I know when we first met, you talked a lot about  De-SPAC mergers and a lot of things that are going on and different stages, like late stage, IPO windows, mergers, De-SPAC mergers that are happening. Maybe just if you could just clarify a little bit about what you're seeing and maybe your opinion. Because I know you're an RIA and you can't give financial advice, but just from an entertainment and from an entertainment side and just your opinion.

Matthew Le Merle

Yeah, okay. So we've talked about investment thesis. If you really believe that something is inevitable and value is going to be unlocked, that seems to be a good place to deploy capital. We talked earlier on about how you're trying to  get to know the best investors in any specific asset class or space. And we do that in the early stage through our fund to funds. And then you need a clear investment strategy. So we have a three-part investment strategy. Early stage, it's fund to funds. Get to know the best investors, give them capital. And then watch everything they do and use those signals and the access that you've just built to drive your mid and late stage investing, which is concentrated  investing, which means you're looking for the emerging category leaders. You're probably only pulling the trigger a handful of times per year in the mid and late stage. And then, as you point out, if you've done a good job, some of your portfolio companies will be going public. And if you can help them in that process, or in fact, if you can help them do mega  mergers and acquisitions, then that's obviously a very good thing to do because you're facilitating your own exits and the return of capital. So we do all of  that. But we only do it in this intersection space, blockchain, AI, and internet. So there's a lot of things we don't do. We don't do life sciences, we don't do clean energy, we don't do infrastructure. So, you know, there's an awful lot of asset classes where we know we're not really, it's not part of our strategy. 

Matthew Le Merle

And then if you want news,  early stage, mid-stage, late stage, there are cycles. We see them going on, they've gone on for decades and decades here in Silicon Valley. I've been here for 40 years. And in Silicon Valley, what we tend to see is the early stage does go through cycles, but it tends to be like 1x, 2x, 1x, 2x on the valuation. So there is volatility, but it's relatively modest. And it doesn't really matter if you vac a good team, whether you get in at a you know $10 million pre-money valuation or a $20 million pre-money valuation, you're trying to get to a several hundred million dollar exit. So yes, it makes a difference, but it's , you know, it's not the  driver. Obviously, if you're getting at a billion dollar valuation, as we've seen recently for startups, obviously that's a whole different equation. The mid-stage, it's more like 1x 5x, 1x 5x. So, you know, when things are hot, the valuations go up very fast. And when they're not, they come down very fast. And then late stage is where the real volatility is. It's like there's periods when you can't find late-stage capital, and there's other periods where the valuations are in the trillions right now for late-stage pre-IPO companies. And so what's hot right now? Well, obviously AI. So, you know, early, mid, and late stage, good AI teams, AI teams are everywhere launching businesses, and the valuations are clearly being driven by the good teams, and they're very high in many cases. Blockchain, we're in a crypto winter, and so valuations have come way down. And in fact, I think  good teams are still launching their quests and their  businesses. But a lot of the, what we would call the tourists, the people that came when it was hot, you know, they may now indeed have left. And then finally, internet has never gone away, and it's a driving  fundamental technology. So, as I mentioned earlier on, , we are seeing this convergence of blockchain, AI, and internet, and all of them are getting quite well funded.

Ryan Miller

Brilliant, man. So walk me through how you would structure a fund to funds so that two layers of fees still deliver top quartile net returns for your investors. How do you guys do that?

Matthew Le Merle

Yeah, so it's a great question. It's , you know, fees on fees is never a good thing. And obviously, if you have too many layers, you're gonna burn up the returning cost. And , you know, you've got to look closely at the assets class and the returns expected, the expected return of the asset class to figure out what structure is possible and and you know where it doesn't make sense to use an approach like we approach.  in the public markets, there are funds of, for example, funds of hedge funds, and for the most part, public market returns are in the 10, 11% return long term on average. So if you're burning up  fees on fees on that space, you can push  the product sort of underwater, if you will, and have it destroying value. And in fact, most public equity hedge funds destroy value, and so fund to funds of hedge funds can obviously do an even worse job if they're not careful. So we don't do  that. When you get to early stage venture, you've got one of the highest returning asset categories in the world, but it's exceptionally difficult to access the top quartile. So what we do is we're an institutional platform, we have a very low cost way of  operating. If we were Harbor Vest or Horsley Bridge, they might be at 0.75 and 10%, and they would have multi-billion dollar funds in some cases. , so we use a similar institutional cost structure. It is on top of the two and 20 that your typical venture capital fund  will be asking. But  early stage venture is amongst one of the highest performing asset categories in the world. If you can get into the top quartile, and there's high persistency in the top quartile, about 48% for the top quartile, about 70 plus percent for the top half. And in fact, Cambridge Associates did a wonderful piece of work at the end of last year where they looked at funds operating in our space and demonstrated that blockchain venture was one of the highest performing asset categories in its own right. And then there are other pieces of work that can demonstrate that elite fund to funds to justify their cost structures. But like I say,  don't go into the fund in asset classes with low returns, because by definition, it's gonna burn up a lot of your return. And when Alison and I, Alison, by the way, was former CFO of Barclays Global Investors, I worked with Lee Kranefuss on the strategy for iShares. Alison then worked with Lee at BGI to  incubate and launch that strategy, it's now five trillion. And that whole product was all about let's take out the cost, reinvest it into performance, and let the investors get the best possible return. And that is sort of our philosophical perspective as well, Ryan.

Ryan Miller

Brilliant. Well said. Your  partner  sounds phenomenal as well. So both of you bring so much value to a lot of the people you do business with and funds that you invest in other companies. And it's exciting. I'm territory over here. Part of that is yeah, like a lot of people  intuitively will maybe consider, oh yeah, what deal got you this return? What deal got you that return? And a lot of that's fine. But a lot of that is missing one important component, which is the manager behind the deal. So I'm just curious, tell me, what is your process for deciding which managers earn your investment capital?

Matthew Le Merle

All right, so it's , you know, we're talking now, again, early stage venture in blockchain, AI, and internet. And here, you know, you start off with expertise  in the space. And , as we already have talked about, if you're talking about a new area of innovation, most people don't understand it. And indeed, most general purpose venture funds may also struggle to understand an area. They may have one or two experts , you know, that they've hired, but they will not be focused on that emerging technology area, whereas these pure play funds are. In some cases, they've come out of the industry. So, for example, in our AI fund to   funds, we have general partners, we have about 30 investment partners in the funds that we've backed. 30. So our fund to funds has basically got the benefit of 30 experts deploying the capital. Some of them are alumni of OpenAI or the Google AI team who stood up gradient and so on and so on. Some of them are career venture capitalists with proven providence who have come out of top-tier VC funds. Some of them can be scientists occasionally, , some of them can be founders who have pivoted to being venture capitalists. But in almost every case, you're looking at three or four people with that sort of a profile, and you're trying to make a first judgment call on is this a motivated team who are really committed to the early stage? You obviously ask other people what they think. So you sort of ask other investors, other venture capitalists, and in some cases builders of projects, who are the best VCs, in your opinion? And so you're trying to triangulate in, as you said, reputation as well as results and capability. 

Matthew Le Merle

And then there's some other due diligence questions around their investment thesis, the specific areas that they're focused on. So in the case of whether it be blockchain or AI, what parts of the investment stack are they putting more effort into? Are there particular ecosystems they're mining? So, for example, if they're open AI alumni, are they very involved in the  ecosystem and they understand what open AI needs built to support its ecosystem,  you know, what potentially might be a future acquisition for that company or which startups is it going to favor and try and help? And then there's a bunch of operational due diligence around, you know, who's their accountant, who's their lawyer, do they have a fund administrator, a bunch of stuff. So that's sort of how you're doing it, Ryan. When they are on to their second or third fund, obviously you start looking at performance, and in an ideal world, you are performance-based in your decision making , but oftentimes you're trying, you know, as I already said, I won't repeat it. You're going to go into funds that don't have a lot of   serious funds behind them, you know, one, two, three, because the reality is they are brand new, investing in a new space that people are just figuring out now. And the typical venture fund, you know, it really is a 10-year vehicle. It may get some good exits in years, maybe three, four, five. It ramps up five, five, six, seven. So you don't really know how an early stage venture fund is going to end up performing until the out years. And that's partially because the very biggest outcomes  that really drive the portfolio returns can take, you know, eight, nine, ten years to get to an exit, sometimes longer.

Ryan Miller

Brilliant. I love that process. And you know, you've done very well at raising capital. And that leads me to wonder what actually moved more than 400 family offices and individual investors to wire money into your funds. What do you think? That is because that is good. There's people listening right now that are praying to God to have half of what you did. How do you do it?

Matthew Le Merle

Well, well, I think, you know, you and I have talked before about success takes time and it builds over time, particularly when you're an investor and a manager. So I know you've got a lot of different people listening in. You've got builders, entrepreneurs, and founders, you've got investors, you've probably got people who are lawyers or investment bankers. So different people will see this through a different lens. But for the, if you will, the fund managers who are listening in, your first fund's your hardest fund. And it's going to be really, really hard to raise a first-time fund unless you've got really great provenance and reputation, or you're lucky because your area of focus has just become exceptionally hot and everyone wants exposure to it, which is obviously true in AI right now. I think a first-time fund in AI, if it's got a good team and a good story, is probably going to find it a lot easier to raise capital than if you're a brand new, you know, internet or fintech focused fund standing up today when there's already a lot of other funds doing that. So the first fund is the hardest fund. And you tell your story to many, many people, and most of them will not invest , but hopefully you'll get a few. And if you get a few, they'll make introductions to others and you'll be speaking and talking and doing the rounds. And you know, your goal is to get to a first closing, and that first closing may be small, you know, it may be all the way down at like five to ten million, and you'll be feeling, oh my God, this is a bit of a disaster. But yeah, you'll get a first closing, and then you get a second closing and a third closing, and hopefully by the end of your fundraising period, you've got enough capital to make a first fund work. 

Matthew Le Merle

Oftentimes, the economics on the first-time fund are not that great in terms of  the management fee and the costs of operating the fund. You know, I used to say three GPs need a hundred million dollar fund to really make it run economically. I'm seeing some funds where there are maybe five GPs and they've got a $50 million fund. Obviously, if they do exceptionally well, the carry might justify everything by the time they get to the end, but that could be 10 years down the road. The real point is you need the first fund to be able to do the second fund. And if I  use Blockchain Capital as an example, because they've done such an amazing job, , they were the first ever blockchain venture capital firm back in, I think, 2013, when they were getting formed. Their first fund was tiny. Their second fund was in the teen millions, I think. But by the time they got to their next real fund, I think it was 150 million. And then it was maybe, I don't even recall, 250, 300 million. And today they have billions of dollars under management. So how long did that take? Probably 10 years, and it wasn't easy. And not everyone, you know, sticks it out. But , you know, if you're gonna operate a 10-year fund, really, really, you're gonna be in it for 10 years. So it's not like, you know, one and done, or you know, you're gonna be around for 10 years. You can't  abandon the fund. And the LPs expect you to be there for the duration. So I think here in Silicon Valley, that would be the normal sequence. First fund, try hard, get the capital you can, start the journey. Hope you make some good investments early and you can justify a second fund, which most people are beginning to raise maybe in year three. And then now you've got two funds live. And hopefully, you know, two or three years later you can do your third fund, because by now the first fund is five or six years in, and hopefully it's beginning to show a good paper based return with some distributions and and your. You know, your LPs are heading up into and following on because they believe in what you're doing.

Ryan Miller

I love that. 

Ryan Miller

Hey, if you're finding value out of this discussion, could you do me a huge favor? Could you just take a second and hit that like or subscribe button? It costs you nothing, but it tells the algorithm that this is valuable information and then helps us to get it to more people. Thank you. You're incredible. Now let's get back to the show.

Ryan Miller

You know, you also dance around the, this term is thrown around the tokenization of everything. I think it's a little bit of marketing spin on that, but it gets people excited. You know, how should a fund manager position their portfolio for the tokenization of the entire US financial system?

Matthew Le Merle

Yeah, thanks for asking, Ryan. And this is something dear to our hearts. We, as I mentioned already, 20 years ago, we said that we were going to digitalize all financial services and allow it to run over the internet. And at the time, no one really believed that. That was, I think, Satoshi's big breakthrough with Bitcoin, that he figured out how to tokenize, which was an innovation and a technology, how to tokenize a form of value and allow it to be natively internet ready. We set off on a journey  10 years ago to invest in businesses like Securitize and Ownera and others that are leveling up that technology. I was chairman in Europe for Securitize, an early investor there, and we took it public, or they took it public, to be fair, Carlos and Jamie did last week. So for those people who are unfamiliar with this territory, tokenization is a technology or an innovation that allows us to take an ownership certificate, which could be a share certificate, a title, or something else, and  put it in a digital format so we can share it, trade it, hold it over the internet, and we can gain all the benefits of 24 by seven global access. And  8 billion people or at least 6 billion people who are online being able to participate if the rules allow them to.  so we're very big believers in this, , and we think we're already seeing it. So at this point, even though five years ago you would have been laughed out of the room, today, the world's biggest banks, the world's biggest payment companies, the biggest asset managers, the stock exchangers, they're all on board with this. They can see it. And just to be very, very clear, they know that it's quicker, cheaper, easier to use, more reliable, and that it scales in ways that everything they do today cannot do. And that doesn't matter whether we're talking about monies, commodities, or assets. It's true across the board. And you know, every asset ultimately has an owner, and that owner will benefit from this process. 

Matthew Le Merle

So now you ask me, you know, which is actually your question, how can fund managers prepare their funds? And I don't think you necessarily need to. I think there will come a day when tokenized funds  will launch that way. And there are a few, by the way. We are an investor in a couple of natively tokenized fund vehicles. In fact,  BCAP, which is the tokenized vehicle  from Blockchain Capital, as well as SPICE Venture, were the two world's first tokenized venture funds and that was quite a few years ago and there are a couple of others that we're an investor in too. But they're the exceptions. And you know, here in Silicon Valley, we've got more than 2,000, 2,500 venture funds  here in the valley. And almost all of those are old-fashioned paper-based funds, closed-end vehicles, two and twenty, go to the lawyer, get the docents, trade them back and forth, sign them on board. It's very paper-based and people intensive. And I think it will be for a long time. So I don't know. I mean, if you want, in the case of our funds, every one of our funds does have written in it a term that says we have the right to tokenize this fund. But the issue that we have is most of our LPs are not yet ready for that, right? And so just to be clear on that, if you were to launch a natively tokenized fund, you've got to have LPs who are ready to subscribe and hold that format of fund. And today, most traditional investors, pension funds, insurance companies, multifamily offices, single-family offices, they're not ready for that. Now, if you were launching a fund and you planned that all of your LPs were going to be crypto native digital, digital focused folks, they already have digital wallets. They understand what tokens are. Maybe they'd be willing to buy a token that represents an ownership interest in a venture fund. And as I say, there are SPICE and BCAP for examples of those types of funds, but they're the exceptions.

Ryan Miller

You know, a big part of this tokenization and crypto and that whole world is just how money's moving around and settling and a lot of that. So, from your opinion, what should fund managers implement now that those stable coins are starting to change how money moves and is new settled? What would you say?

Matthew Le Merle

Right. So you're asking me about what fund managers should do. , I think that I'm gonna give you the same answer, which is you don't have to do much, so you can if you wish. But if we talk, if we just change the, you know, if we're talking to the builders, I think it'd be crazy to be standing up a technology company of any description if you haven't already thought about how you're gonna transact value in this new startup that you're building. So, as an example, just to use an example, if you were launching some sort of agentic-based company focused on an industry vertical like Harvey for law, maybe you pick something else out up. You want to create an AI agentic company to help fans go to sporting events. I don't know. I'm maybe of course, right now you should be worrying about how are the agents going to transact and how are we gonna make that efficient? Because we don't want to have to literally build Ticketmaster and StubHub again. We're gonna want this to be very rapid, high volume, very low cost, and the transaction matters. And if we're paying 2% to Visa and MasterCard and we're maybe only making five or six percent on sales, we're giving away a third of our value to the point of sale provider that does the transaction. So we've got to, you know, you should be thinking about that in retailing, but also in health, in technology arenas. I absolutely promise you, Google and Microsoft and Apple are worrying a lot about this right now. So I think if you're a builder, you're worrying right now about how AI, agents, and the digitalization of value and identity can transform the over-the-internet businesses you're standing up. If you're a fund manager, I think we are beginning to see more and more fund managers worrying about sort of the same things, but they're beginning with things like how do I make smart investment decisions leveraging AI and agents? How do I get my team to do better due diligence leveraging AI and agents? And by the time you get to how do I get my LPs to move the money into my account faster and a bit cheaper, it's not really top of the stack of issues. I mean, obviously, you and I probably do use stable coins. I mean, I use stable coins to make value internationally today, but I don't really think that most venture GPs are worrying about that too much today.

Ryan Miller

You know, I'm curious then, based on what you were saying, it's absolutely brilliant. So effectively we're saying, yeah, there's probably some value, but probably not on the top of the list. But keep an eye out, especially if you're not really in that game, the question before that one. If you're not really into it, it's fine. It's not a big issue right now. But if you are, then yeah, there needs to be a little bit of prep. But my question then is how does a fund manager capture the flows created when BlackRock and Fidelity put Bitcoin into their model portfolios? How do they kind of catch that wake and move with them?

Matthew Le Merle

All right, so that's a very different thing, I was talking about venture  backed, you know, tokens that represent ownership of venture funds. If you're going to talk about Bitcoin, Ethereum, and Solana, these are public liquid traded products tokens.  And if you're talking about stable coins, of course, those are US backed in most cases, US dollar backed. But, so they're sort of different.   Bitcoin, to use that as an example, is a high liquidity, high-value, publicly listed token. And it was the first, of course, that we turned into ETFs, so we put them into traditional wrappers, and that allowed the world's traditional institutions to gain exposure, traditional institutions were not at the time, for various reasons, allowed to open, you know, crypto accounts or okay, exchange or finance or something. They weren't allowed to. And so they have to have a certain type of custodian and they have to meet certain rules and regulations, and that limited their ability to get Bitcoin exposure. So we had backed Bitwise, the world's first crypto-focused ETP and eventually ETX  ETF company, pure play, but obviously BlackRock and Fidelity and others lent in too. Eventually, we were able to get the Biden administration, though the courts actually said there's no reason for you to not approve these products. And lo and behold, what you what the allocators discovered, the BlackRocks and the Fidelities discovered, is if they had a new to the world asset with a different risk return profile and different correlations to their existing asset classes, it deserved an allocation. And this is optimum portfolio theory in practice. So they ended up with a 2 or 3%, and now I don't know what it is today, but a 2 or  3 or 4% allocation to that product, which was enormous given the amount of capital that large allocators  manage. 

Matthew Le Merle

So, you know, obviously, if anyone listening to this works at a pension fund or a sovereign wealth fund or an insurance company, they already know that they're probably out of alignment with what the BlackRock and Fidelity models of today say. They should have a bigger allocation than they do. And in fact, most pension funds probably have not yet allocated to  natively digital assets. Sort of a long answer. Stable coins is a whole different dialogue. So remember, monies, commodities, securities, all of those things are assets.  We tokenize the monies, we come up with things like central bank digital currencies and stable coins that can be used over internet infrastructure, better than a traditional dollar as issued by a bank or a central bank. When we digitalize commodities, the same thing is true. I mean, you can own an ounce of gold, I can own an ounce of gold, we can want to buy or sell with each other. It takes time and it's expensive, and we may have a lot of custody fees depending upon what the commodity is. If it's oil, it's a ton of money to actually custody the barrels of oil, so to speak, we can try and create derivative products, but then we're not trading spot, we're trading something else, a future or an option or something different. And then securities, , same thing applies. We digitalize public equities with the Big Bang back in the 80s. I worked on that, by the way, when I was at McKinsey. But  today,  it's sort of old-world techno technology, you know.  It's sort of old-world technology. If  it does, it isn't that fast to clear  even a digitalized public equity. It doesn't work 24 by seven, and it's pretty costly. And you know, we get things like  GameStop and AMC, and here we are a couple of years later, and  the forensic work of the government still hasn't finished  figuring out what really happened all those years ago  in those particular situations. So tokenization allows real time, low cost, over the internet, movements of value, and that is a big so what. I mean, it really is.

Ryan Miller

Brilliant. You know, when it comes to different market cycles, and some people want to time it, but how should a manager pace deployment into the next innovation funding cycle just so that they're early without being wrong?

Matthew Le Merle

All right, I'll try and be quicker, let's just pretend the audience are builders, investors, and managers. For the builders, you don't time the cycles. You have a technology, you believe it's time will come, you have a big idea, you get to work. It may be easier or harder for you to raise capital, depending upon the cycle. But the good news is that the competition is inversely related. So if it's easy to raise capital, everyone's doing it, and you've got more competition. In the down markets, in the downturns, you may get a slightly lower valuation, but there'll be less competition. It'll be harder to raise the capital, but some of the world's best companies did get created in downturns. 

Matthew Le Merle

For the investors, well, no, for the fund managers, you should not be trying to time the market when you're a venture capitalist. You're trying to get into an investment cycle or an innovation cycle early and ride the curve. So you're constantly worrying about your investment thesis. And you know, you don't want to be coming in when  an investment cycle is beginning to play out. You know, it'd be a little bit late to be investing in chimney sweeps, you know, obviously or buggy horse and buggies.  You want to be in at the beginning of an innovation, not in at the end. 

Matthew Le Merle

And then for investors, everything says dollar cost average, which basically means, you know, what tends to happen with investors is they get excited when everyone else is getting excited and they tend to deploy capital at the peak. And then when markets collapse, they get very nervous and they don't make new commitments and allocations. But all of the analytical  evidence demonstrates the funds that were raised in downturns outperform funds that were raised at the peak of the market. And why? Because the valuations were low. So you actually want to heavy up your capital intervention in the downturn, but no one does that. They heavy up in the upcycle and they skinny back in the downturn. And I think, you know, just to make that really obvious, it's like Warren Buffett says he's always said, if you like socks and socks are on sale, do you buy less socks or more socks? You know, when socks are on sale, you buy more. Right. And obviously he was being cute because he dropped the T to take stocks to socks. So what is true of socks is true of stocks. If you think if you love a stock, buy it when the price is low, not when the price is high. So the answer to your question varies on who the audience is, but for the investors in the room, the best phenomena, assuming that you can't avoid investing in the ups, definitely don't stop investing in the downs and think of it as dollar cost averaging, where you're always making additional commitments into the investments and innovations that you really believe in.

Ryan Miller

I love that. My final question before we wrap things up. So let's picture a fund manager running $10 million today. How does someone like that, just starting out, build the platform and track record to become the next blockchain co-investors?

Matthew Le Merle

Well, I mean, I think we've sort of I feel like we've covered this, Ryan, but I'll mind saying it again. , I think that you know, you first have to look at why you're doing what you're doing. And if you've got a great investment thesis, if you've got a good investment strategy, it's not so much about the dollars. Now, obviously, life is easier if you have a lot of dollars because you get more management fees, you can hire more people, you can leverage yourself up. If you've got a very small fund, like a $10 million fund, you're definitely sub-scale. And you're gonna, you may even, you know, it's gonna be very difficult, and you're gonna do a lot more of the work yourself. But if you really believe in your investment thesis and if you really believe in where something is heading, then you presumably also really believe that your $10 million fund could be a $100 million fund, maybe. Now that's really hard, I  know, but the point is you're also in the business, you are an investor, and you bought yourself the right to potentially raise a bigger fund later. Okay, and if you have to have the first fund to get to the second fund. So obviously the right answer is keep on fundraising and don't let it be a $10 million fund, you know, and try and make it a $25 or $50 or $75 million fund. But if it ended up being a $10 million venture fund, early stage, early stage, you could still make you know $20, 500,000 investments. You might have to have a little another way to earn some money to pay your mortgage and your family costs and so on. But you'd be in the game and you would be an investor. And then it's all about, as you said, what are the results? What's your performance? And can you come out with a second fund and maybe raise a hundred million and then maybe raise  $200 million and $500 million, it's that sort of a thing. So having said that,  most people who try and raise a fund don't succeed. And that's life. It's like, you know, most people who launch a startup will fail. Most people who try and raise a fund will never close that fund. So  the other way of saying what I just said is if you have a $10 million fund, well, actually you've done quite well. You've got a fund, you are a fund GP, and you you're on the, you know, you're you you you can get started, and now, you know, show us that you can do 20 great investments, which you won't be able to do, even the world's best VCs, you know, you have 60 to 70 percent failure rates. But anyhow, you know, make 20 make 20 investments, hope that 10 of them do pretty well, five of them do really well, and then everyone will want to allocate more capital afterwards.

Ryan Miller

That's brilliant, man. You've really done extremely well over your career. Thank you for being on here. Before we wrap everything up, just final remarks, maybe ways people can get to know you or enter your orbit, anything at all. Where can they find your books? I mean, you've done a lot, brother. So  how do they enter your world?

Matthew Le Merle

Well, we're very transparent in both Fifth Era and myself. , you know, so you can just look up my name on Amazon and a whole bunch of books pop up. You can come to fifthera.com. We give away a lot of information.  Now we are an RIA, so unfortunately, we're only allowed to send our newsletters and our podcasts to accredited investors. I'm sorry that that's true, but the books are available to anyone. But really, Ryan, the right answer to your question is it's not about me. I'm here on behalf of Blockchain and AI and the internet, and we want to be ambassadors encouraging more investors to invest in our space. We think it's crazy that most investors are under-allocated to the technologies and innovations that will capture all the value. You know, in the last 20 years, all the alpha was driven by the internet shares pretty much. I think in the next 20 years, all of the  alpha will be captured, or most of the alpha will be captured by those companies that are operating in this autonomous digital economy, the intersection of internet, AI,  and Blockchain. And it's just crazy that most portfolio managers have almost no allocation to our space, and they have enormous allocations to public equities, and they scramble to get into late-stage companies with 1.5 trillion valuations, but they turn the same companies down earlier in their life when they could have got in for, you know, a few billion or less. So that's really why I'm here. So I'm not really asking the audience to reach out to me. I'm asking the audience to spend some time and energy and understand why AI, the internet, and blockchain are the drivers of the future digital economy globally and probably the biggest  valuation opportunity that we have today.

Ryan Miller

Brilliant. Thank you. So just to summarize everything that we talked about, I'm sure you're open to the changes of the market, the digitalization of the economy. And then also don't just focus on the deals, but the managers behind them as well. You do these things, and you too will be well on your way in your pursuit  of Making Billions.