U.S. Venture Capital is Structurally Broken

Recorded remotely.

Hodl Up: Hello, guys, and welcome back to another episode of Hodl Up. Today we have Gideon Greaves, head of investments at Lisk, with us. Gideon, thank you for joining us today.

Gideon: I appreciate it, Dren. Thank you so much for having me on the show.

Hodl Up: We used to ask people about their background story and everything, but I just want to get into it and start talking about the real things. So let's go. I know you're really vocal about how Web3 is necessary and important for emerging economies, and coming from a developing country myself, that makes sense. I know that if we implemented different Web3 technologies, say stablecoins, life would be easier in many ways, especially in banking. But if we're being real, how realistic is that, taking into account the amount of education needed, especially in emerging countries, or let's say my country, to get people familiar with Web3, DeFi, and everything in between? I've been here since 2020, and I still have some trouble navigating the space, because it moves really fast and it's really fragmented. So I want to get your opinion on that.

Gideon: It's a good question, and a loaded one as well, so feel free to stop me if I babble on for too long. The space we're all passionate about has obviously come a long way. It's a very complicated infrastructure technology, so it's less tangible than something like AI, where our grandmothers can pick up their phones, interact with ChatGPT, and immediately understand the value of AI. From a retail standpoint, it's very obvious what value something like AI can bring. Web3 is different. It's an infrastructure technology. It's very much in the background. When Bitcoin launched, everyone theorized about how blockchain could transform legacy industries, but at the same time the market went in a very different direction. Those use cases, the utility we all talked about, didn't happen. The market is changing now and becoming more mature and more institutionalized, and we're seeing those use cases coming, but the focus was on speculation, on using blockchain technology to create crypto and all these coins. It also came at the same time that buying stocks became easy, with apps like Robinhood launching. So the whole user experience of interacting with the different coins launching and listing on exchanges became incredibly easy, and the focus became speculation.

I think there's a huge shift happening now. The market has matured a lot. The history of crypto did give it a bit of a bad reputation when it came to regulating it and understanding it. So when you engaged with regulators, banks, or any institution that needed to adopt this technology and disrupt the way it currently works, they'd be very standoffish about it because of that reputation. Things have changed. We've got people like Larry Fink preaching tokenization, so people are starting to pay attention.

At the same time, the speculative world still exists. In 2017 there were only 3,000 tokens in the market. Of course, the market went through cycles, but you could be a very dumb fund manager and still do very well for your investors, because everything was just going up, unless you invested at the top of a cycle. Now there are 40 million tokens in the market, which is insane. All the liquidity is sucked into these shitcoins and memecoins. And even for the great projects out there, the layer 1 and layer 2 protocols that have coins, the use case for the coin isn't really there. So the customers are being segmented into two. One is someone who actually uses the infrastructure, or the app if it's consumer-facing. They use the product because it solves a problem for them. That's one customer. The second customer is the one farming the airdrop and chasing the coin, because they believe its value will appreciate, but they don't care about the product. And eventually even the best projects, like Polygon, for example, have done terribly over the last couple of cycles, even though there's still a lot of adoption on their chain. So the link between product usage and the coin itself isn't there anymore.

But for us it's a good thing, because now the focus is becoming more and more about utility and true use cases. And just as a caveat, that other world will never stop. It'll continue to flourish, and exchanges will keep doing super well. Eventually, exchanges will have to pick a lane, and be known either as a more TradFi-style exchange where you go for serious investing or trading, or as more of a gambling one. Gambling and betting will never stop. In fact, it's basically becoming a pandemic now. So crypto is still going to thrive, but at the same time we're starting to see real stuff come to the surface, which is super exciting.

I think the developed markets have always been the ones driving speculation. They focus more on the speculative side of the crypto economy, whereas emerging markets aren't using it to make money quickly. They're using it because it's the only way to solve a very specific problem. From an investment standpoint, if you're not investing in tokens, and most funds aren't anymore because they've lost all their money... The first vintages of VC funds made a ton of money investing in private token rounds, getting liquidity within six months to three years, and distributing funds back to their LPs. But the second vintage, everyone is down. The funds have done terribly. LPs are screaming; they're super angry at the VC firms. So the shift is now more towards utility, and on the back of that, the founders and entrepreneurs are going to come from emerging markets. Most of these use cases will be finance- and fintech-related, so I think that's where the initial adoption will start this year, and then it will branch into other things.

To give your listeners a very tangible example, there's a company in Nigeria we invested in a while ago called HouseAfrica. They verify property on-chain. It's a very layman use case, very simple: they put title deeds on-chain, so you can see who the true owner is. But in Nigeria, 60% of court cases are attributed to land disputes. There are actually signs in parts of Nigeria that say "Land not for sale." The founder of this company lost $18,000 on a deposit he put down on an apartment that wasn't being sold by the rightful owner. Now they've got the government and developers involved, and the company is doing really well. But if the same use case launched in Switzerland or Japan, for example, they don't need it. It's not solving a problem; they don't have that issue there. So while the whole world will eventually adopt blockchain as a verification tool, they don't need it now. Adoption will start in emerging markets, and eventually developed markets will adopt it because it's a technology upgrade.

We've come a long way, and I think this is going to be the year we see some super exciting adoption. We saw the announcement from the New York Stock Exchange last week about exploring tokenization and launching a blockchain venue. There are a lot of crazy startups tokenizing real-world assets. Obviously the most popular one outside of financial products is real estate. But I still think that, from an investor's standpoint, the main focus, and where we'll see the most traction and adoption, will be everything centered around fintech. In terms of tokenization and RWAs, it will start with financial products first, and once they've gotten that right, we'll start seeing alternative assets being tokenized and some other really interesting things. But I don't think that happens this year. I think this year will be a lot of fintech use cases: payments, stablecoins, and then tokenization of financial products, stocks, private credit, even private funds, which could bring liquidity and secondary market activity.

So emerging markets are definitely where it happens. But to answer your question, it's super hard. Regulators don't know how to regulate it or what's going on. But we're starting to see lots of sandboxes pop up. We saw one recently in Kenya. So there's more and more of a concerted effort to understand the technology and let entrepreneurs use it to solve problems. I think things are going to change very quickly. Of course, some governments in emerging markets will still push back on this technology, but I think in time, as they see their counterparts adopting it, it'll eventually start rippling through.

Hodl Up: I'm not going to lie, it's very refreshing to hear this, because I've also been in this industry for about five years now, and it's the first time I'm finding it hard to explain to people why it's worth staying in this industry. As you said, a lot of projects launch tokens just to extract value from their users, and some of the best crypto projects today don't even have a token. Maybe that should be the case for a lot of other companies too. I get that, for example, in the US the internal rate of return is negative right now, if I'm not mistaken, and you could make the case that there's a herd mentality in Silicon Valley and all that. But why bet on regions where there could be political instability that could wipe out gains overnight? Off the top of my head, I'm thinking of Argentina, for example. I'm not saying the US has political stability, but that's my take.

Gideon: It's a good question. There's an old-school philosophy from Warren Buffett, which is a bit of a cliché, I guess: be greedy when everyone is fearful and fearful when everyone is greedy. At the same time, it's also about timing. I've been investing in crypto startups for the last six years. I started only in Africa, and now with Lisk we're investing across emerging markets. The companies we were seeing six years ago were really interesting; HouseAfrica was one of them. That's not a Lisk portfolio company; it's from a previous fund I was running. The use cases were fantastic, and the builders were passionate. You could see they were trying to build something meaningful, but there was no adoption. Everything was still being marketed as "We're a blockchain company, we're a blockchain company," when blockchain needs to be more in the background. The user experience was very clunky, and no one wanted to integrate with any of these apps. So even with that Warren Buffett philosophy, while there's a lot of truth in it, timing is a big thing, and I think the timing is different now. This is a great time to invest in emerging markets, not only from a Web3 standpoint.

To answer your question more directly, emerging markets have changed a lot over the past couple of years, for many reasons. One that I've theorized is that the US venture capital ecosystem isn't in a good place right now, because there's just way too much capital there. According to a report by Cambridge Associates, the average yearly return, the IRR, of US VCs over the last three years is -2.7% per year. So venture as an asset class is dead at the moment. Roelof Botha, a fellow South African and managing partner of Sequoia Capital, from the PayPal Mafia days, was talking about this recently on a podcast, and he's spoken about it constantly in various interviews as his core thinking. He recently stepped down at Sequoia Capital, not because venture as an asset class is dead, he's moving on to other things, but he was saying there's just too much capital in the US.

Think about it as an investor in a VC fund. It's usually a 10-year horizon. A lot of startups fail, so it's super high-risk, and you're very illiquid; you can't get your money out. The whole idea is that you're compensated with outsized returns. By investing in a VC fund, you're supposed to beat the market and perform better than gold or the S&P 500. But lately that hasn't been the case. These startups are also overvalued. A US startup pitches to you, not necessarily AI or Web3, it could be biotech, anything, and before they've even started the business, it's already at a $30 million valuation with basically a pitch deck and an idea. We just invested in a company in Kenya at a $3.3 million valuation that did $1.6 million in transaction volume last month, in December, and $25,000 in revenue. So there's also this valuation arbitrage.

The point of all this is that I think a lot of money will start flowing from developed markets like the US into emerging markets, because it's the only way they can start making outsized returns again. Of course, they'll look for markets where these products or startups can expand to $10 or $20 billion valuations. Africa is a great example, because you can launch something in Nigeria and scale it throughout the whole of Africa, since the problems are very similar. It's super high-risk, and there's a lot of political instability in many areas. But where there are a lot of problems, there are a lot of startups coming up with solutions. So there are still concerns. It's one of the questions I get most from LPs about investing in our fund: what's happening in emerging markets, the political instability, or Argentina with its inflation, which is a great example as well. But where there are problems, there's always opportunity.

There are a lot of entrepreneurs. I know I'm speaking a lot about Africa, but there was an interesting statistic from the African Development Bank a while back showing that one in five working-age Africans owns their own business. That makes Africa the region with the highest entrepreneurship rate in the world. That's not because we have Silicon Valley's infrastructure; it's because they have to. People become entrepreneurs and business owners out of necessity, because there are no other jobs and it's the only way to make money. So you've got a set of people, and I'm using Africa as the example, but there's a common thread across emerging economies, who are emotionally attached to their product or service. They see it as an extension of themselves, and those are the kind of people who persevere, pivot, and build something exciting. So there are a lot of different recipes for success in emerging markets, and it's coming at a time when a lot of capital is starting to flow.

We did an internal statistics report on the number of unicorns in Latin America, Southeast Asia, and Africa since 2015. In 2015 there were only two. From 2015 to the end of 2024, there have been 72 new unicorns in these regions, which shows these products are scaling. When you first raise capital in an emerging market, it's usually from a local angel or investor. These VC ecosystems aren't very mature, so there aren't many local investors, and the initial check usually comes from inside the country or at least the region. But when you raise a Series A or Series B, there isn't enough capital locally, so you have to look to developed markets. My theory is that markets like the US will be forced to start investing elsewhere, where there's traction and valuations are rational. There are big problems to solve, especially around banking infrastructure and banking the unbanked. So there's a lot of risk, but I think there's a lot of opportunity as well.

Hodl Up: You said yourself there's too much capital in the US, and dispersing it into emerging economies would be a good bet, in my opinion as well. But an issue I have with VCs in crypto is that some of the new founders in crypto enable some VCs, and vice versa, to launch, raise money, do these private sales, and then dump on their communities. I think that hurt Web3 as an industry quite a lot. I've seen projects that raised hundreds of millions of dollars and don't even deliver a product after they launch the token. But this is changing. As you said, you at Lisk are focusing on actual products, services, and solutions for people who need them and that Web3 can provide. So, now that we're talking about Lisk: how are you trying to fix this VC problem, and the gap between real, useful products and services and the money that needs to be dispersed into these emerging economies? I hope my question wasn't way too long, by the way.

Gideon: No, no. And if I don't answer it properly, feel free to ask again. Our fund at Lisk invests in Web3 startups in emerging markets at the seed stage. Our first check is between 100K and 250K. We currently have five portfolio companies, and we're constantly deploying and looking for new entrepreneurs to invest in. We only invest in equity. We don't invest in tokens. That answers that part of the question, because in emerging markets we don't really see any projects with a coin that makes sense. In developed markets, while there are a lot of interesting crypto projects, most of them fail, even the really cool ones. When you see a token go from $1 to $100 and suddenly it's top 30 on CoinMarketCap or CoinGecko, that makes people think the market is changing or there's opportunity out there. But that's literally one in a million. Sometimes you just get lucky because of the community, the tokenomics, a lot of people catching on, or KOLs really pushing it until it catches fire. But most of the time, people are sick of losing money.

And the token often makes no sense, even for great projects. I met a super cool DePIN project when I was in Vietnam. They had a very interesting idea that made a lot of sense, and the team all came from telecommunications, so they were real professionals. But they had a token, and I asked, "What's the use case of your token?" They said, "We're going to use the company's revenue to buy back the token on the market." That's a really stupid use case. It's very simple, and they're just using it to pump the token, get early liquidity, and then cash out. Think about it from a founder's perspective. What's the usual route to building a company? You start the business, bootstrap, get traction, find product-market fit, hire, fire, persevere, raise capital, fail, succeed again, raise more capital, raise more capital, and then eventually get acquired or IPO. That's a 10- to 15-year journey for founders, with a lot of blood, sweat, and tears. But crypto flipped that around. You could launch a Twitter page and a cool website, and in six months you could make millions of dollars. Of course you're never going to build the product. Why would you? There's no incentive anymore. You've already cashed out; you've effectively already sold the business.

So our main focus is investing in equity. We haven't seen anything interesting from a token standpoint. We can invest in tokens, but we haven't seen anything yet. We also look for things that have actually launched. We don't invest in ideas. We love supporting entrepreneurs who have great ideas and are launching something, so we have various incubation programs, hackathons, and residency programs, which act as a funnel that gives us exposure to these founders. But we don't invest in products that haven't launched and don't already have customers. We need to see product-market fit and growth, and then we invest at normal, rational valuations. Nobody's going to argue over a $3 million versus a $5 million valuation; we don't care. But if someone is raising at a $30 million valuation versus $3 million, of course we'll pass, because at the end of the day, this company has to get acquired or list. If you invest at $30 million and they sell five years later, they're probably only going to sell for $30 million.

But we've seen some great opportunities, and the market is changing in a big way. The products we've engaged with are scaling like crazy, with consistent month-on-month growth, which is very different from a couple of years ago. People are using these products now. In the beginning, it was a lot of tech-savvy people who understood crypto but didn't know how to commercialize things. Almost like Steve Wozniaks. The first adopters of crypto were super nerdy, tech-savvy people, but they didn't know how to market or commercialize anything or build proper UX and UI. As the market matured, the Steve Jobses of this world started partnering up with the Steve Wozniaks, blockchain moved into the background, and these apps became very easy to use. The UX is better, and the commercials make more sense. So I think it's a super exciting time for emerging markets in general from an investment standpoint, not just in Web3. But Web3 as the catalyst technology driving fintech use cases is what's going to be interesting.

At the same time, I don't think you'll see many new Web3 funds launching, because Web3 is going to be in everything. Being just a Web3 fund won't make sense anymore. I think more and more generalist funds will invest in startups that use blockchain in their tech stack, because they have to, and because it's just a better way to do things. There was also a cool announcement recently from Andreessen Horowitz. Ben Horowitz posted on his Twitter and LinkedIn that they raised $15 billion in 2025 across their various funds. He said that was 18% of all venture capital raised in the US, which is crazy, and that their main focus is going to be AI and crypto, but crypto infrastructure, not crazy coins and that kind of stuff. So even though AI is the sexy thing now, blockchain is the infrastructure, and I still think there are a lot of opportunities for investors and entrepreneurs who want to build in that world.

Hodl Up: Going back to cryptocurrencies and crypto projects in general that don't have utility: look at some of the metrics. I just saw a post on LinkedIn about, I forget which coin it was, one that was in the top 20 by market cap, but the monthly revenue its chain generated was less than $1,000. That's just stupid, because that project raised hundreds of millions of dollars. I also agree that early on there were a lot more tech people, developers, maybe nerds, in this space, but then I got the feeling everything was being dumbed down too much. We had the whole memecoin meta and the degen phase of crypto, and the likes of Solana didn't help with that at all. I feel we went too far in the other direction, but now, with everything becoming much more institutionalized, we're getting to a middle ground between more traditional marketing and having these early developers around.

So I want to ask you a question from a VC standpoint, because emerging markets aren't monolithic, if that's the right word. We have Latin America, Africa, Southeast Asia, the Balkans, and they all have very diverse cultures and business environments. How do you adapt your approach when evaluating a startup from, say, Vietnam versus one from Nigeria? Are there regional differences you've noticed through your programs, in how founders pitch and the general challenges they face?

Gideon: Super good question. If I'd started this fund with two other people, we wouldn't be able to focus on such diverse markets, because we wouldn't have access to the deal flow and wouldn't know what's going on. The only reason we have the luxury of investing across all these markets is that we have quite a big team. Lisk is a blockchain infrastructure business itself, so we can leverage quite a big team and lots of partnerships. We work with and fund many incubation programs, acceleration programs, ecosystem builders, and governments. We have partnerships with the Indonesian government, and more recently the United Nations; we're doing a program with them as well. We have partnerships in Nigeria.

Because of what you're describing, how difficult it is to understand these markets, we can't just spray and pray. That said, if we get a really interesting opportunity from Kosovo or Pakistan, we can still look at it and invest, because our thesis is emerging markets. But the majority of our deal flow comes from where we understand the markets, where we have employees on the ground, and where we have partnerships, and that will grow over time. Currently, it's Indonesia and Vietnam in Southeast Asia; South Africa, Kenya, and Nigeria in Africa; and Argentina in Latin America. All our portfolio companies to date, only five, are from those regions. If we started saying we'd invest in Pakistan, we don't understand the market or the problems there. Of course, there are similarities across emerging markets.

What we've noticed is that in Argentina and the African countries I mentioned, most of the use cases, 90% of them, are fintech-related: payments and stablecoins. In Argentina, a lot of people use USD stablecoins. When I went to Devconnect there, there was a startup called Peanut that did $2 million in payment volume in its first month after launch. People are using Peanut to pay with stablecoins at Mercado Libre payment terminals, which are the payment terminals they have in Argentina, and they're using this app because of the issues they have with the local currency. In South Africa, on the other hand, USD isn't necessarily widely used, because although our currency is depreciating, it's not depreciating as rapidly as some others, like the Argentine peso. It's still a fairly stable currency. So we're starting to see rand-pegged stablecoins here, with different use cases, because it's cheaper, money moves faster, and you can take banks out of the equation. It just makes sense. USD becomes more of a bridge for international remittances, because of the lack of liquidity in these different markets. But most of what we're seeing in Argentina and Africa is fintech-related. There are some really interesting certification and verification use cases too, but I think those will struggle with adoption. Payments is definitely where the adoption will be.

In Southeast Asia, we've invested in a really interesting stablecoin in Indonesia called IDRX, but the rest of the deal flow we've seen there hasn't been great, and we've been a bit disappointed. At the same time, we need to give it more time and explore the country more. We have boots on the ground and partnerships there. I've made two trips myself, and other team members have explored it quite a bit as well. We also did a two-week retreat in Bali, invited loads of startups from the region, and held some competitions. There was a lot of speculative stuff, gaming and so on, but there's still a lot of really cool stuff there, so we need to dig deeper into that region. But we did find a gem with the stablecoin, so that's great. As you say, it's very difficult to source deal flow across Nigeria, Indonesia, and Vietnam, because culturally they're so different. So we rely a lot on our employees on the ground and our local partnerships to understand whether a use case makes sense, whether founders are on the right track, and whether they're in line with regulation.

Hodl Up: We talked about stablecoins, and everyone I talk to says stablecoins are one of the financial assets in Web3 that have actually found product-market fit internationally, and people use them because they need them. But I've seen a report from McKinsey, if I'm not mistaken, and Artemis, saying that only a very small percentage of stablecoin usage is accounted for by real payments and remittances, around 1%, and the rest is basically crypto trading. So when do you think stablecoins will actually become the next financial instrument people use, and when will that use case be much bigger than just crypto trading? It's still an echo chamber, and not just with stablecoins. In most things it's the same people doing the same things over and over again while the numbers get pumped. When do we see normies start using stablecoins more and more?

Gideon: I think the best sign that a stablecoin is succeeding is that you don't even know you're using one. We're starting to see that now in Africa, where it's very much in the background with some of the local stablecoins. Funnily enough, I was talking to someone about stablecoins yesterday, and I still have some tabs open from that. There's IDRX in Indonesia, but that's not necessarily the use case; that's just the infrastructure, the stablecoin itself. Then there are all these different businesses built on top. There's one called Payd that we've just invested in, which does international remittances and has to use stablecoins to do that. If you're in Nigeria, for example, invoicing your employer in the US, your employer pays into your bank account in Nigeria, and you can lose up to 20% of that money. Losing 20% of your salary is insane, and of course it's archaic and old-school and takes a long time for the money to show up in your bank account. So the founder developed a solution called Payd, P-A-Y-D. It's similar to Deel in that it facilitates payments for contractors, but they use stablecoins to make it instant. They use local stablecoins to make these payments instant, without the fees.

So we are seeing it used. That's just one use case; there are many others, and it's very much in the background now. I think what we'll see is crypto moving more and more into the background. But I agree that the majority of USDT's and USDC's float comes from trading and people holding it on exchanges; that was the core use case. It is starting to shift into payments as well, though. The app I mentioned in Argentina, Peanut, uses, I can't remember whether it's USDT or USDC, to make payments. So it's definitely starting to happen, and I think we'll see it this year.

Hodl Up: How is Lisk pushing the stablecoin narrative? You mentioned several startups you're working with that focus on stablecoins, but what's your go-to plan for, say, the next three to five years?

Gideon: We're a blockchain infrastructure business, a layer 2 blockchain, but that's a very bad business model, because we'd need crazy amounts of adoption on our network to make any meaningful revenue. So our focus is actually shifting away from the chain. We're building a very exciting product internally. Our chain still functions. It's built within the Superchain ecosystem, so it's an EVM chain, and we focus a lot on adoption in emerging markets, but it's very difficult to compete with the likes of Sui and Solana, and of course Base. Those grant programs don't work. You give someone a $100K grant and lock them in for a year to build exclusively on your chain, and after a year they either go grant-farming somewhere else or migrate to a chain that's better for them, which in many cases, for a lot of the startups we engage with, currently ends up being Base. So we're building something else now, which is quite exciting and will come out in the next few months. We understand that we also have to make pivots.

On that note, our fund is not an ecosystem fund. We can invest in a startup built on Solana or Base; it doesn't matter. If we forced people to build on Lisk, or only engaged with people who would, the deal flow wouldn't justify a fund that can make meaningful returns and invest in the best startups of the future. So we understand where the market is going. At the same time, we support a lot of different initiatives. As I mentioned, we run lots of incubation programs, hackathons, buildathons, and startup pitch competitions. We did a residency in Patagonia where we invited a whole bunch of startups, something similar in Nairobi, and one in Bali this year. So we're trying to give exposure to as many founders as possible who are building but are still too early for us to invest in, which also gives us all this deal flow. Of course, there's only so much we can do, but the market is starting to shift naturally on its own, and we definitely see ourselves as a driving force in all this.

We're also putting a lot of energy into acting as a bridge for international capital. Say we invest $100,000 in a startup's first round. They use it to get more traction, grow the business, and prepare for a more meaningful Series A, let's say $5 million. If it's an African company, they won't find that in Africa. It'll be very difficult, so they have to look outside the continent. Over the past couple of months, we've spent a lot of time engaging with VCs in the US and other developed markets, which has been really interesting, and all of them say the same things I've been saying on this podcast: they're struggling with returns, and deal flow is overvalued. So it's easy for them to take a call with us, because we're not just another generalist tech fund. We're a fund focused specifically on emerging markets, and we can give them deal flow they don't have. So we see ourselves as a bridge giving startups in these regions access to international capital. We're building a database and understanding the mandates of all these different investors, so when we have a startup raising, say, a $5 million Series A, with blockchain as infrastructure but biotech as the industry, we can introduce them to VCs in developed markets looking for that type of product at that stage. That's how we'll try to participate and drive more capital into these startups.

Hodl Up: Now I want to take things to a more personal level. I have a couple, well, three questions.

Gideon: Sure.

Hodl Up: Before Lisk, you managed CV VC?

Gideon: Yes, that's correct.

Hodl Up: What were your biggest takeaways from that experience? And before that, you were also a founder, if I'm not mistaken?

Gideon: Right.

Hodl Up: How does that experience influence your style as an investor now? Do you find yourself more empathetic towards founders, and are there principles from your early days that you try to instill in the startups you back?

Gideon: I'll start with my founder experience. I had a food tech company called Green Machine. I was influenced by what was happening in the US, reading Peter Thiel's Zero to One and the Steve Jobs book, so I thought, "I'm going to start this company, raise a ton of money, and take over the world. This is going to be great." That's not what happened. It was freaking hard. At one point I had to sell my car. The VCs I did meet, and there weren't very many in Africa at the time, said no. So I had to bootstrap and actually get traction, which took a while. Eventually we got product-market fit, got funding from a private equity company called Acorn, and eventually sold to a company in South Africa called Montigue. So it was super difficult.

Translating that into my experience in the VC world and what I experienced at CV VC: I think I was romantic and overly excited about how Web3 could change the world, so we spent a lot of time investing in startups at the idea stage. We all have great ideas. Everyone has great ideas. You lie in bed at night, look at the ceiling, and think, "Wow, that's a good idea." But the idea and the strategy are 1% of the journey. It's all about execution. So now we do a lot more due diligence on whether this is the type of founder who can scale properly. That's one thing I've learned: to focus on the people even more. The earlier stage you invest at, the more important the people become. At later stages it's different, because the product has proven itself. You don't have to do as much due diligence on the people; you can see the growth in the spreadsheets. Early-stage investing is a very different type of due diligence.

The second takeaway, which might seem counterintuitive given what I just said, is to invest in things that are actually working, that have actually launched. We now have the luxury of a more mature market, so there's more deal flow from projects that have already launched, whereas back then there were fewer. You can get overly excited and caught up by a great salesman with a good idea where nothing ever happens, or the execution is poor. So we de-risk our investments by seeing that the product has launched, people are using it, and there's some traction showing product-market fit. It doesn't always have to be revenue. Instagram is a great example: they had millions of users before they had any revenue, because they were waiting to reach a certain point before switching on advertising. But you could see the product was validated by the number of users and the time people spent on it.

So we need to see traction and growth. Very often we see a startup that has launched a product and has some users, but they're stuck. If you look at the revenue or user graph, it's up and down, or flat and plateaued, and they promise the money will unlock growth. Sometimes that's true, but most of the time it isn't. It's just bailout money so they don't have to close their doors. We have to invest in companies going from growth to hypergrowth. Payd, which I mentioned, where we signed a term sheet two weeks ago, is a great example. They've been growing since January. We met them in February last year, and they were showing promising traction, but I said, "Let's see if it continues." The next month it continued, then it went up again, and again. Fast-forward to October, they did $500,000 in transaction volume. We still thought it was a bit small, so let's see what happens. In November they did $850,000, and in December $1.6 million, and then we signed the term sheet very quickly before they changed the valuation. It sounds like a cop-out and a very basic thing to say, but I think a lot of investors get caught up in the romance of entrepreneurs trying to change the world when there's nothing there.

At the same time, in emerging markets we have the luxury of waiting. With this founder, we basically waited an entire year to make the investment. If that were in the US, we'd definitely have missed out, because there's just too much capital there, so founders can raise money on ideas. That's why I think being an investor in emerging markets is very exciting: you can wait and let the proof of the project speak for itself.

Hodl Up: Now that we're talking about founders and your experience as one, what are three tips from your experience for startup founders and young entrepreneurs trying to build something?

Gideon: One super important thing I'd say is: don't have side hustles. Not everyone has the luxury of going all in, I understand that. You might be working a corporate job while building a startup on the side, and I understand that sometimes that's the only way to get something off the ground. What I'm referring to more is a founder who's building something but also juggling three other things, a side hustle here and another thing there. You want someone who's all in. Are there exceptions to the rule? Obviously. Elon Musk is a great example; he's the CEO, or at least the chief, of many very successful companies. But as I say, the rule is that you go all in. So if someone wants to raise capital or be successful with their project, I'd encourage founders to go all in as soon as they can, and then focus on getting product-market fit before focusing on raising capital. Then the capital will flow. Those are the two most important things.

Also, remember that a lot of people would answer your question with "Don't do it," because a startup is a freaking emotional roller coaster. One day you feel like you're taking over the world and things are flying, and the next day it's, "How am I going to pay salaries next week?" So it's an emotional ride, and you've got to be ready for the turmoil. But I'd obviously encourage people to build their own businesses. It's an exciting thing to do. You just have to go all in and be ready for the emotional experience you're about to have. And focus on launching a product. Don't perfect things too much. I think people become overly obsessed with perfection and then never actually launch anything. Just launch something, see if people want it, get data from users, and iterate based on the feedback you get. Launching the product is super important, and then focus on raising capital.

Hodl Up: Launch first, polish later. That's my philosophy as well. You mentioned earlier that AI is one of the fields you've backed and that you believe has a really good fit with retail, even across different demographics. But there's a constant fear that it might be a bubble. So I want to hear your take. Do you think it's overvalued, or oversaturated, or not saturated enough?

Gideon: No, I think it's definitely overvalued. The projects we see using AI aren't using it as the company's core USP. They're integrating it to improve their product, but they're not AI companies like Anthropic, OpenAI, or Gemini. It's not AI infrastructure. They're using these LLMs and integrating them into their customer experience to be better than their competitors, but they're not AI companies. We haven't seen many AI companies using crypto yet, but most of the companies we invest in have AI somewhere in their tech stack, or users are often interacting with some AI agent or chatbot. But I think AI is definitely overvalued. The market will correct itself, and I don't think there will be many winners in that space, at least not at these crazy valuations. The infrastructure players will be the winners for sure: the Anthropics of this world, OpenAI, and so on.

Hodl Up: Okay, I'm going to go for it. You said you've backed projects in AI, RWAs, and stablecoins. Is there any chance you'd also back crypto podcasts, for example?

Gideon: Hey, it could be, man, for sure. Who knows? You'd have to figure out what stops people from replicating what you're doing. Obviously, people can launch a podcast quite easily. How do you go from whatever your revenue is now to 20x that, and build a community of hundreds of thousands of listeners? Then I'm in. Let me know when you get there.

Hodl Up: Well, that's the thing. How do we get to the 20x?

Gideon: Why would someone listen to your podcast instead of someone else's? I think that's the core fundamental for the project you're driving: how do you get listeners, and how do you turn a thousand listeners into 10,000? At the end of the day, a lot of that is going to come through really strong guests who act as a stamp of credibility. If Joe Rogan interviews Donald Trump or Elon Musk, that gives his show massive credibility, and then there's a virality loop through the guest. Donald Trump tweets, "I was on Joe Rogan's show," he has millions of followers, and you have a distribution channel. I'm definitely not that guest. But if you can find a guest who's willing to give you a shot and can act as a distribution channel to more listeners and give you that credibility, I think that's your first step.

Hodl Up: Look, Joe Rogan can't say he had Gideon on his podcast. Unlucky for him.

Gideon: Yeah.

Hodl Up: So, a point for us, right? Another question, maybe to wrap things up a bit: what would success look like for this industry in, let's say, five years? I don't want this to sound like a job interview question, "Where do you see crypto in five years?" I just want your take from a VC standpoint. What should we expect in the next five years for this industry we love and cherish every day?

Gideon: I'll speak to a couple of points. First, from a general blockchain standpoint, I think everything is going to be tokenized. I think money systems will use blockchain, and all financial products will be tokenized. Then we'll start to see some really exciting things, like tokenized watches you can invest in. I think certification and verification will all be on-chain. If you get a university degree, it will be verified on-chain. We still have driver's licenses as cards; these will be in wallets, as verified, digitized versions of what a card would be. I think paper money will eventually die as well, and it'll all live in different wallets. I don't know the timeline, but five years sounds great, and I think AI will accelerate this too.

From an emerging-markets perspective, my view is that more capital will flow into emerging markets, and there will be more excitement about what's happening in them. Talent and capital still come from the US, and I don't think that will change overnight, but I think a lot more VC firms and investors will pop up locally across frontier and emerging markets. At the same time, developed markets will invest more and more in emerging markets. And hopefully Elon, or somebody, figures out how we can all live forever. That would be great. That's my goal: not to die.

Hodl Up: That's everyone's goal. I'm waiting for, what was the name of his microchip company?

Gideon: Neuralink.

Hodl Up: Neuralink. I'm waiting for that to be mainstream and commercialized so everyone can buy it. You mentioned tokenization, and I know Dren said to wrap things up, but I have to touch on RWAs before we end the episode. I saw a paper from someone at a university in Australia with quite a good breakdown of RWAs right now and how the sector just isn't growing. Most of the money coming into RWAs, or tokenization, is from gold, like PAXG, I think that's how you pronounce it, and Tether's gold stablecoin, or whatever we call that one. So why is that? I know there's a lot of push around tokenization. Most of the big institutions, BlackRock even has its BUIDL project. So why aren't we seeing growth? It's been about two years since RWAs became a thing in the market.

Gideon: I think it's happening quietly in the background. There's a company about to list in the US called Securitize, with a Z at the end. They focus on tokenizing financial products. They've tokenized funds from BlackRock, Hamilton Lane, and KKR. These are some of the biggest funds in the world, with billions of dollars under management, and they've been tokenized through Securitize, which is about to list on one of the US exchanges at a multi-billion-dollar valuation. That also validates that it's actually happening now. You just don't see it, because, as I said, this technology is moving more and more into the background.

If you want to subscribe to one of these funds, here's what the process usually looks like, and it's so old-school. It's the same for Lisk's fund; we're tokenizing our fund in the next two or three months. Unless it's an exchange-traded product like an ETF, which is different, if you wanted to invest in a private fund like Hamilton Lane or KKR, one of the private equity funds, you get sent a document of 90 pages, give or take. It tells you what you're investing in, so you have legal recourse if they do something else. You read this 90-page document and sign everything. Then you do KYC: the fund administrator responsible for that fund emails you and asks for all your KYC documents. Then you wait another two days because they're busy, and then they do the KYC. Then you get sent a statement so you can make the payment into a bank account.

Eventually, this will be as simple as signing up to an exchange like Binance. You sign up, do KYC digitally, everything's done on your phone, and you're in. That's exactly what investing in these products will become. Instead of signing all these documents and transferring money, everything will be digitized, and it'll be much easier to get your money out as well. Currently, if you want your money out of a fund, depending on the fund's terms, you have to wait a certain period: you email them, and then it's 30 days until you get your money. Tokenization will make things happen instantly and the whole process digital. So funds like Lisk's, or any VC fund, which are usually very difficult to get into, where it takes time and it's archaic and old-school, will change through tokenization. You'll go to Lisk's website and subscribe to the fund automatically, following the steps in something like a widget, doing KYC, and paying with crypto, Apple Pay, or a bank transfer if you want. So, to answer your question more directly: it is happening, but very much in the background, and only for financial products for now. As I said at the beginning of the podcast, it starts with financial products, and in the future it will be many more things.

Hodl Up: I've seen Securitize, and it does make sense. I don't see it much because I've been focusing on other things, like DePIN, which I'm obsessed with right now, and stablecoins, but it's happening, and it just makes sense. We have all this technology, verifiability, traceability, and now ZK proofs, zero-knowledge proofs, and everything can be done digitally in an institutional-grade way. So I agree with that. Gideon, thank you very much. It was a pleasure having you on the episode. We'll probably have a few more episodes in the future, because, as you mentioned, you'll be launching quite a few things in the next few months, and we want to talk about those as well.

Gideon: Sounds good.

Hodl Up: Enjoy your day today. I hope your Monday is amazing.

Gideon: I appreciate this, Dren. You guys are legends. Thank you so much. I appreciate your time.

Hodl Up: All right. Key takeaways.

Hodl Up: Yes. Emerging markets will take over. They will emerge as markets, by the way, guys. And we will surpass Joe Rogan in terms of podcast-ability. You heard it here first. And the other, actual, not-so-important takeaways: stablecoins are the future, and RWAs are moving forward, I guess. Although many reports say they're not, it just makes sense. Everyone's talking about RWAs right now, and BlackRock and the other big institutions are working on them, so they're going to make it work, or else...

Hodl Up: RWAs are that thing you know is there, and you know will be there in the long term, but you just don't see it every single day.

Hodl Up: Correct. It's like an industry plant, let's just call it that.

Hodl Up: No, it's kind of the opposite. It's the most organic.

Hodl Up: I don't see it as organic, though. It could be organic, but it's not pushed by the masses. It's pushed by the institutions, by the people who control the money. Which I support, you guys, and I hope you give a small portion of that money to people who aspire to make great things, like Dren right here, or possibly me. But you get my point. When did you first hear about RWAs? Two years ago, maybe?

Hodl Up: I don't know, but my point is that they do have a use case, much more than a lot of other products in crypto right now.

Hodl Up: NFTs have a use case, bro. And gaming, come on. Guys, support me here.

Hodl Up: But for real, what I'm trying to say is that yes, they have a use case, but what project do you know that's actually taking steps and has users because of tokenizing a specific asset class, like private equity, or tokenized treasuries, since everyone mentions those?

Hodl Up: Well, you can't. You have all the fun. Amazing question. But what I'm trying to say is that there's a huge disconnect in education and information within the industry. And I'm going to talk about Twitter, X, right now. Nikita, I used to hate you when you started killing CT, but now I love you. So keep killing CT. And to everyone listening: stablecoins, RWAs, and startups, we love you guys. Thank you.