Investment Memos

I write a short memo for every angel investment that I make and I’ve practiced this for the last 10 years.

I do this because I believe that writing is refined thinking (to quote Stephen King in his book “On Writing“) and because memory can be warped over time. A memo best captures my thinking on the rationale and the risks of the investment at the time I made it. It’s also helpful to share with co-investors and helps build mutual trust and help refine the thesis.

Memos are typically 1-2 pages and I usually assess the Market, Team, Product and Traction between A-C (letter grades) in addition to the qualitative description. If a company does not have any As, then it does not make sense to invest and most great investments have more than one A but rarely all As.

At the earliest stages, Market and Team and the most important but as the companies mature and entry price becomes higher, Product and Traction become more important. In Africa, I rarely invest in companies without at least one paying customer unless I have very high confidence in the market and team.

Here is the format that I use – I don’t imagine there is anything groundbreaking here.

Company Name

Date

Website

Background: What problem is the company trying to solve? How did I meet and get to know the founders?

Market: I need to believe that that market is currently big enough, or it could be big enough in the future. In newer investment markets (like SAAS in Africa) it’s important to understand the pain point and willingness to pay deeply when sizing the market. (e.g. can they only sell to other startups?).

Team: Teams that know each other well and have complementary skills are often excellent. The founders’ ability to tell a compelling story and paint a vision that allows them to continue to raise capital is also important. If the problem ios something that is authentic to the team in some way also helps a lot – understanding their “why” is something I over-index on in my calls.

Product & Business model: Summary of the product, stage of development and an assessment of product/market fit risk vs. execution risk. Clear synthesis of their business model in this section as well.

Traction: In newer venture markets like Africa, I look for some traction before investing. Traction, especially recurring revenue, has a 10x derisking effect on the business as there is some evidence of product-market fit.

Key customers/suppliers: Early stage B2B companies typically have only a handful of customers. As they grow I look for customer concentration risk. I try and call their early customers and ask how they would feel if I took the product away.

Competition: Who else is building in the same space? Are they competing against other startups or mostly outdated incumbents?

Investment Rationale: I try and crystalize “the why” for the investment as it’s one of the most important sections of the memo. My bar for investing are things I’d be happy spending my time but may not have the time or the skills.

Risks: This is another important section and one I come back to particularly in cases where it did not work out to see if I identified the reason it did not succeed upfront. For things that ultimately fail, I try and pattern match across them for future deals.

References: I try talk to at least one other investor, customers, or old colleagues of the founding team. Almost all my deal flow is through trusted referrals so this happens fairly naturally as part of the process.

Cap Table: Companies that have been around for a while may have strong fundamentals, but messy cap tables so this is a deal hygiene step to make sure I understand prior funding and equity ownership.

Investment: How much I’m investing, the round size, the terms and the key co-investors.

Hope this is helpful to both other angels and entrepreneurs.

One-Pagers (Product Specs)

One-Pagers (short product specification documents) are an important part of product development. Crystal clear thinking upfront can often save multiples of that time down the road when you don’t have to throw away expensive high fidelity design or production level code.

One-Pagers also allow teams to get on the same page (particularly in distributed, async orgs) before work actually begins. These documents help clarify the “why” behind the work and the scope of a project before the team starts to build the actual software to solve a problem.

Here is a format that I like, and have used in the past. I think it’s helpful to have a consistent format for your company that is also lightweight. If it’s widely adopted the team will also find these easier to consume in the future.

Feature Name

I like to start all project One-Pagers with a short, consistent table so it’s easy to parse. If you’re using a tool like Notion a number of these buckets can be selections over free text.

Description	One sentence description of the feature
Goals	What is the user goal? What is the business goal?
Metrics	What will we measure to determine if the project is successful or not?
Responsible	Who is the person or team directly responsible for the project?
Impact	Simple T-Shirt Size (XS,S,M,L,XL)
Effort	Simple T-Shirt Size (XS,S,M,L,XL)
Risks	Explicitly list some of the key risks (1-2 things typically)

The Problem

Before working on the the solution, start by clearly defining the problem so that everyone on the team has a clear understanding of what we are trying to solve and why we are trying to solve it.

What is the user or business problem we are trying to solve?
What is the evidence of this problem (user feedback, data/chart, intuition)?
Why is this problem an important problem to solve now?
How does this problem fit in with our overall company goals?

The Solution

The most important thing to define in this section is what is in scope and what is not in scope for the first shippable version of the solution (or minimum viable product, MVP).

For more complex experimental features, some design exploration and prototyping may be necessary. In these cases it’s good to put some guardrails around the prototyping so that the design space is constrained.
Be practical about the feature scope based on your knowledge of the technical constraints, team capabilities.
Summarize the user flow for the MVP so that engineers are not designing UX on the fly.
List all open questions (design or engineering) clearly so that the team is on the same page about things that we need to solve through experimentation.

Enhancements

There are always good ideas that don’t make the MVP and it’s good to record them to show how the feature could evovle but also constrain the first version.

List out feature enhancements in rough order that you will come back to later and prioritize.
Create a task (e.g. in Asana or Notion) for each distinct additional piece of work and tag it with the feature name, so it does not get lost after implementation.
When deciding what to prioritize in the future you can then pick between an enhancement for an existing feature and a new feature more systematically.

Before you launch features there should be some sort of launch plan and checklist to make sure that balls are not dropped like QA (testing, performance), event logging, product marketing plan (customer emails, blog posts, marketing), support documents, AB tests, or a staggered rollout.

Although you can choose to include these in more detailed product specs they are often similar and I reserve these for more detailed execution documents vs. these simple product one pagers.

I don’t recommend you keep these documents up to date after shipping the first version (adds too much overhead). Features evolve during development and the purpose of this document is to act as a central starting point to get everyone on the same page and the source of truth usually moves to whatever product/project management tool you use for your roadmap.

Solana – Practical Primer

I’ve been spending the last few months getting deeper in the Solana ecosystem because of the explosion of new projects, attractive yields and step function better crypto experience enabled by faster speeds (65,000 transactions per second) and lower cost (fraction of a penny). The goal of this post is to give new users a starting point on Solana.

The recent price movements in $SOL have drawn a lot of attention to Solana although this is a lagging indicator of all the cool stuff that has been built on the platform over the last few years. Solana has added almost $5bn in total value in the last two months to its ecosystem.

I’m not a chain maximalist and I think there is space for multiple chains to co-exist in the future depending on their intended use cases. However, there seem to be more and more high quality projects and great development teams innovating on Solana and this will lead to more users and more money moving to the ecosystem.

The graphic below is a good summary of the different chains and supports the case that Solana may be technically superior to alternatives. I won’t go into details about the blockchain trilema (decentralization, security, and scalability) in this post but plan to write more about this later.

People are drawn into crypto and new L1 blockchains for different reasons: technology, financial returns, cool stuff (collectibles, art) and community. Each of these can bring in new users and developers into the ecosystem and these folks can cross-sell into the other products which creates a halo effect.

I started playing around on Solana because it was so fast and transactions were basically free. It was an order of magnitude faster than Polygon which was in turn an order of magnitude faster than Ethereum. It felt like I was just using the internet today over a dial up connection on my 486 dx2 in the 90s in Mombasa, Kenya (which was pretty slow). I then started yield farming because of the attractive returns and only recently discovered some of the NFT projects. I came because of the technology and then cross sold into DeFi and then NFTs.

Here are three excellent articles on Solana if you want to learn more:

Packy McCormick with a great, detailed overview on Solana (Aug 2021)
Anatoly on the technical innovations behind Solana (Jul 2019)
FTX Research on if we are in a crypto bubble (Sep 2021)

I’ll summarize some of the tools, DeFi and NFT projects that I’ve used as well as share some thoughts for the future.

On Ramps & Tools

One of the first things you’ll need to do is figure out how to buy Solana and figure out how to get money into the ecosystem.

Buy SOL: The simplest thing to do if you want exposure to the whole ecosystem is just buy and hold $SOL. I set up a recurring purchase on Coinbase that buys some $SOL every week to dollar cost average.
Wallet: If you want to engage on projects in Solana you’ll need a wallet (like you use MetaMask on other chains). My favorite wallet for Solana is Phantom which is a Chrome extension – it’s fast, intuitive and well designed. You can also “stake” your $SOL with validators for 8% yield if you just plan to hold.
On-Ramps: If you want to bring other currencies to Solana like $USDC, you’ll need to use an exchange like FTX.US that lets you send $USDC to a Solana wallet. You can’t do this from an Ethereum wallet or Coinbase (yet).
Portfolio tracker: It’s really useful to pick a tracker to visualize all your positions or it can get super confusing. I use Step Finance and I like it. You can view your investments by investment type and also claim tokens, swap and visualize your NFTs. A decent alternative is Sonar.

Once you’re set up with some $SOL and $USDC in your Phantom wallet you can do a lot and that’s when the fun starts.

DeFi

The yields on Solana are very high right now, with many pools paying 40%+ APR for credible projects. I only farm on projects that I think have long term potential. Here is the process I usually go through before investing in a project. Make sure you understand the risks of Impermanent Loss (IL) when farming assets that are not correlated as large price deviations can adversely affect your returns over just holding the asset directly.

Raydium: Raydium is one of the oldest DeFi projects on Solana. It’s been more battle tested than the others on this list. They have a cool feature called “AccelRaytor” which is a place for new projects to launch. Users who stake Ray get special access to these projects.
Orca: Orca is a decentralized exchange designed for normal people, not programs. I first heard the team talk on the Solana Podcast and they are an ex Google/Stanford team that is very thoughtful about UX and product design. I’m excited about what they will build. They recently launched their “double dip” pools which pay out multiple tokens as rewards (including STEP-SOL). I stake SOL-USDC and I’m comfortable with the impermanent loss (IL) risk even as the price of SOL goes up, given the high farming yields.
Saber: Saber is built to provide liquidity across chains. I typically only stake stable pairs (high or perfect correlation pairs with no IL issues) in their liquidity pools e.g. USDC-DAI and wFTT-FTT. The founders are brothers Dylan and Ian who previously worked at Pipe in product and engineering and they raised $7.7M from Social Capital, Jump, Solana Foundation and Multicoin Capital.

I’m playing around on Sunny, Marinade Finance and others but top three are good starting points with attractive yields and intuitive UX.

NFTs

NFTs only really started picking up on Solana a few weeks ago, so are still pretty new and there are a lot of new projects launching every week so this section will get out of date quickly.

If you’re going to mint NFTs I’d also recommend setting up a different wallet for minting without any NFTs and a small amount of money in them. Solana transaction confirmations are harder to parse and this will prevent any bad actors from stealing your stuff.

Projects

My favourite projects are:

Solana Monkey Business (SMB): One of the original NFT projects on Solana with 25k Twitter followers. I joined the MonkeDao Discord, which is a community owned and operated DAO for SMB holders and found it to be an inclusive and knowledgeable community on Solana.
Degenerate Ape Academy: I think these 3D apes are fun and cool. Mine looks like “The Dude” from the Big Lebowski. They have 48k Twitter followers and a solid discord community. Lots of folks have these Apes as their profile picture (PFP) which is just one signal of their community.
Aurory Project: The Aurory project plans to make a game and by releasing NFTs to users, they start to build a community and a player base for this game. They have 76k followers on Twitter and just announced that they will be dropping free NFTs from the game to all Aurory holders, which was a cool community development move and not something I’ve seen before.

I’m also tracking some of the generative art projects like Rox, Abstratica and Frakt to see which ones have a community form around them and ship innovative work.

Marketplaces and Tools

All the marketplace are fairly new and have their fair share of teething issues. I imagine there will be a lot of improvement on all these platforms over the next few months (addition of bidding, UX improvements etc)

Solanart: Probably best marketplace on Solana for NFTs right now. They curate and verify the projects so it’s a “safer” place to get started and buy some NFTs. You can buy Degenerate Apes and Aurorys here.
Digital Eyes: Digital eyes has a wider variety of projects than Solanart and worth browsing to see the breadth of projects in the ecosytem.
Solanalysis: This is a great tool to visualize price and volume movements for NFTs across the ecosystem. They even have a section for upcoming drops which is handy if you want to mint anything.
Metaplex: Metaplex is building the “Shopify for NFTs” on Solana and allows creators to host their own storefront and mint NFTs etc on their site.

The Future

I’m going to continue to track the new projects on Solana and am particularly excited about projects that unlock new use cases that were previously impossible or prohibitive without the speed and cost effectiveness of Solana. A few areas in no particular order:

Global payment rails: There is a lot of whitespace for simplifying the UX and accessibility for global payments. On and off ramps into crypto as well as regulatory landscape are still the biggest barriers to entry this, but Solana seems like a viable place for more innovation here.
New financial products: Many financial products require real time execution (or low cost) or multiple dependencies to be viable like call/put options, derivatives or auctions e.g. Zeta Markets and Soleon.
New mental models in gaming: I think gaming will bring in an entirely new audience into crypto (and much larger than the collectibles wave). NFTs which are composable, tradeable and have utility are going to change the way we think of gaming completely. Star Atlas is an exciting project with a credible team and nice concept art, but we still have to wait and see if the game is fun. Axie Infinity is a great case study of innovation in “play to earn” on Ethereum and Ronin as well (podcast episode on Colossus).
Empowering creators: We’re moving to a world where creators are becoming more empowered and will have a more direct relationship with their audience and can capture more of the value that they create vs. giving a large portion to platforms, agencies and investors. I expect a lot of innovation in this area.

Overall, we’re still at the start of everything and it’s going to be a lot of fun to have a front row seat on this ride. 🍿

Note: As usual, nothing in this post is financial advice. Please do your own research.

Business of Open Source

Open source technology and infrastructure development is a very powerful way to make scalable software. Open source can also allow a more diverse community to build products that are flexible enough to solve for a broader set of use and edge cases.

Contrary to popular belief, many of these open source projects are developed in house at large technology companies (e.g. Google – Tensorflow, Angular, Android, Chromium; Facebook – React, PyTorch) and not all small independent groups collaborating on projects in the open (e.g. WordPress, Telegram).

In this post we talk about some of the advantages and issues of open source as well as some of the specific business models are built on open source projects.

Advantages & Issues

I spent a few years working on WordPress (at Automattic) and here were a few of the advantages and issues that I observed during my time there.

Advantages

The biggest advantages of open source exist in leveraging the community for product development, hiring and product distribution.

Product Development: The community can act as a decentralized product management function and help with QA, Localization (language, local integrations), and support.
Long Tail: Open source allows users with very specific requirements or use cases to build these themselves which frees up the core development community to focus on the core use cases and platform. Anyone can add customizability and depth to the product.
Diversity: Open source allows for more geo, cultural and variety of use cases for the same product which ultimately makes the product better for a more diverse and global audience.
Hiring: For businesses that are built on top of open source technology, they can access a pool of talent already engaged in the project from the community — richer data on potential candidates and better hiring funnels.
Distribution: Open source projects are typically free to try which leads to more bottoms up adoption. A single developer can make a decision to use open source technology which then ultimately propagates across an organization vs. relying on top down decision making.

Issues

The advantages that come with having a strong community can also lead to drawbacks as well.

Community building: A core part of building open source products is building the community of users, developers and supporters of the project. Building community takes time and many open source projects take longer to get off the ground (when not incubated in larger companies with specific use cases) but are often more resilient at scale.
Bar for completeness: New features in open source projects often have a higher bar for shipping, and it’s harder to run fast experiments and iterate (with data/feedback etc) – localization and accessibility increase the amount of product an development work to ship even for experimental features.
Decision making: With a more decentralized product management function it’s harder for smaller groups to hold a vision of the product and make significant product evolutions without alienating members of the community. This often leads to slower iteration, but better adoption once the community embraces the changes.
Bigger pie, smaller share: When building an open source product you’re often expanding the size of the addressable market but only capturing a portion of that for yourself. Closed loop companies that own all their technology, data, and users can monetize those users more aggressively but also may lead to divergent interests to their community of users over time.

For a product with as broad a use case as WordPress, I think that the advantages greatly exceed the issues and this is reflected in WordPress continuing to grow market share and now powering 42% of the web.

Business Models

There are also a number of examples of both widely adopted open source software and successful business models and here are just a few companies who’ve built successful businesses with open source products.

Company	Technology	Market Cap*
Databricks	Spark	$28bn
MongoDB	MongoDB	$32bn
Confluent	Kafka	$15bn
Hashicorp	Terraform	$5bn
Cloudera	Hadoop	$5bn
Elastic	Elasticsearch	$15bn
Automattic	WorPress	$7.5bn

As of September 2 2021

There are a few high level categories of business models built on top of open source projects:

Hosting

Hosting is one of the primary sources of revenue for many open source companies. Often, the creators of the technology have a brand halo effect around them can attract more users to their hosting service over others in the market.

Cloud hosting can make open source products easier to access over self hosting which requires more technical skill and investment. Hosting can include the following features (not a full list), which users are often willing to pay for:

Security/Speed
Authentication to allow for secure signon
Permissions/Roles for access control
Encryption (especially important in specific industries)
Backups and changelogs (to recover previous versions)
Analytics

Support and Consulting

Many successful open source projects have a rich community of freelancers, agencies and consulting services providers who are specialists in the technology and platform to help users most effectively leverage these tools. Open source projects are often more flexible but flexibility can come with complexity in set up and ongoing management, as the products are less streamlined for specific use cases. In the WordPress world there are many agencies that will help you set up and manage your site and provide ongoing site maintenance and support.

Even for do-it-yourself cloud hosted products like WordPress.com, support is an important part of the service that they provide and people are willing to pay a subscription fee for ongoing support for their site. WordPress.com has hundreds of support folks called “Happiness Engineers” to help users troubleshoot and perform light customization to their site.

Paid Extensions and Marketplace

Open source products often have an “open core” which has a base level of functionality that is immediately useful but for more complex use cases or advanced features users may have to pay for these as paid extensions. These extensions are often offered as in-house proprietary features to further differentiate the product (and the cloud hosted version paid tiers).

Some open source projects also have marketplaces where developers can build their own extensions for users. This marketplace can be free, but could also be monetized by the platform using revenue share or installation fees (much like Google/Apple do with their app stores).

Onboarding and Bundling

Finally, there are now more companies that are building streamlined products for more specific use cases powered by open source technology.

This could look like a full “bundle of products” tightly stitched together to solve a very specific use case (e.g. a site template for dental practices with all the right images, plugins, scheduling and payment systems with all the workflow and integrations totally templatized). This could also include very thoughtful onboarding flows, starter content and tutorials built on top of the open source technology.

Users are willing to pay for speed, ease of use and convenience of accessing their intended use cases right out of the box even if there is some sacrifice of flexibility to start faster.

Additional reading

Here are a couple of articles that I thought were thoughtfully put together on open source business models as well, in case you’d like to dig in further:

View at Medium.com

Angel Investing Areas

I’ve been an angel investor for over 10 years. I try to invest in areas where I have have some sort of asymmetric advantage; usually in specific areas where I have knowledge and experience or people who I know well.

Here are some areas that I’m super excited about and actively investing.

Crypto / Web3

I think crypto/Web3 is going to change the way we build and consume products in many different industries across the digital and physical world. It’s going to be a multi-decade long shift and I’m excited about engaging with and supporting the community at all levels (more here).

I’ve been investing in chains and tokens since 2013 (starting with BTC) and played a more active role in DeFi towards the the end of DeFi summer in 2020. I now spend time every day learning about new projects, buying tokens, yield farming and providing liquidity for projects that I plan to support over the long term.

I’ve also started started making equity investments in Web3 companies and I’m particularly excited about companies that are innovating in:

Future of finance (DeFi, Emerging markets)
Content creation and ownership (NFTs, marketplaces)
Gaming (collecting, competing, play-to-earn)
Community (DAOs, creators, contributors)

There is still much to learn and much to follow as more innovation happens — this is just a starting point and I’m sure this list will continue to evolve. I’m mostly chain agnostic, but particularly excited by some of the possibilities that are unlocked with faster, cheaper protocols like Solana.

Example companies include Ponto (backed by Polychain and General Catalyst), Mirror (backed by USV and a16z), Topos and Paysail.

Future of Work

I think that the way we work is going to change fundamentally; jobs will be unbunded, people will collaborate digitally (natively), and more creators will be able to monetize their passions. These shifts are being accelerated by Covid-19 and it’s incredible to see all the innovation happening here.

Tools for Work

As more knowledge work becomes distributed, more work will happen in the cloud. I believe we’ll look back in 5 years and be shocked at how inadequate our tools were in 202I. There are three areas of innovation that I think are especially exciting:

Communication & Collaboration: I think the best tools will seamlessly work in person, hybrid & remote as well as synchronously and asynchronously (Slack is a great example). If we reduce the mental load as to “which tool is right for which situation” work will be more fun and productive for us all.
Orchestration Layer: As we use more and more tools to build products together, each of these tools will need to communicate with each other better (using APIs) and we’ll need some common standards to make this happen effectively.
Community: We will need better tools to build genuine deep relationships for organizations (internally and externally) – people desire to find community and their tribes and invest deeply in these communities.

At Automattic, a fully distributed company for 15 years with over 1400 people across 85 countries I helped make P2 which is the internal tool we used to power distributed work at scale and so understand this space as both a user and a builder. I’m also a productivity nerd, tools enthusiast and product manager so love meeting startups innovating to make work better — although incredibly competitive, some new products will be built that we’ll use every day for work.

Example companies include Remotion, Aviyel, Claap, Playbook, and SkillMagic.

Tools to Create

Creators of all kinds, from all over the world are now able to make a living through (side) hustles/projects over traditional employment. There have been great improvements in creator tools (and reduction in cost) and access to large audiences through distribution channels (albeit through mostly closed networks – Twitter, Instagram, YouTube). I worked at Automattic on WordPress for the last few years and 43% of all websites in the world are now made using WordPress, an open source project to help folks create their online presence.

The tools that creators need to power their workflow, improve production quality and engage their audience are going through rapid innovation and improvement. The best creators will also want a more direct relationship with their community and want to capture more of the value they create over paying a large share of this value to these discovery and engagement platforms.

Example companies include Ribbon, Slerp, Contra and Mirror.

Tools for Gamers

I believe that making games is going to be as easy in the future as making a website today. There is a ton of innovation in both the tools both for gamers and game developers and I’m excited to support building this future. I tend not to invest in game studios but look for products that support the growth of the overall gaming industry instead. I spent five years making games at Pocket Gems, where our games reached hundreds of millions of users and it was one of the most fulfilling professional experiences I’ve had to date.

Example companies include Start Playing Games, Metafy and Vungle (sold to Blackstone in 2019).

Emerging Markets

I believe that there will be significant value created in global, and particularly emerging markets over the next decade. The data point to more and more entrepreneurs building businesses in their home countries (even after a tier 1 US education #novisas) versus trying to build their companies in entrepreneurial hubs like Silicon Valley e.g. over 40% of Y Combinator founders are now international, and the vast majority want to build their businesses in their home markets.

Africa

There is great potential for technology to power the growth of Africa – many young people ready to work (median age of 19), increased urban mobilization (45% living in cities by 2025), high smartphone penetration (50% and growing fast) with digital finance access, and increasing capital and talent flows into African technology hubs. I grew up in Kenya, worked in mobile money across Africa and have been an active investor on the continent for 7 years; it is now more than half of my seed investing activity.

I run a fund (with external investors) to support this thesis and have written about it here, if you want to learn more. It’s never been a more exciting time to invest in technology companies in Africa 🙂

Example companies include: Flutterwave, Sokowatch, mPharma, and Shara. Full list of 40+ companies here at https://www.mushaventures.com/africa.

Global (mainly Asia)

I’m also investing more foundational startups all over the world (mostly in Asia) and my general approach is to partner with a local seed fund or angel investor and build a strong relationship with them as both an LP in their fund and co-investor. I have started implementing this approach in Indonesia (Intudo), India (iSeed), and Asia (Iterative) and am learning more about the Pakistani venture ecosystem as well.

I believe that the best SAAS companies in the world can come from anywhere as long as product quality and sales (team with experience in western companies helps) is world class. If these companies are based in countries with cheaper technical talent they can offer products at lower cost and win sales against similar companies who are building in markets like the US. I’m also excited about foundational fintech rails in each market (where local norms and regulation are distinct).

Example companies include: Cashfree, Guidewheel, SalesKen, and Everstage.

Amazing People

As much as I enjoy investing in areas where I have specific understanding or theses that I’m exploring, incredible people are a trump card.

If I know the founders well or someone in my inner circle can vouch for the founders I’ll often invest as long as I believe that the market is big enough. Ultimately, and especially at the earliest stages, people are most important and amazing people are difficult to find.

Examples of companies founder by people I know well because I collaborated with them closely in the past include Heron Data, Rinse, ID.me and many others.

If you’re interested in talking about ideas in these areas please feel free to reach out on my website (https://www.mushaventures.com/contact). I often co-invest with a close group of angels, Village Global (where I’m a Network Leader) and Sequoia Capital (where I’m a Scout).

Three Thoughts (at 39)

I turned 39 this month and I had three thoughts / reflections that I thought I’d write down and share:

Great people, over long term: Meet lots of new people and be open, generous and curious. When you discover great people be even more generous and try to help them consistently without asking for anything in return. Relationships are built with consistent positive micro interactions (especially when you’re not physically present) and building deep ones takes focused effort. Collaborate with folks with the intention to have a 20 year relationship and share your whole self (family, thoughts, hobbies); you’ll build deeper, more durable friendships.
Own equity, don’t rent time: Whenever possible choose equity over renting your time even at a higher price. If you’re able to capture very high rent (law, consulting etc) I think it’s better to own a part of the thing you’re building and hold it for the long term as long as you believe in it. This is how real wealth is created, and it also helps avoid the trap of increasing your burn rate as your $/hour rent rate improves. If you don’t have a path to own equity, then take your excess money and invest it into assets you believe in, over consumption, especially when earlier in your life. As you get older and are responsible for your family (e.g. children or parents) it’s harder to keep your burn rate as low.
Healthy is simple, adherence is hard: The basics of having a healthy mind and body are pretty simple. Eat well (less sugar, more whole foods), sleep well (8 hrs a night), exercise daily (cardio and load training), and be present, focused and calm. I know all this, but I’m particularly bad at consistently practicing what I have learned. I go through phases of having good habits but then “fall off the wagon” and find it lower resistance to fall back into bad patterns where I eat like crap or check my phone the first thing when I wake up v.s. setting my intention for the day. Healthy habits have been a lifelong battle but now that I’m a father I can’t think of a more purposeful “why” to be better.

Welcome Note to Founders

As a small Angel Investor I aim to be a “friend to the founders” and an loyal supporter of the company throughout it’s growth.

Here is the note that I typically send to founders after making an investment in their company to share how I like to collaborate. I’ve gotten some good feedback on it, so thought I’d share it publicly.

Dear XXX,

It’s a privilege to partner with you – thank you for including me in your funding round. I’m excited to be on this journey with you and look forward to all you will accomplish.

Here is a short summary about how I hope to collaborate:

Push, not Pull: I’m rarely going to ask you for anything unless I’ve not heard from you for a long time. If you need anything from me, please reach out to me over email or WhatsApp and I’ll do my very best to help you.
Communication: It would be great to receive regular updates about the company. My preference is quarterly, as enough time has passed to show meaningful progress but many folks like a monthly cadence as well. I wrote a short post with a template that you can use as a starting point, if you like but if you already have one, please don’t change it for me. I recommend a short email with numbers, highlights, lowlights with any asks from investors.
Part-time: I invest part-time, mostly because I care about supporting early-stage entrepreneurs across the globe. I will try and help, but if I don’t have the relevant expertise, connections, or I’m especially time-constrained I may be unable.
Founder Community: I created a group for portfolio company founders to help each other out and for me to send stuff that I think might be useful. Please let me know if you or your cofounders would like to be on the list (although I’ve not been great at using it recently).
Development: Some of the best company builders are continuous learners and read a lot (e.g. Bill Gates, Mark Zuckerberg). Great books can incredibly useful, especially when I have a specific problem to solve or know that I have a development area. I read a lot (2019, 2020) and listen to a lot of podcasts. Please let me know if there is a specific area of interest, as I’d love to recommend and buy you a book.
Logo: Please send me a copy of your logo with a transparent background so I can add it to my website.

I’m looking forward to getting to know you much better (and learning from you) over the years and being in your corner through the ups and downs.

I’ll leave you with two of my favorite frameworks for over a decade – Manage your Energy, not your Time, and Maker and Managers Schedule (Paul Graham).

My very best,

Aadil

My DeFi Investment Strategy (2021)

I’m experimenting with Decentralized Finance (DeF) as I’ve been thinking more about unbundling of work and cash flow. I think that DeFi, and yield farming in particular, could be a viable mechanism to generate predictable cash flow, that is not tied to active labor.

I hope to be able to only commit a few hours a week to spot-check positions and harvest rewards and 1-2 full days a month to research new projects and rebalance the portfolio. I will track the starting point and try and calculate my effective yield but given the volatility of the assets and unpredictability of the rewards, I know the result will be difficult to replicate consistently.

It’s also worth noting that this kind of active management might not be significantly better than just buying and holding ETH (this article has some good data) which has much fewer fees and work associated with it – but where is the fun in that 🙂

This is the structure I use for my strategy:

Name	Description	% of Assets	APY Target	Risk Level	Active Management	Project Examples
Safe	Stablecoins that earn yield passively	40%	5-10%	Low	None	BlockFi, Celsius
Stable Pairs	High correlation long-only assets	30%	10-30%	Medium	Med (Weekly)	ETH-WBTC, ETH-DPI
Stable and Long	Stablecoin + long-only asset	30%	15-50%	High	Med (Weekly)	USDC-ETH, USDC-MATIC
Degen	High incent temporary reward pools	<1%	100%+	Insane	Very High (Daily)	Polycat, Pacake Swap (Polygon)

The core of my farming is liquidity pools with stable pairs and stablecoins (like USDC which is collateralized and pegged to the dollar) with assets that I’m long like Ethereum, Matic or Solana.

Everything that is outside the “Safe” section requires a wallet (or multiple wallets across multiple chains) to access and is all pretty confusing (even crypto native folks). You’ll need to use some aggregators like Zerion, Zapper or DeBank (better for cross-chain) to help you visualize your portfolio and your trading history. I try not to have more than 10-15 core positions at any point in time but curiosity, low friction, and lack of discipline usually get the best of me so I end up having to trim back every few months.

I’m not borrowing against my assets yet, but it’s something that I’m considering when there are good incentives for borrowing against “safe coins” like BTC or ETH. In traditional finance, this is one of the main benefits of using a financial advisor like Goldman Sachs or owning a primary residence — you can often get leverage against your assets so I will experiment more in this space in the future.

“Safe” Yield (40%)

A significant part of my exposure is in “Safe” US Dollar stablecoins that are passively generating 5-9% yield in BlockFi and Celsius. I am comfortable that BlockFi especially has very solid security practices. This interview with Zac Prince (CEO) is a good listen.

All you have to do is send in your money and pick how you want to get paid (I get paid in ETH on BlockFi) which makes it fairly easy to access for most people even those completely unfamiliar with crypto. Celsius has slightly faster withdrawal times than BlockFi which usually takes a few days.

Even though this is “safe” in crypto land there is still no FDIC insurance as crypto is not FIAT so you are mostly relying on the fact that BlockFi and Celsius are well run with strong risk management practices and will refund you your money in case of an incident. This is just a reminder that this is still a lot less safe than a bank or money market account.

Stable Pairs (30%)

Stable pairs are assets with high or 100% correlation which reduces the impermanent loss risk of exchange rate volatility. This strategy is reserved for assets that I plan to hold anyway.

Stable pairs are assets with high or 100% correlation:
- USDC-DAI (100% correlated)
- ETH-BTC (80%+ correlated)
- ETH-DPI (70% correlated).
As a farmer providing liquidity for stable pairs (usually in an equal ratio) you are usually rewarded in trading fees and special tokens as an incentive for providing liquidity.
When the market moves your assets will typically increase or decrease in value in synchronization which means you reduce your exposure to Impermanent Loss. Impermanent Loss occurs when a the automated market maker rebalances the pool to get to a 50/50 ratio of value and can eat into your expected gains significantly.
New projects especially on new chains (e.g. Polygon or Solana) will incentivize you to provide liquidity on their platforms. The “safest” ones have established projects moving to new chains – e.g. Balancer moving from Ethereum to Polygon feels safer than a totally new project on Polygon.
I generally avoid new algorithmic stablecoins unless there is a very good reason to trust it – eg. UST is probably fine on Terra as it has a $2BN market cap but still makes me nervous as it’s not technically collateralized.
You usually don’t make that great yields on stable pairs but I generally look for incentives that can get me to 15%+ yields.

Example Projects

I’ve been playing around a little bit with leverage for correlated pairs (starting with Alpha Finance), but this just adds more risk and most of the reward is in $ALPHA (degen coins) that I’m likely to sell as I harvest.
DPI is the DeFi Pulse Index and a good mix of all the main DeFi coins. I like the DPI-ETH liquidity pool with $INDEX rewards.
DFX is a decentralized FX for currency stable coins to allow for EUR-USD-CAD transfer which is offering 20-40% yields for providing liquidity with $DFX rewards.

Stablecoin + Long Assets (30%)

For this strategy, I usually look for pools that pay higher yields than the stable pairs because of the increased risk and margin erosion from Impermanent Loss (explainer video here).

For assets that I plan to hold like $BTC, $ETH, $MATIC, and $DPI I will often invest in a pool with a stablecoin. e.g.
- USDC-ETH
- USDC-MATIC
- DAI-ETH
I only do this for things that I would hold anyway and when the farming rewards are high enough so that I’m comfortable that they will offset the impermanent loss.
I think that a number of projects on Solana (e.g. Raydium) and Terra (Anchor, Mirror) are interesting and I’m able to execute this strategy on those protocols as well.
I target 25%+ yields here (higher than stable pairs) but they can often end up much higher.

Example Projects

I usually provide liquidity on the major exchanges like UniSwap V3 or SushiSwap which have high volume so good trading fee revenue, but often will move these pairs to new chains (like Polygon) where the token incentives are better. Revert Finance is a good tool to track all your liquidity positions and APY.
Projects like Balancer, Visor, and Charm are interesting from a liquidity management perspective and can help counter the effects of 50/50 pools that you would just let sit passively — I’ve recently increased my exposure to these projects.
Mirror is a decentralized platform to own public securities like ETFs, Apple, or Google and is a new project with token incentives to provide liquidity.

Degen Coins (<1%)

Here is where it gets really weird and this is a place where I don’t think most people should participate. It’s as close to gambling as you’re going to get in Crypto but the 1%+ daily yields can often be very enticing. I’m almost never planning on holding these over the long term unless I start to really get conviction on the project.

Holding and providing liquidity for Degen coins is extremely risky. I’ve already been burned over and over again with the allure of stupid APRs and had a front seat to the Iron-Titan fiasco where I almost lost my original investment besides being up almost 3x within a 2 week period.
I very rarely participate in Degen projects on Ethereum – the gas (transaction hash) fees are so high that it’s usually not worth it. Most of my degen activity is on Polygon but also play around on Solana as well.
However, It’s a lot of fun to play with these projects so if you do dive in, pick projects that seem legit and put in a small amount of money into the pools (or farm with stables) and then sell off the LP rewards as they come in to reduce risk.
It’s even more fun to be in Degen projects/pools with friends because it’s exciting and things move fast. It’s also helpful to have friends around to tell you when to get out!
I look for 200%+ APYs for this strategy and try not to stay in the coins for too long – if you do make gains, I’d suggest locking them at around 2-3x and then playing with house money. I’ve never really made any money on Degen, but I’ve never really made any money gambling at a casino either 😂

Example Projects

Note, these projects may not exist when you read this 🙂

Pancake Bunny: Yield aggregator with auto-compounding pools on Polygon. I’m in the ETH-Bunny pool at 1% yield per day.
Polycat: Yield aggregator with auto-compounding pools on Polygon I’m in the FISH-MATIC pool at 0.8% yield per day.
OHM: An algorithmic reserve currency. I’m staking OHM at 1% yield per day.

I hope this helps folks, and none of this (as with everything on my personal blog) is financial advice. I’m just sharing my own experiences in case it’s helpful to others and to refine my own thinking.

DeFi Set Up and Project Diligence

https://defi.cx/dyor-what-to-check-before-buying-a-token/

DeFi is evolving quickly and presents interesting opportunities to make money by investing in new projects. This is a summary of what I wish I’d done before starting to invest more seriously and my current diligence process before backing a project. As always, I’m writing this all up to be helpful to others, clarify my own understanding and get feedback to refine my approach.

DeFi Set Up

Before you get started I’d spend a bit of time getting set up — I did not do all of this in the beginning and am much calmer now that I have some of these bases more covered.

A sounding board: Build a network of friends who are more experienced that you can ask about projects and share experiences. All of this is incredibly confusing as a new person, and so it’s important to give and get help. It is also helpful to have early warnings if risky projects look like they are heading for trouble.
Start small: I usually start with a smaller amount for new projects and if the user experience with the DApp (Decentralized Application) after a few weeks is good, and I like the risk/return profile, I make it a “core position”. I aim to have no more than 10-15 core positions at any point in time or it it’s very hard to track.
Understand risk: Understand that there are layers of risk – new chains, new projects, new tokens all have compounded risk compared to established projects. For example, supplying USDC-DAI on UniSwap Liquidity pool (LP) on Ethereum is way less risky than a RAY-SOL LP on Solana. Another example is using multiple platforms like Beefy to autocompound your DPI/ETH LP on QuickSwap creates layers of risk vs. investing in a single token.
Secure your DeFi environment: Spent the time securing your wallets and trading platforms (See this article from the CEO of Nexus who had $8m stolen from him). I use a password manager (1PassWord, LastPass), MetaMask, and write down my codes on paper which are torn in half and kept in separate and secure places. I also use two-factor authentication for everything using products like Google Authenticator/Authy over text where possible. I also use a separate email and browser profile for all my crypto projects.
Impermanent loss: Understand impermanent loss before providing liquidity. Impermanent Loss occurs when an automated market maker rebalances the pool to get to a 50/50 ratio of value. Impermanent loss can mean that you actually make less money by providing liquidity than just holding tokens if the price of the underlying tokens changes. This video is great and this article from Bankless and this from Bancor are also excellent.
Fees: When executing on strategies especially in Ethereum there are often layers of fees involved (both putting money in and taking money out) – e.g. Token Transfers, Transaction Approvals, Swaps, Pooling Tokens, Staking LP Position, Claiming Rewards, Pooling and Staking to Compound Claimed Rewards. Each of these has a gas fee and can seriously eat into your returns. Good article on holding ETH vs. Active Strategies.
Portfolio trackers: You’ll need to use some portfolio trackers like Zerion, Zapper and DeBank (DeBank better for cross-chain) to help you visualize your portfolio and your trading history. The newer projects will likely be excluded so you may have to use a spreadsheet as well.

You need to get comfortable knowing that you’ll never precisely be able to calculate your expected yield – rewards are constantly changing, fees are hard to estimate, and you never know how impermanent loss will affect your returns.

Before Backing a (New) Project

New projects are riskier than established projects (higher risk of logic bugs, hacking risk or rug pulls) so do extra research before investing in these projects even if the yields are enticing. In particular, projects with very high XXX%+ yields are inherently very risky and need more work / or less capital at risk.

For thse newer projects, you need to do extra research and I usually go through the following steps to help you derisk:

Research: Read the medium/announcement posts, join the project Discord and follow their Twitter account — look for good English, signs of a strong community, and engagement from the project developers.
Hacks: Check to see if they’ve been hacked in the past (https://rekt.news/leaderboard/) and avoid projects that have been hacked.
Audits: Check to see if they’ve passed audits – Certik and Perk shield are common but this does not guarantee against hacks.
Understanding: Don’t just ape in (go in big, hard, and fast) to chase yield without actually understanding the project. If you can’t describe it in one sentence, don’t invest — I’ve been greedy and gotten burned many times including a front-row seat to Iron Finance where I just managed to get out with my original investment.
Rewards: New projects are particularly fun because you can get rewarded for being an early user and supporter in a very meaningful way, much like early equity investors (e.g. early UniSwap users got $12k of tokens awarded to them).

Understand the terms

For all your DeFi investments you should read through and understand the terms of your investment as well as the circumstances for each situation. Here are the things I usually look for before making an investment:

Fees: Deposit and withdrawal fees.
Lock-up periods: Some farms don’t even let you take out your capital or are subject to high fees if you pull out before the lockup.
Vesting: Vesting of rewards or hurdles before you get your liquidity provider rewards.
Source of Yield: Yield can come from trading fees, liquidity pool tokens, or additional third-party staking fees. All of these are usually volatile and require active tracking.
Total Value Locked (TVL): I only consider investing if there is at least $1M in pools and there is active trading in those pools else you expose yourself to more slippage and liquidity risk.
Liquidity to trading volume ratio: When Trading Volume > Liquidity that feels particularly dangerous (volatility/pumping/dumping etc.)
Price slippage: Particularly important for small pools where you are a significant % of the pool which impacts both your deposit and withdrawal.
Difference between APR and APY: APY assumes compounding which is usually inflated as most people are not manually compounding and rewards don’t stay stable over the course of a year.

This guide (Part 1, Part 2) is BSC (Binance Smart Chain) specific but the concepts are all solid in case you’d like to dig in further or get alternative perspectives.

The Depths of DeFi

Decentralized Finance could potentially change the way we interact with financial services forever and is a total rabbit hole. Here are some of the “levels of depth” that you can get into DeFi and roughly reflects my journey into the DeFi abyss (yes, I will be overusing this analogy!).

I don’t think that most people should move past the shallows unless you’re interested in the underlying technology, are comfortable with the significant risk, and want to follow the impact of DeFi on the financial services ecosystem.

Dipping your toe in the water

When starting your dive into cryptocurrency and DeFi, the best thing to do is to set up a regular order to buy Ethereum and Bitcoin (e.g. every two weeks) through an exchange like Coinbase to dollar cost average and hold. $BTC and $ETH are ~80% correlated to each other but neither are particularly correlated with the stock market.

BlockFi and Celsius are also great options to hold USD stable coins (USD coins backed by real USD) and make 5-10% in interest that can be paid out in cryptocurrency or stable coins.

Just these two things alone is probably more than 90% of the financial advisors know, which also makes me a little sad given that they are a gateway to investment products.

Wading in the shallows

Once you’re in the water and you have an account on an exchange like Coinbase or Kraken, you may start buying a few more tokens for projects that you’ve heard are interesting like Solana ($SOL), Cardano ($ADA), Polygon ($MATIC), or Polkadot ($DOT).

Once you’ve bought your cryptocurrency the natural next step is to consider what else you can do with it 🙂 You will create a MetaMask Wallet and install the browser extension to manage your currencies and make your first swap between cryptocurrencies. You’ll send some $ETH to your wallet and maybe buy something like the DeFi Pulse Index ($DPI) which is a collection of some of the most popular DeFi tokens like Uniswap, Sushi and Aave. The BED Index ($BED) is also a pretty solid choice.

You can probably get most of the exposure and benefits of participating in the crypto and DeFi ecosystem by stopping here. You’ll probably also save a ton of money on transaction fees and a lot of unwanted stress. It’s also probably simple enough to do your taxes by just exporting a file from Coinbase and a wallet CSV export.

Feet off the floor

If you’re wondering what’s next, this is when it starts getting more fun. Instead of just holding assets passively your coins start “working for you” and generating yield – much link investing your fiat (USD) you are investing your cryptocurrency.

The main things you’re going to start doing are:

Providing liquidity: You’re not just holding tokens for projects that you like but you’re providing liquidity in pools (LPs) on exchanges like Sushi or UniSwap.
Staking: You’ve discovered that exchanges or projects will provide extra incentives for providing liquidity (as LP tokens) or with the tokens directly by staking these tokens and locking up your assets for rewards.
Reading and learning: You’re reading more frequently and have discovered things like the Finematics Youtube Channel, the Bankless newsletter and podcast, and maybe Kevin Rose’s Modern Finance Podcast. You understand things like impermanent loss, rug pulls, and the difference between proof of work and proof of stake.
Joining the project communities: You may join a few project discords or telegram chats and potentially even participate in the discussions when you’re really excited about the project.
Friends: You probably have a group of like-minded friends that are at the same stage in their journey that you can bounce ideas off.

Deep waters

When you are in the deep waters you’re comfortable with the basics, you have a clear strategy and you’re switching projects regularly to try and find the best risk-adjusted reward across different chains. I’m here in my DeFi journey.

New Projects: You’re investing in totally new projects, reading whitepapers/announcements, and staying on top of the latest incentives so you can get the best rewards for your tokens.
Degen: You’ve invested in a few degen projects with high volatility – you’ve been burned by impermanent loss a few times and exited too early or too late.
Multiple Chains: You’re investing across multiple chains like Polygon, Terra, and Solana and complaining about the gas fees on Ethereum all the time. You’re scared to look at how much you’ve spent on gas. You go to https://fees.wtf/ and are sad.
Best Price: You’re using tools like Matcha to look up the best exchange rate for your swaps vs. going to UniSwap by default. You feel good when you save money on fees.
Portfolio Construction: You’re starting to think more about portfolio construction, investing discipline, and having some rules for when you invest and when you exit to improve risk/return.
Leverage: You’re starting to get loans on your stable assets and leverage for some stable liquidity pools but still nervous when you do this (and keep collateral around in case it goes sour).
Governance: You are holding governance tokens for some projects that you’ve been supporting for a while and actively voting on the future direction of the project (much like shareholders vote).
Trimming down: You’ve invested in too many things and constantly have to trim back and rebalance because you’ve collected so many useless coins that you don’t know what to do with them.
Portfolio Tracking: You’re using tools like Zapper, Zerion, and Debank for cross-chain — you may even get frustrated that all these tools don’t support all the projects that you’re investing in. You probably have a spreadsheet to calculate all your positions and daily yield because the other tools don’t support it.

This chart shows how other chains like Polygon and BSC have increased the overall trading volume significantly in 2021, due to much lower gas fees (cost per transaction).

*https://twitter.com/WuBlockchain/status/1401418884310200320/photo/*1

The Darkness

I honestly have no real idea what lurks in the darkness, and don’t really want to dive here if I can avoid it, but I can only imagine the following things exist:

Programmatic trading: Instead of manually moving around your money you’re writing code to programmatically make trades or execute strategies with specific logic.
Pre Launch: You’re in all the right communities and know when projects are launching, when exchanges will list tokens, and maybe even have tokens before the general public.
Arbitrage: You have a deep understanding of the incentives, risk, and arbitrage across chains and are able to systematically take advantage of these before retail investors (much like traditional finance).
Moving markets: You’re pooling assets, taking out flash loans, or in small communities of large investors to take advantage of scale and your trades are actually moving markets. I recently came across a tool called Furcombo which is a no-code tool to let users use flash loans to take advantage of price arbitrage across decentralized exchanges.
Stacked Leverage: You’re taking advantage of stacked leverage and incentives which is hard for normal retail investors to understand or access.
OTC: You’re not trading using conventional systems because your trades are so large that you can get better rates over the counter 🙂

Here is a similar take from the folks over at Finematics, who produce great content and I’m a supporter of theirs on Patreon.

I hope you enjoy your experiences throughout your journey in DeFi, but unless you want to dedicate a lot of time and mental space to it, wade in and just have fun the shallows and rest safe and easy 🙂