It has been dubbed "one of the best venture investments of all time" by Packy McCormick, generating over a 4000X return in 3-and-a-half years. Today, we are talking with Chris McCann and Edith Yeung, the earliest investors in Solana, and partners at Race Capital. They also unbelievably were the earliest investors in FTX and started Race Capital in the midst of crypto winter!
On this episode, we talk with Edith and Chris about the stories behind both of those investments and their views on what's next in crypto from their vantage point in the center of the ecosystem.
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We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.
Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!
Purchase Price: $4.2 billion, 2009
Estimated Current Contribution to Market Cap: $20.5 billion
Absolute Dollar Return: $16.3 billion
Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…
Total Purchase Price: $70 million (estimated), 2004
Estimated Current Contribution to Market Cap: $16.9 billion
Absolute Dollar Return: $16.8 billion
Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!
Total Purchase Price: $188 million (by ABC), 1984
Estimated Current Contribution to Market Cap: $31.2 billion
Absolute Dollar Return: $31.0 billion
ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”
Total Purchase Price: $1.5 billion, 2002
Value Realized at Spinoff: $47.1 billion
Absolute Dollar Return: $45.6 billion
Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.
Total Purchase Price: $135 million, 2005
Estimated Current Contribution to Market Cap: $49.9 billion
Absolute Dollar Return: $49.8 billion
Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.
Total Purchase Price: $429 million, 1997
Estimated Current Contribution to Market Cap: $63.0 billion
Absolute Dollar Return: $62.6 billion
How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.
Total Purchase Price: $50 million, 2005
Estimated Current Contribution to Market Cap: $72 billion
Absolute Dollar Return: $72 billion
Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.
Total Purchase Price: $1.65 billion, 2006
Estimated Current Contribution to Market Cap: $86.2 billion
Absolute Dollar Return: $84.5 billion
We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”. With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.
That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.
Total Purchase Price: $3.1 billion, 2007
Estimated Current Contribution to Market Cap: $126.4 billion
Absolute Dollar Return: $123.3 billion
A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...
Purchase Price: $1 billion, 2012
Estimated Current Contribution to Market Cap: $153 billion
Absolute Dollar Return: $152 billion
When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.
Methodology and Notes:
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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
Ben: Chris and Edith, welcome to the Acquired LP show.
Edith: Thank you for having us.
Chris: Yeah. Thanks for having us, guys.
Ben: This is so fun. For listeners out there, I met Chris and Edith of Race Capital, both in November, in Lisbon, but at separate events. Edith, you and I did a panel together for the venture track at Web Summit, and then Chris, we got together ahead of Solana Breakpoint. Of course, Edith, hung out with you at Breakpoint too, but just a wild, fun coincidence.
Edith: I have not traveled for almost two years and definitely get traveling all on my system. Lisbon, it was definitely a blast, hot.
David: I'm so jealous.
Chris: Yeah, Breakpoint was crazy. Since the pandemic started in early 2020. I literally haven't been anywhere. So that's the first place I went outside of California, really.
Ben: Wow. For listeners who don't know about Race Capital—we're going to get into Chris and Edith's backgrounds here—they're some of the very earliest investors in both Solana and FTX.
Chris: Their partner, Alfred, was the original seed investor for Databricks. Originally, when the company got started out of UC Berkeley, more on the enterprise infrastructure side, and then he was also the founder and CEO of BA Systems. They literally invented middleware for the enterprise.
He's the CEO of the public company, $2 billion in revenue acquired by Oracle for $8.6 billion back in 2008. Both in the traditional enterprise, and the more recent crypto and FinTech infrastructure stuff. We got our hands all over.
David: Oracle's (I think) one of the few big, canonical tech companies we haven't talked about in Acquired yet. We need to do that.
We obviously are going to talk a lot about distributed systems and all that, but centralized database is still a thing. Majority of the world still runs on it.
Ben: I think, still a thing, like 99.999% of activity is probably still. I think I'm missing a few nines there on centralized. Very fast, high-performance databases.
Edith: And then their market cap is $280 billion. It's still interesting.
Ben: Not too shabby.
Edith: Not too shabby.
Ben: I want to do some quick personal introductions here. Edith, let me turn it over to you and start. You grew up in Hong Kong, right?
Edith: Born and raised in Hong Kong. My parents still live there. I can't wait to go back, but now it's three weeks quarantine. I've been in San Francisco for the last two years. I came here when I was 16 years old as an exchange student. I stayed with an American family in the middle of nowhere of a small town called Ossian, Indiana.
And then I moved out here after graduation from Purdue. My first job was a developer, a very, very old school collection system called CACS. My focus always been on mobile. My customer was AT&T. Then later on, I joined this company, also really old school called Siebel Systems. Again, AT&T Wireless was my customer. I spent 2½ years in Seattle. Oracle bought Siebel.
I left and then long story short, started this conference called BizTech Day. That's how I met Chris this is many years ago now. From that, I joined a startup called Dolphin Browser. Dolphin was kind of awesome. We grew from zero to 150 million installed worldwide, 99% android.
We raised an A from Sequoia, Matrix Partners, and Qualcomm, and they eventually sold it to a gaming company called Changyou. After that, I joined 500 Startups. Dave McClure recruited me. I have $10 million fund there. Via that fund, I invested in Solana, the same time with Chris. Him as an angel and the rest is history with Solana. That was January 2018.
I don't want to go too much on the 500 stuff, but there are many, many different chain of events. Chris and I decided to join up and do something on our own, write bigger checks. We can talk about FTX stuff later.
Ben: Great. I want to hear a lot about that January 2018 time, but let's first kick it over to Chris and your background. Chris, I actually knew of you in the 2010–2012 era because as one of the things I was doing on the side, I wrote I think a growth hacking Startup Digest. You built this company where anyone could—unless they were approved—start this newsletter under your umbrella and build a relationship with an audience on a certain topic. I'll kick it over to you to talk about Startup Digest. It's been cool seeing your name come up recently because I was like, I remember the Startup Digest guy.
Chris: I guess for a quick context, I grew up in Southern California, not as exciting as Hong Kong. I went to school in Central California at Cal Poly, San Luis Obispo. Then when I graduated, I literally threw all my stuff into my car, drove to Palo Alto. I had no job, no idea, no plan, no anything.
The first place I went to was this place called University Café. I was sitting there for brunch and there were two guys talking about Facebook next to me. So I was like, oh, this is really cool. I looked over and it was Mark Zuckerberg and Michael Arrington literally sitting next to me. That was when I decided I want to move here. I didn't really know how I was going to do it, but Palo Alto is where I wanted to...
I moved to Palo Alto. I ended up taking a job I really didn't like when I first moved here. My original impetus was I wanted to start something so I can quit the job so I can do my own thing.
Me and my roommate at the time had a whole bunch of these little random side projects going on. One of them, which was the most unlikely to turn into a company, was this little thing called Startup Digest. It was this little newsletter where we just cataloged all the tech events that were going on in Silicon Valley. Because as good as technology of all the people here was, there really was not like a simple way to see all the stuff that was going on here or in Silicon Valley.
This was 2009. The startup ecosystem was far smaller. It was super niche. There wasn't a lot of people doing this stuff. This is right after the whole real estate crisis and everything. A lot of the prices were super depressed.
Because I was doing this newsletter, I was going to a lot of the conferences. One of those was Edith's event.
When I went to her conference, there was literally this woman, Edith, who seemed like she knew everybody. She was on stage with Tim Ferriss, all these other tech founders and CEOs.
She's super friendly and she seemed like she knew everybody. In my head, I was like, I need to meet Edith. That's how we met. This was in 2009 shortly after I moved to the Bay Area.
Edith: I remember, I was interviewing Tim Ferriss. I actually read his book. Matt Mullenweg from WordPress introduced me to him because I was a big WordPress fan. I remember when I was hosting him, there were literally ladies screaming in the audience. It's Tim Ferriss. I was so shocked. I'm like, this is so weird. But the highlight was not Tim Ferriss. It was meeting Chris.
Chris: Yeah. I didn't know it at the time, but it turns out it would be a pretty pivotal moment in life, friendship, work, everything. At that time, tech newsletters are now a thing. So Substack and everybody, Packy McCormick and Not Boring, and everybody knows this stuff. Back in 2009, zero people were doing tech newsletters.
This was not a cool thing. People didn't know about this stuff. It was really quirky. But I remember in the first few weeks, we got up from zero to about 10,000 subscribers. We were one of the earliest customers and users for MailChimp. MailChimp themselves, they were launching and hadn't really industrialized a lot of the things they were doing. So we ended up being one of the larger email publications on their platform in the early days.
We made this decision. Again, Startup Digest was just a little side thing that we were doing. One of my friends and a reader of the newsletter, his name's Carter Cleveland, who eventually started Artsy, which you might know.
David: No way. Carter, and I, and my wife Jenny all went to college together.
Chris: No way.
Edith: Wow. That's small world.
David: It's such a small world.
Chris: He was spending the summer here in the Bay Area, but his plan was to move back to New York. When he moved back to New York, he was one of the subscribers/readers. He was like, hey, I really want to do a Startup Digest edition, but in New York.
His push to me was like, I'm going to do this thing in New York, I'm either going to do it under you or I'm going to do it for myself. What do you want to do? I was like, all right, let's figure out some way to try to do this together. This became colloquially what we now call the curator model, where Startup Digest was the singular overall publication, but we had many, many, many sub publications, both in different cities and then also in different verticals.
Then we grew up from zero to about a million subscribers before it was acquired by Techstars. Through this experience, I got to be a part of the super early tech ecosystem before a lot of these things are really developed, not just in Silicon Valley in the States, but seeing a lot of these things nationwide and also worldwide too.
Ben: I remember those days because I was super involved Startup Weekend organizer. I think I did about 30 different Startup Weekends, again, different cities around the world, in Rio, in Kuala Lumpur, and all these places. It really felt like a global movement around tech entrepreneurship. I'm teasing this out now because I think we're going to come back to it later in crypto and Web 3.0. There was this sense of, truly, we're all in this together.
It felt incredibly collaborative and it felt like that it was an expanding pie. There weren't gigantic tech companies that owned everything yet. I know the numbers may show that now is even a better time to be doing stuff than then. Even though there are five really big tech companies, there's actually much more opportunity down the long tail than there's ever been. Somehow, it felt at that moment in time. I think this is the proliferation of Web 2.0, like we are all going to make it.
Chris: Yeah. I'm not trying to harken too much in the future, but the early Web 2.0 startup ecosystem—not just here but worldwide—actually it reminds me and the feeling is a lot of the Web 3.0 ecosystem we see today, although I guess the big difference now is it's super proliferated.
In the beginning, it was a little bit proliferated and there were some companies, but Silicon Valley was still a major center of gravity for a lot of this stuff, versus in the Web 3.0 ecosystems, same feeling, but now there's no central center of gravity. In fact, there are pretty big ecosystems pretty much all around the planet now. The feeling is very similar, although with a little bit of minor differences attached to it.
Ben: I was in college at the time when I went and did an internship in the Bay Area that summer. It was like going to play in the big leagues. It felt like I was making the pilgrimage to Mecca in a way that I don't think now is quite as relevant.
That Startup Digest, you were the community lead at Greylock for four years or so. Is that right?
Chris: Yeah. After we sold Startup Digest, we ended up having a pretty large curator ecosystem, and then all the reader ecosystem. For us, we ended up having to build a whole bunch of internal community tools for ourselves just to have our own organization operates. We wanted to take all the tools that we built for ourselves and product that ties them for other people to use, almost sell it like SaaS software but for community ecosystem development.
Ben: Was this GroupTie?
Chris: Yes. The company is called GroupTie. Again, we're far too early on the end of the spectrum. The best way you can think about it today is it's almost like a quasi early Discord, like what Discord tries to do with all of its external groups and communities. We are trying to do this for company tooling, and all this stuff to build these groups and everything around you.
Three things. One, the company ultimately did not work out. Two, businesses did not really know what to do with this thing. However, we did have a few pretty active early users. One of those being The Thiel Fellowship. The Thiel Fellowship used it for all of their fellow communication, all the mentor communication, all the pairing, matching, back and forth. They used it for all their community stuff.
One of the earliest heaviest users in that group was this guy named Dan Portillo, who was a partner at Greylock. Dan, all the time, used to say, hey, can I use this for Greylock? I used to tell him no Dan, I'm sorry, Greylock cannot use it. If any VC fund started to use it, the first question I would get as the founder is, is Greylock investing? If they weren't, this would be like a negative signal towards me.
When we ultimately decided to shut the company down because it wasn't working out, I was going through the shutdown process.
Me and Dan started brainstorming. If we can take this concept of community and try to apply it to a VC fund, what may this look like?
At the end of it, Dan's like, do you want to do this? I'm like, what do you mean? He's like, all this stuff we just did, do it here. I said, well, I don't really have anything else I was planning on doing, so sure, why not?
So that's how I ended up joining Greylock to start and run the community and ecosystem program that we ended up developing. We're all internal for Greylock itself.
Ben: It's very clear coming out of that history how you would sort of get a lot of the themes going on in Web 3.0 right now. To maybe take us forward a little bit in the story, how did Race Capital come to be? Who approached who? What was the initial thesis? What was the first fund and all that?
Edith: Chris and I already know each other for a long time. I was a partner in 500 Startups. I actually just took over the China arm for 500. By the way, to put things in perspective—which is not the case today—in 2017–2018, the center of the universe for crypto mining—particularly Bitcoin and also crypto trading—is actually China and Asia.
Of course, Chris and I know each other even longer, but in 2013, I bought my first Bitcoin because I met this other random dude. His name is Greg Kidd. Greg was Jack Dorsey's old boss. He's like Angel and Twitter, Square.
Ben: Didn't Jack lived in his apartment for a while?
Edith: That's right. Jack hacked into his company's server. He's like, who the hell are you, and come and hang out with me and live in New York, and they moved out here together. Anyway, just because my boss on Bitcoin didn't really make me an expert, but in 2017, no one was raising equity in China. Everybody was raising some sort of token. I'm like, what the hell are you talking about?
Then I have an old friend that I used to work with. He later on joined Alibaba and then he was like, oh, I'm starting this new token project with this guy. He started this other token project named Antshares, which is the name before and later on become Neo. I don't even know what he was talking about.
I came back to the Bay Area and hang out with Chris. He's like, what's happening in China? I said, oh, yeah, I met this random dude, he said that he's the founder of Antshares. Chris got really excited. I'm like, why are you excited? Because everything is in Chinese. He's like, oh, my God, I bought the token. I saw it on Reddit. I google translated it and bought a token from Huobi, and then I did really, really well. I'm like, what? He's like, you got to work with this guy.
Chris: Let me have a little context here. I didn't know we're going to go into this part, but again, open book, happy to talk about it. Again, I went to Edith. I first bought Bitcoin in 2013–2014. Greylock actually ended up making a handful of investments, mostly in the Bitcoin ecosystem, so Coinbase, Xapo, Blockstream, a bunch of other companies kind of all in that timeframe. I just started to pay attention and knew a lot of the core developers and people in the ecosystem.
In early, early 2017, before the craziness, I remember I was on Bittrex. Bittrex used to be one of the bigger US exchanges. Bittrex (I believe) at the time only literally had 40 assets on the platform. It's crazy to think about it now with all the tokens that are out there, but at the time, the world was pretty small and there was only 40 things.
I just started doing research on all 40 things to figure out what was what, and who was who, and who were the teams building it and all that. Of the 40 things, there was only one of them and the team was based in China. My initial thought was like, I don't know, China's pretty big. They should probably have one of these things.
I recently bought some Antshares at, I don't know if I want to say the exact price, but in the cents. They were initially fairly unknown, and then they switched their name from Antshares to Neo, and the Western community found out about this thing. Very quickly, it went from a few cents to $20, very fast.
This also ties into a second story of, Bittrex was the only exchange that this thing could be traded on. Neo had this weird concept inside of it. It's almost like prototypical staking. With staking, you would earn this gas reward. So it was called gas. But Bittrex used to keep your gas, which in the beginning, nobody really cared about because gas wasn't really worth that much. But when Antshares started going up in price, gas started to be worth something.
So there was a new exchange being started and their entire premise was we're going to list Antshares and give you your gas, and the exchange is called Binance. I was also one of probably first 100, maybe first 50 users of Binance when they're first released.
David: I had no idea that was the origin of Binance.
Chris: When they initially started, they were targeting all of the Antshares holders. That's how they bootstrap themselves as the exchange. When Antshares turned to Neo and all this trading volume went crazy, this is what Binance captured in the beginning. My second thought was like, well, if I'm going to move all my Antshares over to Binance, I should probably participate a little bit in this ICO thing that they're doing because I should probably have some buy-in to their exchange and all that.
When Edith came and told me, hey, I met this Antshares guy, I'm like, oh, my God, this is crazy. I would never probably have ever personally met him myself, but that tie-in was super interesting to me at the time.
Edith: I told the whole story to Chris. Chris was like, let’s work with this guy. I'm like, okay. This is when Binance was launched. Also, it was the time that China, for the first time, banned RMB fiat to crypto because the world was going crazy. Binance was the first crypto-to-crypto exchange. They weren't the first exchange because Huobi and OK came before that, but they were the first crypto-to-crypto change.
Chris and I were so excited. We invited this guy to come to the US. Of course, to them, it doesn't matter even if they're the crypto whale. Coming to Silicon Valley is still the Mecca. So I hosted him at 500 Startups, we hosted him at Greylock partners, but then at the same time, both me and his fund don't really invest in token.
We're just like, this is a hobby, this is fun. I met so many crypto projects from literally worldwide. It was when they weren't sure what's happening in China. So I started to see the Binance folks, the Huobi, and OK. Yes, they all set up offices in San Francisco the same year. So we made so many friends, like the best of the east meets west. We started to create our own little hub.
Ben: It's like a crypto salon, almost.
David: You're the University Café of crypto.
Chris: To tie in the other side, with Greylock, we ran all this community stuff.
We used to do a whole bunch of things around different emerging market areas like VR, AR, eSports, autonomous vehicles, robotics. Crypto was this thing where no real Silicon Valley VC funds were paying attention to at the time. I just thought it was a new, really interesting or emerging area that (again) like the early Web 2.0 people, in that community there was the similar thing happening.
While we had the time, I wanted to host small dinners, talks, and all this other stuff. Every time Edith needs to come back with this new contingency of Chinese entrepreneurs, we'd also pair them together with a lot of the people in San Francisco working on a lot of this stuff. A lot of the early 0x team, the Coinbase guys, some of the Ethereum folks, I was friends with the new lot of these people as well. To Edith's point, a very much was like the east meets west of crypto centered around a lot of us.
Edith: I actually found some photo from my old broken Galaxy phone of us hosting the founder bit name at 500. I also found an old photo of us with Toly.
Ben: Anatoly from Solana?
Ben: You have to send that to us. We'll put it on the website.
Edith: Chris and I basically started this whole salon thing.
It was really interesting because now we're really on the urge of, maybe it's time, we should get our fund to do it.
At the time, 500 was like, you know what, you're so crazy about all these things. Who's this Chris guy who always hang out with us? Why don't you guys actually just build a crypto accelerator within 500? Yeah, I'm spending so much time anyway… in order to do that.
I actually changed my LP agreement at 500. I have a small $10 million fund and that was the fund called Mobile Collective. That's the fund that we invested in Solana. But in order to even do that, I have gone through a lot of legal headache and paperwork. I only have 10 LPs so that was easy, but still they're like, what are you talking about?
David: Wait, you're not going to own equity? You're going to own tokens? What?
Ben: Did your LPA explicitly bar you from buying tokens or was it just that it wasn't contemplated as the type of thing you could even own?
Edith: Their generation of LP agreement is usually, you don't own liquid asset, just like a VC fund shouldn't be owning public stock. You're doing early equity investments. We basically amended it so that we can actually invest in token, like digital asset, but it has to be, at least for my old one, was below 15%. As long as you're below that threshold, it's okay.
Chris: To complete the other side of it, (I think) in late 2017 I officially left Greylock. I ended up being there for almost five years.
There was a little contingency of us. There's me, and Kevin Kwok, and then Saam who's one of the general partners there. There was a little sort of contingency of us. About the four or five year threshold, I was like, I got to go and do something else. Right at the time, this is when Edith was contemplating the launch of this blockchain accelerator, and then she officially asked if I wanted to be an advisor for a fund.
Again, I guess similar to the joining Greylock story doing this, I didn't really have anything else planned. I was like, well, might as well this sounds kind of fun, I guess. So I jumped in to help her out when I left.
Edith: This is a photo with us and Jihan. That's the founder of Bitmain. Oh, my God, when he showed up, Jesus Christ, people were lining up on Mission Street trying to get in because it was an even more bigger deal then because he's not in town that often, and then we're hosting him. I really think that he felt like he was a rock star. And he had a bodyguard.
Ben: Pardon my naivete. What is or what was Bitmain?
Chris: Bitmain at the time, probably, I don't think they are anymore, but they are the largest bitcoin miner in the entire world. They not only mined bitcoin, but they actually also produced their own chipset, their own ASICs to do this. Bitmain have fallen from glory, but I think they were one of the fastest companies in history to go from zero value to be over $10 billion in revenue. They took very little in financing. I think Sequoia led the last biggest round that they did.
There's a whole other controversy in co-founder stuff, fighting, and drama. Again, they were not able to really achieve a lot of this promise, but at the time, they were like the FTX and Sam Bankman. Jihan was a known, known, known figure. Everybody on the planet wanted to talk to him. He didn't come to the US very often.
I remember at her event, the 300 people all showed up. There was a lot of growth stage investors all trying to buy to get in front of Jihan. Then his bodyguard was like pushing a bunch of them away. So very much like a rock concert.
Edith: It's hilarious.
Ben: Edith, did you end up starting this crypto-focused accelerator or did Race happen instead?
Edith: Yeah, we did. In early 2018, by then, a lot of people know Chris and I were pretty active in crypto. I have an old friend. I knew him for my Dolphin days David was like a growth hacker. We’ve known each other for a long time. He is an old buddy of Anatoly and they play underwater hockey together.
David: Yes, that's right. He talked about this, Anatoly, on our episode.
Edith: I'm like, what the hell is that? I'll send you guys some video of them playing. But anyway, I guess, Chris and I did a lot of talk around those times how to evaluate token projects. We have all these decks in public. I remember meeting Toly with Chris in a very small conference room at 500. By the way, fourth and mission is where, still do, like human lying around.
David: It's not the nicest part of San Francisco.
Edith: No. I remember meeting him for the first time. Mind that we have met hundreds of spammy projects and most people just wanted to make a quick buck. A lot of time, when we look in token economics, pretty much, once you do ICO, IDO, whatever you call it, IEO—there are all these buzzwords—most of the founders were just there to make money.
A few years ago, everybody was basically layer two and improve Ethereum. Ninety-nine percent of those projects around that. In my head, very simple. One is my previous company, Dolphin Browser was invested by Qualcomm. I love people from Qualcomm. In my head, I'm like, if you can figure it out, distribute it with your cell phone, your concept of proof of history makes sense. You can make that happen. That's 10 times harder with millions and millions of phones and you can make that happen. Actually, he didn't even have a white paper then. He's just talking about the ideas. So we both are like, we like this guy. He's real.
Ben: Chris, had you personally invested in Solana at this point already?
Chris: No. Literally, this is the...
Ben: This was like the first time you met Toly, too.
Chris: Solana, it used to be called Loom. Literally, it was not even a thing yet. I guess, I'll add a little bit of context. We did references just on Anatoly himself with some of his former colleagues, co-workers, bosses and all that.
For all of them, when we asked, hey, just checking in about Anatoly, what do you think about him? Their first response is either, what is he doing, can I join, can I invest, I want to be involved in some way. That was a hugely positive signal to us.
But to be realistic at the time, this was a concept in his head. There was no code written. There's no product, there's no test net, there's no def net, there's literally nothing. In fact, Anatoly was actually super upfront saying, I'm not sure if this will technically work. He said, I think it will, but I'm not sure. His idea at the time—and still to this day—a lot of the layer one protocols are constrained by the throughput that they can enable. Mostly because proof of work. It's a hugely constrained thing.
His idea was, instead of trying to do it through compute, what if you could have pen transactions through time? The reason why he came about this is because he used to do a lot of this stuff. Because he used to work on low level CDMA chipset stuff, he was one of the core kernel developers for Broo, a really early mobile OS type stuff.
For there, you have very constrained networks. You have very constrained compute, so you have to mess around and do things based on time. That's how you get around the transaction throughput limitations. A lot of this is instantiated. There's a technology called Google True Time, which also does similar methodology for pending transactions across a distributed state of servers.
Ben: Is that like a Google Open Source project or something.
Chris: Yeah. It's basically how they synchronize all their distributed servers, and it's an open source instantiation of a lot of these things. Anatoly's idea was, I want to use all these concepts that I'm super familiar with, but I want to apply this to a layer one blockchain and distributed transactions. This was the idea here.
Edith was starting this blockchain accelerator, we're looking for companies to put into it. We met Anatoly right at the perfect time, came through a trusted source, referenced super well. We basically told them, hey, we want to help build this with you and we will be your very first two investors when you do this. That was how this thing got started.
Edith: I remember the first few times we met. The second time we met him, he brought two other co-founders including Raj. Then the next thing, we're like, okay, we're going to start learning this together. One thing we are really good at—just how Chris and I met was at a conference that we self organized—we basically did about three months of, every other week some sort of a community event.
I was so burned out because the whole point is actually to introduce Loom. It's not even Solana then. We have three or four projects. It's all about introducing our founder to these big star in crypto.
One of the big star—I remembered it very clearly—was Joey Krug from Pantera. He's like a big deal in prediction market. I remember particularly want Toly to met Joey. They talked and he's just like, okay, we're impressed.
Chris: To add on to this, maybe two things. One is, as Anatoly got a little bit further along, and they started writing what would become the first white paper, they built this thing completely on a non-EVM–compatible state machine. So they ended up building their own based on Rust. But the fact that it was not compatible with Ethereum rubbed a lot of early crypto people the wrong way.
Ben: I bet because it necessarily means that it's not compatible with anything that anyone's already built. It makes it a fracture of the community. So everyone who has learned how to develop for the EVM, good luck with that. You have to learn a completely new thing and join this other community now.
Chris: And a lot of the points of crypto and a lot of this is composability, so you want things to work with as many things as possible. To have this thing that was not compatible was a very big deal breaker for a lot of people.
The other thing keeping in mind, the time. This is now early 2018. The crypto market is kind of like now just went from a lot to crashed 60%–70%. It washed a lot of people out. Again, we were trying to introduce Anatoly and his concept to a bunch of other people. A lot of people were like, hey, even Ethereum itself is not using all the transactions they have. Why do you need to scale this even more? It doesn't make sense here. We're not even using the capacity to have what we have today. Why would you create this whole new thing to increase it? It doesn't make sense.
Ben: It's like little did anyone see DeFi coming, or NFTs coming, or DAOs coming, or anything that drives gas prices to the moon.
Chris: Yeah, none of this stuff existed. When Solana initially wanted to put together this small, little pre-seed, this round that we participated in, they had a lot of people initially in late 2017 that raised their hand and said, we all want in. Then when 2018 rolled around, everybody was like, I'm not going to do it anymore. When Raj was collecting all the contributions, Raj called me and he's like, hey, I just want to check, are you still okay?
Ben: How much money were they raising?
Chris: I don't know what they eventually ended up at. I think they were trying to do five, and that turned to four, and it turns of three. It might even went under that. Because again, a lot of the funds had such terrible performance in that first few months, they all disappeared or couldn't make any new investments.
Raj called me and he's like, hey, are you good? I said, my commitment was to you guys. Of course, I'm going to stay true to my word and back you guys. He's like, okay, because I just want to let you know, most of the people who said they're committing are not going to anymore. I said, again, I'm really trying to help you guys. He's like, okay, this is going to be rough. It was.
Edith: Yeah, tough time. 2018 was not a good year. I just remember, we'd go to the 500 office everyday and hang out with them. Their team grew from one to three, two, and then Michael Vine quit, and there's this guy named Eric. There's a whole bunch that just quit Qualcomm and now congregate in this very dirty office.
We just threw these random events, community events to meet all kinds of folks in the ecosystem. It's just so interesting. Brand new topics.
Ben: It's fascinating, too, when you're talking about famous from the bigger, the established Ethereum world because Ethereum had launched 12–18 months ago and was under development for another couple of years before that. But it's also, in normal years, still a very recent project. Crypto time is 10X accelerated.
Chris: Yeah. It feels like decades ago, but I guess in reality, it's really not. It's really like three years ago, although I feel like I have aged much more than that standpoint. The thing that was always—at least to me—so impressive is one (again) because you had this crazy price correction, a lot of people either exited the system, or just disappeared, or weren’t investing, and people weren't interested in that. The price completely unfazed the Solana team. They could care less about any of this stuff. They were just completely build-in.
Despite the fact that we hosted all these community things and everything around them, nobody was interested in building anything on Solana at the time. We tried to convince exchanges to like, hey, wouldn't it be cool to do like a deX? You could do it completely on chain. I probably won't say who, but we said it to a few very well-known established exchanges and they're not interested.
We tried to get some of the bigger Ethereum applications to be interested in the stuff, nobody's interested. But again, team was completely unfazed. They were completely heads down, completely shipping, they're 24x7, usually way into the night. Team was growing very succinctly, but (again) the rest of the world did not deter them. They were very focused on what they're doing even from day one.
Ben: To be super clear on just the investors at this point—just so we have this—it's like you and Greg Kidd stuck around. Edith, you brought them through 500 Startups, right?
Edith: Yeah. My tiny $10 million fund invested in Solana seat.
Ben: And Foundation Capital. Were they in? Was anyone else?
Edith: Yes. I think that's the main.
Chris: David Kwak who introduced us also invested. Then there's one other smaller fund called Reciprocal Ventures.There might be a handful of other individuals and stuff, but that's kind of it.
Ben: And this is before Multicoin. Obviously, way before the Andreessen round, but before the other crypto-native funds that got excited about and came in?
Chris: Yeah. Even to the crypto ecosystem, Solana was very much an oddity. Now, they're much bigger and more successful, and it feels like it's all part of the same fabric and ecosystem. But in the beginning, again remember, because it was not EVM compatible, it was this side fork that nobody really knew what to do with. So they just left them to themselves.
Ben: Do you remember what the big break was, the first application that was like, yeah, we'll build something on top of Solana?
Chris: I used to push Anatoly all the time. I'm like, hey, you guys are building this network that's going to do 60,000 transactions or whatever per second. I'm like, literally, nobody's going to care about this unless somebody is going to fill in and use all these transactions. You could build the fastest, craziest thing in the world, but if people use zero of it, it doesn't really matter.
Him and Raj always used to be like, yeah, we know, we're going to try. But again, it was hard to get people interested in building on this non-EVM-compatible thing. I won't name them by name, but they were two, or three, or four of these bigger apps who were considering it, but they just dragged their feet and never really did anything. Honestly, Solana did not have its first big break until Serum.
David: I was going to say it was an FTX.
Chris: Yeah. FTX, which is probably another long story, but another seed investment of ours, with Sam Bankman and his team. They wanted to build a deX, and they were far more aggressive than a lot of the other exchanges out there. They wanted to build this thing completely on-chain. So their first initial approach was they themselves were going to build a layer one. But before they went and do that, they wanted to evaluate all the things that were out there, not just Solana, but they wanted to look at everything.
They did a deep dive technical review of Ethereum, of Solana, of Polygon, of Avalanche, of every single thing that was out there. It just happened to coincide with Anatoly built this little demo thing around the Solana test net. I think it was just called Break.
Ben: Where you could just type really fast on your keyboard and it would push all those as transactions.
Chris: Yup. It's this little app you spun up, and every time you tap the spacebar or any key, it would instantiate a Solana transaction, and you can see it go through the system. On the FTX team, the CTO is like, okay, I can click as fast as I can and you guys handle it all. What if I give you guys an auto clicker? What if I click 1000 times per millisecond, can you handle that? What if I can write some scripting here? How much can actually break this thing?
They stress tested the whole thing and found out for themselves. A lot of the other projects—and again still to this day, not saying names or whatever—in the crypto space that have these big, broad, bold ideas of all the stuff they can do but it's super theoretical—sometimes it's harder to find stuff that works in practice today—but Solana literally threw an example, not by big idea, but it actually worked in function. That small test net scale actually did what it said it was going to do.
The FTX team decided that instead of building their own layer one, they were just going to use Solana to build Serum. Again, even then, FTX was not the 800-pound gorilla it is today. FTX was still much smaller then. But to have the brand reputation of somebody like FTX actually treating this seriously, and not only that, it's actually building something on top of this, this gave the rest of the ecosystem a lot of confidence and leeway to start experimenting with that. Not necessarily transitioning over yet, but start to actually seriously take a look at the Solana thing.
Edith: This is 2018 and when we were basically hanging out, and then Chris and I basically brewing this idea about starting a fund together, but it takes a long time to start a fund. Meanwhile, Toly, Raj, and the team basically been camping out at the very dinky 500 office now for about six months. The 500 folks was like, you guys don't pay any rent. So sorry. They're supposed to last for three. Now you're here for over half a year. It's time to get out.
Chris and I was looking at this other project named Nebulous. We help them to get an office on third in Hawthorn. It's right across from the gold club. It's a street office, but they were failing. I was like, hey Raj, maybe you should take a look at this office. They took over those office and moved over there. If you pass by it today, their Solana sign is still there.
David: Nobody else was daring enough to become a tenant after them?
Edith: Yeah. Chris and I were learning new things and going to a lot of these (again) community events but by somebody else.
I remember there's a project. In public, Chris was speaking there. [...] is hosted by Compound, somewhere in the mission. Nobody can see anybody, but I did see this guy. I can't see his face, but you see he's afro walking by.
I'm asking this guy next to me, I'm like, who is this guy? It's like, oh, yeah, he's a pretty active trader. I'm like, hey, what's your name? He's like, oh, Sam Bankman-Fried. I'm like, why is your last name so complicated? He's just like, what?
Then he was telling me some ridiculous trading volume and I'm thinking, is that real? I'm like, what's the name of your firm? Alameda Research. I'm like, are you in Alameda? It was just really odd conversation. That's the first time that we met Sam.
David: Is Alameda Research name for Alameda in the East Bay?
Chris: Yup. A lot of the early trading firms or whatever had super crypto name like Genesis, Block. They had all this instantiation of it. Sam, I'll give him credit. He wanted to create an investment fund that was well-known on its own right, not just tied to the crypto ecosystem. They wanted to pick a more general name. He used to live out in Berkeley and he liked going to Alameda. So they picked Alameda Research Group.
Ben: And you guys seem to not take that lesson at first because when the two of you got together to start a fund, I think you were calling it Proof of Capital? Walk me through that and how it became Race.
Edith: Proof of Capital is kind of a good name for a crypto fund, right? Proof of work, proof of stake, proof of history, proof of capital, everybody get it. The reason why we rebrand it to Race is actually very simple. We met Alfred. Chris actually mentioned his name earlier in the show. To me, Alfred was totally like Anatoly in the 90s. He came from Sun and basically licensed the whole JVM exclusive license. It was very, very similar. It's the all open-source and then commercialization via VA systems.
We learned a lot from him. Honestly, Chris and I were pitching him as an LP. Hey, we're doing this and this, and we met all these crazy people, and he's like, you guys are crazy. I don't know what you're talking about. I guess we impressed him enough. He's like, I like what you guys are doing and not only I'm going to invest, I want to be part of it.
We thought, he's kind of cool. No matter how many people that we met, I've never met anybody that have scaled something from nothing to… they have over a million developers built on WebLogic, particularly.
Ben: It's like a big chunk of the human population.
Edith: Yeah, to the point where he took the company public and eventually sold it to Oracle for $8.6 billion. We thought, other than Toly and Sam (of course), there's so much hype around crypto. If we really want to be serious about building developer ecosystem, it's really takes one to know one. Alfred is a very, very pure soul. We love him and owe him. He's also helped the fact that he's a big, big, big, big car collector.
Chris: The other two stories to add onto here. It's super interesting, actually, because again, they literally created a middleware for the enterprise, a lot of the computation. A lot of the transaction systems for all of our ATM machines, all the flight transactions. All of the AWS data centers all used to be built on WebLogic, all the core ecommerce transaction systems. It basically powers the traditional Web 1.0, Web 2.0 transactions.
When Alfred started looking at Solana, not just the team but technically how it's made up and constructed, all that, his first comment was, this is just middleware. It's the same thing that I built, there's no difference. With the only one caveat being the biggest technical difference between the two of them is for WebLogic everything was built centrally—you ran the servers yourself—versus in Solana's case, you don't run the transactions. They are run distributedly. Not distributed just like in multiple geographic locations, but actually, the validators are not even part of Solana. They're a wholly separate ecosystem. Other than that, it's pretty much transactional middleware.
Ben: You can't force an update as if you own the server.
Chris: Yeah, but everything else for the time being and how transactions are constructed, this is all very similar. I forgot the exact quote, but to take the Peter Thiel line of like, what do you believe that very few other people believe in or whatever, we actually believe that right now, people treat Web 3.0 in crypto and Web 2.0 is completely different in subset, and a completely different universe that will never touch each other. Versus, we actually think they're far more interrelated than most people give it credit for.
In fact, all the stuff that all this Web 3.0 is doing is just another instantiation from the transition from single servers that you own to Web 3.0 distributed architecture. This is just the next instantiation, but it's all really one and the same thing. It's not the separate fourth path, but it's part of the same ecosystem.
Race Capital, we invest in infrastructure broadly, on the seed state side. Yes, we're probably most well-known for when we do Web 3.0 in crypto infrastructure, but we also do investments across data infrastructure, transaction systems, open source, developer tools, communication infrastructure. Any of these low-level systems type stuff tends to be our sweet spot and what we fall in love with. Again, we hold both of those ideas in our head at the same time.
Edith: Just to throw in, I don't want to name the exact name because otherwise, Sam will be really mad. There's one of us, star, star, Michael Jordan of engineer at FTX. This person is like a rock star. He went to Berkeley. I saw him in Lisbon. We were talking about, hey, you guys should hire more people.
Ben: They took that advice. It seems like.
Edith: He's like, what else do you invest in? We recently invested in this company called Opaque Systems. The open source project is called MC squared. What it does is encrypted data analytics. You can do analytics on data you can't see. Started by Ion Stoica, who's the founder of Databricks and also Raluca Ada Popa.
This engineer goes, Raluca is my professor from Berkeley. I'm like, no way. But he's like, I do crypto, she does crypto. It's not the same kind of crypto, but essentially, the skill set is the same. So in some sense, I'm like, oh, great, awesome. I'm so glad that we invested in the right people.
More importantly, it's just that we support all developers. If they decided to do crypto, awesome. If they decide to do other kind of crypto, cryptography, that's cool too. We wanted to, I think like Web 3.0, have a lot more things need to be built. It's a very exciting place to be.
David: What's a good transition maybe to Race itself as a firm. You talked about at 500 and at Greylock, you had all these challenges of investing in tokens and crypto projects. How is Race structured?
Ben: And specifically, how did you initially structure it and have you had to change anything since starting to adapt to changes that weren't foreseen?
Chris: Maybe I'll take the beginning of this and Edith, feel free to chime in. We intentionally set up the fund from day one to invest in both of these things, in really all of these things. We're primarily at seed stage. So seed stage private equity, safe notes, debt, and also tokens all at the same time.
Even when we had the misstep of initially calling ourselves Proof of Capital, in our head, we always invested broadly in all the sectors. The reason why the name wasn't so great is it was so specific. Everybody just basically assumed we are a crypto fund. I always used to have to explain, no, we invest probably, we do cryptography and a bunch of other stuff. They're like, Proof of Capital, crypto fund, you guys do crypto trading, right? Like, no.
It was always a struggle for us to try to explain this in the beginning. Hence, why Alfred's suggestion was, we should really pick a name that is broadly applicable, that is easy to pronounce, that is not taken. We did a whole name search, and there's a whole bunch of others, and the name venture, literally, almost every single word is taken, except one of the few we found was Race, which was not. It has a few other interesting tie-ins.
One, we move really quickly and fast. We we nd to make decisions fairly quickly as well. We're very intentional. We have your back fully. So it kind of applies into that name.
Two, our partner, Alfred, does have a very large car collection and loves to race. A lot of his cars as well, so it has that tie in. Then for them, we just hired a new partner named Richard, who formerly came from the Ontario Teachers Pension Fund, one of the largest LPS of the world where he ran venture there. So with him joining Race, R, A, C, E, Richard, Alfred, Chris, Edith. So it happens to be the name of it.
Ben: You had to find someone known as an R to really fit it. So you searched very tightly.
Chris: We didn't tell him that was part of the interview, but it was secretly part of the interview.
Ben: Just to give you guys some credit, for listeners who don't know, you guys do move quickly, and we've talked about this on former Sequoia episodes, because of your prepared mind. Because you're very focused on the sector, and you have a zillion relationships, and it's a 10-year-old sector that you've been living in for seven or eight of it. So when someone approaches you with a new idea, you've thought about the idea before and you know how to evaluate it. You know how to evaluate the timing because you're also immersed in all these other things in the ecosystem.
Chris: Yeah, especially coming from community lines, a lot of these Web 3.0 and crypto projects, the community instantiation actually ends up being far more important than even just purely the team itself. Most of the people creating these things usually come from somewhere, from some ecosystem, or some community, or they've done something before.
For us now to triangulate on new, early-stage founders is much much, much easier, just because we have a lot of connections within a lot of these people, it's easy for us to find out where they come from, why they're doing what they're doing. Because again, when you're looking at the seed stage side, in addition to just the idea and technical aspects itself, a lot of it is really still core fundamentals. You're evaluating the individuals and why they're doing what they're doing.
Edith: I also want to add, because now, I felt like I don't know what you call it, Web 3.0 or definitely another cycle for crypto. A few years ago, when people get listed on some exchange and you start seeing all these Lambo in all these conferences, people just gone crazy.
David: It's all meme for a while.
Edith: I felt like, at least, the recent generation of founders that we have invested in, they're very young, but yet, they're very conscious. Many of them are anonymous. They don't want to show their face when we first met them. They’re very, very clear about, you know what, we need to be super careful. Especially with DeFi, we don't know what's the regulatory implication yet. We don't want to go crazy and get into any compliance-related. They're very conscious about it.
Ben: Have you ever been invested in someone who you never knew their real name?
Edith: There were someone definitely don't want to tell us their real name. But then, Chris, I like to call him not only Peter Thiel of crypto, but I also like to call him, he's like CIA in some sense. Even though he's no camera, and then he'll be like, so you're this person, right? Then the person will be like, how do you know?
Chris: The crypto ecosystem of true believers who are technical and building the real systems level-oriented stuff is a very small community. If you're one of those people, it's usually fairly easy to triangulate who you are, again, even if you're anonymous or whatever, although we do respect the wishes of people there. Even we might know who you are, we're very careful on not announcing that or saying anything, because again, people are a little bit more sensitive in that regard.
Another thing which I didn't really intend to do but just kind of happen is, because a lot of people use avatars, or pseudo anonymous names, or profile pictures as NFTs or whatever, I've always just used like my name and profile picture. I don't know, it just always been super normal to me. One of the NFTs I own is the Solana Monkey Business, SMB things, and I'm part of the whole monkey DAO, and everybody has their monkey picture and or whatever, I'm literally the only one that has my name and my real profile picture.
David: You're the dad.
Chris: Yeah. I don't know how I feel about that, but most people know who I am. Most people, because I'm fully doxxed, will trust me slightly more. People will tell me either who they are, or what they're doing, or a lot of people reach out by. Again, people, we didn't even invest in. I've always tried to say, for anybody building anything in the Solana ecosystem, even if we don't invest, I've always tried to be as helpful as possible, connecting with other partners, helping think through financing stuff, think through incorporation things, should you do a token safety, all that sort of stuff.
I've just tried to help in a lot of these dimensions itself. I actually like using a lot of these things. I've been almost the first user for a lot of the protocols that have come out. I've been an early liquidity provider for a lot of this stuff. I actually want not just to talk about these things theoretically, but actually use them and understand them on a more personal user base level. I've always tried to do that to some degree too.
Ben: Edith, back over to you for some of the structural things. What have you had to deal with as a crypto investor that you never had to do when you were managing a $10 million equities startup fund?
Edith: There are so many things. Structurally, as I mentioned with the LP agreement, we have to change. We couldn't even do token investment to begin with until we handle all that. Certainly, we don't have an issue with Race anymore because I have gone through it once. There are a lot of really amazing venture funds out there I love.
At the same time, I remember Solana launched and then maybe a year in, Anatoly and Raj was like, hey, do you want to run a note? Do you want to do this, do you want to do that? I'm thinking, wow, if you don't care about this, no VC fund is going to take on doing all these things. It's very foreign.
The reason why I think it's the best of both worlds, because normal traditional companies take 7, 8, 10, 12 years to get to any sort of event. It doesn't matter if it's IPO or SPAC, lately—it's kind of crazy—the direct listing or whatnot, but most of the token project when we get involved, usually, I will say in Solana’s case, it was about two years. Of course, token lockup for another six or how many years, most of the project now we invested in. One recently, we volunteered and we're like, no problem three years because we're in it for a long haul. Three years long for a lockup. We're willing to do that because we're there for the long haul. To the crypto world, three years is a long time. But to a traditional, this is nothing.
I think the sort of the understanding of learning about token economics and then more importantly, the psychology. The way that I explained to my Web 2.0 friends is the way that you're working with all the various different exchanges and get listed is almost like you dealing with the App Store, and make sure that your app is being listed and available in all these various different app stores.
You need to work with them. You need to understand liquidity. There are plenty of projects out there. Sometimes we hire a market maker to make sure that there's enough trading volume. This is all skill set that is brand new. I felt like I'm learning so much about the real world finance because I'm not a trader, so it’s not natural to me.
Ben: I felt exactly the same way. Getting into crypto and thus needing to understand, especially in DeFi, a lot of these financial instruments and the way that these markets work, actually backed me into better understanding traditional financial markets.
Edith: Yeah, and it's so fascinating. We have met people from all over the world coming from jump trading, to tower research, to Citadel. Morgan Stanley, JP Morgan, these are all badass traders now jumping into crypto and applying what they know to a wild west to them. But yet, to me, at least, I felt like I'm a tech person now investing in things that is so tied to finance. I'm like tech fin instead of FinTech, if that makes any sense.
Ben: I love that.
Chris: Edith has a whole bunch of skill sets I do not have, which again, I also think is the beauty of a partnership. I love the idea of the solo GP, or solo fund, or whatever, but honestly, I learned so much from Alfred, Richard, and Edith.
Edith is so good at being friends with a whole bunch of these people. She's so good at digesting a lot of the research, data, numbers, inside reports, positioning companies. Edith is literally on all the mainstream press all the time like Bloomberg. I think you just did a thing with Emily Chang.
I'm usually pretty terrible with the press. I'm not pretty good at the press. The best description I can think of is almost like Mary Meeker for the Internet 1.0. Edith is doing a lot of this fundamental foundational work, especially in a lot of the Web 3.0 in crypto side. Again, this is a lot of skill sets that I just do not have and a lot of people, also founders in the crypto space don't have either. So it's really the partnership aspects that comes from a lot of those two.
Edith: I like to make fun of Chris. He's like Peter Thiel of crypto, but then I think, what I love doing is actually to glorify the founder, because many of them are actually super geeky. I think Toly is still very much so sometimes, which I love. In some sense, I would rather to have Chris to keep building what he's building, but to help really glorify and help them to understand where they sit in the world, what's the positioning. It's super fun for me.
Ben: I think it's both of your level of analysis. You were gracious enough to let Mario Gabriele publish the investment memo that you wrote for FTX. I think that was their $8 million round, their seed round. It's unbelievably awesome analysis. I read it cover to cover just in preparing for our interview with Sam a few weeks ago.
It's just very clear that a lot of times you read investment memos and they're like slapdash, here's who else is investing, and the founder seems compelling, and I like their background, and the timing seems reasonable. Yours was like a very explicit, logical argument about why this particular, specifically the derivatives segment of the crypto exchanges, were an interesting place to go after, why there weren't enough competitors, why this moment in time was unique. It was a masterclass in how to write a well-thought through, well-reasoned investment memo, even when the company has almost no data yet because of how early stage it was.
Chris: I also love writing these things, too, but we had to do this one specifically for a few reasons, too. One, there were no real other VC funds or traditional investors in the round, so we had no social proof to rely upon. Outside of us, there was a few super small, sort of more on the trading side, a bunch of individual traders.
Ben: I blew that on the FTX episode then. I thought it was like 40. I thought it was like Sequoia and the whole who's who. That was the next round.
Chris: No. We had zero of this to rely on in the seed stage side, fortunately or unfortunately. The second one too is somewhere to Anatoly and all that. We actually referenced Sam and Alameda Research with a bunch of the other trading and trading firms who knew them and are counterparties to them. We actually got extremely negative references on Sam. Not necessarily on him personally, but the biggest hiccup that most funds had is they were launching FTX, but Alameda research was going to be the market maker for their own exchange. This is like a cardinal sin in the eyes of other investment funds.
Ben: The market maker is someone that's the counterparty? They're providing all the liquidity to trade with?
Chris: Yes. Most of the other trading firms, as we said, we would never ever, ever, in our lifetimes ever trade on FTX for this reason. Long story short, they all are trading today on FTX.
Edith: They're so wrong.
Chris: They're very wrong on this aspect. But we had to justify for ourselves like, what is the fundamental core reason why they were doing this? Was this justifiable? Again, in this space, derivatives were still new. There was no real large-scale market making firms doing a lot of stuff to begin with.
Again, they were coming out with new platform, new venue to compete with at the time, the 800-pound gorilla of BitMEX that pretty much own the subsector that was never going to work particularly with any other participants. But the biggest weakness of BitMEX is they did on KYC, unregistered accounts of users, which opened themselves up for huge on the regulatory side. So they wanted to come out with this new slice, but they had to bootstrap this in their own way. This was the method that they chose to do it.
Again, it was risky in a sense, but we had to understand for ourselves fully and knew what we're getting into, because again, we had no other friends coming in with us. We asked a lot of other VC funds that they wanted to participate, and nobody did. It was just us on our own.
Edith: In terms of the size, the bigger were at a time was BitMEX and they were based out of Hong Kong. They were so big that they rent out the equivalent of the Empire State Building of Hong Kong is this place called Changjiang Building, where Goldman Sachs is located in central.
That it's in Hong Kong. Chris is like, hey, go, remember that guy that we met in San Francisco? This guy named Sam now is in Hong Kong. So I'm like, okay, I'm going to go hunt him down. I remember this guy named Darren—I think he's still there—that run marketing. He hosted me in, compared to BitMEX, it's a dinky little office in Causeway Bay in Lee Garden in Hong Kong.
It's very like, the typical trader with 10 monitors. Their entire team were like that. I felt like, yeah, this is going to give me the vibe that you do or you get shit done. It's not about beautiful office in central. They're doing it, and so a typical style of us. Me, at the end of the day, it's not about the capital is everywhere and what we're going to do. So I basically volunteered I'm going to write you a press release. Let me do the pitching for you. That's how we decided to invest.
I wish we invest more if it's not because of all these other traders that Chris talked to who gave the not-so-positive feedback. We probably would do a lot more, but in this case, it's all good. It's all good. We're not complaining.
Ben: I was going to ask you off air just as I start to do more crypto investments (institutionally) from PSL ventures. You've made some investments that have gone really well. You invested on a safe for a safety or something that converted into tokens. You've got all these tokens.
Chris, I think you got Solana at 4¢, if I'm not mistaken. You guys have these very appreciated tokens. Back over to Edith again, are you distributing tokens? Do LPs want tokens? They not want tokens? How do you think about this?
Edith: I think I mentioned earlier, I have a tiny little fund. $10 million, $1 million each, 10 friends, they're all friends. Then when we changed the LPA, they're like, what the hell are you doing? Then we end up invested in a handful of projects. Solana wasn't the only one. We have looked at other as well. Definitely not do as well, but still, we have a handful of these tokens.
When the token unlocked, they're like, hey, what are you doing with this? Then I'm like, no, no, really, I think it would do well, I think it would do well. Then when it get to $14, by then it already 7X my fund. One of my LP, who's a really good friend who is a trader, he goes, you know, it's time to claim your glory. That's the literal word that he used. I'm like, no, no, no, I believe it will go up more.
One of the things that I think in life is it's not just about money. It's more like, they've been supporting me for so long. I thought, you know what? Even if I distribute token, it actually wouldn't change how I think about it. In fact, it wouldn't change my ownership of it at all. More or less is that they finally will get something in their freedom to do whatever they wanted to do.
Basically, I decided to distribute token. Chris is an advisor for my previous fund. We were thinking, oh, should we help them to open their own OTC desk? Do we do this, do we do that? I wrote a very, very long message to all my LPs. This is the seven reason why you should not sell Solana, but because of your long-term support, we will do this. This is via the 500 Startups.
Our finance team really hated us because like, what the hell is this? How do we actually even mark to market the distribution notice? Do we pick the CoinMarketCap or CoinGecko price the night before? Do we do average of this?
Ben: Is that the 5-day average of, what is market closed? Do we just look at 5:00 PM or 4:30 PM from the previous day when the regular markets closed?
Edith: There's no closing the crypto world. How do we count all this? Then not that long, I have some LPs and they're like, what the hell are you talking about? What is a wallet? What do we do with this? Chris helped me. We sent over like a guide, like Solana, how do you do all this? Many of them just didn't do it. They don't know what the hell it's saying.
Some really, really smart LPs, they figured a way and then traded on FTX and whatnot. They're like, thank you very much, great job, 7X. I still have LPs today just opened FTX account. They literally told me, investing in your fund was the luckiest that ever happened to me. I'm like, you're welcome.
Ben: They couldn't have sold it if they're just now opening up their FTX account.
Edith: That's right, and it's from $14. I think today, it's $180. They're sitting on these gains and they're like, Jesus. Many of my LPs are actually very technical founders themselves. I have one LP, he's now running a validator.
Ben: On the basis of just 4¢, that's a 4500X on that investment. It's crazy.
Chris: It's funny that the people who procrastinate and did not think about this, again, to your phrase, let the compounding do the work, is they're the ones that made out in the longer term. Versus the one that tried to be smarter about it or trade in the middle of it, that ended up being the wrong decision. Honestly, even today, just leave it like, please don't touch it.
Ben: Not investment advice. I don't think you're trying to give investment advice.
Chris: Sorry, not investment advice. I'm sorry. I guess not specifically for Solana, but generally on the venture side, for most investments that you invest in an early, early stage. Usually, it's better to not touch and don't do anything. Even when you're dealing with liquid stuff, in general. Again, not investment advice or anything like that. Then the other thing, Edith mentioned her LPs too and she's like, I am telling you. I'm not asking. You're participating in our fund, too.
Edith: Yeah. You don't have a choice.
Ben: Did anyone want you to distribute cash? Was anyone so averse to this, they were just like, can you just liquidate it and wire me some money?
Edith: There's one corporate that did that. Honestly, that's another thing, which is complicated, because opening an account, in this case for 500 Startups, the royal “we,” we have a coin base account, business account, great, but it's very American. If you are another entity somewhere, they can't even open that. We have some friends in Singapore, they run their OTC desk. I just basically told them that you should just do it on your own, full blown your own KYC AML. Just do it that way.
Chris: One other small comment on this one. I don't know if it was the first, but Edith's fund was definitely one of the earliest, if not, the earliest funds to actually do distributions in this way. Again, there's no playbook or rulebook to follow. So all the steps that she did, she's actually taken and wrote into a little thing for ourselves.
Many other funds who have also had to go through this process and experience, they'll reach out to her now, again, not to have the answers per se, but just have something to start with. Because again, this is kind of new territory for a lot of other people and folks in the space. Again, not so much me like Edith in this case. We're happy to share some of that stuff too in case it's helpful.
Ben: That's awesome. It's so cool you do that. All right, as we start drifting toward close, there are two topics I want to cover. One is something cool that Chris is doing that I can see in the background there on your wall that has not being a professional venture capitalist, so I'm curious about that.
The other thing that I want to talk about in our last few minutes is, what's interesting to you now? I think if I reflect back on the last few years, it's been DeFi summer. NFTs, DAOs are gaining tons of momentum. But you two have the best pulse probably in the whole ecosystem of what's around the corner and what the smartest, coolest entrepreneurs are building right now. Let's start with that.
Chris: Edith, do you want to start with the next future?
Edith: I'm dying to see Shopify for NFT. Not like necessary a marketplace for NFT, which we already have quite a few front runner. All the marketplace today is really very centralized in some sense. Wouldn't that be interesting? If there is something where it's so easy, although there's a whole bunch of other things that you need to build to make that happen, but let's say I want to start this and put it on my site, and I'm now letting my follower or people who love my art and start buying. Of course, the minute you'd buy it with a certain token, not everybody, half the Phantom wallet or whatever, how do we actually manage all that? It's going to be some work, but I could see that happening. I think that's interesting.
This week, we saw something which I found very fascinating, although I'm trying to wrap my head around it, which is Chris alluded to it, where we really think that the Web 2.0, Web 3.0 world will slowly emerge. Actually, Ben, when we met at Web Summit, I met one of the co-founder of Eventbrite.
I was so excited about meeting him. I'm like, you need to do NFT ticketing. He was like, tell me the 10,000 reasons why no one will care. Then I realized a few things. One is it's actually hard for people in the Web 2.0 world to… I'm not saying that they couldn't build, but it's a little bit different mindset. I feel like we will start to see a lot of Web 2.0 use cases that is now built on our new layer, but yet it will be for this tiny living, different behavior, rather than trying to use a new infrastructure for existing behavior.
What we've been spending a lot of time is maybe the intersection of a Web 2.0, but yet is another behavior that none of us have thought of. We saw a couple projects this week, I thought, interesting. So now I found that we are actually learning about new behavioral change.
Another thing that we get a lot of pitch on, I have old gaming friends. They have like 100 million MAU of their own traditional game and they're like, we're going to launch our own token. Then I sent them an example. No disrespect in any way on Asian, for God's sake. Line, the messaging app launched a link token, but it didn't really took off because it's a Web 2.0 mindset to push token.
Ben: A proprietary token.
Edith: Yeah. I think it makes sense, but it's just a different way of managing, again, relationship with exchanges. Understand liquidity is not just purely distribution to Web 2.0 users. We're very, very conscious about that. Anyway, it's a very long answer to your question.
Chris: Let me answer in a slightly different way. I don't know how well this will come across in audio, but I'll try my best. If you think of crypto as layers, you have the layer one protocol, so Ethereums or Solanas of the world. You have these DeFi, or NFT, or things that are really more primitives and protocols, and that's the stuff sitting on top.
But the three things you're lacking is, one, you're lacking the developer platforms to take all of the tools, and primitives, and stuff on top, to make it easier to construct things with it. I think that people still think of the DeFi apps as the end user state or end user experience. But to me, I see that more as the primitive that's going to be used into something else. You're going to see more of (again) developer tooling across all this, especially. This is super important for people coming from more traditional Web 2.0 trying to build Web 3.0. They shouldn't have to be going all the way down, figuring out transactions, and all this sort of stuff. They need something slightly more abstracted, like developer platform to build some stuff on top of this. I actually think, in addition to just the developers themselves, at some point in time, you're actually going to see more of the full FinTech or app experience on top.
Let me give you analogy. The traditional FinTech world was really taking all of our old core banking stuff and putting nice layers on top of this to make it really easy to use—Chime, Neobank, PLAD, or whatever. All the stuff on top of it that makes it so much more easy from the user standpoint. This thing on top doesn't really exist in crypto yet. You have all the low level stuff that you can do things with, but you don't have this abstract enough, in a way, for both developers or users. I think the developers comes first, but I think you're going to start to construct experiences on top of that.
Then the other one to turn it on its head, FinTech is still relying on all the old core banking, financial infrastructure to build these things. What I'd really love to see is crypto being used to displace the old financial infrastructure, and for people to actually build normal banking experiences on top of crypto rails. You see almost the vice versa symbiosis of this the other way around.
People still are so segmented, and they think crypto is kind of this independent thing, and they don't think so much of the other side, but I think you'll see super interesting experiences that will try to claw back and pull all that stuff out. Again, if you talk to most people in the normal FinTech world, building on top of a core banking system is a terrible experience to do so. Versus on top of Solana or anything else, you can do instant remediated transactions, even in simple US dollars (USDC) fairly simply and quickly. Why can't you use that to construct a new banking app? There's nothing that necessarily holds you back from it other than you need to make the mental leap.
Ben: I agree with so much that you just said.
Ben: All right, Chris. Last thing, what is that cool rainbow looking thing behind you?
Chris: It's called The Wave, the Playground Wave. It is an NFT collection of 1000 of them that I made and launched on the Solana blockchain under Playground. It's an NFT, used metaplex in our wave that you can view into all this cool stuff with. You probably have the natural question of, why did you do this to begin with?
In addition to all the business and venture stuff, I've also done a fair amount of things more on the artistic side, again, mostly with photography. You could probably say all the camera lenses. I've done photography for a long time over a decade. I'd like to say I've been doing photography since before the Bitcoin Genesis block. In 2016, I was the National Geographic photographer of the year within the nature category.
Ben: That is so cool.
David: Which is wild.
Chris: After that, I started to do a lot more—gallery sales, exhibitions, commissions. I did a lot more traditional art world stuff. When all this NFT stuff started happening, I was like, this is really cool from a creator perspective. My initial idea was, I was just going to take some of my photographs, mint them as NFTs, sell them, and call it a day. That was my big plan.
I initially did this on Ethereum. My other initial idea was, I thought that NFTs were so much more about the culture object, and where it's at, the collectors and all that. Speed, transaction throughput and all that doesn't really matter as much. It's not like a huge determinant. So I thought like Ethereum was just going to be the place where this stuff lived.
I was a launch partner for a handful of these new NFT platforms. One of them being Uniquely. It's this collection type thing. I did seven photographs, minted as a collection, and all that. To do each photograph—seven of them—it costed anywhere between $300 to $500 to make the NFT, and then you had to instantiate the collection, which cost like $3000 or $4000. Then the photographs are valued at $120,000. They're like, you have to put $120,000 of ETH on the other side of this to make the pool.
I told my friend, I'm like, that's a lot to ask for me. Especially, imagine if I'm just a normal photographer, how would I be able to afford this? By the way, this took eight hours to do because you had to do each one and wait for the transaction each time. It was a long process to do the whole thing.
This gave me the realization afterwards. I'm like, speed, transaction throughput, costs, this stuff actually matters far more than I think people think. So my other idea was, okay, I'm already pretty biased of Salona ecosystem. What exists in Solana NFT world? At the time, there really wasn't anything. There was this project called the SolPunks. It was a complete copy rip off of the CryptoPunks, and there's this other thing called the Solarians. It's like this little robot thing, but never really resonated with me.
I was waiting for something to happen in Solana NFT world and a friend of mine messaged me about this new project coming out called the Solana Monkey Business, the SMB things. It was these cute little monkey things, characters, different hats, different stuff. It was unique to Solana. They weren't copying anybody else's artwork, they were going to launch it directly on Solana itself, and they're minting next week or whatever. I was like, cool, I should buy some of these things. I bought a few, then I went to lunch. I think there are like 5000 of them.
The ticker was going down, and down, and down. So I figured, well, I should probably buy some more, and maybe some more, and I just kept clicking the button, I guess. I have 32 Monkeys now, which is kind of a lot of Monkeys. I don't know exactly how much they're worth, but they're worth a lot at this point.
After this, there was the [...] and the Aurorian one, and you're starting to see like a little bit more of a snowballing of this effect. The thing that I didn't really see is I didn't see any artistic words being represented on Solana.
In addition to photography, I've always been super appreciative of generative art, but I've never made one of these things myself. I took it upon myself where I wanted to make one of these things myself from the end-to-end process of actually designing it, building it, launching it, building the community, the whole thing. I wanted to experience it for myself.
I know a lot of investors love to talk about this stuff broadly, all the implications and stuff. I actually love using these things. I wanted to be the creator of one of these projects myself. So I ended up learning p5.js to figure out how to construct these things. The inspiration really comes from Bollinger Bands and this whole moon math charts, if anybody's familiar; it's more of a trading concept.
Although, the realization I had when I was doing this was, I thought that the artwork was going to be the hardest thing in this equation and the rest of itself, you can figure it out. I was totally wrong. The artwork is a very large component of it, but definitely not the only component of it.
Once you make all the artwork itself, in Solana, you have to learn how to use metaplex, you have to instantiate everything in this candy machine thing. You have to be able to kind of launch the contract yourself. You have to build a community of people who actually want these things. You have to build the collectors, relationships with exchanges, the NFT exchanges in this case, and all this sort of stuff.
Ben: By the way, be a community leader. You're building a community around the mint before the mint happens.
Chris: Yes. I did not fully appreciate what I was getting myself into before I started this thing. It is a completely overwhelming process. But also by going through this, I am so much more empathetic towards founders in this space now. Literally the amount of Discord messages, Twitter messages, just the amount of stuff is completely and utterly overwhelming. By the way, this is an art project. We're not a DeFi thing. We don't have a billion dollars in TVL. Imagine if we are holding your money, the amount of pressure that is put under these founders is extreme.
I got to experience a little taste of this. I guess the bigger idea with Playground is given the fact that we did one of these launches, the idea was always to work with other generative artists that want to launch their first collection within the Solana ecosystem. All the stuff that we built in this community and everything, use it and apply it to other people, not just myself.
Actually, it's an interesting time you call me today, because today, we just launched our second collection called Epoch with our first outside artist name Echo, who's a really well-known generative artist. He's been doing this for over 10 years. He's super well-known within the Tezos ecosystem. He was a featured artist at Art Basel.
We just went through this full end-to-end experience of launching another artist collections not myself and going through this whole process with him. It's kind of crazy. That one is also 1000 items in total. We launched it on Magic Eden Launchpad this morning at 9:00 AM Pacific Time. It sold out in like 30 seconds or less.
Ben: I get the push messages. I went probably like two or three minutes after I saw the notification. Totally sold out. Congratulations.
Chris: Echo is a super old school generative artist, artist in all sense of the word. To see his excitement and delight to figure out that people honestly love his work and the stuff that he's doing, there's a whole bunch of people excited, sharing his stuff and all that sort of stuff. We would love to help other artists who are doing this.
For me, this is not a company. It's just purely an art project. I love doing artistic stuff anyway. It's really cool to both blend all this artistic stuff that I've done before with all this venture stuff into one, and do this in a format of actually trying, using, and playing around with the actual underpinnings and technology of the Solana ecosystem, because now I can come from our perspective of, again, we're not like a DeFi thing or whatever, but I have some assemblance and sense of what it really takes like to launch one of these things. I've been through it myself. I'm not just talking about it theoretically, but I've experienced a taste of it.
Ben: It's so cool. Where can listeners go find out info on either the first or the second, or I suppose, at this point, they call it collection?
Chris: playground.ink is the website, and then the two collections will be on the homepage. The first one was the Waves and then the second one was Epochs.
Ben: It's so cool. Any parting words? Also where can listeners find each of you on the internet?
Edith: You can follow me on Twitter. I'm @edithyeung. LinkedIn, but Twitter is probably easier.
Ben: Great. Chris?
Chris: I'm super easy to find online. If you just search Chris McCann anything, I'll probably pop up, but my twitter handle is @mccannatron. Although honestly, if you just type in Chris McCann, it's probably easier to find me.
I guess my last parting words, if I have any—I usually say this all the time—for any founders thinking about the space, Web 3.0, Solana, Ethereum, crypto or otherwise, or honestly, even traditional stuff, I always say, make sure you pick something that you fundamentally love doing.
I feel like a lot of people sometimes in the crypto space, they see all these dollars, and returns, and whatever, and they gravitate towards doing this, but they're not fundamentally passionate about what they're doing. It really shows.
Life is too short. These things take a lot out of you, no matter what you do. Again if this works out, you're probably going to be doing this for the next 5–10 years or maybe even multi decades of your life. So make sure you really, really, really like what you're doing.
We always try to pick founders and people who are fundamentally like this. I think Anatoly and Raj would be doing Solana even if it was worth nothing. Sam is the ultimate trader. He'd be doing this no matter what he's doing.
We back the Saber guys like Dylan and Ian. They're just super hardcore about this stuff. Just make sure you really, really, really find enjoyment and love in what you're doing no matter what that is. Again, the community, people, capital, and all that will resonate and find you. Don't try to fit yourself into the narrative. Just make your own.
Edith: I love it.
Ben: It's a good wisdom right there.
Ben: On that wonderful note, listeners, we'll see you next time.
David: See you next time.
Chris: Thank you guys.
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