The Inquisitive VC: Miko Matsumura — Gumi Cryptos Capital
Miko Matsumura is a General Partner at Gumi Cryptos, a blockchain/crypto venture fund launched by gumi Inc., a leading global mobile game publisher and developer. He is also a co-founder of crypto exchange Evercoin, a Venture Partner with BitBull Capital, a cryptocurrency fund-of-funds, and an advisor to Arrington XRP Capital.
Miko participated in the first wave of the Internet as chief Evangelist for the Java Language and Platform at Sun Microsystems. With 25 years of enterprise software marketing experience in Silicon Valley, he has raised over $50 million in venture capital for Open Source startups such as Gradle, Hazelcast and has participated in multiple exits. He has been a keynote speaker at dozens of blockchain conferences around the world.
NA: Hi Miko, thanks for joining me today to talk about venture capital and investing in crypto/blockchain companies. I’m talking to various investors in the crypto/blockchain space and getting their insights. MM: My pleasure, thank you for reaching out to me.
NA: I wanted to start off by asking, how do you balance being an operator in your business Evercoin and being a GP at gumi Cryptos? MM: To me, if it wasn’t synergistic it would be hard. What I mean by that is that active entrepreneurship I think is beneficial for the perspective of fund management. I’ve spent 25 years on the entrepreneur side and only 20 months or so on the VC side, and I do think that having a really active perspective on both sides helps me to do what I do. I think from the perspective of really understanding the struggle of entrepreneurship to having a deeper understanding of the constraints and the internal processes of venture capital makes me both a stronger entrepreneur as well as a stronger investor and much more able to not only help my portfolio companies but also to see the limitations of both sides and create much better relationships and better mutual understanding. Having this strong connection on both sides really helps, especially when you get into complicated things like negotiating deal terms, you have to understand each other and understand why the opposite party will behave as they do. Obviously you have to balance everything, there are pros and cons.
NA: Are there any issues or conflicts as a result of doing both things when it comes to LPs in your fund or investors in Evercoin? MM: One of the things that is very important about this is ensuring that there is clarity and clear understanding. For example, the gumi Cryptos fund is an investor in Evercoin, my entity. There is definitely a need for appropriate recusal, appropriate disclosures and process. One of the challenges of establishing these potentially conflicting relationships is that it increases the possibility of a decrease in truth or erosion in trust, this means that to make it work you gotta be more conscious and active about addressing issues before any issues arise. From my perspective, if you are conscious about it and you’re very structural about it, it’s possible to mitigate these things. Ideally, you have enough benefits accruing to both sides, so that the relationship continues to be agreeable.
NA: Interesting to hear, I have seen that you are a Venture Partner at Bitbull Capital and you have been an LP in Pantera Capital and Focus Ventures. How are those roles different from each other? MM: Absolutely. I would look at it this way, I would look at GP being very committed, not only are you putting your own money behind the firm but you are putting yourself and your time. Obviously, in an LP relationship you are putting your own money behind the firm, but not putting yourself. In the case of a Venture Partnership, it’s a lot looser. You may not be putting your own money behind it and in some cases, you aren’t putting yourself behind it either. Venture Partner, EIR and other venture related roles these days are quite vague. Ultimately it comes down to the commitment of your capital and time.
NA: Thanks for breaking that down, and more on the crypto side of things, how did you enter the crypto/blockchain ecosystem from your past in open-source software and legacy technologies? MM: Yeah, it was a natural segue for me having worked in open-source software for at least 25 years. I have been studying the evolution of open-source software and I saw the innovation that emerged out of the Bitcoin whitepaper in 2008. There were several different novel developments in the open-source software world. With respect to how I got in, I worked previously on open source software projects and one of the projects I worked for was an in-memory database called HazelCast. It turns out that my co-founder of Evercoin was CEO and Founder of HazelCast. HazelCast was a NoSQL style database, it means that a HazelCast network of nodes establish consensus in a similar way that Bitcoin nodes establish consensus. The way I ended up being dragged into this was through Talip Ozturk the founder of both Evercoin and Hazelcast. He really brought me in and made me take a hard look at this emerging technology. At the time, it looked like a novel open-source technology, but once I took a hard look at it I was hooked. An amazing collection of solutions.
NA: Very interesting, following on from that, we went through the phase of ICOs and last year we saw IEOs, do you think token-based funding will make a comeback in some form? MM: Yes, here’s my perspective right, I think there is a tremendous hunger for new fundraising and new capital market methods. When you broadly look at the whole ICO phenomenon one of the things that caused that to explode was the pent up demand around access to privileged private equity and venture deals. So-called democratization or decentralization of capital. The pressure and the demand exist, but a lot of that effort was premature and obviously, it wasn’t strong at defending itself from scam artists. One of the things that I think is fantastic that is emerging in the Ethereum space now is much more focused on lending. So the thing that is fascinating about the Defi movement is that I feel like what happened is that the pendulum swung overly hard away from equity-like instruments towards debt. When I say equity-like instruments, ICOs aren’t equity, it isn’t clear exactly what they are. To make a long story short, I do not doubt that a crowdfunding mechanism involving tokenised representations of value is going to come back in some form or another.
NA: I hold the same view regarding the eventual return of token-based investing in some form or another and it has also been very interesting watching the growth of the Defi movement. MM: Yes I’m very pumped about it!
NA: In regards to your VC investments, how do the DD requirements for blockchain/cryptocurrency companies/projects compare to the DD requirements for other companies not in the space? MM: I would say this, it isn’t a day and night type of scenario. At the end of the day, all of these are businesses with the same kinds of business issues. The interesting thing is that certain kinds of businesses become much more exotic. The phrase “value capture” starts to become a novel domain. When you think about value capture in VC, it’s still a problem. If you consult with Peter Thiel, I would characterise him as a famous New Zealand person. He talks about value capture in the context of, if you create huge value but don’t capture it, you are not a good venture investment. When you start talking about value capture in the context of crypto/blockchain it becomes more of a layer of interest. You have all of these novel dynamics that come into play. Some of these venture opportunities you have to reason more sophisticatedly about value capture. Sometimes the other dimension where I think there is a tremendous amount of complexity in an area where DD can fall apart is dealing with certain novel governance. Novel governance has been a challenge. I have a preference for conventional governance. I would look for well-paid equity contracts and board seats, like startups with revenue and customers.
NA: Not like a DAO (decentralised autonomous organisation) structure? MM: Yes, like you know I am a big fan of the existence of DAOs, the existence of open-source novel infrastructure and governance mechanisms, of staking and decentralisation. All that stuff is academically fascinating and tremendously beneficial and frontier-like. I am a big student and proponent of these emerging governance mechanisms but when it comes to providing venture class returns to our LPs and shareholders, professionally I am obligated to try to run as much value across time tested financial infrastructure if possible.
NA: Of all the investments you have made, is there one common characteristic you have noticed your CEOs/Founders possessing? MM: We are deeply dedicated to diversification and diversity of opinions, values, and dimensions. Bearing that in mind we do feel like there are certain deeply foundational qualifiers. I would say we look for people that are ethical, people that have toughness and we look for people who are fair. These are all high virtues to find in a human being, but I think they also relate to producing venture class returns. Obviously, toughness relates to weather people give up easily, and the road to venture class returns is hard. There are baseline characteristics we look for, and we pattern match. Pattern matching isn’t always viewed as that favorable, but to be very transparent it is an intrinsic part of our job.
NA: Where do you see the most opportunity with blockchain technology from here onwards? MM: The biggest is absolutely going to be storage, transportation, and transmutation of value. I realise that’s a big platitude, but when you go back to those principles they resonate with these ideas. It’s our view that if you’re storing, transmuting and transferring data independent of value then you are really getting into competing with 30+ years of internet infrastructure, which has gotten astonishingly good at doing that. I feel like that’s kind of the biggest mindset, but when you deconstruct that mindset you are opening into new frontiers. The earliest killer use cases and applications are going to be core financial services use cases like payments and exchanges. Use cases to do with ownership and privacy of data I think those applications are downstream and maybe in the emerging future.
NA: What is the latest publicly announced investment you have made and why did you invest? MM: Yeah, probably the newest one for us was the VEGA Protocol. We were really excited about the team it’s a world-class team and we do think that there is a great opportunity to develop more derivative financial instruments. Again it kind of floods back into our thesis around the emergence of programmable assets, the emergence of novel blockchain-based finance. We think the area of derivatives can be very fruitful. We love the combination of business ethics, toughness, and hard work. Great experience and track record from the team and the unique combination of financial industry depth and experience with this wild-eyed view of this emerging technology.
NA: I write a monthly report looking at investment in the blockchain space and I did notice you guys invest in VEGA Protocol, so it was great hearing you talk about why you made that investment. I appreciate your time Miko and I had a great time chatting and hearing about your experience in the venture capital and blockchain space. MM: Thank you so much, I appreciate you reaching out and it was fun catching up with you!
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