Siri Srinivas is an Investment Analyst at Draper Associates, an early stage capital firm founded by Tim Draper. We had an opportunity to ask her a few questions from an investors perspective on the future of digital money, blockchain, and cryptocurrency. You can catch Siri at the State of Digital Money 2018, moderating the panel on Digital Banking Transformation.
SODM: You spent years as an engineer, analyst, and then even worked as a journalist – What is the single largest truism about the financial sector that the lay person like me wouldn’t know about or consider?
Siri: I think a lot of popular discourse misses the fact that venture investing in startups has a relatively long time horizon. Early stage investors fund companies that will take, on average, 2-3 years to become relevant and nearly a decade before they return profits. Also, a very large number of startups fail. Investors know this and optimize for this.
SODM: What comes to mind when you hear “digital money”?
Siri: Two things come to mind. Firstly, seamlessness. Second, political change. We live extremely global, itinerant lives and antiquated financial systems cannot keep up. A more nimble infrastructure can make capital more fluid. But this fluidity also means political change.
The last decade has plenty of examples of tension between financial systems scrambling to stabilize economies at huge costs to billions of people. In 2015, we watched in horror what happened when Greece instituted stringent capital controls. The pound sterling plummeted to a 30 year low after the Brexit vote in 2016. That same year the Indian government rendered existing bank notes invalid without warning, sending the country into a tailspin. The Chinese government further tightened their grip on capital outflows as recently as December. The US government’s roll out of FATCA puts so much pressure on foreign banks, many of them opted not to do business with American citizens. Well-meaning measures adversely impacted the lowest and least protected people and these measures have been instituted by governments of all shapes and sizes.
If digitization could do to money what it did to the internet, we’re ready for some pretty exciting times. Imagine a world where we can securely store, transact, move and protect our own money and our assets seamlessly without the uncertainty that we’ve recently experienced. And if these newer, nimbler systems could be accessible to those that need it most, we could solve some major global problems. Certainly, these new systems are also going to throw up a more complex set of issues, that’s another matter.
SODM: How has the landscape of #fintech (technology behind finance like mobile payments, etc) changed in your time working in the industry? Specifically for investment/venture capital?
Siri: My first job in VC was in January of 2016. Back then, a large section of VC interest was in companies building the infrastructure of these new decentralized systems (eg. digital wallets like Coinbase, exchanges, money transfer services). I remember doing diligence several crypto startups early 2016. Companies that enabled transactions in multiple currencies saw their transaction volumes triple in a month. We dug in to see that this new coin called Ether had spiked from about $1 to $10 in just three months, amplifying the success of this company manifold. It’s kind of awe-inspiring to think about how much has changed in just two years. Now, in 2018, Ether is worth about 50 times that. Additionally, we hadn’t run into the problems of scale on blockchain networks. Ethereum has spurred literally hundreds of exciting projects that are taking digital currencies in clever, weird and outright zany directions. Many of us are thinking about what the future will look like — will we have a large assortment of digital currencies co-existing with each other or if one of the emerging projects will get a lion’s share of the market. Will it be one blockchain with several offshoots or several dedicated blockchains. The launch of the Lightning Network to offset the problems of congestion and high fees is an interesting development to watch. I wonder where we will be in two years.
SODM: How did you or your company get into Blockchain/crypto space? And how has it changed since being in the space?
Siri: We at Draper Associates are huge fans of the crypto space. We like to say we invest in companies that advance decentralization, automation and reduce friction. Crypto does all three. Tim Draper (founder and Managing Partner of Draper Associates) famously bought Bitcoin from an auction in 2014, so I can say we were pretty early to the game. He has since remained an unwavering believer and supporter of the crypto space and we have invested in such companies as Coinbase, Ledger, Bancor, Tezos, Bitwage, Factom among others.
It has definitely impacted how we do business. ICOs are somewhat unprecedented offerings and we’ve had to modify what we do in structural terms. Obviously, in the last year, the number of ICOs has positively exploded but the signal-to-noise ratio is low. The big advantage of a lot of Tim’s advocacy and work in this space is that we see a large chunk of the crypto market before everybody else — it’s a great position to be in.
SODM: Last year we saw more money than ever being invested in the blockchain/crypto space? What were some of the main key learnings, as 2018 is already set to break 2017’s record?
Siri: Actually, the word on the street is that the market has slowed down with the current slump. Then again, things change quickly in the token space. But based on 2017, I think fundamentals are more important than ever — projects that are solving important macro problems in thoughtful ways where decentralization and trustless networks are the key solutions to the problem at hand, is important. Generally we look for long-term thinking in an ecosystem that is unpredictable in the short term.
SODM: Can you tell us more about Draper VC?
Siri: We are an early stage institutional firm founded by Tim Draper. We invest in technology companies across verticals and markets. Like I said, we are excited by companies that use technology to drive industries towards automation, decentralization and eliminating friction. Our big focuses are Fintech, Manufacturing, Healthcare, Gov-tech, Consumer and Enterprise. We invest globally and like catching companies early.
SODM: Tim Draper said last month that VC’s are missing out on “crypto opportunities”.. How is Draper VC different for others/competition?
Siri: One of the big challenges of crypto investing is how new the ecosystem is. It’s easy to find plenty of capital when the markets are on an upswing, but in fact, this is an emerging technology that’s building new rules for accountability and venture dynamics and a short-term mentality can be pretty damaging. Tim, and by extension Draper Associates however have been longtime supporters and believers in the power of digital currencies. Companies (crypto or not) need to find long-term partners who believe in their larger vision. Secondly, like the best founders in the crypto space, we are hugely motivated by the underlying philosophy of decentralization and how it can keep individuals, organizations and nations accountable via transparency. Thirdly, we’ve structured our fund to invest at both early and growth stages as well as invest in tokens. In essence, we bring the right mix of optimism for the blockchain space and a solid track record of technology investing experience to the table.
SODM: What are some resources interested parties can use to educate themselves specifically on investment?
Siri: Regarding crypto, I strongly suggest spending time understanding the technical fundamentals of the blockchain space. The Bitcoin and Crypto Tech course on Coursera has some good basic lectures on cryptography and how it solves essential problems of trust and consensus. I also keep revisiting Digital Gold by Nathaniel Popper, it’s an accessible and entertaining history of Bitcoin which gives great perspective on the half dozen cycles of crests and troughs the crypto community has been through. As for crypto, some years ago, we worked on a project to teach people VC basics here.
SODM: Big picture – Any predictions for beyond 2018 other than you already mentioned?
Siri: I don’t like making predictions. I do have a wishlist — Hoping to see some crypto projects take off and launch their platforms. We will hopefully see less noise and a flight to quality.