“Right now the risk/reward has never been better – maybe some VCs look at everything with the lens of early-stage investing where they expect a 100x pay off, what’s crazy is with Bitcoin you might actually get that.”
— Dan Held
Date: Thursday 28th January
Role: Director of Business Development
Jack Dorsey has been one of the leading public supporters of Bitcoin in Silicon Valley, stating his belief is that “Bitcoin has the potential to become the world’s sole currency by 2030”. In late 2020 Dorsey went a step further when his company Square put $50 million of Bitcoin in their treasury. Following the purchase, he tweeted “More important than Square investing $US50mm in #Bitcoin is sharing how we did it (so others can do the same).”
Jack Dorsey is a hugely influential figure in Silicon Valley, and his actions sent a clear message of his belief in the importance of Bitcoin.
Silicon Valley has mostly ignored Bitcoin, and Dan Held thinks this is a culture issue. While Silicon Valley values moving fast and breaking things, Bitcoin is the opposite. It is conservative, slow and most importantly, hard to change.
In this interview, I talk to Dan Held, the Director of Business Development at Kraken. We discuss Dan’s experience in Silicon Valley, what drives VCs to invest, and the changing Bitcoin narratives within Silicon Valley.
There is a laggard in our backyard that is slowing down progress. Fortunately, Silicon Valley trades on entrepreneurs disrupting this old guard.
The venture capital industry is stuck in yesteryear—the same people, living the same lives and having the same experiences making largely the same decisions. This sameness may have been a strength, but now it is creating blindspots. For every idea we fund, how many great ideas don’t even get a sounding board because we can’t relate to the problem or the entrepreneur? How much better off would we be if we had a larger lens from which to examine a broader class of entrepreneurs and ideas? My suspicion is greatly.
The bottom line is that the VC community is an increasingly predictable and lookalike bunch that just seems to follow each other around from one trivial idea to another. That was confirmed by an analysis we published today with The Information. My conclusion is that we need to improve decision-making or change the decision makers within our industry.
At the core of this problem are the people stewarding the capital that is supposed to be the arbiter of good ideas. When we back one business over another, we are voting our desire for that idea to exist. To be clear, this also means we are saying that the “change” we fund is more important than the change we don’t. Success is not zero sum, but time and focus definitely are.
And this is the biggest problem with venture capital right now. We have replaced “venture” capital with “product-market fit” capital.
The original practitioners of venture capital were the eccentric, quirky outcasts of traditional society who themselves were entrepreneurs. We’ve replaced this diverse bunch with a conformist but pedigreed group who are largely risk averse and driven more by FOMO than by passion or vision.
These new practitioners have several characteristics:
- They have decided that ideas are too risky and leave this work to incubators or angels.
- They will only play when some amount of “traction” exists.
- They don’t deeply understand the traction or have a view on the business, but simply want “momentum.”
The problem with this approach is that the big ideas of our day aren’t getting the ecosystem of support they need in order for them to have a chance. Big ideas are hard. They take a long time. They require huge amounts of capital. They have lots of risk, but also have massive upside in success. This should all be reasons we get excited. But, increasingly, these are the reasons to say no. So how do we fix this?
Instructively, when you look at groups who have taken major strides to improve the world over the past several decades, one thing is increasingly common to them all.
From the foundations and NGOs that are eradicating poverty and taking care of the world’s worst off, to companies like Facebook, Google and Apple that are inventing the future while looking after our best off, they have all explicitly decided to become less consensus driven and less homogeneous. They have found this increases creativity and drives business results. In turn, they are doing the ambitious, groundbreaking work that we used to do. And even though they have more work to do, when you compare the complexion of these leaders to the leaders within our industry, we look like total laggards.
I’m not going to regurgitate the litany of research showing the value of equality and diversity or how woefully pathetic our industry is even in comparison to the companies we fund; the data is stark and embarrassing. But the data is now in the open and available to all of us so we can act.
As a result of this expose, we will start to see many opinions voiced. Some will be along the lines of, “I’m glad we’re starting the conversation.” Don’t fall for this platitude. Or, more insidiously and in backrooms, “It’s not clear that a diverse or balanced venture firm will result in returns.” To which I would say, it’s not like the counterfactual is actually impressive enough to justify not changing. The average returns in venture are sad—you are largely better off investing in public ETFs—less risk, same reward and totally liquid.
The point of this subterfuge is to take the focus away from what really matters.
What really matters is that we are in the midst of a technological renaissance that will be much farther reaching than any of us can predict if we invest correctly. Our generation has an opportunity, in our lifetime, to put a massive dent in human suffering and make trillions of dollars in return. Among the potential benefits:
- A broad educated humanity
- Eradication of cancer and preventable disease
- A sustainable environment
- Diverse capital bases that actually pursue the best ideas
- Safety, security, and less violence so each of us can achieve our potential
We need a wake up call on Sand Hill Road. We need to recapture our potential and open the doors. Invite more people into the decision making: young people, Blacks, Latinos, females, LGBT and others who aren’t necessarily part of the obvious majority. Surround ourselves with a more diverse set of experiences and maybe we will prioritize a more diverse set of things. Maybe we will find more courage to do the hard things.
The VC world is cloistered and often afraid of change—the type of change that would serve the world better. An industry that wields the power to change lives is failing to do just that. Ultimately, fund investors will wake up to this bleak reality. We must change before this happens.
And if we don’t?
If we don’t, and we stay on our current path, the amount of human suffering in the world will continue to compound and will eventually spill into each of our backyards. When this happens, and it will, we will wonder who was supposed to have stopped it.
This last part is what frustrates me the most: It will have been us.
During his View From The Top talk, Chamath Palihapitiya, founder and CEO of Social Capital, discussed how money is an instrument of change which should be used to make the world a better place. “Money drives the world for better or for worse. Money is going to be made and allocated – you have a moral imperative to get it and then use it to make a difference.“
Uber was the most valuable private company in history, but the public market has not been as enthusiastic. The reason explains a lot about how the tech industry works.
But some of it should go to Silicon Valley’s cultural divergence from the business reality. Investors loved the company not as an operating unit, but as an idea about how the world should be. Uber’s CEO was brash and would do whatever it took. His company’s attitude toward the government was dismissive and defiant. And its model of how society should work, especially how labor supply should meet consumer demand, valorized the individual, as if Milton Friedman’s dreams coalesced into a company. “It’s almost the perfect tech company, insofar as it allocates resources in the physical world and corrects some real inefficiencies,” the Uber investor Naval Ravikant told San Francisco magazine in 2014.
These days Greylock maintains not one but two offices in the San Francisco Bay Area. One is on Sand Hill Road, in Menlo Park, long the Wall Street of venture capital and more or less in the middle of Silicon Valley. But these days the center of gravity in the tech world has shifted north to San Francisco, and Greylock, like most of the area’s leading venture firms, now leases space in the city.
It doesn’t look too bad, right? It’s going in the right direction: up.
But we were venture-funded, which was like playing a game of double-or-nothing. It’s euphoric when things are going your way — and suffocating when they’re not. And we weren’t doubling fast enough to raise the $15M+ Series B (the second major round of funding) we were looking for to grow the team.
For the type of business we were trying to build, every month of less than 20 percent growth should have been a red flag.
But at the time, I thought it was okay. We had money in the bank and product-market fit. We would continue to ship product and things would work out. The online creator movement was still nascent; the slow growth wasn’t our fault. It always looked like change was right around the corner.
But now, I realize: It doesn’t matter whose “fault” it is; we hit a peak in November 2014 and stalled. A lot of creators absolutely loved us, but there weren’t enough of them who needed our specific product offering. Product-market fit is great, but we needed to find a new, larger fit to justify raising more money (and then do it again and again, until acquisition or IPO).
.. Looking back, I’m glad we didn’t hit those numbers. If we’d doubled down, raised more money, and appeared in the headlines again, there would have been a very real possibility of even more spectacular failure.
.. Some of my investors wanted me to shut down the business. They tried to convince me that my time was worth more than trying to keep a small business like Gumroad afloat, and I should try to build another billion-dollar company armed with all of my learnings — and their money.
I tended to agree with them, to be honest. But I was accountable to our creators, our employees, and our investors — in that order. We helped thousands of creators get paid, every month. About $2,500,000 was going to go into the pockets of creators — for rent checks and mortgages, for student loans and kids’ college funds. And it was only growing! Could I really just turn that faucet off?
If I sold the company, it would be mostly for our stellar team — and I would no longer be able to control the destiny of the product. There were too many acquisition stories of companies promising exciting journeys and amazing synergies to come — and ending with a deprecated product a year later.
Selling was certainly tempting. I could say I sold my first company, raise more money, and do this all again with a new idea. But that didn’t sit right with me. We were responsible to our creators first. That’s what I told every new hire and every investor. I didn’t want to become a serial entrepreneur and risk disappointing yet another customer base.
We decided to become profitable at any cost. The next year was not fun: I shrunk the company from twenty employees to five. We struggled to find a new tenant for our $25,000/month office. We focused all of our remaining resources on launching a premium service.
For years, my only metric of success was building a billion-dollar company. Now, I realize that was a terrible goal.
.. To me, happiness is about an expectation of positive change. Every year before 2016, there was an improvement in my expectations — in the team, the product, or the company. This was the first time in my life when the present year felt worse than the last.
.. It doesn’t matter how amazing your product is, or how fast you ship features. The market you’re in will determine most of your growth. For better or worse, Gumroad grew at roughly the same rate almost every month because that’s how quickly the market determined we would grow.
Instead of pretending to be some sort of product visionary, trying to build a billion-dollar company, I’m just focused on making Gumroad better and better for our existing creators. Because they are the ones that have kept us alive.
.. At a CEO Summit many years ago, my all-time hero, Bill Gates, took the stage. Someone asked him how he dealt with failing to capture so much value. Microsoft was huge, sure, but tiny compared to the total impact it has had on the world and on humanity.
Bill’s answer: “Sure, but that’s true with all companies, right? They create some value and succeed in capturing a very small percentage of it.”
I am now more focused on creating value than capturing it. I still want to have as large an impact as possible, but I don’t need to create it directly or capture it in the form of revenue and valuation.
.. While Gumroad, Inc. may be small, our impact is large. There is, of course, the $178,000,000 we have sent to creators. But then there’s the impact of the impact, the opportunities that those creators have taken to create new opportunities for others.
.. As a way to re-engage with the community, I thought about sharing our financials publicly. Founders starting their own companies could learn from our mistakes, utilizing our data to make better decisions.
It was scary: What if we don’t grow every month? It could scare off prospective customers. It’s something I would never expect a startup seeking venture capital to do. It makes sense to hold those cards as close to your chest for as long as possible when you must raise money, hire people, and compete for customers with other venture-seeking startups.
But, since we were not any of those things anymore, it was easier to share that information. We were profitable, and a no-growth month won’t change that. So in April 2018, I started to release our monthly financials publicly.
.. Ironically, more investors have reached out (we’re just interested in raising money from our customers for the moment, thanks!), more folks want to contribute to Gumroad, and our shift in focus has brought us closer to our creators.
And instead of freaking out about how “small” Gumroad actually is (like I thought they would), our creators have grown more loyal. It feels like we’re all in this together, trying to earn a living doing what we love.
Soon, we’re also planning to open-source the whole product, WordPress-style. Anyone will be able to deploy their own version of Gumroad, make the changes they want, and sell the content they want, without us being the middleman.
.. Where did my singular focus on building a billion-dollar company come from in the first place? I think I inherited it from a society that worships wealth. I don’t think it’s a coincidence that Bill Gates was my all-time hero and the world’s richest person. Ever since I can remember, I’ve equated “success” with net worth. If I heard someone say “that person’s really successful,” I didn’t assume they were improving the well-being of those around them, but that they’d found a way to make a ton of cash.