1Mby1M Virtual Accelerator Investor Forum: With Hamiz Awan, Founder and Partner at Plutus21 Capital (Part 3)

Sramana Mitra: Now explain the structure in one of these cases where you’re investing as Plutus21.

Hamiz Awan: In Uniswap’s example, there’s a governance token for the protocol called the Uni. How does a company that doesn’t have a CEO make decisions? It’s actually the community that makes the decisions. They vote on that using their token. Their token gives them a voting right. That is the asset that we invest in. Investing in that asset gives us voting rights today. We believe that, in the future, it will give us a piece of their cash flows or some connection to their cash flows. Today it’s really a governance token. It gives a voting right. 

Sramana Mitra: What kind of denomination are we talking to buy into this exchange? How much money are you putting in?

Hamiz Awan: Our investments are based off of the adoption numbers. The more there is adoption, the bigger the decisions become. If there is an established name like Ethereum or Bitcoin, that can be a very significant position for us – 10% or more. That can be $10 million or more. Then we also want to learn about smaller protocols that are doing something innovative. We might only put a quarter of a percent that might be $25,000 or $50,000 so that we can watch the development of that protocol closely and keep up with them. Check sizes range from $25,000 all the way up to $15 million.

Sramana Mitra: How big is the fund?

Hamiz Awan: The fund is $100 million.

Sramana Mitra: Let’s say you have this kind of governance rights in a particular community. What is the progression of your investment? How does that play out? 

Hamiz Awan: The model has been flipped on its head. The asset is liquid every day. I could sell my entire position today and buy it back tomorrow. It’s different from venture investing. Our usual timeframe is three to five years because that’s how long we believe it takes to get from 10,000 users all the way to a million users or more.

It will be at that million-user mark where we would start to think about taking money off the table. It’s much easier to figure out who’s going to get a million users when they already have 10,000 instead of when they have zero users. We usually try to watch them closely up to that 10,000 mark. Then at 10,000 users, we have a lot of conviction.

I’m not an expert on any of these things. I’m just trying to learn as much as I can. One of the things to understand is that all of the software in the Blockchain space is open source. You can see it. I can see it. You can copy it. The way you protect your business is not by having the best software; the way you protect your business is by having the most network effects.

The most durable competitive advantage in an open source environment are network effects. Uber’s application can be replicated, but Uber’s users and drivers are very difficult to replicate. The same thing is true here where the software is open source and anybody can copy it. The only reason that one network survives and the other one fails is that they have the users and the adoption numbers. That’s why adoption is so important for us. It’s the only durable competitive advantage. 

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Hamiz Awan, Founder and Partner at Plutus21 Capital
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