Regan Bozman is a General Partner at Lattice Capital, an early-stage crypto fund that helps founders build defensible moats. He previously led growth initiatives at a number of crypto projects including C.R.E.A.M., Index Coop, and Maple. Prior to that, he was the first employee at CoinList and managed $100M+ of token launches.
We talk about his journey from angel investing to a fund, state of the crypto VC market, valuations and more!
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NA: I'd love to start with your journey to crypto and what that looked like. And when you decided to go full time into it?
RB: Yeah, absolutely. My dream starts about... what I guess a little over six years ago. I moved out to San Francisco to work on the deal team at Angel List.
And so, it was kind of doing traditional venture still was sort of ancillary to what we did, but saw a few crypto deals come through. And then about a year and a half later, we, Angel List spun out this company called CoinList to kind of build a similar business in crypto. You know I knew nothing about it at all.
Like I'm pretty sure, I didn't know what an ERC 20 token was when I started, but my boss at Angel List, Graham Jenkin, who was the COO there was kind of like leaving to run CoinList and he was awesome. And some of the smartest engineers I knew from Angel List for leaving to go and you know, it just felt like there was a lot more sort of blue ocean space to build innovative products like on the capital formation side in crypto, then in venture.
Venture had been kind of run the same way for a long time. and Angel List has certainly done a lot to improve it and built some really cool stuff, but generally, I think it's kind of like just making the existing system better versus something totally radically new.
So yeah, I ended up kind of like running over to join them. I was the first employee, and this is October, November 2017 and then yeah, the market crashed a few months later and CoinList was like a pretty terrible business for at least a year and a half there. But yeah, that was sort of like my dive into it.
NA: Oh, very cool. Yeah, I reckon it was quite a hard time, right? Starting up a business like CoinList through a bear market, but the fact that you kept going was I think pretty great in terms of getting it established. And then how did you start angel investing while working at CoinList? What was the thinking around starting to invest?
RB: Yeah, so when I started at Angel List there's kind of this exposure to venture and I didn't really know anything before about what it was and it seemed really cool. Right, you saw people investing in these cool companies and, you know, there was kind of like a, obviously a financial element as well, and I didn't really have any money.
Like it wasn't really clear to me what the path was to get there. I also didn't like, know, I didn't really know anything about anything, which kind of seems like the table stakes for a company to want to take your money. So when I started working in crypto, you know, I immediately six months in a few people started to ping me and I still like didn't really have much money.
You know, I was kind of able to just like, spin this story of, you know, Hey, I'm in an external-facing role of this kind of company that's sort of like in the middle of everything and you know, I'm just able to give you a market perspective. And obviously at that point, like token launches were really hot and I was kind of able to, spin a story there about like, you know, just kind of having seen a lot of data points about what companies have done.
I also, like, I tended to find it a bit more interesting company-wise than like our customers, like generally by the time teams got to CoinList, you know, they had been working on what they were doing for like 1, 2, 3 years and they were just like a lot more established. And so some of the teams I met really early on, you know the InstaDapp co-founders, the Opensea co-founders, it was a lot easier to relate to. Like they were very early, and they had kind of like these big grandiose visions in many cases, especially in the Instadapp Founders case, they were really young, and I just like really enjoyed working with them and kind of like talking about crypto and what we're seeing.
So I think like very, very small checks in a few early companies. And obviously, I highlighted the ones that did well like most of them and most of my early checks definitely went to zero. Yeah, that was just kind of how I got started.
NA: Yeah, no, super cool. And then what was the thinking and journey to scaling up that angel investing and leaving CoinList and starting Lattice?
RB: Yes. Yeah, it was definitely a long and winding path. The angel investing was like not very high volume or high dollar amount for a long time. And then in like summer 2020, maybe a little bit earlier than that, like early 2020, you know, just talking to a few other people who were sort of like just working in this space.
My buddy Clay Robbins, who was then at 0x, you now is a VC at Slow, and a few other people, you know, it seemed like there was, there were a number of kinds of people who had experienced that I think were relevant to early-stage companies. But, you know, didn't necessarily like have a ton of capital and, you know, couldn't really compete with VCs from a capital perspective. And so we kind of talked about just like forming this syndicate where, you know, we could invest together, we could like write larger checks because we could you know, combine money you would, should maybe kind of let us like spread our bets out a bit. And you know, the idea was really that the sum would be greater than the parts and like working with this kind of, you know, a syndicate of about half a dozen seasoned like crypto operators would be really interesting to founders. And that worked really well for a while. You know, all the people I worked with there, I think still invest, they are all awesome investors. And there were some really cool companies that came out of that, you know, we were fortunate to back like Audius, Dune Analytics.
But once, like the bull market, really started and these rounds started getting much more competitive the model just kind of broke, to be honest. And it was like a pretty sudden change, like. You know, early on, like everyone could get all the allocation they wanted and you know, it wasn't even that much like people were definitely writing smaller than $10,000 checks each generally we could even like take a few days to kind of set up a call with a company, right?
Cause like you were juggling and calendars for, you know, let's say half a dozen people on our end. And then at some point, every single deal started to get much more competitive. And it became pretty clear that like, if you brought an allocation to the group, you were going to get cut back and everyone was going to get.
That became harder. And even like, you know, taking it two or three days to schedule a call with a portfolio founder like that, that timing didn't even work right. That the market just like flipped a switch and everything got so much more competitive. So that kind of like just slowed down and then I ended up deciding to leave CoinList in early 2020, you know I had been there for about three and a half years, really an exceptional team. And honestly, the business started doing much better basically right after I left and is on a great trajectory, but I just wanted to like work with early-stage teams.
And I just kind of wanted to like, try my own thing and explore that more. You know, I think if you're really just like heads down at a scaling company, like CoinList or Coinbase or kind of any large company, a lot of the business side problems are like scaling the ones, they're not really crypto native ones. And so I was working all the time on that and it made it really hard even to just like spend time you know, in a discord hanging out. So I left, I started working in the Index Coop leading growth initiatives and that was awesome.
Like it was my first time ever working in a DAO and, you know, it was really early and there were smart people and it was very free form. And that was really cool. I did some consulting work for some other companies, including Maple, Cream, Aztec, and then you know for Lattice, the consulting work was really interesting, and I was sort of doing this for consulting for about six months. I learned a few things during that time, one of them is like scaling a consulting business is really hard. And this seems, seems obvious in retrospect, but I definitely learned that the hard way where you know, that business just scales very linearly I think the other one was just, I felt like I was doing a lot more work with these teams, then a lot of their investors.
And it felt like, especially on the growth and go to market side and that could be everything from like token launch and distribution to community building to kind of like driving integrations. It just like, didn't generally feel like investors have a lot of experience doing that. Very few investors really had come from deep operating backgrounds in the space.
And so it kind of just like, you know, looked at it and it's like, all right, well, investing is a much better business model than like I have on the consulting side. And it does feel kind of like what I was selling on the consulting side, you know, you can kind of like sell a fund doing that and that probably just seems like a much better model to do it.
And so, my partner, like my co-founder Mike, ran sales and BD at CoinList. We worked together there for three years and, you know, we'd gotten close and you know, he had also kind of in working on this growth side of web3, but just from like a different angle, and really kind of doing sales and BD.
And so we just felt like there was kind of a wedge in the market for, you know a firm that really just helped companies kind of build moats and, and grow in the space. And so that was really the ideation for Lattice. And so we probably spent like two months talking about it and then set out to raise the fund in May or June and then kind of closed it out and started deploying capital over the summer, more or less.
NA: Wow. Yeah, that definitely sounds like an amazing journey. I could see the thinking around how the fund probably makes more sense over the consulting. Cause you could probably offer a similar service as an investor and not worry about getting paid as a consultant.
RB: Yeah, it’s funny. Like, I was essentially an ICO consultant, which was such like a buzzword during the last bull run. But yeah, I mean, I think there actually still is a really good opportunity for people to just consult and like help projects in the space. Cause I think a lot of teams, much more open to just kind of flexible arrangements, you know, then like relative to a traditional software company and still a lot of companies need help on the growth, go to market, community side.
But I think it's just really, you know, there are not many people who've been doing this stuff for a while on, so it's just hard for these teams to find experienced people.
NA: Yeah, no doubt. And do you want to give a quick, I guess, an overview of Lattice and, and what kind of things you like to invest in and then the general structure of the fund?
RB: Yeah, sure. So we're an early-stage venture fund. You know, we are a hundred per cent focused on crypto. Our first fund is $20 million and we've been investing out of that for about seven or eight months and we've backed about 30 companies. You know, our thesis is really around investing in products that we think could expand the market. And so that is admittedly a very vague thesis. I'd say we tend to kind of look at four categories we like, and they admittedly also kind of encompass a lot in crypto. And that's really like DeFi and NFTs and Gaming, Web3 broadly which I would include like DAOs, I would include token powered networks, like Helium and that, and then the fourth category is infrastructure.
And so, you know, some examples in that I think on the DeFi side, we really like things we view as I call it like patient DeFi, you know, kind of like the opposite spectrum from degen plays, things that are, you know, attracting more professional risk-averse audience. And as that's really where I think the market's going.
So examples of that include Maple, which is building, you know, under collateralized credit on-chain. Sherlock, which is like underwriting protocol insurance. On the NFTs and gaming side, we've tended to invest more in like infrastructure around that. So start-ups, which is a portfolio company is doing really well, like helping indie game developers deploy in-game assets.
We invested in Gallery, which was like an application for people to curate and kind of show off their NFT collections, and to us was just a very natural outcome of what happens after this empty bubble. On the web3 side, you know, we've made a few plays and kind of, DAO infrastructure, tooling, Layer 3 is an example which has sort of built this like decentralized bounties network, basically, just like building a clearinghouse for projects, communities that need to get work done and kind of like allowing them to very easily activate their communities to help out with that work, they're doing really well and we're excited about them. And then on the infrastructure side, you know, everything from Violet, which is kind of making it very easy to bring real-world identity on-chain to Keystake, which is building like liquid seeking derivatives for Cosmos based chains. So, it kind of really is like across the gamut. I think we're constrained more than any specific category is really like stage and timeline.
You know, we are 100% focused on the earliest stages. Every crypto fund has gotten really big. And I think that that can make it hard for them to play at the earliest stages. Right? If you have a $400 million fund, you probably shouldn't be writing half a million-dollar checks. It's probably not a good use of your time, but we think for like a lot of really early teams, actually, they probably should just raise half a million, a million dollars.
These tend to be pretty capital efficient businesses. And so we're a hundred per cent focused on working with teams at the earliest stage. And then you know, on terms of timeline, we're a venture fund. We don't trade tokens. We've never sold a single position. And so I think, any you know, investment that would require a timeline, like a clear timeline for us to exit, for example, we think it's going to be hot and in the next year or so this is going to pump when it goes liquid and we're going to sell, that's just like outside of our purview. We really want to back founders that we think are going to be doing this through multiple cycles.
I think some of the successes we've had personally. OpenSea, Dune Analytics are good examples, like really no one cared about those businesses for a long time. And when I say no one, I mean, you know, they had a really core engaged community that loved the products, but they could probably measure their user numbers and hundreds for like at least a 12 month period.
And generally, like investors wrote them off, at various points in their lives. I definitely don't think the market just keeps going up. Right. I think that generally anything worth building, it's going to be really hard for a long stretch of time. And so for us, I think probably the thing about anything else when we look at investment is, you know, is this team incredibly motivated?
Did they have the resilience to build this? You know, are they not purely mercenary? And yeah, that kinda tends to be how we think about things.
NA: No, super interesting. You recently tweeted that crypto VC LPs are in for a rude awakening around the funds. Could you expand on your thoughts are around that tweet?
RB: Yeah, absolutely. So you know, I think maybe make a good place to start is just like how people sort of see the manifestation of this problem. And then we can kind of go back to like what the actual root cause is and what's most relevant to that tweet.
I think you see people talk on Twitter and you see a lot of these fund announcements, you know, teams are raising seed rounds that are really high valuations, right?
Probably the best example is I think it's called SuperDAO which raised a $10 million seed round at something like a $150 million valuation a few weeks ago. You know, in general, there's a lot of money sloshing around and there's a lot of money chasing deals. And so the rounds get bigger, and the valuations get bid up and, you know, I think a natural question is like, why is that? And the answer is, you know, crypto funds are getting bigger. People are deploying more money faster. And so there's just kind of like a supply and demand imbalance. There are more and more entrepreneurs entering the space.
I don't know that it's increasing at the same rate at which money is sort of flowing into private deals. So then it's like, all right, well, why is that? And it's because there's a huge amount of LP interest in these funds. I think, you know, there's a few things that drive that why like institutional money, which kind of tends to be the money behind, you know, venture funds wants to enter the asset class. I think just from a kind of background macro perspective, you have a world of very low-interest rates. People want risk assets because there are not that many ways to generate yield and so they really need to go sort of further along the risk curve. You also have this narrative around inflation and drives interest in Bitcoin.
You have this NFT boom that sort of captured a lot of mainstream interest. Just broadly there was a lot of interest in crypto. I think it's just become a lot more apparent over the last year how well crypto funds from the last cycle did. I think there are like a few things there.
I mean, one is, you know, their return numbers probably didn't look that good in the bear market. Right. These things were probably not marked up by the market at a very high rate, but I think specifically like this bet on Solana, which has kind of, I don't actually know whether or not this is true, but this has sort of entered lore as like the best venture bet ever.
Which MultiCoin is kind of the most like public-facing. That's captured a lot of attention. And I don't know if this is true or not, but like you hear rumours that that Multi Coin fund is marked at 50 or a 100X, which, you know, from like a return perspective and a three or four-year timeline is just like absolutely insane.
So I think every LP, you know, sees that and it's like, well, even if I can get 20% of those returns, right, that's probably way better than I'm getting them in most of my portfolio. And so you know, that drives a huge amount of LP interest that just wants to go into these managers. So anyway, setting the stage here, where there's a lot of money that wants to go into these funds and naturally they get bigger, right?
So why do I think LPs are going to be disappointed. I think the first thing is it has never been harder to be a venture investor in crypto. You know, I look at some of like the angel bets I made or things I did personally, you know, for Lattice. So, like a year and a half, a year ago, everything has been repriced, probably 5 to 25 X up from 18 months ago. So, you know, every return you see today, right, would be cut pretty meaningfully because the entry prices are just going to be way higher. The second is just like, it's never been more competitive. These deals get done faster. There's like more and more money chasing them.
Investors are getting cut back. And so it's just like much harder from an access perspective. You combine that with the fact that like funds are getting a lot bigger. And it's just like statistically a lot harder to really move the needle in a big fund. And just statistically like the larger, the capital base, right, the harder it is to multiply that to a large degree. I was talking to someone who works at a $500 million venture fund. And, you know, from his point of view, right. That means any investment he underwrites right there, let's say they invested in like $5 to $10 million to buy, you know, a certain per cent of the company in many cases. They need to be able to underwrite that to like a five or $10 billion valuation outcome in order to move the needle on the fund. And that's really hard, right? There's like, not that many of those companies a year and it also just means, you know, generally, any kind of outcome you have means less and less in the context of the fund.
If the overall fund size is getting bigger. So, I think you just have this kind of combination of it never been harder to do really well in venture and crypto and fund sizes is getting bigger and I think any LPs that are expecting, I think these kinds of like Multi Coin style returns are going to be disappointed.
That said I could be totally wrong, and the market just like grows a 100X from here over the next three years and we're all really happy. And like, that would be really nice. But I definitely am not planning around a world like that.
NA: Yep. No, that makes a lot of sense. So how do you feel about the valuations? And as an early-stage investor, how comfortable are you with the current range of valuations that you're seeing?
RB: Yeah, I think it really depends. Crypto has matured a lot in the last year and a half where I think now you actually kind of see like sectors starting to get divorced from each other.
So, a good example of that, the whole market have slowed the last few weeks, but in general, right there's kind of been this like Gamefi boom, led by Axie Infinity where, you know, you have pre-launch games like Illuvium trading at 3 billion fully diluted. At the same time, like Compound, Aave, Synthetix all of these DeFi blue chips, which in general usage is actually going up are trading at like 80 to 90% off of their all-time highs. So I think valuations on the whole, on the private side, continue to go up. But it's hard to look at the market and kind of just say like, all right, we're in a bear market, we're in a bull market.
I think a lot of these sectors are a little bit less correlated than they used to be. We've slowed down a lot, to be honest, this year. I think we made 20 investments in Q4 of last year like we were really busy and we made maybe three or four this entire quarter. I think like we've seen valuations continue to go up on the private side and continue to go down on the public side.
And, you know, it's to the point where you look at some like DeFi seed rounds and they're getting done at say $50-$70 million fully diluted. If Aave or Compound trade at say a billion and a billion and a half, right? Like the jump up from a seed round to the market leader should probably be way more than 20X.
Like, I don't think there's a 5% chance in any given seed round that this is going to become like one of the foremost consequential DeFi apps. So, I think they're just like, there is this dislocation in the market where there's so a lot of money chasing these private deals and, you know, it's kind of just like disjointed from what's happening in public markets.
So, to answer your question, we've gotten a little bit less comfortable with them and we've slowed down.
NA: Got it. Yeah. No, that makes a lot of sense. Getting into our final questions. What's a secret obsession of yours that not many people know about.
RB: Secret obsession? Good question. I don't know if this is … obsession would be a strong word, but I'm like nerdily into venture history. And you know, I studied history in college, I tend to think there's like a lot of lessons we can learn from the past. And so especially as we've gotten Lattice off the ground like I've spent a lot of time reading, just books on the history of venture.
So, like starting with this one called E boys, which is this like very in-depth account of the eBay IPO and specifically like Benchmark, which is one of its biggest backers in the early 2000s, right now I'm reading this book called the Power Law. That's about kind of the history of venture and, you know, have tried to like make everyone on our team, read these books.
Hopefully, we learn from their mistakes.
NA: That's quite interesting. What would you say is the most interesting, I guess historic fact you've learnt?
RB: Most interesting historic fact. So, I mean, in general, it's kind of wild, how much venture has changed, where like in the seventies and eighties, even nineties, like funds would just like always replace the founders, with a professional CEO.
And that's obviously like very much changed in the last 20 - 30 years. I think for me, the biggest lesson I've learned, which is probably the one I'm going to remember best is, you know, this book E-boys, like Benchmark, was kind of a lead investor in eBay in the early 2000s. And I think it was like a 2000 or 3000 X return.
It was like by far the best venture bet in history. And after that, you know, they raised much bigger funds. I think they went from like 150 million to a billion. And those funds actually did pretty poorly. Right. And you know, it's what, what's that like standard kind of like, disclaimer, you see on every financial product like past performance is not indicative of future returns, but you know, clearly like these really pretty incredible investors and this was like, as the.com bubble was heating up and they raised this massive fund. And then, you know, despite literally being like the best in the business, their next two funds kind of sucked. And so, I think I try to distil that internally that, you know, we can never rest on our laurels. We should, like, we need to play this pretty conservative on, on the fund structure side.
And, you know, the market can change really quickly.
NA: Yeah, no, that definitely is an interesting point. And so, you mentioned a couple of your investments earlier but the final question is what is the latest, publicly announced investment you've made and why did you make it?
RB: Yeah, I think the latest one that was announced was a company called DAOFront. Really young, compelling founder based here in San Francisco, who's building the sort of like QuickBooks for DAOs. It's like a very brilliant problem I think to many people but you know, it's kind of crazy like for example, we run a conference and we sell tickets in USDC.
You know, we literally like try to like manually tie transactions to a given like purchase, like in a Google sheet, right? The state of accounting software is really, really bad. And you know, I think the market for crypto native companies, whether that's DAOs, whether that's like just, you know, web3 companies that kind of run their business on-chain is growing really quickly.
And a lot of these companies, you know they need to pay employees, they need to like pay taxes right there’s just a lot of overhead that comes from running them. And so, this was kind of the first company we'd seen and really just like an incredibly passionate founder about solving this very specific pain point.
In just making it very easy to build an accounting system and understand like where your money is going, what your P and L is and all of this if it's on-chain. So, we've been really, really excited about it.
NA: Oh, super cool. No, it definitely sounds interesting. But that's all the questions I had Regan. I really appreciate your time and I'm looking forward to seeing what else Lattice does next.
RB: Thank you. Yeah, I really appreciate you having me on and hopefully, we have some good stuff in the pipeline.
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Disclaimer: The Inquisitive VC is provided for informational and educational purposes only and is not intended to provide commercial, financial or legal advice. Nothing in this article constitutes an offer of securities or regulated financial products or financial services to any persons or a solicitation to buy or sell any tokens or securities or to make any financial decisions. Do not trade or invest in any project, tokens, or securities based upon this podcast episode. The host and guests may personally own tokens or be an investor in projects that are mentioned on the podcast.
Regan Bozman - Lattice Capital