Original Title: “The Secrets to Multicoin Capital's Success”

Interviewee: Kyle Samani, Co-founder of Multicoin Capital

Organizer: Deep Tide TechFlow

Looking back at this bull market, one of the biggest winners in the crypto world has been various crypto VCs. If I had to categorize them, my ranking would be: fame and fortune, fortune without fame, fame with a bad reputation, and no fortune or fame…

Some crypto VCs are more focused on money, while others are more concerned about their reputation. The top VCs are those who have made money and earned the respect of entrepreneurs and investors in the industry, such as a16z, Paradigm, and Multicoin Capital…

a16z is the captain of Web 3.0, Paradigm focuses on incubation and innovation at the application layer, while Multicoin Capital, driven by research papers, is one of the biggest VC winners in the new public chain era, investing in a number of Layer 1 projects including Solana, Dfinity, Algorand, Hedera Hashgraph, NEAR Protocol… among which the core investment is Solana…

In March 2018, Multicoin Capital led Solana's seed round at a price of $0.04/SOL. As of November 3, Solana's price has exceeded $230, with a total market cap of over $69.8 billion, ranking fifth. Calculating the return on investment has become meaningless. Multicoin Capital's investment methodology and portfolio are still worth studying and learning from.

Deep Tide TechFlow has compiled the podcast audio notes from Blockcrunch's interview with Multicoin Capital co-founder Kyle Samani, hoping to be of help to you.

1. How have Multicoin Capital's investment theories changed and developed?

Kyle Samani: Our company's three core investment theories are open finance, Web3, and the opportunities of non-sovereign currencies. These theories guide our investments. If we were to add another investment theory, it might be around creator monetization or something related to the metaverse. I believe the core three theories will be themes to follow for the next decade.

2. Do you look for projects that fit the three core themes, or do you take a more top-down approach where you invest once you see that the founders have a very good team?

Kyle Samani: Both. The company, in most cases, focuses on theoretical research because we are good at analysis. During investment committee meetings, we spend 80%-90% of our time discussing market structure and some important questions, such as whether the problems existing in today's world are being solved, what the weaknesses of current models are, whether the team can propose innovative ideas, and whether network effect projects are emerging. We tend to focus less on products and teams.

3. Investing in Solana is one of your most successful investments. You invested against the trend, and you wrote on your blog about why you started investing. What gave you the conviction to double down?

Kyle Samani: What gave me strong conviction was the lack of progress on Ethereum's scalability issues. Ethereum launched in July 2015 and has a six-year history, yet the scalability problem has not been effectively solved. However, we also saw some smart people working on projects like Starkware and dYdX, among others. After six years, Ethereum still doesn't have a good scalability strategy, which made us less than 100% confident. This gave me more confidence in Solana. Although Solana has many technical risks, it does solve some problems for Ethereum, which is why we doubled down on Solana.

4. What is your process when making new investments? For example, what are the main things you know you must do?

Kyle Samani: This is similar to most venture capital firms, but we spend more time analyzing market structure, understanding how the market operates, and what leverage the team can use to move forward.

5. Are there certain products you would never invest in because they might contradict your theories?

Kyle Samani: I am very skeptical about the long-term value capture of certain products, such as yield/liquidity aggregators. We always receive similar niche project proposals, but we do not invest in them. There is a delicate balance between being completely theory-driven and being opportunistically open. For example, with projects like Helium, when we started getting involved, we couldn't predict it. We analyzed its economic mechanisms based on historical data, which gave us some courage to participate in such projects.

6. How important is it to be able to predict actual outcomes in cryptocurrency investments, considering you mentioned that your initial predictions for Solana and Helium were conservative?

Kyle Samani: I believed Solana would be among the top five cryptocurrencies and privately mentioned it several times. Now, being ranked sixth is very close. It's difficult to predict Helium because they have different networks developing IoT, 5G, and other networks, and there is no unified standard for success. I realized that it's hard to make predictions when you first enter; you just need to set a minimum threshold for yourself.

7. What do you need to check to determine that a theory is invalid before it becomes ineffective?

Kyle Samani: It's hard to generalize this because proving a theory invalid is a gradual process. Some teams, like Starkware, are solving technical and mathematical problems, which are extremely difficult and require patience. They just need to have enough focus and dedication, which is crucial, especially before the product takes shape.

8. In an interview three years ago, you thought Ethereum had a 20% chance of success. Have you changed your view now?

Kyle Samani: I don't think Ethereum's price will go to zero, but its correlation will decrease over the next three years, with a 50% probability.

9. What do you think is the best investment thinking framework, and how do you determine the probability of something?

Kyle Samani: I think determining the probability of something is very difficult, but the most scientific approach is to try to list the main types of risks being taken. There are roughly the following risks:

• Technical risk (problems unresolved / close to unresolved)

• Execution risk (what the market is)

• Leverage (how the protocol gains traction)

10. How do you view opportunity cost?

Kyle Samani said: People generally believe that 90% of all decisions made by everyone destroy value. We typically do not try to re-predict our entire portfolio every quarter. Instead, what we do is review the decisions made each quarter to analyze whether they were based on skill or luck.

11. Regarding team member mistakes, criticism can hurt morale. How do you balance criticism and praise?

Kyle Samani: This is a fundamental management issue. Different people respond to criticism and praise in different ways. For example, I actually prefer criticism over praise. Those who criticize me may make me angry, but they also motivate me to work harder. Returning to this issue, we have known each other as a team for over a decade, are very good friends, and have developed emotional and collaborative abilities, maintaining sincerity with each other. As the final decision-maker for investments, I usually provide feedback to other team members that is not overly emotional. I let them know how we made the mistake and encourage them to do better next time.

12. How do you limit your portfolio to a certain number of positions, ensuring you can invest a certain amount at any time, or how do you ensure enough focus on your highest conviction theories rather than being scattered?

Kyle Samani: Multicoin prefers concentration over diversification. There is no special method for this; it’s just a function of risk tolerance.

13. Over the past three years, do you think most of your returns have been driven by personal strength? Do you foresee this becoming your advantage or diminishing over time?

Kyle Samani: Solana is clearly the best investment made in the last cycle. Core scalability issues, key governance issues, data storage issues, and similar problems have mostly been resolved. The remaining unresolved issues are about bridges and some zero-knowledge proofs. Investable opportunities are shifting from technical solutions to consumer products. Investing in the "next Snapchat" is completely different from investing in something like Solana, which may not be our strong suit.

14. If you could only focus on one vertical in the crypto industry for your research over the next one to three years, is there a vertical that immediately comes to mind?

Kyle Samani: I think the most interesting area is protocols that look like Helium, a protocol that incentivizes people to do things in the real world by generating real-world value.