Drew Myers, Co-Founder of CrossLayer Capital, teams up with David Weisburd, a pre-seed investing expert, to unravel the nuances of crypto investments. They discuss how small funds can thrive through early-stage opportunities and the importance of time diversification in managing crypto volatility. The duo highlights the intricate dynamics between general and limited partners and how their alignment can drive success. Additionally, they share insights on identifying top quartile funds and navigating the complexities of the evolving crypto landscape.
Identifying the right fund managers and ensuring alignment between general partners and limited partners are crucial for successful investing in crypto.
Utilizing a time diversification strategy can help investors manage volatility and capture emerging opportunities in the rapidly changing crypto landscape.
Deep dives
The Importance of Manager Selection in Crypto
Identifying skilled managers in the rapidly evolving crypto landscape is crucial for investors. The best brands often engage in the most deals, garnering attention from entrepreneurs, but this does not always equate to strong returns. Investors, particularly limited partners, prioritize the judgment and selection capabilities of managers over brand reputation. A successful approach involves focusing on managers with complementary investment strategies and minimal overlap with existing investments to create a diversified portfolio.
Opportunities and Challenges in Fund Structures
The podcast discusses the nuances between closed-end and open-ended funds in the crypto space, highlighting that each structure has distinct advantages. Closed-end funds tend to offer better alignment between general partners and limited partners, as they focus on a defined investment period and can streamline their strategies. Conversely, while open-ended funds provide liquidity, they can expose investors to volatility and misalignment issues. The key for investors is to assess the effectiveness of the fund's strategy and the potential for alpha generation, whether through early-stage investments or liquid assets.
Aligning Interests for Better Outcomes
Alignment between general partners and limited partners is emphasized as a vital component of successful fund management. Best practices include ensuring that managers do not engage in personal investments in crypto assets, which could create conflicts of interest. The podcast notes that emerging managers often display strong alignment as they focus solely on their funds, while larger established firms may face pressures that result in divergent interests. Maintaining rigorous due diligence in partnerships and weeding out firms with questionable practices enhances the likelihood of achieving successful outcomes.
Understanding the Crypto Venture Landscape
An effective strategy for entering the crypto venture market involves a thorough understanding of market dynamics and the potential for high returns through early-stage investments. Investors should adopt a time diversification approach to address the asset class's volatility, ensuring allocations are spread over multiple years. The podcast also stresses the importance of identifying promising themes and sectors proactively, such as Bitcoin 2.0 and AI crypto, to capture emerging opportunities. Continuous adaptation to market changes and focusing on managers who can navigate the complexities of the crypto landscape are essential for long-term success.
Drew Myers, Co-Founder and Managing Partner at CrossLayer Capital sits down with David Weisburd to discuss the key to small funds thriving in pre-seed investing, how time diversification tame crypto volatility, and identifying persistent top quartile crypto funds.
The 10X Capital Podcast is part of the Turpentine podcast network. Learn more: turpentine.co
Questions or topics you want us to discuss on The 10X Capital Podcast? Email us at david@10xcapital.com
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TIMESTAMPS:
(0:00) Episode Preview
(2:01) Investment strategy: emerging vs. established managers and fund structures
(4:20) Identifying alpha in venture and liquid crypto investments, comparison to biotech
(6:12) Diligence and alignment in GP-LP relationships; lessons from Makena Capital
(10:37) Approach to VC China strategy and parallels in crypto; early market mistakes
(16:01) Divergent interests between GPs and LPs; systematic frameworks and investment theses
(18:27) Portfolio construction and diversity with idiosyncratic bets
(22:12) Pre-seed investments and their impact on return profiles
(24:11) Managing risk in volatile markets and differentiating managers
(27:26) Persistence of top quartile returns and market cycle impacts
(29:30) Advice for institutional LPs entering crypto; regrets and lessons at Crosslayer
(33:33) Closing remarks
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