Based Camp - Thinking Like a VC： Crypto Startup Investment

00:00:00.000 I hope that this talk has helped listeners who don't understand like what VCs are actually

00:00:04.800 thinking or what's going on in the world of like people who are pricing assets or deploying

00:00:09.440 capital, how they think about things and, and how they think about the future.

00:00:13.780 Because I think this has been a good, like educate to give like a broader picture on

00:00:17.560 this.

00:00:17.780 And I think it might be something that I might do, you know, if it does well, or if people

00:00:20.380 like it recurringly, just sort of analyze ideas in sort of a critical way that can help

00:00:25.740 the average person understand what's actually going on with all this.

00:00:28.700 Would you like to know more?

00:00:30.820 Hello.

00:00:31.580 It is wonderful to be with you here today.

00:00:34.060 We have a guest today who was actually a fan of the show, Chris Lehman, who reached out.

00:00:40.600 You know, I'm a very typical profile of a lot of the fans when we meet them, which is smart

00:00:46.280 entrepreneur, you know, Harvard grad, like working on a cool project.

00:00:50.440 And we were talking about the project he was working on and it got me thinking, oh, sorry.

00:00:56.180 Before I go any further, I do, I do need to point out why is Simone not with us today?

00:01:00.520 She has pneumonia and she is pregnant, which means she can't do all the normal medications

00:01:04.640 you would do if you got pneumonia.

00:01:06.140 And so she's just been laid out, you know, in and out of the hospital recently, but you

00:01:10.140 know, fingers crossed.

00:01:10.900 She's fine, but I'm able to do this, this wonderful interview.

00:01:14.320 So, so we were talking about his project is in the crypto space.

00:01:17.660 And I was like, well, you know what I could do what everybody does in the crypto space

00:01:21.340 these days is there's all these shows that like shill projects in the crypto space, right?

00:01:26.500 Like they're like, oh, this is so cool and everything like that.

00:01:29.080 And I was like, you know what I think our audience would prefer, which is like a really

00:01:33.520 sort of critical dive into one, the project.

00:01:38.920 And I'm going to look at it from a few angles.

00:01:42.120 You know, will it make the world a better place?

00:01:44.460 Which I think is always something you're sort of thinking of when you're talking about

00:01:46.660 web through technology.

00:01:47.960 Two, is it a good immediate investment?

00:01:50.160 Like if you had capital like me as a former VC, would I invest in it?

00:01:54.820 And three, what is the probability of it achieving its long-term objective?

00:02:00.560 And so that's what we're going to go over.

00:02:02.500 So maybe the audience will like this, maybe the audience won't, but I'd love you to start

00:02:07.060 by talking a little bit.

00:02:08.780 And I always want to promote, you know, when I have audience members who are working on

00:02:11.580 stuff, I always want to do what I can to promote that stuff.

00:02:14.540 So long as I think it's, it's like broadly in line with, with what we're doing, the community

00:02:18.940 is doing.

00:02:19.480 So start by going over what your project is.

00:02:23.500 Yeah, absolutely.

00:02:25.020 And thanks for the kind words and hope someone feels better soon.

00:02:28.040 Definitely wouldn't want the kid gloves treatment here on the podcast.

00:02:34.180 But yeah, so, so I guess to start briefly before I go into the, I guess, full pitch and vision

00:02:39.760 Gromo, which is my current project is a real estate and fintech company here in Boston, about

00:02:45.100 three years old, and has the long-term goal of launching a real estate backed cryptocurrency.

00:02:49.680 We'll go into significant detail.

00:02:51.520 I expect about why that's actually a good thing or, you know, people can decide on, on

00:02:57.240 the merits of that.

00:02:57.940 But, you know, I think fundamentally the project is motivated by the idea that society works

00:03:03.200 best when financial gains are coupled with actual economic productivity.

00:03:08.020 And in a lot of ways today, society is really not geared that way in ways that cause people

00:03:13.460 to behave in ways that, while they may be individually optimal, are societally suboptimal.

00:03:18.200 And so we think that by fixing two of the biggest institutions in society today, money

00:03:24.120 and housing, you, you can actually fix a lot of those incentive misalignments.

00:03:29.080 And so the long-term goal talking, you know, decade plus out is actually having a fully

00:03:34.020 operational scaled real estate backed cryptocurrency, but there are a lot of intermediate steps that

00:03:39.920 we're working on today to actually scale up and scaffold sustainably to get there.

00:03:45.900 Yeah.

00:03:46.320 So I want to hear your hypothesis on the three core areas that I was thinking of as an investment.

00:03:50.140 I guess we'll start with short-term prospects as an investment and keep in mind, like this

00:03:55.700 is, we're not trying to get people to like give money to a crypto project or something like

00:03:59.180 this is the only accredited investor is just like at the VC stage now.

00:04:02.260 So this is all hypothetical from the perspective of our audience, but I think it will help our

00:04:06.900 audience who haven't experienced what it's like to work in venture capital, especially

00:04:11.340 mission-driven venture capital, like the way they're going to think about things.

00:04:14.900 So first let's think just as an investment, like what are your thoughts on, you know, three,

00:04:21.080 four year time horizon, why it would do well, why it would do poorly?

00:04:25.560 Yeah.

00:04:26.120 Great question.

00:04:27.040 And I'll, I guess, start by clarifying one thing about the organizational structure here,

00:04:30.740 which is that we have a pretty classic opco propco structure.

00:04:34.600 And what that means is that we have one side of the company, which is the operating company

00:04:38.540 where all the actual employees work.

00:04:40.580 That's kind of the VC funded tech company model, right?

00:04:43.420 So we closed our series a midway through last year, raised 30 million for that.

00:04:47.960 You know, that's VC high net worth, you know, very much the standard raise for that kind

00:04:53.200 of thing.

00:04:53.460 And that's where you expect kind of the high risk, high return, typical VC profile.

00:04:57.620 So before you go further, I'm going to explain a few of these words to listeners, because

00:05:01.360 I think this is just great for listeners to learn about like what's going on in the world

00:05:04.760 of VC.

00:05:05.800 Opco propco model is a model that is used by any venture capital company.

00:05:11.360 And venture capital is a high risk investments, which makes it different from private equity,

00:05:16.380 which is typically looking for lower risk investments.

00:05:18.400 So on average, only one in every 13 venture capital investments makes capital, like makes

00:05:24.680 cash positive or is really financially relevant to a firm.

00:05:28.460 But that means that these companies that are need to do astoundingly well.

00:05:32.980 Like they need to be like hundreds of times larger than they were when you invested in them

00:05:38.440 often, you know.

00:05:39.480 And what this means from the perspective of property is property can almost never do that.

00:05:45.040 It's a high CapEx asset.

00:05:46.600 So if a VC, when I am going to people and I am raising money, those people are called

00:05:51.580 my LPs or limited partners.

00:05:53.600 Those limited partners will give me money for me to deploy in this specific high risk, high

00:05:59.160 reward model.

00:06:00.540 Unfortunately, what that means is if a company is doing something that sort of like has a

00:06:06.260 lot of real estate or otherwise capital assets associated with it, I can't invest in that

00:06:12.180 given what I promised my LPs, the people who gave me all this money.

00:06:16.120 And so what a company will do is it will do something called the Opco Propco model, which

00:06:21.380 is it basically creates an umbrella under it, which is a separate company, which raises

00:06:26.540 money that is either debt, which is often used for real estate investing, because that's

00:06:30.360 easy to get on a real estate asset because you have sort of a hard asset.

00:06:32.980 Or it's raising money from like typical real estate investors, which are often different

00:06:38.540 from both VCs and private equity investors.

00:06:41.800 It's something that we said classic Opco Propco model.

00:06:44.680 The truth is, to my understanding, because I looked at doing something in the Opco Propco

00:06:48.380 space, almost no one has successfully done an Opco Propco raise.

00:06:52.180 Most of the Opco Propco raises that you're familiar with, the Propco, the property company,

00:06:57.400 was actually either family money, a company they had previously worked for, or they had

00:07:02.280 worked at the firm that ended up doing the investment, because it's actually fairly hard

00:07:05.640 to get a real estate investor to invest in this.

00:07:07.760 My guess is that you use some sort of like crypto investor who also invests in real estate,

00:07:12.960 or did you get like a pure real estate investor to invest?

00:07:16.040 Great question.

00:07:16.680 So on the Series A side, you know, again, combination of VC and high net worth, on the

00:07:22.380 real estate side, it was a pretty, I guess, eclectic array of people tending to skew again

00:07:28.840 towards the high net worth individuals for the first fund.

00:07:34.100 And there are a few different funds that we're currently managing, though the one that's...

00:07:39.340 Hold on, I want to go back and talk about a few of the other words you used here, because

00:07:42.640 we have a lot of people who watch this, and they're young, and it's really hard to learn

00:07:46.180 about this.

00:07:46.620 You know, if you're outside of the Stanford, if you're in the Stanford-Harvard ecosystem,

00:07:50.260 you hear this stuff, you immediately know what he's talking about when he's talking about

00:07:53.520 a Series A.

00:07:54.660 Let's talk a bit about what a Series A is, and I'm going to use this to dissect a lot

00:07:58.560 of these broader concepts so that when people come into this, they can, one, understand how

00:08:02.140 they do this sort of thing themselves, and what's going on in this world of finance.

00:08:06.560 So Series A is often the second or third round that a VC fund is raising.

00:08:13.300 You typically have, if you're talking like rounds of VC, you have Angel round, you have

00:08:18.880 Seed round, then you have Series A, B, C, D, E, et cetera, right?

00:08:23.000 And this is just like the chain of raises.

00:08:25.940 It used to be Series A was the first round, but Series A kept inflating in value.

00:08:30.900 Right now, if somebody tells you that they've raised a Series A, typically if they're in...

00:08:36.040 Now, keep in mind, these rounds actually mean different things in different cities.

00:08:40.680 If you are in Boston slash New York slash Silicon Valley, Series A, I'm going to guess means

00:08:49.160 that he raised between $1 and $5 million.

00:08:52.240 Well, if you're in Boston, right?

00:08:53.880 You're in Boston, was this?

00:08:54.760 You're in Boston, yeah.

00:08:55.760 Yeah, so that means it's probably a raise, and you can tell me if I'm wrong, between $1

00:08:58.860 and $5 million to up to $10 million.

00:09:00.660 Whereas Seed rounds these days are typically between half a million to $3 million, and Angel

00:09:08.040 rounds typically don't go above a million unless you're like a hotshot.

00:09:12.840 Would you say that's about right?

00:09:15.060 So we had kind of an atypical story here in large part because my co-founder, Seth Prebatch,

00:09:19.720 who had previously founded Level Up and then went on to run most of Grubhub, had a big exit.

00:09:26.040 And so we basically did kind of an informal Angel slash Seed round and funded the company

00:09:31.720 up until we got to the Series A, at which point we were at a significant enough scale

00:09:35.760 that we were able to do a $30 million Series A.

00:09:38.180 A $30 million Series A.

00:09:40.100 That's not unusual.

00:09:41.480 So that is on the high end for a Series A, but it's not like...

00:09:45.460 And this is why, because a lot of people, they hear Series A, they're like, oh, that's

00:09:48.620 the first round.

00:09:49.840 It must be like $10,000, $500,000.

00:09:53.640 And then they hear, what, $30 million?

00:09:54.840 And typically, you wouldn't be raising a Series A unless you had people who had recently

00:09:59.060 had an exit.

00:10:00.200 And keep in mind that this is also important to think about, the information that you just

00:10:03.320 heard if you were thinking about something like this as an investment.

00:10:06.340 So that means that the company was founded by people who have had previous success in

00:10:10.540 the past.

00:10:11.680 And another thing is if you look at their resumes, I mentioned, for example, he went to Harvard.

00:10:16.820 That also makes it less likely that he's going to lie to you as a project like this.

00:10:20.980 And this came up to me once with people like, why would you say that, right?

00:10:24.120 It's because it can lead to things like if you get arrested or something, like if you're

00:10:29.760 actually doing fraudulent work and you have a big public reputation that's tied to something

00:10:35.220 like a Harvard or Stanford degree, you don't want to tarnish that.

00:10:39.340 You sort of get a foot in the door with your career, with a lot of things.

00:10:43.520 And so doing something like a rug pull, a rug pull in the crypto world means like running

00:10:48.520 away with all the money or something like that, becomes very or much less likely.

00:10:52.980 Also, he's raising money from traditional investors, which also makes something like

00:10:57.160 a rug pull less likely because they're often going to put things in place that prevent him

00:11:01.720 from doing that.

00:11:02.760 And he's raising incrementally.

00:11:04.440 Now, if you go straight to like a Sam Bakman Freed style thing like FTX, you know, he got so

00:11:08.980 big so quickly, he was able to really do whatever he wanted to.

00:11:12.400 The crypto world doesn't work like that anymore.

00:11:14.420 If he's raising from VCs, they're going to have a lot of financial controls on whatever

00:11:17.640 he's doing.

00:11:18.660 Anyway, continue with where you were going here.

00:11:21.720 Right, for sure.

00:11:22.220 Yeah.

00:11:22.440 So all of that is describing, you know, applies to some degree, both to the VC model opco

00:11:28.820 as well as the propco.

00:11:30.680 And yeah, you're spot on.

00:11:32.100 A lot of the early investors, both in the Series A and in the initial real estate funds

00:11:38.180 were previous investors with Seth during the level up days, during the rub hub days.

00:11:43.180 So, you know, lots of skin in the game, both socially and professionally there.

00:11:47.700 So while the Series A is closed and, you know, we're likely not doing a Series B until 2025,

00:11:55.280 I would say.

00:11:56.080 And that's, again, going to be, you know, really large dollar checks from, like, mostly

00:12:00.880 VCs, high net worth institutions, etc.

00:12:03.040 We are also offering a bunch of different funds in the real estate side, where, as you

00:12:08.800 were saying, the risk return profile is very different, right?

00:12:12.060 You're not going to get insane to the moon returns of the sort that you get either with

00:12:16.760 a VC investment or with some of the, you know, more meme-y volatile crypto coins out there

00:12:21.700 that, you know, were very popular over the past few years, because it is real estate,

00:12:25.780 right?

00:12:26.080 Real estate tends not to go to the moon.

00:12:28.840 It tends not to go to zero either.

00:12:30.840 And, you know, obviously there's variation within real estate.

00:12:33.180 You know, the Sun Belt looks very different from somewhere like Boston or New York or SF.

00:12:37.320 And being in Boston, it tends to be a, you know, much more stable market.

00:12:42.620 But also the corollary there is you're not going to see insane growth like you might have

00:12:47.600 seen in, say, like Miami or Houston over the past few years.

00:12:49.860 But the real estate investment vehicle that's most applicable to probably most of your listeners

00:12:55.220 is the REIT.

00:12:56.980 And so REIT stands for Real Estate Investment Trust.

00:12:59.540 It's a pretty well-established model for real estate investment.

00:13:02.860 If you're familiar with an ETF, an exchange-traded fund, it's basically an ETF, but for real estate,

00:13:08.200 right?

00:13:08.360 So you have a diversified profile of real estate based on some thesis that can be very broad

00:13:14.200 or very narrow.

00:13:14.940 It could be, you know, broad, you know, all residential real estate in the U.S.

00:13:19.020 It could be something much more narrow, which is where we are now that we expect to be broader

00:13:23.620 as we scale.

00:13:24.640 So I'm going to take an aside here and explain why he immediately went into ETFs and REITs

00:13:30.240 and stuff like this.

00:13:31.440 So when he first was talking to me, this was my first question, and it's going to be most

00:13:35.200 investors' first question, which is, how is this any different from a REIT, right?

00:13:41.680 Because I'm an investor, right?

00:13:43.040 I want to put capital in real estate in liquid, easily divisible shares.

00:13:49.000 Right now, the standard way I would do that would be to buy into an ETF or a REIT, right?

00:13:54.680 He's allowing somebody to do this with crypto.

00:13:57.540 And my immediate question was, well, differentially, where is the value here when contrasting this

00:14:03.680 with an ETF or a REIT?

00:14:05.080 So that's why he's going into what this is.

00:14:07.300 So continue.

00:14:08.320 Right.

00:14:08.920 Yeah, good clarification.

00:14:10.140 So today, as an investor in the REIT, your performance is really not going to be massively

00:14:16.560 affected by the fact that we are, by the fact that we're doing this on crypto rails.

00:14:21.200 So, you know, today, basically, and I'll get more into why this is relevant later, we have

00:14:25.880 both the REIT shares that you can own and the properties that are owned by the REIT represented

00:14:34.060 both in blockchain formats and also in traditional financial and legal modes.

00:14:39.780 So for the REIT shares, that means they're held by a transfer agent, which is a specific

00:14:43.340 type of financial institution that actually-

00:14:45.060 I don't think people care about this.

00:14:46.360 What they care about, how is it different?

00:14:48.220 Like, talk about it from the perspective of your average person.

00:14:50.880 How is this different from putting it in a REIT?

00:14:54.000 Like, if I want to invest capital in real estate, why am I using this system instead of a REIT?

00:14:58.440 Right.

00:14:59.820 So today, one of the big advantages that we have over a REIT is the level of transparency

00:15:05.160 you get from the fact that we're recording all of the data about our properties on blockchain,

00:15:10.960 publishing it on our website, and providing much more disclosure than is typical for REITs

00:15:16.760 down to the individual property level.

00:15:18.700 This is something that you might expect would be standard for REITs, but it's really-

00:15:22.440 And this is to a large part driven by the fact that most REITs are interested in big institutional

00:15:29.700 investors, whether those are pension funds, whether those are banks, whether those are

00:15:33.660 other entities that are going to spend tens, hundreds of millions of dollars at a time.

00:15:39.340 And when they do that, they're not going on the website and downloading a PDF that has

00:15:43.920 quarterly earnings and a list of all the properties.

00:15:46.460 They're calling someone up and they're saying, hey, can I grab an hour or two hours of your

00:15:50.980 time, talk to some analysts, talk to some MDs or whatever, and really get the full in-the-know

00:15:57.400 spiel of what you're investing in.

00:15:59.620 And so because that's where almost all of their money comes from, REITs tend not to put a lot

00:16:04.660 of effort into the kind of transparency and disclosure that an individual retail investor

00:16:10.240 might want.

00:16:10.680 Yeah.

00:16:11.180 So I'm going to quickly break this down, like my interpretation, right?

00:16:14.700 If I was looking at this, I would say that's interesting and some investors may differentially

00:16:19.800 value that.

00:16:20.340 So you have a core asset, right?

00:16:23.420 You have real estate.

00:16:24.780 This is the asset that you're buying tokens of, basically.

00:16:28.680 Now, the way that that asset is treated by a portfolio manager can modify whether that

00:16:35.660 asset is worth more or less within that portfolio than it is if it was broken up and sold on the

00:16:41.960 open market.

00:16:42.520 So, and then he'd point out, which you might have a thesis, like individually, a thesis

00:16:49.060 could be more transparency will either lead to more value within this asset, more value

00:16:54.960 retention within this asset, or more predictability of value retention within this asset, or this

00:17:00.140 asset will track the thing I think it's tracking better.

00:17:03.580 And that last one can actually be really important, especially when you're talking about the crypto

00:17:08.420 space.

00:17:09.340 So a core tragedy would be, you think you've invested in one thing, something that's going

00:17:13.660 to go up when real estate goes up.

00:17:15.360 And there was a huge thing when the crypto market crashed and a bunch of people thought

00:17:18.080 they owned a specific type of, I forgot what it was called, a specific type of crypto stock

00:17:22.420 that would increase in value as the stock of crypto overall decreased in value.

00:17:28.160 But it was set up in a way where that didn't end up happening.

00:17:31.500 And actually the opposite ended up happening if crypto was decreasing as fast as it was

00:17:36.320 decreasing.

00:17:37.060 So this is important.

00:17:38.040 Like this is one area where you could get some sort of like marginal additional value

00:17:41.900 here.

00:17:42.500 However, the truth, like if you're saying like to me, the truth is an investor, the core

00:17:47.100 value of this asset, like if I was to say, why would I put my money here?

00:17:51.220 Like, why am I going to get any sort of differential value in this project versus just putting money

00:17:56.000 in a REIT?

00:17:56.680 It would be because of the branding of crypto, which is not as strong as it used to be, but

00:18:02.380 that can be of utility.

00:18:03.780 If you are the only person and this is the only project, there are some other, at least

00:18:08.800 to my understanding, there are some other crypto real estate projects, but there's none

00:18:11.580 that are totally where the asset itself is really treated more like a REIT instead of

00:18:15.740 you buying into individual real estate properties.

00:18:17.920 So crypto as a brand can cause some individuals to be more interested in it and can cause some

00:18:25.900 individuals to over inflate it as an asset for a few reasons.

00:18:30.520 One is, is they may see it as like a great example of this is WeWork, right?

00:18:35.420 So WeWork became huge as a company, but they weren't actually, am I thinking of the right

00:18:41.180 company?

00:18:41.480 Yeah, like marginal office spaces, right?

00:18:47.460 So they were doing something that a lot of like private equity, very simple companies

00:18:53.360 had done before.

00:18:54.100 And they really hadn't changed the model in any meaningful way, but they branded themselves

00:18:59.100 as a tech company.

00:19:00.260 And, and the other companies had branded themselves as private equity, real estate plays, private

00:19:05.720 equity, real estate plays have one way of valuing them.

00:19:09.000 Typically you're valuing them based on the EBITDA they have, which basically think of

00:19:12.960 it as like the amount of cash they spit out.

00:19:14.700 And then you apply a multiplier to that tech companies, especially venture capital tech

00:19:19.640 companies are often valued on their top line revenue.

00:19:23.160 So that means the total amount of revenue that they're generating, which is often, especially

00:19:29.360 with a real estate project, like WeWork hundreds of times more than the equivalent companies

00:19:34.740 that were trading on the market before that.

00:19:36.280 And that's just a branding difference.

00:19:38.600 So you can see this was in the crypto space.

00:19:41.060 Sometimes making a project like this particular, now there's another reason why crypto may

00:19:46.240 differentially flow into this too.

00:19:48.760 One is that they've created a believable story about how they're going to make the world a

00:19:52.780 better place and how this is the line was like the goals of web three.

00:19:56.460 And so web three people who believe in this often have sort of libertarian ideas about things

00:20:00.460 may put more of their capital in this because, you know, they've made a bunch of capital

00:20:03.440 and Bitcoin or something like that, right?

00:20:05.780 Two, it could be that it's easier to transfer money or they're doing something fishy with

00:20:11.140 their money and it's easier to keep money within crypto projects than it is to take it out

00:20:15.320 of crypto and then redeploy it on the traditional stock market.

00:20:18.760 Although this is increasingly becoming less of a reason to keep money in crypto as the financial

00:20:24.200 institutions become more savvy into how money is moved around crypto.

00:20:28.940 So the first thing I would say is, is just as a basic bet, like if I could get in on this

00:20:33.700 round of it, right, I would say, and it's not costing me that much more than doing a traditional

00:20:39.440 real estate play.

00:20:40.460 I'd say, eh, it's probably worth the marginal upside.

00:20:43.440 Like I'm just thinking as a VC right now, but, but the longterm, that's where I have more,

00:20:47.980 more questions, but continue with where you're going with this.

00:20:51.000 Yeah.

00:20:51.460 So, so, so definitely agree with everything you've said.

00:20:52.940 And, and, and, you know, I, I, I would agree that the value that the REIT shares gain from

00:20:58.620 being, you know, structured off of blockchain today to the actual investors today is marginal,

00:21:05.060 right?

00:21:05.360 And you should be much more concerned if you're looking at those REIT shares at the actual real

00:21:09.540 estate thesis that Grom was running off of, which I can talk at length about, and I can

00:21:13.460 do a brief treatment of it.

00:21:14.380 I assume we probably don't want to get too deep.

00:21:16.140 People don't care about that.

00:21:17.180 They care about the longterm vision.

00:21:18.780 How is this going to change society now?

00:21:21.060 Let's talk about that angle of things.

00:21:23.460 Where, where do you see this going longterm and why do you see this having a disproportionate

00:21:28.500 amount of value longterm or changing society longterm?

00:21:31.440 Like, let's talk about this longterm objective here.

00:21:34.000 Yeah.

00:21:34.500 So, so I, I'll go through the vision that I alluded to earlier, which is that society works

00:21:40.240 well when more people have an ownership stake in it and when financial incentives and financial

00:21:46.540 rewards are aligned with what people actually contribute to it.

00:21:49.340 And so money is obviously a core part of that architecture, right?

00:21:53.440 What money is, how it's exchanged, who controls the supply of money has a big impact on the

00:21:58.780 sorts of people, sorts of decisions people make to earn money.

00:22:01.800 And then aside from that, housing is most people's biggest asset in the world.

00:22:06.960 And therefore has a pretty, the way that rules around housing work and the way in which 0.97

00:22:11.620 ownership of housing is structured has a big impact on how people behave and make decisions

00:22:17.160 around the investment of their wealth.

00:22:19.540 So I'll start with the money side of things.

00:22:22.240 Fiat money has some advantages.

00:22:24.660 Obviously there's a reason why it's kind of the dominant model of money today, you know,

00:22:28.960 depending on, you know, across developed and developing world, fiat's what you do.

00:22:33.440 But obviously there are some pretty major problems with it.

00:22:36.700 Most prominently over the past few years is the potential for inflation and, you know,

00:22:41.400 happy to go on any segues you want here in terms of the...

00:22:44.580 No, I mean, I'm happy to just talk about what I think about money really quickly.

00:22:47.940 Because people have some interesting ideas about money these days or interesting ideas

00:22:51.740 about fiat.

00:22:52.940 You know, I'll talk to a lot of people and they'll be like, I don't want to invest my

00:22:56.140 capital right now.

00:22:57.080 So I'm keeping it in cash.

00:22:58.480 And that's a really bad way to think about any capital that you have.

00:23:02.820 Keeping your money in cash as an investment in whatever currency that you have decided

00:23:06.540 to keep that money in.

00:23:07.940 Now, currency markets fluctuate, but on average, it's one of the only markets in the world

00:23:12.380 that you could pretty much bet is going to go down over time.

00:23:16.260 Now, the question is, why does it go down on average over time?

00:23:20.140 I think a lot of people have wrong answers about this, especially when you're talking about

00:23:23.260 the US.

00:23:23.600 They think it's like generic inflation, like inflation, i.e.

00:23:26.980 the government's being greedy, imprinting more money than it actually needs and stuff

00:23:31.200 like that.

00:23:31.940 I think this is an incorrect understanding of what's happening with fiat.

00:23:35.020 It's a very unique system for trading money because it's quite different than the backed

00:23:40.120 systems.

00:23:40.740 You know, you can have like a gold backed system, which we used to have historically, or

00:23:43.880 you could have a real estate backed system, or you could have a system backed on any sort

00:23:47.920 of a Bitcoin backed system.

00:23:49.280 For example, you have a set asset in a world where the population is increasing exponentially.

00:23:56.980 Which we've historically been living in anything that has a scarcity, divisibility, and trade

00:24:02.720 ability is going to increase in value over time and be a good store of value if you want

00:24:08.160 your value to increase.

00:24:09.400 Now, typically as a state, you don't want the default unit of trade to be something like

00:24:15.620 that, to be something deflationary.

00:24:17.720 At the state level, when we're talking about cash, we use the term deflationary.

00:24:22.220 But as an investor, you would say something that has good investment potential that is

00:24:26.740 increasing on average.

00:24:28.160 Because when you have something of good investment potential, you don't trade it.

00:24:32.440 You hoard it.

00:24:33.960 You keep it, right?

00:24:34.800 Like you're much less likely to be trading it because you see it as this valuable asset.

00:24:39.840 However, if I have cash and I know, and even my wife and I, you know, we talked about this

00:24:43.480 recently.

00:24:43.800 We've been spending cash a bit more recently now being like, well, we got to buy this stuff

00:24:48.680 before this money's worthless, given the high amount of inflation that we're seeing in our

00:24:54.540 society right now.

00:24:55.240 And I think general economic degradation in society.

00:24:58.560 And so people can look at that and think that this is an accident.

00:25:00.900 It's not an accident.

00:25:01.820 The thing that makes fiat at the core level different than all other types of currency assets

00:25:09.360 is that the state can manipulate it in order to maintain a healthy economy, with the only

00:25:15.960 other asset that really has any comparability to this being state debt, which they also manipulate

00:25:22.660 those terms to maintain a healthy state economy.

00:25:25.280 And often the small amount of inflation that if the system is working well, you're getting

00:25:30.480 every year is intentional.

00:25:33.100 Historically, whenever you would have an economic crisis, you would intentionally create a slightly

00:25:38.380 higher amount of inflation because that would bring more people to work.

00:25:42.560 The more inflation you have, typically the higher employment you have and the less inflation

00:25:46.060 you have, typically the higher unemployment you have.

00:25:48.000 I'm not going to get into all the specifics of that, but a lot of people, they just learn

00:25:52.300 that like fiat degrades over time and they think that this is some government conspiracy

00:25:56.000 against them rather than like a critical part of how modern economies work.

00:26:00.460 Continue.

00:26:01.480 Yeah, no, all of that's accurate.

00:26:03.480 But, you know, it is important to note the distribution, the reasons why governments do

00:26:08.260 that, right?

00:26:08.740 You know, it's some combination of both of those things, right?

00:26:11.100 It helps parts of the economy run more smoothly.

00:26:13.720 It can be used in recessions, et cetera.

00:26:15.560 But it does have important distributional impacts.

00:26:18.540 There's something called the Cantillon effect, which basically refers to the order in which newly

00:26:23.660 issued money, you know, in quantitative easing by the Fed trickles down through the economy.

00:26:28.040 The people who get that money first tend to be large financial institutions.

00:26:33.480 They're spending it at the pre-inflation price level, which means they're getting the full

00:26:37.880 benefit of new dollars, whereas by the time it circulates all the way through the economy

00:26:41.220 down to people who are lower on the socioeconomic ladder, they're getting it after the price level

00:26:45.960 has been able to adjust by the issuance of new money.

00:26:48.100 And so it effectively represents a transfer of wealth from people who are lower socioeconomic

00:26:52.700 status towards people who are higher socioeconomic status.

00:26:55.040 And, you know, you have to weigh that, of course, against some of the benefits that you

00:26:57.840 mentioned, but it is something that, you know, we think and many other people in crypto

00:27:01.800 think should be taken into account by people who are deciding where they're going to store

00:27:06.840 their wealth.

00:27:07.740 And if you don't want that to happen with your wealth, then you may want to consider

00:27:11.500 some other way to store it than just cash, right?

00:27:14.180 And so this is the other side of it then, too, which is people who have lower net worths

00:27:20.020 tend to keep a higher percentage of their net worth in cash because they need to

00:27:25.020 have quick access to that cash in order to cover, you know, unexpected expenses.

00:27:29.400 Whereas, you know, if your net worth is $10 million and you're, you know, say you keep

00:27:33.220 10,000 in cash or something lower than that, right, it's a tiny portion of your net worth

00:27:36.960 and yet it can still cover any unexpected expense more or less.

00:27:40.740 And so the impact of inflation broadly, even taking aside the asymmetry of the impact of

00:27:47.820 inflation impacts people more the more cash they hold.

00:27:51.980 Yeah, so I want to pull back because you're assuming that you've said something that I

00:27:55.760 think you forgot to say.

00:27:57.140 The long-term goal is can we make this a standard currency with the idea being what he just said.

00:28:03.860 If we can make this a standard currency, a standard thing that people trade for things,

00:28:09.240 like instead of Bitcoin or dollars, you're trading crypto shares of real estate, right?

00:28:14.000 Like you're literally directly trading an ETF.

00:28:16.340 And this is something you couldn't do with ETFs as a structure.

00:28:18.620 Now, I could not use easily shares of an ETF as a currency.

00:28:23.600 Just financially, it's not really structured that way.

00:28:26.200 And it would be very cumbersome and have big tax implications if I tried to do that.

00:28:30.000 He's saying with our system, you could do that.

00:28:33.240 And then he's saying a benefit is if people started doing this, is that your average poor

00:28:41.640 person, I'm going to say poor person here.

00:28:43.700 Okay, I'm offensive, right?

00:28:44.980 Base camp.

00:28:45.660 Your average poor person is going to, if you can accomplish this, disproportionately have

00:28:51.820 more of their wealth stored in, well, so it's a question of defaults is really what you're

00:28:57.580 looking at here.

00:28:58.240 You know, if you do something like if you're giving someone an organ donation thing that

00:29:02.580 they're filling out when they are getting a driver's license, right?

00:29:06.020 And you have that box pre-checked and they have to uncheck it versus unchecked and pre-check

00:29:10.720 it's a difference of like 70% sign up to like 30% sign up.

00:29:15.140 What you are doing with whatever the default like tradable asset is in society is you are

00:29:22.220 making that an asset that a person is going to have disproportionately more of on hand at

00:29:27.360 any point in time.

00:29:28.600 And so he's arguing two things.

00:29:31.560 One, this is a smarter investment asset to have more of your wealth concentrated in at any

00:29:37.180 time. And two, or at least a more honest asset, which is to say, even if it goes up and down

00:29:43.300 more than currency typically goes up and down, which real estate does, at least you like really

00:29:48.120 have some like tangible thing that is backing your money.

00:29:51.440 And two, that it's not being peeled off by all of these institutions that are getting the

00:29:57.640 value at different levels, like carving off bits of value at different levels.

00:30:02.220 I'm going to disagree on two.

00:30:04.400 I'm going to say, okay, suppose you made this a core asset in society right now.

00:30:09.520 Well, it was with fiat that the game, the way that people are profiting off of the system

00:30:14.940 is getting like early shares of fiat, as you're talking about with this, that the game is being

00:30:19.420 a real estate developer and making more real estate in a way that can then go to the currency.

00:30:23.600 If those real estate developers are profiting off of that, which they almost axiomatically

00:30:27.820 are going to be, otherwise they wouldn't be doing it, then they are now taking the role of the person

00:30:32.980 getting the first cut within the system. How do you see this as different? Is it because they're

00:30:37.520 producing something of value?

00:30:40.040 Yeah. I mean, I think that you basically nailed it, right? When you expand the supply of dollars,

00:30:45.660 no actual new asset that's usable has been created aside from the exchange value of the dollars.

00:30:51.540 Whereas if you're creating new real estate, suddenly people have new places to live or to work

00:30:55.740 or to learn or whatever they're doing with it, right? And, you know, in many parts of the US,

00:31:00.160 most big metro areas, there's a pretty dire shortage of real estate. So something that

00:31:05.460 incentivizes a developer to add more real estate with the expectation that it'll then be

00:31:10.900 incorporated into the REIT and used as the backing for currency is a virtuous societal effect at this

00:31:17.140 point. And obviously, you know, we can talk about long term, how does that change with the

00:31:21.220 equilibrium? But today, and, you know, for I think the foreseeable future, next few decades,

00:31:25.440 we're still going to be in a situation where the demand for that kind of real estate significantly

00:31:30.560 exceeds the supply.

00:31:32.640 Yeah. So, okay. So here, I'm going to talk a little bit about my views on a few. One is,

00:31:37.440 I think like internally, I'm going through, you know, as somebody thinking, how does this change

00:31:41.420 the future? So the core thing that you would be doing with this is you would be like, like,

00:31:46.200 how does this actually change what's happening in society, like the actions of people? Well,

00:31:51.420 because of the power of defaults, more people would hold this type of investment, real estate

00:31:57.700 investments, than hold it in today's society, which is applying an externality on the valuation

00:32:04.560 of real estate, which is causing real estate to be more valued than it would be just as a place to

00:32:11.440 live. That's the core thing that would happen here. Now, this is going to have

00:32:15.220 two effects. One effect is it will cause people to build more real estate than you currently have,

00:32:21.000 because now you're getting this other reason to build real estate. But the other negative of this

00:32:25.520 is my perception, and you can argue against me here, like this is, this is what I think would

00:32:29.360 happen, is it would lead to real estate being valued more, i.e. having a higher price than it

00:32:36.940 should have as just a place that people live, because now it has this externality attached to it.

00:32:42.160 And I would argue, and when I brought up your idea to my wife, Simone, she immediately goes,

00:32:45.880 but what about China? This is basically already the system in China. So for people who aren't

00:32:49.860 familiar in China, real estate is 70% of all investments in terms of like, like individual

00:32:56.880 household investments, which is very different from the U.S. In the U.S., we have trust that when

00:33:01.440 we put money on the stock market, it's going to grow on average. They don't have that same trust in

00:33:05.300 their local stock market in China because it's much more manipulated. So real estate, and we have a whole

00:33:10.300 other video on like what we think of the future of China and how screwed China is, you can go watch

00:33:14.100 that where we talk much more about the real estate situation in China. But they began to use real

00:33:19.420 estate as a core, almost sort of alternate token to currency. So much so that they began to build

00:33:25.740 these giant cities that no one was ever meant to live in. Right now, the overbuilding state in China,

00:33:32.300 that means if you housed every homeless person in China in one of the buildings right now,

00:33:36.040 how many could they fill? It's 200%. There are literally three buildings in China for every

00:33:41.940 household, empty buildings. And that's because real estate has begun to become this tokenized

00:33:47.160 asset. And, and that has, and, and worse, all real estate in China is much more expensive for your

00:33:53.360 average person than it is in other countries. It costs, I'd say four or five times as much as it does

00:33:58.660 in the U.S. And it's begun to leak into other markets. Now this whole system in China is about to pop

00:34:02.720 right now. That's beside the point. I'm just using China as a model of what happens when you apply

00:34:08.640 an externality to real estate in terms of like, it becomes the default investment in the society.

00:34:14.440 That's the externality we're employing here. I'm wondering how you think things would play out

00:34:18.100 differently in this scenario, or if you think that there's some hidden advantages to this I'm not

00:34:21.940 seeing. Yeah. So, so answers to a few different parts of that question. First portion is, I guess,

00:34:27.860 dealing with the pre-equilibrium state of how the existence of this currency and demand for it would

00:34:33.000 impact real estate, right? So we're talking about before it is either the default or one of the

00:34:37.760 default currencies. Essentially, you know, if people are valuing the currency more highly than the value

00:34:44.660 of the underlying real estate, right? There's some additional use value that increases the demand

00:34:49.160 past the real estate in and of itself. That essentially just feeds into the growth of the

00:34:55.720 ecosystem, right? You have more money coming in and it accelerates that rate and you can grow,

00:35:00.560 you can acquire more real estate, increase the supply of the currency to accommodate that demand.

00:35:05.100 And that all serves to push towards the long-term equilibrium, which is the second point, right?

00:35:09.820 And so once you get to the point where people are, you know, socialized on the idea of a real estate

00:35:14.660 backed currency, and it is one major, you know, default currency that people use for transactions or as a

00:35:21.220 store of wealth, whether or not you have the value of the currency exceeding the value of the underlying

00:35:28.160 real estate is basically a question of whether seniorage exists, right? So seniorage is essentially

00:35:34.160 when the issuer of a currency gains value that exceeds the cost of issuing the currency, right?

00:35:40.440 And this is something that in our equilibrium, we really hope is minimized, right? We don't think that

00:35:47.380 seniorage is broadly a desirable feature of monetary ecosystems. And we think that the healthiest

00:35:53.020 equilibrium would be one in which Groma coins are competing against a wide basket of other

00:35:58.640 currencies, whether it's, you know, fiat, traditional crypto, other asset-backed currencies, whether it's

00:36:03.200 backed by something like energy or healthcare or other core inputs to the economy, such that, you know,

00:36:07.700 if the price of Groma coins were sufficiently in excess of the value of the underlying real estate,

00:36:13.880 you would see people begin to sell the Groma coins to take advantage of that gap and put their money

00:36:19.420 into the other currencies until you had those even out. And the seniorage level of each of those

00:36:23.880 currencies is minimized.

00:36:25.340 Yeah. So I want to take a bit and dissect what he's saying here. So the point he's making here is

00:36:31.160 actually the argument here, and I think it's likely right. The reason why you get this over-evaluation of

00:36:37.120 real estate in China is not because real estate is the default investment mechanism, but because it's

00:36:44.160 a mechanism that fuels the CCP, that's the governing party of China. And therefore they have a reason to

00:36:51.740 manipulate the markets to ensure that it's always growing in value outside of its core floating value.

00:36:58.780 So you cannot get this arbitrage opportunity that he's talking about. This arbitrage opportunity,

00:37:04.020 you'll see whatever you get, like one fund that's holding something pegged to a floating market.

00:37:09.840 So one of the most famous example of this, and I want to say it's called like the grayscale

00:37:13.180 trust metric. Grayscale Bitcoin trust. Yeah. Yeah. Well, yeah, but there's that word where it's

00:37:20.600 like the percent on it or something. But anyway, one of the core metrics that a lot of people look at

00:37:25.900 is how much we, so grayscale Bitcoin trust is basically like an ETF. Like we've been talking about

00:37:31.180 this concept. Think of it like a basket of Bitcoin that you buy shares in with dollars, with fiat in

00:37:38.060 the same way within his system that you are buying shares in a basket of real estate with crypto or

00:37:43.820 dollars or whatever you're buying with. Well, the grayscale Bitcoin trust, there's a percentage where

00:37:49.080 the value of the Bitcoin in that trust is either over or undervalued when contrasted with all of the

00:37:57.640 individual Bitcoins within it. And you can use this because it's almost never exactly the same.

00:38:03.140 Like people would think that this arbitrage is almost exactly the same. It's almost never exactly

00:38:06.340 the same. This can be used to determine like where you think markets are going and stuff like that.

00:38:12.420 And it's an indicator that a lot of these quant guys who are like trying to play the market pay

00:38:16.460 attention to. So yeah. Okay. I'll buy that. Another thing I'd note, which is a utility of

00:38:22.400 this that he hasn't mentioned, but is worth noting. So people who aren't familiar with the concept of a

00:38:27.840 DAO, this is like a governing system or company that runs using web three or like crypto architecture

00:38:36.340 as its engine. One of the things that his system would allow for is DAOs to use his tokens,

00:38:44.440 these Gromo tokens for rewards or various other things. IE. You might want a DAO that for specific

00:38:51.080 reasons, rewarded specific decisions are used within its internal machinery. The value of real

00:38:57.080 estate was in specific areas. An example of this. Okay. So people might be like, what the heck is he

00:39:02.620 talking about here? Suppose I created a DAO to run a charter city. And one of the factors within that DAO

00:39:10.780 was all of the, all the real estate in the charter city was sold proportionally like his is being

00:39:16.480 sold. I could create a mechanism where when it like over inflates or it's growing over a period of

00:39:23.260 time, certain types of voters within that ecosystem, their vote matters less. So for example, within this

00:39:30.240 ecosystem, I could divide voting power where you get voting power dependent on how much you're paying in

00:39:35.940 taxes, but I could divide this voting power amongst a few classes. For example, I could say that real 0.97

00:39:41.840 estate owners, their voting power is, is it considered like has one multiplier attached to it.

00:39:48.020 And people who are paying like generic income tax, their voting power has a different multiplier

00:39:53.780 attached to it. These multipliers could be changed when real estate is going up versus when real estate is

00:40:00.320 going down to motivate different investment behaviors within this new charter city. And there's

00:40:07.140 lots of reasons why having a tool like that is really valuable within a DAO. But most DAOs today are,

00:40:14.020 from my perspective, you know, having heard the Practices Guide to Governance, which is used a lot

00:40:17.760 within the DAO community, very simplistic and don't utilize mechanisms like this, but he's creating a core tool

00:40:23.560 that would allow mechanisms like this to be developed on top of it. But anyway, continue with what you're

00:40:27.300 saying. About the senior age and the China comparison? No, no, no. I want to hear, I mean,

00:40:32.960 you can say, is there anything about sort of your thesis that I missed in my summary there about why

00:40:39.480 this wouldn't cause the same effect of real estate getting an externality associated with this value?

00:40:46.220 So, yeah, I mean, on the China side, I mean, I think you alluded to this, but to provide somewhat

00:40:52.000 more detail, right, there was just massive, I guess, government interference in all kinds of markets and

00:40:57.080 as you said, there's really little faith in the reliability and stability of kind of traditional equities

00:41:02.780 markets, which led into this kind of pseudo tokenization of real estate. And that was really the only way that

00:41:08.320 people could get any yield on their savings, you know, not just equity markets, but also savings account, I think,

00:41:14.340 had caps on the amount of interest they could yield. And so this artificially forced money into real estate, and

00:41:21.080 created demand for real estate in excess of the native organic demand for living space. Whereas in the US, you know,

00:41:28.580 it's a market system, we're not going to put, you know, a mega city in the middle of, say, Nebraska, South Dakota,

00:41:33.700 we're going to put it, you know, in a decentralized fashion, where the demand is highest, where developers think they're

00:41:39.260 actually going to get people who are willing to pay the most for it based on its utility as living space. And, you know,

00:41:44.840 we've also seen, you know, China, with, you know, in the past few years, under Xi has had kind of the legs

00:41:51.240 cut out from under the real estate industry by cutting off their access to credit. You know, you also

00:41:56.620 had, I think, in the preceding years, there were actual floors on the prices of real estate in a lot

00:42:03.240 of these cities, where people were clamoring for their investments to maintain their value in excess of

00:42:09.340 the organic demand. And they would like vandalize developing offices when they were considering

00:42:14.960 cutting prices. And it's only been recently that municipalities have allowed developers to cut real

00:42:22.220 estate. So radically different situation from what we have in the US today, where, you know, it's the

00:42:27.240 opposite, right? People are asking about rent control, or, you know, other artificial price controls

00:42:31.260 to suppress the value of real estate. Yeah. And I want to talk about real estate as an asset here

00:42:37.520 more broadly, really quick, you know, for followers who have less. Right now, when we talk about this

00:42:42.740 exogenous factor that causes people within the Chinese cultural system right now to overvalue

00:42:48.560 real estate, this has bled over into a lot of markets that have a lot of Chinese immigrants or

00:42:54.040 China has easy capital to. When Chinese people come from China and are trying to hide their money 1.00

00:43:01.560 outside of China, or are trying to move their money outside of China, the first place they often

00:43:08.500 invested is real estate, because that's the asset that they're familiar with. And so this can lead to

00:43:12.980 overinflated real estate markets within environments like San Francisco, or like a lot in Canada, you know,

00:43:21.600 pretty much all of Canada is overinflated, specifically because of this Chinese money. If the Chinese bubble 0.94

00:43:27.020 pops, this overinflation is going to decrease. Now, if you're talking about being a viewer of our

00:43:33.240 channel, one of the things you're most likely thinking of is these guys are pronatalists. They

00:43:36.760 notice more than anyone, you know, the falling fertility rate issue, the falling population issue.

00:43:41.400 Why would real estate be a good store of value in a world with falling fertility rates? In fact, 0.52

00:43:47.640 why is real estate going up still at all? Like on average, real estate seems to be going up.

00:43:52.560 Well, the answer is the core reason why real estate still goes up in the US right now

00:43:57.360 is twofold. One is you have the atomization of the family unit. And so this means that houses

00:44:04.220 that previously, you know, you would have had a married couple living in with a bunch of kids,

00:44:09.060 you know, now that people aren't getting married anymore at the same rate, they're needing to buy

00:44:12.840 two separate houses. And this is a, you know, and you see this over and over again. So,

00:44:18.660 so, and this is why one of the biggest for a long time growing sectors of the real estate market,

00:44:23.660 and I actually expect that this is probably the sector that you're going to get into is

00:44:26.380 multifamily housing units. Am I right in assuming that? Yeah, yeah, yeah. That's primarily what

00:44:30.420 we're doing. Okay. So people who don't know what multifamily housing investment is, if you go to a

00:44:34.420 city and you know, those giant units where you have like 50 people, like not 50, hundreds,

00:44:38.780 hundreds of people, like, like just condos, I guess you'd call them, right? Like that's multifamily

00:44:44.140 housing. Yeah. I mean, I would say it's a bit broader than that, right? Like kind of the

00:44:47.940 archetypal multifamily housing is one of these multi hundred unit buildings, you know, whether

00:44:52.220 it's condos or rentals, I think more of them actually tend to be rentals. You know, you have

00:44:56.440 kind of large multifamily on one side, which is traditionally what real estate investors think

00:45:00.320 about when you say multifamily. What Groma actually focuses on is a different segment, which is small

00:45:04.620 multifamily. And so this is two to 20 unit buildings that typically were built, you know,

00:45:08.900 a hundred ish years ago, before real estate investment was institutionalized. And so you have a lot of,

00:45:14.520 say like triple deckers in Boston, you know, walk-ups in New York, you know, similar archetypes

00:45:18.900 in say like San Francisco, Philadelphia, et cetera. And you know, those again can either be condos or

00:45:24.760 rentals, but there's obviously a huge amount of that stock here. Yeah. And so how long this is going to

00:45:30.340 have an effect on the real estate market is for you to decide as an investor yourself. Me personally,

00:45:35.620 like if you're talking about Simone and I, you might be like, oh, he's really negative on real estate.

00:45:39.180 We have a well over 50% of our portfolio in real estate. And so we won't forever, but we do for

00:45:44.620 now. And, and another question is, is then why, why if the number of people's declining and that's

00:45:49.300 going to have an effect on real estate, why would you keep so much of your personal net worth in

00:45:52.740 real estate? And the answer then comes to, well, there aren't a lot of other fucking options right 0.95

00:45:57.340 now. If China collapses, yes, that's going to have an effect on us real estate markets, but a much, 0.93

00:46:03.460 much bigger effect that it's going to have is one going to be on the developing world. Cause if you look

00:46:07.500 at like South America, you know, anywhere you're, you're, or Africa, anywhere you're carrying

00:46:11.700 investments that's in the developing world is going to be massively hit when China pops and 0.79

00:46:16.620 China is going to pop before a population pops before the things tied to population pop in the 0.65

00:46:20.680 world. So, so that's destroys a lot of developing country stocks, which a lot of people think are

00:46:25.640 safe. They're like, oh, I'll get my money outside the U S. In fact, when China pops to the most, uh, 0.99

00:46:30.220 protected place in the world is going to be the U S. Okay. And then the question is, is it U S

00:46:34.860 companies or is it U S real estate? Well, I think U S agricultural real estate is probably the best

00:46:38.880 bet right now if you were going to make an anti-China bet. But then the other thing is that also has a

00:46:43.580 huge effect on any sort of a commodity, specifically commodities like minerals, mines, the stuff that

00:46:52.100 they are using to build these buildings, you know, whether it's copper or gold or anything like that,

00:46:58.140 anything that's used in construction is, is overinflated right now, I would argue.

00:47:02.400 And so then that means, okay, well then where are my storing assets, right? Like that doesn't leave a lot

00:47:08.460 of other options. Okay. You can't really go outside the U S you could go to Europe. The problem is, is

00:47:12.620 Europe's going to collapse so much faster than the U S like they're an absolute shit show right now, both 0.99

00:47:18.020 population rate wise, but also the way the government's reacting to all of these situations, the 0.98

00:47:22.960 Europe doesn't have a real future. As far as I see it, the one place I might invest in outside of this

00:47:28.940 is Israel. Israel is obviously going to do well. They're doing well right now and they have a high

00:47:32.800 population rate. Like if I was going to get some additional real estate myself, I'd probably get some

00:47:37.560 real estate in Israel. So yeah, those are my thoughts on real estate more broadly. I'm happy to have you

00:47:42.220 provide any counter thoughts or arguments against that.

00:47:44.940 Yeah. Super interesting points. And I think I agree directionally with most of that. I think it's also

00:47:49.120 important to clarify what the timescales are that we're talking about here. You know, when you're talking

00:47:53.360 about say the, the collapse of the Chinese asset bubble and whatever demand that's for raw materials

00:47:58.680 or real estate, that probably happens over the next decade or two, probably a shorter end of that.

00:48:04.420 Whereas if you're talking about like total or even just U S population growth, and when that stalls out,

00:48:10.100 we're talking about the 20 eighties, I think is where the projections currently are, right?

00:48:13.440 Both globally and for the U S those are when population growth turns negative. So we've got several

00:48:20.040 decades, but before that actually starts to obviously, you know, just, just to clarify for people,

00:48:26.060 they're like, why would it be so long if fertility rates are so low in the U S and this is because high

00:48:31.060 immigration and increasing rates of how long people are living. Yep. Yep. Yeah. Yeah. Great. Great points. 0.99

00:48:37.360 So, so, you know, that's important to consider when you're thinking about what is the trajectory and

00:48:43.560 projections forward of real estate value. I think what you said about kind of the retreat to, to

00:48:49.720 quality and the safest places is important to keep in mind, right. You know, not only is you're

00:48:54.000 talking about China having its own internal stability problems, but just in general, you know,

00:48:58.080 as we've seen over the past few years in the world is the U S kind of steps back from its role as kind

00:49:03.040 of maintainer of order, uh, from a security perspective in the world, um, you know, lots of

00:49:08.080 places that are, you know, have tons of immediate neighbors that don't always get along are going to

00:49:12.840 see significant decreases in their stability. Whereas the U S like, you know, yes, there's tensions on the,

00:49:17.640 on the Southern border for sure. Northern border is pretty good. Uh, and then we've got these massive

00:49:21.520 oceans that keep everyone else away. So we, we, we really have, you know, a huge amount of control

00:49:26.440 over what happens, uh, in terms of our own physical security and the, the natural resources here are

00:49:33.520 phenomenal too, right. Not only in terms of agricultural productivity, but the river systems,

00:49:37.480 you know, the oil, we have our own. So, so just, uh, you know, to, to talk about the natural resources

00:49:45.600 we have here, cause I think this is often undersold for people. There is not a single other large,

00:49:51.220 major power in the power player in the world, other than Russia that has its own oil and its own food.

00:49:59.720 Um, everyone else needs either oil or food from somebody else to survive. Yeah. Right. Yeah. Yeah.

00:50:06.760 China, massive importer, I think of both, definitely at least of both. Yeah. Yeah. Yeah. And then,

00:50:12.120 you know, after that, right. You know, is there another really me, I mean, India, I guess, probably 0.94

00:50:16.580 also importer of energy and, you know, obviously not quite Europe, big importer of energy, right?

00:50:22.260 For sure. And then obviously, you know, there's the degree to which can Europe even get sufficient

00:50:26.200 coordination to be considered a like security power in the world. But so, yeah, I mean, as other parts

00:50:31.520 of the world become less stable, even if the native fertility rate of the U S is decreasing

00:50:36.420 and is below replacement, you're still going to see significant demand for the U S because

00:50:40.360 it is stable, because it can be self-sufficient in so many ways. And also, you know, when,

00:50:45.920 when shit really hits the fan, the U S can choose to invest more in protecting at minimum

00:50:50.980 its own trade routes, uh, which, which means that any of the assets that are tied to the 0.98

00:50:55.780 U S, you know, geographically, whether it's our equities, whether it's our real estate, whether

00:51:00.280 it's the raw materials are, are, are going to be in demand. And I think that holds for the foreseeable

00:51:05.780 future. Now, you know, when, when you get into the far out future, right, once population

00:51:10.220 growth actually is negative, you then have to ask the question, okay, population growth

00:51:14.280 is negative. So that definitely is a downward impact on demand for real estate, but does

00:51:18.640 that mean economic growth is negative? And I think you see pretty different answers there,

00:51:23.060 right? You know, you could conceivably see a scenario.

00:51:24.800 Yeah. We don't know yet.

00:51:26.280 We, yeah, we, we, we just don't know. And there are so many technological, I think primarily

00:51:30.560 question marks in terms of like, can decreasing network effects of humans be overcome by AI

00:51:37.640 or, you know, other technologies that allow multipliers.

00:51:41.080 Yeah. So AI would be the core way that you fix this. But then the problem is, is if AI

00:51:44.620 is the core way you fix this, then the default asset moves from being real estate to shares

00:51:49.460 of energy. That's, you know, AI food and housing or server space, which would be interesting.

00:51:54.480 And, and, and, and those are both, but both energy and processing power or server space,

00:51:59.880 you know, whatever, you know, tech adjacent input you're, you're talking about here were

00:52:05.220 things we considered when we were thinking about, you know, what is the ideal asset backing?

00:52:09.440 You know, we, we knew it had to be a core input to the economy and obviously different trajectories

00:52:13.660 coming up over the future on those things. But, uh, you know, even as demand for those things

00:52:18.360 increases, we, we do think that inputs or the, the cost of producing a lot of those things

00:52:24.940 is probably going to decrease even faster, right? You're, you're, you're going to see

00:52:28.040 massive increases in the efficiency of generating energy. And then it also transforming that energy

00:52:34.140 into the actual, you know, flops that, that machines use. Uh, and so, you know, what, while

00:52:40.220 I think those are really good bases for currency at some point in the future, just because the use

00:52:45.660 value is going to be so high, it doesn't necessarily mean that they are a good store of value, given

00:52:51.600 that the degree to which producing them becomes more efficient, decreases their actual price

00:52:58.160 on the market. Whereas with real estate, you know, large terraforming projects aside, it is

00:53:04.900 a bit scarcer, right. In terms of the actual land underneath it. Now you, obviously you want

00:53:09.220 to build up and there's, you know, lots of different levers affecting how.

00:53:13.880 I have to hop off in just a minute here, but yeah, it is, it has been great to have you on.

00:53:18.840 And I hope that this talk has helped listeners who don't understand like what VCs are actually

00:53:23.960 thinking or what's going on in the world of like people who are pricing assets or deploying capital,

00:53:29.540 how they think about things and, and how they think about the future. Because I think this has

00:53:34.100 been a good, like educate to give like a broader picture on this. And I think it might be something

00:53:38.040 that I might do, you know, if it does well, or if people like it recurringly, just sort of analyze

00:53:42.540 ideas in sort of a critical way that can help the average person understand what's actually

00:53:47.120 going on with all this.

00:53:49.420 Yeah. Thanks, Malcolm. This has been really fun. And, and, you know, obviously really appreciate

00:53:52.840 the, the context you're adding to help you understand. Yeah.

00:53:55.900 Have a good one.

00:53:57.060 All right. You too.

Based Camp - January 16, 2024

Thinking Like a VC： Crypto Startup Investment

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