Earnest Sweat 00:02
We’re blessed to have Diego de Columbus. He’s the founding general partner of Dissent capital, a crypto venture fund of funds based in San Francisco. He’s focused on a concentrated, high conviction portfolio of emerging crypto managers. He’s had previous experience at venture firms like B 37 ventures, where he invested in blockchain, FinTech and AI and has a deep expertise in early stage investing and manager selection in the crypto space. Today, he’s going to share with us the discipline, discipline strategy behind decent capitals concentrated crypto fund to funds, and also how emerging managers can stand out in a competitive and cautious LP environment. And lastly, the evolving narrative around crypto venture, why access is not a strategy anymore. So with that, we welcome

first I would love to, before jumping into the scent, would love to know about, like, your background and how you got into this asset class. Totally, totally.

Diego De Colombres 01:59
So I’ll start with sort of like my passion for finance. I am originally from Mexico, and I always had this passion for finance. The first job out of school was in banking, so I started back at UBS as an equity research analyst covering telcos and transportation. But I wanted to be closer to how companies actually were run and operated and like thought from a strategic standpoint. So I spent a bunch of my career at BCT, at the Boston Consulting Group, both in the US and Latin America, mainly doing M and A and corporate development jobs. And it was until after my MBA at Kellogg, close to 10 years ago, that I really developed this inkling to really want to explore the technology landscape and getting closer to the inception of ideas and so on. So I made it my life’s mission to break into venture capital. And I was fortunate enough to join the partnership of a venture firm in Silicon Valley six years ago, so I moved to San Francisco. That’s when I joined B 37 and basically the model with B 37 operates like a quasi fund of funds, in the sense that the investments are direct investments into startups. However, it’s a highly collaborative model with tier ones based in San Francisco on the Mega funds in which B 37 had a very strong LP bench of corporate partners, and they were a great source of distribution for the portfolio companies and the pipeline companies that these tier ones have. And basically we would see them at seed deploy capital at A and that would be a good inflection point for distribution and so like post product, market fit, scaling right. So as an investor, I was not only underwriting the tech risk of each direct investment, but more importantly, basically how a tier one GP operates, from everything from thesis development to capital deployment and everything in between, even board management and managing the exits, right? So I was doing that at B 37 and I was driving our efforts in crypto, AI and fintech. And how I got particularly and personally involved in crypto dates back, I would say, to 2018 2019 you know, being from Latin America, the monetary debasement ethos of Bitcoin resonates naturally. You know, I’m a kid of the 80s and the tequila crisis of 94 it’s still in the collective subconscious of every Mexican. What happened back then in the 94 it was like a very big macro crisis and debt crisis. The peso devaluated almost 10x to the dollar. We had capital control so that, I mean the economic freedom strike vision for Bitcoin always was something that drove my curiosity. However, I didn’t do much about it until, I would say 2018 2019 when I started to develop my flow like my muscle as a venture capitalist and operating in B 30. Seven, I realized that the intersection of enterprise technology and blockchains as this distributed ledger technology could be massive and could be the next black platform shift in our industry. So yeah, I started to develop that view, particularly in the crypto space. And as I continued to hone in my underwriting skills for GPS, I realized, hey, now crypto has matured enough in the sense that there are great fund of funds out there deploying in our space, but we’re ripe for specialization right now, and really being that platform for new managers that actually carries them over into the maturation of of this industry.

Earnest Sweat 05:42
there have been a lot of great investors and allocators who come from that background, what do you think you learned and and skills that you were able to pick up and kind of have shaping how you are as a thinker, as an investor, like, how did those years shape that?

Diego De Colombres 06:17
I think equity research gives you a good foundation in terms of, like, very fundamental analysis of how, basically, like, corporate finance works. And even though the models you use are not necessarily the right abstraction of the reality out there in the markets, it definitely helps you think about, hey, what are the core levers, the core drivers of the fundamental value of a given company? How are they gonna develop over the next 150 years? What do I need to believe that will happen in terms of value accrual? And then make an assumption, therefore, they should be valued at x today, right? So as I continue throughout my career, I move closer and closer to the early stage. I think those models are not as useful anymore, because you are at the end of the day now, underwriting people, vision, qualitative aspects of company building and so on. However, having those foundations are definitely useful for what you’re thinking about. Okay, the reality in 10 years could look like this. Therefore, I’m going to underwrite my thesis under this specific framework.

Earnest Sweat 07:37
Yeah, yeah. I agree with those points. I think it, it, it provides you with a clear understanding, which I think we’ve lost in early stage, a little bit of, of what is a public company, if that’s the, you know, aspiration for a lot of exits, you know, do you have the mindset of, like, what that actually will look like, or what a good acquisition looks like? And, you know, does that company or founder have that tooling to actually be able to get there? The other thing is, you know, investing across asset classes is like, there’s two main things you’re doing, and I think you get a great sense of this in equity research. One is to find truth like, So, what is the true value of a stock? What’s the true value of you’re kind of like a journalist taking in macro, micro, small, qualitative, quantitative information and coming up with, like, what is your point of view and your truth? The other piece is being not afraid to come out with your own point of view, because ultimately you’re selling ideas as an investor. And so you get real good training on that. So that’s enough of that commercial for Echo research. But you know, I just found that that was, I haven’t been able to talk to anybody else on the podcast about that, but I thought that was fascinating. So moving on, there’s great learning on your backgrounds. What inspired you to launch a decent capital, though it goes, it’s one thing to understand that the world is moving a certain way. You see an opportunity. It’s another thing to launch an idea on that.

Diego De Colombres 09:17
I think you gave this in the description of the same capital. But at the end of the day, we have certain pillars of how I envision the firm, which is, we only back venture vehicles within crypto. We only back emerging managers deploying in pre seed and seed, and we’re running ourselves a concentrated portfolio. So the idea is to have 1012, managers, right? So the inspiration, I actually drove the inspiration from sandana capital, I think your audience would be, will be very familiar with Michael Kim and sort of like his insight close to 15 years ago, I would say, of rethinking how a portfolio of a fun, of fun could look like if you really underwrite. The emerging managers, simply because you could have a much bigger asymmetry. They’re much bigger to select for, right because they’re much more noisy in that corner of the market. However, the return profile that you can have, it’s quite unique, rather than hedging your bets between emerging managers and established firms. So, um, when I was telling you that I was just completely becoming obsessed with the crypto space, and I continued to develop my skill set in underwriting the GPS, I turned around and saw very successful funnel fund platforms in crypto already, right? They’ve been sort of like in the space, probably two or three crypto cycles more than 10 years, and they become very successful by following a general approach. So doing crypto, liquids, emerging firms, established firms, and even more sophisticated strategies like taking GP stakes, for example, right? But to my earlier point, we’re now at that point in time in which we are now going with a verticalized thesis, and it’s a specialized thesis. And hey, the new generation of managers is coming right now. And you have no idea how dense the talent pool is right now. The talent pool right now that we have in the space is therefore, if you’re expecting as an institutional locator, that a fund of funds that is doing everything is going to underwrite them exactly with the record that’s required.

Earnest Sweat 11:52
I think it’s safe to say that the general consensus emphasis on generality is that your market asset classes are volatile. So what does that mean to have a concentrated portfolio in a market that’s perceived as being volatile?

Diego De Colombres 12:14
I would say two things here summer, catchy from allocate. I think he has a very interesting analysis around diversification from a fund to fund perspective. And he has this metric he calls the total the probability of permanent loss. So basically, having a tvpi less than one, so the risk of not returning even 1x right? And from a fund of fund perspective, if you have one underlying fund that’s around 26% of actually not being able to return 1x your fund of funds, right? Then if you add an additional manager, the diversification kicks in, and that probability of permanent loss starts to decrease, right? However it’s, it’s not linear. It’s basically you’re getting us into asymptotically down to zero, right? So when you hit your ninth investment of an underlying fund, you’re actually close to 1% of risk of permanent loss, right? So if you could keep diversifying, yes, you’re basically mitigating risk, but at what cost? And the cost is the symmetry right under of the return profile. So being over diversified in in our space, in venture and specifically in crypto, actually, is, is not the right strategy. That’s my perspective, right? Because at the end of the day, if you want to capture the power law outcomes in our industry, you might you have to have the right exposure to it via the portfolio construction. So that’s one thing. But you mentioned shows like crypto are perceived as volatile. That is true. However, when I think about underwriting managers, I’m more concerned about their own understanding of the cyclicality rather than the volatility, right? Crypto is still very cyclical. It’s very dependent on the liquidity and the excess liquidity in the market. It’s still very dependent on the monetary policy that’s followed by the Fed, and it’s still quite tied to the Bitcoin cycle. So your audience might be familiar, but every four years, the Bitcoin Blockchain, sort of like the rewards to secure the blockchain get cut in half every four years.

Earnest Sweat 15:23
Okay, that makes sense, and you kind of got into it about what you’re looking for, and an emerging manager in this sector, could you go into how you identify them and your selection process? Yeah,

Diego De Colombres 15:37
Just to give you some numbers, I Massari, it’s a very good research platform that keeps tabs sort of like the way of investing in the space, and we have, like around 1100 firms investing in crypto. I would say half of them are venture vehicles, and around 250-300 are investing in pre-seed and some later stage as well. But I would say, like 200 of those venture firms are within our parameters, which, you know, are funds one, two or three, and they are deploying small funds, concentrated portfolios and so on. So we try to, you know, meet with as much as we can. And what we’re looking for is those new firms and new GPS that have a verifiable right to win, right? They have an insight, and they’re running with that insight. They’re reflecting that unique insight into the firm and the fund that they’re building, and that’s reflected also in the portfolio construction that they are set to execute, right? And really what, I think it’s critical. Our industry is so mimetic and narrative driven that independent thinking becomes paramount, especially at the pre seed stage, simply because that’s where the, basically the inception of use cases and thesis development happens right to really, you really want to skew towards someone that has that independent thought process. And at the end of the day, also, what we’re looking for is that early signal to downstream firms, right? Because you’re thinking about 2030, $40 million fund one or two, they’re going to be probably deploying everything, all that capital, in first checks. So you do want those relationships of the mega funds and the multi stage funds to actually consider them like the alpha for their deal flow.

Earnest Sweat 17:37
Can you share a story about a manager who impressed you, and what stood out? Yeah,

Diego De Colombres 17:45
Definitely one, one frame I really like is practice. The Founder and Managing Partner is Jay Megan, an Australian guy, and yeah, I met him at the beginning of the year, and we hit it off. I think he fits that profile of what I was telling you about the $20 million fund. One. He before spinning out and raising his own fund. He led the venture team at cores. One. Cores one is a big liquidity provider in the crypto space, so think of it as a very large operating company. He ran the venture playbook there, and had a phenomenal track record there, and yeah, very true, like opinionated, top down view, very diligent, very robust technical team that he’s built around him. And very like Nuance’s thesis that he has around infra middleware and AI in crypto that I think are sort of like the pillars of what space could look like in the next five years, I would say. And to my earlier point, around him being the source of early signals to the downstream firms. There’s a reference, check him with founders, with investors, and yeah, he’s just a low Eagle guy and a hustler that is bringing basically a fresh perspective to the space.

Earnest Sweat 19:14
I love that. And all those things are needed, not only in crypto, but in other asset classes too and other sectors within venture. I’ve heard you say that access is not a strategy. Can you unpack that for our audience?

Diego De Colombres 19:33
If you think about it like the prior instances, I would say the 2017, 2018, 2020 vintages in crypto were phenomenal, right? And it was still the industry understanding how the market structure was going to be defined. But so basically, if you were indexing the space back then, I mean. You had an outperforming portfolio, that was it, right? So the beta play was actually a very good play. Now, obviously, with the returns and how So, like the liquidity profile of crypto attracts, and it’s attracting now more and more institutional locators. Well, we now see, like, a much more competitive landscape of managers, of allocators, of builders and so on, right? So the opportunities are not as obvious as they used to be. So that’s one thing. So a beta play on, on the space is not a winning strategy anymore. That’s one thing at the other is, you might have the access right to you might be you might have an exposure to a breakout project or a breakout manager, but if you don’t have the sort of like the intentionality behind portfolio construction, again, you’re not going to capture the power of law outcomes of venture, and specifically of crypto venture, right? So that’s why the value of the debris that we bring with our specialization ethos is the merging managers that are going to be in the early stages, they have the best return profile. Now, again, it’s very noisy in that corner of the market. So by engineering our firm around selection, I believe we can systematically tap into the top decile of that CO

Earnest Sweat 21:30
That’s interesting, and it takes a focus on your process, but then also leading room as one of our guests said, once leaving room for creativity as well, because you don’t want to miss something so that’s it’s clear that you’re being intentional about that. Now we’re going to take a quick break to speak with our sponsor.

Jeremy Rich 21:59
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Earnest Sweat 22:49
What do you see as the biggest mistakes crypto GPs are making in their fund structures and their fund raising strategies?

Diego De Colombres 23:00
I think that when they get creative with fund structures is actually detrimental to their own journey, right? And I’ll give you some context here. If you think about the nature of crypto venture, you have the company building ethos and the milestone, milestone based funding of traditional venture capital. However, you have a different liquidity profile, right? Because, rather than waiting, I don’t know, 10, 1214, years, to go public via an IPO and M A A project, might raise a private round, a couple private rounds and then launch a token to incentivize the community to get participation in that specific project. And it’s a very interesting value accrual mechanism that helps catalyze network effects, right? So that’s it. The beauty of crypto ventures. You have the select, the massive outcomes, but with a much attractive DPI profile, right? Yeah. However, if you are super imposing an artificial structure, fund structure, to capture that early liquidity via the fund structure itself, I think that’s when you get into dangerous territory. So the reality is that in traditional ventures, we had this 10 year duration, because that’s basically how you incentivize folks to think about company building and the long term, like basically shooting for the fences, right? Yeah, what I what I’ve been seeing in in crypto, is a bifurcation on GPS, some of them, the ones that are truly subscribed to that show, like company building mentality, and the other ones that are being, frankly, I think they’re being pushed by a certain archetype of LPs that are underwriting crypto venture as a different asset class and basically saying, Hey, if you’re able to capture early DP. AI will capture it and have a fund that lasts five, six years. I’ll give you a two year extension, but then get incentivized to capture their liquidity. But then you start to see that the founders then get GP that are pressuring them to launch a token when it’s not necessarily the best for the long term on the sort of like the long run outcome of that specific project.

Earnest Sweat 25:46
how do you think LP should assess the risk rule reward of crypto venture today?

Diego De Colombres 26:09
Well, first, I think, like, Let’s put aside if you have a specific view on the technology right? Like, if you believe that this can be transformational for many instances and many use cases in the technology landscape, right? Basically, as an LP, you’re in a crypto venture because you expect bigger asymmetry and a better liquidity profile. So I think that’s how they should assess it, right? You’re expecting higher noise than in a traditional venture, and I quickly dpi. Now I believe that that is true if you’re investing in presidency, if you see, if you take a look at the multi stage firms in crypto, the mega funds they’re raising, my belief is they’re over capitalized, and then they have to invest in like the later stage rounds in crypto are so expensive and there’s so much overlap within the portfolio of the mega funds that if you’re an LP sitting on the sidelines, you might be thinking, hey, are they really paying the right price, and am I Getting the right exposure to that venture outcome, and that’s when what I think LP should really assess is your crypto which is highly volatile to your earlier point, which is highly cyclical, and where a lot of it is, you know, driven by narrative. Make sure you’re sort of like having the right exposure in the form of the portfolio construction, the liquidity profile, and basically how your underlying investments are deploying capital into the space.

Earnest Sweat 27:52
So you’ve decided to focus on pre seed and seed managers. Could you explain why? Yeah,

Diego De Colombres 28:02
I think it’s where the best return profile is from a venture standpoint. That’s one thing, and the other, I think it’s where the industry is driving innovation forward, right? There’s a really good book by Chris Dixon. It’s like an entry book to our space. It’s called read, write and own. And there he describes this concept is not his, but he described what skeuomorphic technologies are. And basically, schema morphic technologies are when there’s a new technology shift, we are so anchored to our understanding of the prior technology paradigm, and we start thinking about the use cases under that same paradigm, right? So an example is when blockchains became more well known, folks started thinking about, hey, what would a decentralized Uber or a decentralized Airbnb look like? Right? And that’s nice, but that’s thinking schemafully, right? Right? And when the technologies start to actually create new primitives, that’s where the development of new use cases starts. And it’s not anchored on what was the old technology, but then what could the value get unleashed under the new parameters? And that’s what’s so exciting about pre-seed and seed, because that’s where GPs are developing their sort of thesis of how space is going to evolve. And they have the flexibility and space to be backing the founders with the craziest ideas, right? So, yeah, the multi stage firm might come in in a series B to actually back that project, but when they’re already showing so early signals of skate velocity, you’re capturing a lot of the value if you’re playing in the early stages.

Earnest Sweat 29:51
have you seen the same, I would say, in the generals or enterprise or concerns? Consumer venture worlds, we’ve seen a lot of competition and a lot of emergence of a lot of firms going down there. Have you seen a similar trend happen with crypto firms?

Diego De Colombres 30:15
I would say that there are very large firms stepping in and leading seed, I don’t think they can go as early as pure seed, but it’s, it’s hard, right? Because at the end of the day, it is the same dynamics that happen in traditional ventures. You have them in a crypto venture, which is the opportunity cost of writing a small check, deploying out of a billion dollar fund, right? So it’s not in their best interest. Yes, you have the biggest asymmetry there, but they have to put so much capital to work that it’s actually, it’s attention for them, right? So yes, it’s something that catches their eye and their attention, but that’s the natural fit.

Earnest Sweat 31:20
What trends have you really excited about crypto?

Diego De Colombres 31:30
there’s a handful of them. Probably heard that stable coins are the killer app in crypto, and they are like, I believe they truly are you seeing regions like Argentina, Latin America, Africa. You know, if you think about Argentina and the capital controls and FX controls that they had before Malay, like the inflation was rampant, that you would get paid and your basically, your income would erode within the same month, right? And they could not dollarize because they had FX controls where, well, if you have $1 based on a US dollar based stable coin, you immediately get rid of that for, like, the basement risk. And that’s why we’re seeing strong adoption of stable coins everywhere, globally, and it’s a way for the US to export the dollar. I think that’s going to extend the dollar hegemony that folks were a little bit hesitant with crypto initially, and now they’re realizing that it’s actually a great lever for the US, just continually cementing the leadership from a monetary perspective. However, stable coins do not necessarily accrue value to a venture capitalist because at the end of the day, they’re pegged one to one to $1 but they’re an incredible, sort of like mechanism, and a lot of stable coin tooling is sort of like venture backable. So a lot of the tooling there, it’s going to be quite interesting to see how that develops. This is a little bit of a cliche, but the intersection of crypto and AI, it’s super exciting, right? Because AI is becoming more and more pervasive, but I see the two in a very symbiotic relationship evolving, because at the end of the day, crypto is a great guardrail for AI, if you think about in an agentic economy, world where a lot of our activity might be delegated to agents, well prove our personhood, it’s going to be critical, right? Crypto is uniquely positioned to do that, and then you have to bring on chain identity into the real world.

is there any, I’d assume, like, your LPS that you have invested in? You can come from all different places. What’s, what’s kind of the archetypes that you sought after?

Diego De Colombres 37:02
I would say it’s a combination of several archetypes. I mean, family offices, some strategic LPS like CDCs, that are in financial services that you know, they already have a digital assets team. They already have a venture like vehicle investing in funds, and it’s just the next evolution, simply because, you know, crypto is so adjacent to financial services that it’s for them a good strategy to keep a pulse on what might be coming for their business, or what might be complementary to their business, right? I mean, at the end of the day, all these strategic players have a CDC because they want to avoid the innovators dilemma. Simple, right? So that’s, that’s one thing, but yeah, from a purely like allocator perspective, I would say the archetype of found, I’m sorry, of LP that I found that has found more resonance is the ones that are pursuing the traditional endowment, like portfolio, but they’re starting to see crypto as the missing control, like driver. They might already have exposure, maybe to Bitcoin, maybe to an ETF. They already have a significant and robust portfolio around venture, and they’re missing the in between, which is exposure to the builders of the blockchain technologies and the blockchain so like building blocks that they already have in the venture space. And initially, some of these conversations might take me to a discussion about, hey, I might already have crypto exposure by the underlying investments of the traditional venture firms. Right? However, as we’ve seen in the past three or four years, I think the crypto native firms are much better positioned to actually have the right deal flow be picking the right select breakouts and actually creating the portfolios of the of the breakout startups that make the each vehicle the best return profile from allocators standpoint, versus a generalist fund that might have one or two crypto investments,

Earnest Sweat 39:50
What’s one lesson you’ve learned recently about navigating in this market?

Diego De Colombres 39:57
what I mentioned earlier that our industry is so much narrative driven right so coming November, post election in the crypto space, with a much clearer regulatory path on how the industry might evolve, everyone was talking about, hey, this is going to be an incredible, bold cycle. You know, capital is going to be everywhere, and the reality is no LPS continues to be measured. Obviously, the macro environment right now is still uncertain, and that affects crypto as well. But, you know, just being measured and being cautious about when folks get euphoric. Right now, the good thing about crypto venture is when you hear about LP saying that, hey, we have the denominator issue, venture has not given distributions back, so we are over allocated to venture and so on. Crypto venture has actually been one of the few asset classes that has given distribution back to LPS in the past cycles, right? Which that is true. So that’s great, because at the end of the day, if that’s the case, why you’re not allocating Well, this is an opportunity for you to actually get distributions quicker. And if that’s not the case, then it’s a great asset class for you to be in,

Earnest Sweat 41:23
right? Yeah, I love that. That’s a great Hey, you all say you want dpi. We’ve provided it. If LPS or GPS want to learn more about dissent, what’s the best way for them to contact you?

Diego De Colombres 41:42
Yeah, definitely. I think our website, it’s a decent cap dot XYZ, and you’ll see my content information there, and feel free to shoot me an email.