Vibe investing

I often despair of the crypto space.

In a recent Spelunking discussion, Mika mentioned that he had a conversation with a potential LP who stated, flat out, that the ability to perform due diligence in the crypto space was actually net negative.

There is no way one can steelman that argument, even if there are variants that could make sense.

You could, for instance, point out that having a skew towards technical due diligence is detrimental, because it blinds you to other aspects of the business, and legacy code can become an albatross around your neck allowing others to innovate faster. You could argue that one shouldn’t blind themselves to the reality that most teams will end up pivoting, so we should not make decisions purely based on the current state of a product. You could even point out to egirlcapital’s Pricing in a clown world and say, for instance, that narrative component should have a much higher weight than any tech advantage (if you believe that to be the case).

But stating it is net negative is pure madness.

This makes ever less sense if you are making early stage bets, because early on, things are usually janky and you are betting on long-term potential.

You need to be able to differentiate between reasons why things might look like they are held together with twine and scavenged wire. Is the logic rickety in areas that are currently unimportant or can be easily improved (say, user flow) or is there something fundamentally broken on what should be the product’s core differentiator?

Then you have to remember that one of the trade-offs with coming in early is that you are getting in at a relative discount, but the price you pay is a time premium - you will cash out on a longer horizon, likely after a multi-year vesting period. The project you are putting money in may be the hottest thing on the market right now, but if they blow themselves up due to lack security practices before you get to cash out, you are screwed - no matter how sizzling the narrative was.

Are you waking purely discretionary liquid bets - effectively, trading?

Ok, knock yourself out. If you are liquid, you get to get out at the first sign of trouble (assuming you are paying attention, and a disregard for technical due diligence makes me wonder if that’s the case). Go nuts. Narrative-surf and flip between hot things if you think your nose is that good.

But if you are betting on either a team or a platform, then having your hands tied for the next few years… why in the name of Cthulhu’s green, slippery tentacles would you not considering technical diligence to be valuable - worse, why would you think it’s detrimental?

As Teemu mentioned, this person might be a product of the last cycle. Maybe they made underperforming bets based on a solid thesis, while their memecoin-slinging peers laughed their way into yatchs. Maybe they were the ones making a bundle with memecoins, and convinced themselves a disconnect from tech was fundamental to operating in the space. I can’t say.

But it is one of the craziest things I’ve heard recently.

You can find the whole discussion on around the mark here.