Random Block Capital: a introduction to the crypto world in the form of a tiny fund

Hey guys I'm launching a crytpo-curreuncy fund! In terms of capital, it's perhaps the smallest fund in the history of funds: we'll be investing a total of 5 ethereum across ~30 cryptocurrencies.

Why?

If we put aside the ramblings of the short-sighted ICO-crazed speculators and future predictions of everything-must-be-decentralized maximalists, the world of cryptocurrency contains fascinating technology and innovative business and financial models. Investing in a basket of tokens seems like a fun way to introduce newcomers to the world of cryptocurrency, ICOs, and blockchains.

Warning: this fund is not about making a profit, and it will never attempt to raise money from outside investors. Crypto is an incredibly volatile and risky asset-class, and everyone should understand what they are getting into before jumping in.

Why only 5 ETH?

• If the name wasn't obviously enough (I assumed no fund with the intention of raising money from outside investors would ever have the word “random” in the name), I just wanted to make sure that this is not a serious fund

• In case anyone wants to follow along in a DIY fashion, I wanted to show that it can be donee with an arbitrarily low amount of capital. (It would work 1 ETH or less, but the portion of transaction fee might be too high)

• Showcase the advantage of crypto investing versus traditional VC/angel-investing: a game with high barrier to entry, massively unfair deal-flow advantage, and extremely low liquidity.

• Be a role model for proper risk management. Crypto is extremely volatile and there's almost no way to hedge the systemic risk. Investing should be about balancing return/risk and searching for +EV situations, not gambling.

What's the meaning behind the name “Random Block Capital”

The name is from the book A Random Walk Down Wall Street. Like the book, this project is about taking a walking tour to the world of (crypto)finance, all the while not taking expert opinions not too seriously.

Okay how does this fund work?

Okay if you've made it here. Here's the gist:

• Emulate a typical VC fund model
• The fund cycle will be 6 month (5 month allocation period + 1 month liquidation period)
• Average investment amount of 0.1 ETH across ~10 ICOs and 15 investments (2.5 ETH)
• 5-6 follow on investments for things we really believe in (1.5 ETH)
• Allocation a portion of the fund to short the really terrible assets we come across (0.9 ETH)
  • This will probably be negative EV, as terrible ideas can stay hyped a lot longer than we can stay solvent. But it'll all be in the name of fun
• 2/20
  • We'll collect a 2% management fee to pay for transaction costs (0.1 ETH)
  • 20% carry will be donated to readers to start their own adventures

Does the fund have a thesis?

Yes, I'm a strong believer that even the most measly fund should have a clear and simple investment thesis. Here is a first draft of RBC's:

Even though cryptocurrencies are powered by novel technology, common sense still apply. It doesn't matter if you are building a boring old saas product or revolutionary blockchain protocol, moats(barrier to entry), great distribution models, and a relentlessly resourceful founding team tend to increase chance of succeed.

On the other hand, greedy overfunding(uncapped funding models), slapped together looking-good-only-on-paper teams, and pretending coldstart problems don't exist just because you have a blockchain are all indicators for eventual failure.

In other worlds, let's put on our analyst hat and read white papers like there's no tomorrow. Of course, even a minimally viable product is worth a thousand words.

Are you qualified to make investment analysis?

I've never been a VC, even though I've raised money from a bunch of them over the years. The closest experience I've had is working as an entrepreneur in residence. Of course, as an EIR I get neither carry nor blame for good/bad decisions. So at most, it's like having played free-money poker.

In short, take everything with a grain of salt, and DO NOT base your investment decisions on what I say. You should always try to think from first principal.

I'm too lazy to read along. Can I just give you money?

Nope

Will I get rich investing in crpto?

Probably not, even though we've seen 10-100x returns in a couple of months earlier this year.

Instead of buying coins hoping to get lucky, think of it like buying a toy that teaches you about the future. I read a quote somewhere that buying a bitcoin in 2017 is like buying a PC in 1987 or an iPhone in 2007. These purchases are not going to make you rich, but it's a great way to learn a lot about potentially world changing technology.

Okay I'm onboard. What's next?

I'm going to start investing at a leisurely pace, and do a write-up every couple of days. For newcomers to cryptocurrency, here's a something cool:

Go to this etherscan address. This is the public address(wallet) of the fund. See how there's a 5 ETH balance? As we go along, you'll see this number decrease, but or token assets increase.

Why is this important? Well for example, there's a lot of ponzi schemes and exit scams in both the real and crypto world. Having instant visibility through 3rd party blockchain viewers gives this fund more transparency right off the bat.

That's it for the first installment of Random Block Ventures. In the next post we'll be making our first couple of investments, and learn about wallets and various options avaliable to us for purchasing coins.