>> Announcer: Live from Nassau in the Bahamas, it's the Cube. Covering Polycon '18. Brought to you by Polymath. >> Welcome back, everyone. This is the Cube's exclusive coverage. We're live in the Bahamas, here for day two of our wall to wall coverage of Polycon '18. It's a security token conference, securitizing, you know, token economics, cryptography, cryptocurrency. All this is in play. Token economics powering the world. New investors are here. I'm John Furrier, Dave Vellante. Our next guest is Nithin Eapen Who's the Chief Investment Officer for Arcadia Crypto Ventures. Welcome to the Cube. >> Thank you very much gentlemen. >> Thanks for joining us. >> Thanks for coming out. >> Excited to have you on for a couple reasons. One, we've been talking since day one, lot of hallway conversations. Small, intimate conference, so we've had a chance to talk. Folks haven't heard that yet, so let's kind of get some of the key things we discussed. You are very bullish and long on cryptocurrency and Blockchain. You guys are doing a variety of deals. You're also advising companies and you guys are rolling your sleeves up. So kind of interesting dynamics. So take a minute to explain what you guys are doing, your model. >> Okay. >> And we're going to try to get some of your partners on later. You have a great team. >> Yep. >> Experienced pros in investing. And you got wales, you got pros. So you got a nice balance. >> Yes we do. >> So take a minute to explain Arcadia, your approach and philosophy. >> Okay. Okay. So Arcadia Crypto Ventures primarily we are a private fund. We invest other money. We believe in the whole crypto space. We believe this market is expanding and it is growing and it's going to be the biggest thing that ever happened. It's going to be this fusion of internet and PC and mobile. And everything is going to go batshit, okay. We believe in the whole tokenization world. Everything is going to be tokenized. So as a whole, we believe this space is going to go very big. Okay, so that's one piece and because of that, we invest in the space, the whole space. Not one bitcoin or Ethereum, but everything in the space that makes sense. People who have a use case. Now the second piece of it is we advised great founders. We want to get founders to come out and build these new things because this is the new internet of the new era and people have to come out and build these things. And so many of them are traditional businesses and we have to explain to them why this matters, why you should come to this space and be decentralized and reach the whole world. Because initially, the internet came. The idea of the internet was everybody gets information. Now information did get everywhere. You don't have to worry that the mailman is there to deliver your email anymore. Even if it's a Sunday, your mail will get delivered. So that part was good. But now you have these few companies that's holding all your data. It's okay for most people, but they do censor a lot of people. So that is one point. That censorship. We want a censorship-resistant world where everybody's ideas get out. So that way, we believe that's how this whole internet space itself is going to change because of that. See this is if I explained in one word, this is the greatest sociopolitical economic experimental revolution ever that has happened in humankind. >> In the history of the world. I mean this is important. I'd said that on my opening today. >> Uh-huh. >> Dave and I were riffing and Dave and I have always been studying. We've been entre-- We are entrepreneurs. We live in Silken Valleys in Boston and so you seeing structural change going on. So it's not just make money. >> Nope. >> There's mission-based, younger demographics. So you starting to see really great stuff. So I want to ask you specifically, 'cause you guys are unique in the sense that you're investing in a lot of things. But startups, pure-playing startups? >> Which had only one path before, or two paths. >> Right, yeah. >> Cashflow financing and venture capital. >> Okay. >> So that's a startup model. The growing companies that are transform their growth business with token economics, those would have long odds. Those are the best deals. >> Okay. Then there's like the third deal. Well we're out of business, throw the Hail Mary, repivot. (laughs) Right, so categorically, you're starting to see the shape of the kinds of swim lanes of deals. >> Okay. >> Okay, pivoting, that Hail Mary. Okay, you can evaluate that pretty much straight up on that. Startups need nurturing, right? >> Yeah. >> So the VC1 al-oc-chew works really well for startups because of the product market fits going to be developed. You got cloud computing so you can go faster. So you guys are nurturing startups. At the same time, you're also doing growth deals. >> We do. >> Explain the dynamic between those kinds of deals, how you guys approach them. What's the dynamic? What are the key things that you're bringing? Is it just packaging? Is it tech? So on, so forth. >> So with a lot of people, when they are on the advisory side. Primarily we look at the founder and the tech. What are they trying to solve? That is key. If it's a turd, you can't package it. No matter how you package it, that's not going to work. >> You can't package dog you-know-what. >> Yeah, exactly, okay. >> So that's one thing that we look at. The founders and their idea. Now their idea, can it be decentralized? Some models are meant to be centralized maybe so it doesn't work, okay. Like, see it all boils down to-- Let me break it down. We look at it. Okay, do you have an asset? Behind the scenes, is there an asset? Is that asset being transferred among parties? If you have an asset and it's being transferred, is there some central mechanism in between? Because if there is a central mechanism in between, that means you're going to be paying rent to that. Okay, all right. You have these things. Okay, great. Now you have your asset. Do you have that in between party? But in some of them, let's say you have money in your pocket. You walk, it falls down. Somebody else pick ups the money. It's his. It's a bearer asset, okay? So that's where bitcoin solved a very big problem. It was bearer asset. >> Unless they hack your wallet, then they take your money. >> Right. That happens in real life too, right? Somebody can take money from your wallet. So it can happen in bitcoin. They can hack your wallet. All right. So bitcoin was solving that problem. Now the second piece is a registered asset. And I mean by registered asset is take your car. You buy your car, you go to the DMV, stand in line, register. There's a record of data at the DMV in their central database. If somebody steals your car, the car is still not his. It's only if they can change the record over there in DMV. Then it becomes his. Now there maybe you do want the DMV to be there. Or maybe we can-- But the DMV being there, now you have a problem. They're going to charge you rent and they can decide, oh you know what? John, I'm not going to give him a license or a car in the state of California. They can decide, right? So that is where now you decide do you want to go the centralized route or the decentralized route? So we break it down to the asset. >> So there could be a fit for decentralized. I get that. >> Yeah. >> Let me ask you a tactical question, because I know a lot of entrepreneurs out there. They're watching and they'll hear this. A big strategic decision up front is, obviously, token selection. >> So it's pretty clear that security token works really well for funding and whatnot. Then there's a role for security tokens. I mean utility tokens. >> Yes. >> So do people, should they start from a risk management standpoint, a new company. So let's just say we had an existing business. Entrepreneur says, "Hey, you know what? We're doing well. We're doing 10 million dollars in revenue and I want to do tokenize 'cause we're a decentralized business. That's a perfect fit." Do they start a new company or do they just use the security token with their existing stable company? >> I would suggest, usually at that time, that's more of a legal question at that time. I don't know if I'm a lawyer to answer that. I tell them, you have a business. The business model is going well. If you're happy with it, let that be there. Make a new company. If your business model was not doing good, you might as well start from there because you figure out it's not working. But again, at that time, we tried to come up with this question. Are you trying to put the old wine in a new bottle kind of thing? If the wine is old, it ain't going to work. You have to get to that realization. So, here. >> People are being sued. So mainly the legal question is do I want to risk being. >> All right, let me hop in here. I wanted to ask, go back to something you said about censorship. I had this conversation with my kid the other day. I was explaining Google essentially censors your search results based on what they think you're going to click on. >> They do that. >> He's like no and then he thought about it and he's like okay, yeah they kind of do that. Okay, so that's an underpinning of we're going to take back the internet, right? >> Yeah. >> Okay, I just wanted to sort of clarify that. From an investment philosophy standpoint, you're technical, yet you don't exclusively vet or invest in infrastructure protocols and dig deep into what-- You read the white papers, but there are some folks out there hedge funds, et cetera. All they do is just invest in utility tokens. They're trying to invest in stuff that's going to be infrastructure for the next internet. Your philosophy is different. You're saying, we talked about this, we don't really know what's going to win, but we make prudent investments in areas that we think will win. We like to spread it around a little bit. Why that philosophy? May reduce your return, but it also reduces your risk. Maybe you could describe that a little bit. >> Sure. See, in general, picking winners in the long run has been-- It's a proved fact that nobody could pick winners. Like if you take active hedge fund managers. Active hedge fund managers, in the long run, if you take 10 to 20 years, they lag the S and P. So if you had money, if you give it to an active hedge fund manager, and so that you just had to buy the S and P, you will have beaten 93%. >> That's Buffet's advice. Buy an S and P 500. >> Buffet made a bet for a billion dollars or something where, you know. So take Warren Buffet for that matter, his fund is lagging too. In reality, all his stock investments are down. He put it in IBM at $200 after eight years, it's at the 143 or something, right? So realistically,-- There's a lot of luck element, okay. You can do all of the analysis and you could still end up buying Enron, Lehman, and Bear Stearns, right? >> Right, yeah. >> And at that time, see they were using some models that they knew 'til then. Most people, investment comes from, you have this background that you know, okay this is what I look at. Cash flow, discounted cash flow. Great. If that is there, price to earnings, I'm going to buy. But then an Amazon came, most of the traditional investors never invested in Amazon. They were like, it's a loss- making company. They never going to survive. But they forgot the fact that companies like that there's this network effect and once the people are there, at any point, Jeff Bezos can just turn off the switch and take off the discount. You're not going to change your shopping from Amazon at that point because this month I lost my 15%. We're so used to it so people missed that. Nowadays they see that, but when it came to Blockchain they're like, oh, no, no, this is a fad. That's what most people said. >> So we talked about discounted cashflow as a classic valuation method. I see guys trying to do DCF on these investments. I mean, we were joking about that. (laughs) How do you-- What's your reaction to that? >> If anybody's saying that if they come to me and I'm like you-- I don't know what Kool-Aid do you drink at that point because what cashflow are they discounting? There's no cashflow. It's not like you're going to get dividends from these tokens. There's no dividends. It's like can you find out how many people are going to use it. What is the network effect? And again, for that, a lot of people are coming with a lot of these matrices or matrix right now. But I think even that, they're trying to retrofit into it. They're like, oh I can use this matrix. But, really we don't know. >> So people tend to want metrics. Dave and I talk about this all the time. When people part with their money, they need to know what they're betting on. So the question is when you look at investments, when you spend cash, when you write checks, what is your valuation technique? Do you look for the l-- How do you play that long game? What's the criteria? Besides like the normal stuff like founders, disruptive, like you got to write the check, let's say. Okay, buying a token. It's got to be worth something in the future, obviously. >> So we look at that space, where invariably they are trying to disrupt. Is there a big market? And even if it's a niche market, okay? So we're doing an error chain token. It's a very niche market. It's just the pilot, the maintenance folks, and the charter people, or the plain charter guys. It's a very small market, but that's good enough. It's very niche. They can have an ecosystem between themselves rather than being incentivized to long game miles and stuff like that, right? It doesn't have to be a very big market. We just look at it, okay. Founder is good, he has an idea, it is a space that can be decentralized and people can come in and they feel that they're part of the ecosystem. See the whole thing with the token economy and a traditional economy like let's say I'm spending money to buy a stock. So I buy stock. As an investor, what do I want? I want maximum returns. The employee, he wants to get maximum pay. And the consumer who's buying the product, he wants to get it at the cheapest price. So there's a-- It start aligned, okay? The moment you give 'em the cheapest price, my profits go down. If I increase the employees' salary, my profits go down. So we are all three of us are totally misaligned. >> If I for an important point, do you favor certain asset classes, you know, token, security tokens, or utility tokens, or you looking for equity? I mean, maybe just ... >> Right now, we've moved away from the whole equity bonds, or any of those things. We are totally concentrated on the utility or security tokens. We don't mind if it's a security token or utility token. >> And if it's a security token, are you looking for dividends, are you looking for >> At that point it's some kind of dividend. >> So you're not expecting equity as part of that security token? >> No, I like to expect equity, but if they are saying okay my token, if people buy and if they pay me $10, and out of that you're going to get $1 back, okay that's fine. We don't mind that as long as it's legal and all those things we're fine because it just makes the process easier. Earlier you invest and you didn't know when you could get out of your investment. At this point, it's become so liquid, at any point of time within two or three months, the token is less to people are either buying and selling. We know, otherwise, earlier when we used to do Ren Chain investments, we would get into our product, have it it's time seven to 10 years to get out. And in the meanwhile, they say great stories. Oh we're doing great. Who do I check with that we are doing great? I'm not getting any dividends. Nobody's buying this from me. How do I know? Where am I? I really don't know. I can make these values up and on my Excel sheet and say okay we valuing this company at a billion. >> So your technique is to say okay look at the equity plays the long game. You need an exit on liquidity, either M and A or IPO. >> Yes. >> Now you have a new liquidity market, so you play the game differently. I won't say spray and pray, but you have multiple bets going on so you can monitor liquidity opportunity. So that's a new calculation. >> And it's a great calculation, also. Because see we're in the market and now we know at any point of time, we don't have things on our books that are like we don't know what the value is. We know what that price is because the market is there, the exchange is there. What other people are willing to pay for us doesn't surprise. It's like saying my house is worth a million dollars. Actually it might be worth to me. It depends on what people are willing to pay me. >> Right exactly. >> If I have to synthesize this, you're taking high frequency trading techniques with classic venture investing, handling token from those two perspectives. >> Yes. >> High frequency trading meaning I'm looking at volatility and then option to abandon and get rid of whatever or whatever. >> The only thing is, we're not exiting our positions. We are in the long game. We believe the score market is supposed to at least reach eight trillion. When we started this whole investing, at that time, the whole market was at six billion and we said okay this market, based on our thesis, is supposed to reach eight trillion. Until then, we keep buying, okay? >> But to your HFT, you're not really arbitraging. >> No, no, we're not doing any of those. Because see >> They're applying real time techniques to token evaluations so they're game is try to get into a winner. >> Yes. >> With some tokens. >> A lot of the funds, they're doing this arbitrage more. They're trying to do arbitrage. But the problem is they're missing the big picture that way. So, arbitrage works in a very tight market. So S and P, let's say, somebody's doing 5% return on S and P. The guy with a arbitrage is coming and saying I made five point three, 5.5% or 6%. That's great in the equity world. Now, I want returns last year are 10 x or 30 x or 50 x. And somebody comes and tells me I made an extra 0.2%, doesn't really matter to me. I'm like instead of wasting that time doing arbitrage and paying taxes, I might just hold it. >> You believe in the fundamentals. >> You guys are in New York. Obviously, Arcadia Crypto Ventures, that's how they get ahold of you guys. Final question for you to end the segment. As new real pros come in, and let's take New York as a since you're in New York. The New York crowd comes in or the Silken Valley comes crowd existing market players other markets come in here. How important is optics packaging and compatibility with the sector, meaning I just can't throw my weight around on the hedge fund scene. We do it this way, I got money. Because people here have money. So what's the dynamic of pros coming in, we're seeing institutional folks come in, we're seeing real pros come in. They've never been to Burning Man. So, you know, they get that Burning Man culture exists, but this is not a Burning Man industry. >> Right, right. >> Business doesn't run like Burning Man. Maybe it should, that's a debate we'll have. Your take. >> So the new funds that are coming in, so they have a fear that they have missed out. They are missing the picture that this is just the beginning. So they've seen that this industry has gone from six billion to 500 billion in a year or year and a half. They're like, oh my god, I missed it. >> It's got to be over. >> So I have to write these big checks to get this. We don't write big checks. We write much smaller checks because we believe that if a founder is raising money, he has to raise it through small checks from everybody. That means all those people are really interested in this. And they're all of them really want the token to go up. Whether it's the investor, the user, and the employee who is working there because all of them they're interests are aligned. The moment you give a big check, so let's say you could raise 10 million from 10,000 people or you could raise it from one person. So when the big check is there, let's say I go to raise my money. There's this fund who's missed it and he says here's 10 million dollars. Okay, now I've got me and the fund and my tokens. Nobody else knows about my tokens. My tokens are as good as valueless. Now the funders looking okay, I need to exit. Nobody knows about my tokens. The fund is the only guy who has my tokens, he's trying to exit. Obviously the market is going to crash. There's no market. And he's like why did I get into this. So he missed that point that you need people around you. It's not just you alone. See, earlier days when ... >> This is your point about understanding how token economics works. >> Yes. >> So having more people in actually creates a game mechanic for trading. >> Because then you know that you're not the only guy interested in this. And earlier venture capital space there were these bunch of few venture capitals who wanted to capture that whole thing and tried to sell it to the next guy. Here, I'm what I'm saying is, we all have to come in together. We all can be together at the same price, which is good because the small person has, the common man has a chance to be a VC right now. Earlier you could never be a VC. I could only see Google, after IPO. I could never get it at what KPCB or Sequoia got it at. I had to wait 'til they got through CDA, CDB, which they bought at five cents. I would get at about $40 maybe. In this case, the big fund has a lot more money than me, but I can have my small 5,000 or 10,000. I can invest in the ICO. >> If you picked the right spot and you were there at the right place, the right time. 'Cause you are seeing guys come in and try to buy up all the tokens early on. >> They're trying to do that. They don't get it, but they will understand. So it is a learning (mumbles). Even they will evolve. They're like okay this is not how it works. And you have to make mistakes. >> Sorry, got to ask you one final, final since you brought it up. More people the better. So we're hearing rumors inside the hallways here that big wales are buying full allocations and then sharing them with all their friends. >> Possible, it is possible. >> We see some of that behavior. Dave calls it steel on steel, you know. Groups, you know. I'm going to take this whole deal down. We see that in venture capital. Used to be syndicates. Now you seeing Andreessen Horowitz doing the whole deals. That kind of creates some alienation, my opinion, but what's your take on that? I'm a big wale. I'm taking down the whole allocation. >> It's okay. Some of those things are going to happen, okay. It is fine. The only problem is usually when that happens the big wale who takes it he will realize very quickly. >> He's got to get more people. >> He needs more people otherwise he might be able to exit to his five buddies who were always taking it from him. Now those guys, they also have to exit at some point. Nobody knows about the product. Might as well just take a small piece, even the founders in this case typically in a token model. Founders who've taken 20% or 10% have done better than founders who took 60% of the whole tokens. >> Right. Nithin, great to have you on. Love your business model. Arcadia Crypto Ventures. They got real pros, they got a wale, they got people who know what they're doing, and they're active. They understand the ethos. I think you guys are well-aligned and you're not trying to come in and saying this is how we did it in New York before. You get the culture. You're aligned and you're making investments. Great perspective. Thanks for sharing. >> Thank you so much. >> This is the Cube, bringing the investor perspective live here in the Bahamas. More exclusive Cube coverage. Token economics, huge opportunity for entrepreneurs and investors to create value and capture it. That's Blockchain, that's crypto, that's token economics. I'm John with Dave Vallante. We'll be back with more coverage after this short break. (futuristic digital music)