Setting the scene

Perspectives on blockchain technology are plentiful and its wider applications and future opportunities are arguably endless, making sense of everything, however, is not always straightforward. This is especially true when assessing the wider blockchain opportunities through the eyes of professional individuals, whose views vary significantly and are often shaped by the disciplines and industries that they may find themselves in.

In the coming weeks and months, we will be launching a series of interviews with a well of interesting people from the wider blockchain- and financial community that we have been fortunate enough to work with and call close partners!

Our purpose with the interview series is to dive deep into the ever-changing world of crypto and uncover industry insights through in-depth conversations with experts in the field. Our interviewees have been carefully selected, and come with interesting experiences from different functional areas and organizations, and together provide a holistic but nuanced view of the developments shaping the space and in so doing, highlight interesting opportunities and potential challenges that follow as a result.

We sincerely hope that you will enjoy their perspectives and the glimpse into their everyday life and that it may inspire you in your current and future endeavors. To kick things off we’ll share highlights from an insightful interview with Inflection VC Founder Alexander Lange, who also happens to be one of our first customers.

Interview #1: Alexander Lange

Name: Alexander Lange

Previous: Google, Earlybird, Index Ventures

Current: Inflection VC

Years in crypto: 8

Nationality: German

Please introduce yourself and explain to us how you got into crypto

My name is Alexander Lange and I’m the founder of an early-stage venture fund called Inflection. My interest in crypto technologies evolved over 20 years, not in a single magic moment. I grew up with a Commodore 386, beeping modems, Turbo Pascal, ICQ, and a bit later — Napster. I was absolutely blown away by the power of global, anonymous collaboration through the peer-to-peer file-sharing network. Bitcoin first caught my attention while researching dark markets during my legal studies in 2011. I dismissed it as a geeky toy after running a node that significantly slowed down my outdated laptop (stupid me).

A year later I abandoned my career in ‘big law’ to join Google as an Entrepreneur in Residence and Data Protection Commissioner. Through both roles and various whistle-blower revelations, I started to understand the implications of big data for user privacy, data security, and ultimately — power. In early 2015 I joined Earlybird VC to lead cybersecurity, fintech, and crypto finance. During that time I closely followed and privately invested in Ethereum and a fascinating project called The DAO — a distributed venture fund living on the internet. It failed spectacularly but I realized that the global coordination of work and resources I’ve experienced as a Napster-heavy user would get to the extreme by applying smart contracts. Hence, I became obsessed with the broader crypto ecosystem. After 3 years at Earlybird, I had the opportunity to join Index Ventures in London to lead their crypto efforts globally and worked with some of the most reputable companies in the space before starting Inflection in mid-2019.

Tell us more about Inflection and your investment philosophy. What sets you aside from other funds in the industry?

Inflection is an early-stage venture fund investing in open platforms that broaden access to markets and empower users (Editor’s note: you can read Inflection’s thesis here).

We expect the ‘big tech’ companies to gain additional market share through aggressive M&A activities and further abuses of market power. For entrepreneurs, it will be nearly impossible to build venture-scale companies atop the current web stack which is controlled by the incumbents. Monopoly rents, censorship, surveillance, and lacking innovation are some of the severe societal and economic consequences.

One way to overcome these dynamics is to change the rules of the game by applying new computational paradigms outside the incumbent’s control. This happened before with the evolutions from hardware (IBM) to software (Microsoft, Apple) and from software to data networks (Google, Facebook). With each evolutionary step, the incumbent’s monopolized services have been partially commoditized. Now, we’re on the verge of the next computational paradigm shift driven by crypto networks potentially converging with other emerging technologies like e.g. quantum, AI, or immersive.

What sets Inflection apart? Our team has been uniquely committed to the sectors we cover long before the hype around crypto, open source or fintech started. Erik Voorhees (advisor) built one of Bitcoin’s first applications in 2013, John Zannos (venture partner) built open source ecosystems with Canonical and Openstack in 2013, and Markus Ament (advisor) started his fintech company Taulia in 2009. Our proprietary decision-making processes address cognitive biases and rigorously filter for transformative businesses. We closely work alongside our portfolio founders leveraging our global networks, industry knowledge, and operational experiences. We are investing across asset classes (equity, equity-like instruments, cryptographic assets) and combine a long-term venture approach with additional services to optimize yield—staking, generalized mining, governance, etc. With our first fund, we backed 14x companies such as Balancer, an automated market maker and decentralized exchange, Centrifuge, a programmatic supply chain financing network, or Anytype, a user-owned operating system running on the new internet.

What are you particularly excited about for the long-term and near future of the industry? Where will the ecosystem stand in 2030?

Crypto networks rise in cycles triggered by price movements, often combined with new narratives: Bitcoin is internet money (2013), Ethereum is for global crowdfunding (2016), and DeFi is for borderless financial products (2019). Each new wave drives mainstream attention and more attention encourages entrepreneurs to innovate which leads to new narratives and price movements and so on.

Over the next 5 years, I expect macroeconomic developments to turn into a catalyst event for the adoption of cryptocurrencies and decentralized financial applications. Other than fiat money, Bitcoin is immune to quantitative easing, interest rate manipulation, and inflation. Decentralized finance apps will disintegrate the whole financial value chain by offering 100x cheaper, borderless, and more secure financial services than any bank ever could. This category will go through cycles itself but the degree of innovation is profound and DeFi is here to stay. We will see programmatic markets for everything — data, virtual goods, predictions, and art.

In the long term (5–10 years), I expect the vision of a privacy-preserving web to come to life. Data will flow freely and users will hold the keys to their digital lives (cryptographic and metaphorically) instead of corporations. Web services will be interoperable and privacy-preserving by design. You don’t like Facebook anymore? Go to another social media interface and take your social graph, messages, and profile with you. You don’t like Google anymore? Go to another interface and take your emails, search history, geo locations, settings, and bookmarks with you. Without revealing any of that information to any 3rd party ever — unless you decide to do so temporarily and voluntarily. The vision of a user-centric web was what got me involved with ‘crypto’ in the first place and it still is the driving motivation behind Inflection.

How is investing in the crypto space different from traditional VC?

Almost everything is different, it’s like living on another planet.

Conventional venture capitalists invest in companies that are run by an executive board and have legal representations in the physical world. Crypto networks are not organized around legal entities but around open source software that is governing resources programmatically. This aspect alone is extremely alien to most people.

Instead of buying shares in a company, investors get exposure to a completely new asset class. Many believe that crypto assets are equivalent to currencies. This is like saying the internet is equivalent to email. Digitally scarce items of various sorts can resemble the economic attributes of e.g. stocks, commodities, licenses, collectibles, or currencies. The opportunities and use cases are endless.

Crypto-native business models differ from those of conventional tech corporations. Crypto networks performing services like transaction settlement, data storage, or video transcoding are programmatically incentivizing, their stakeholders by issuing and distributing virtual shares to them. These shares might accrue value by absorbing fees paid by the network’s users or they might encapsulate governance rights. The supply of newly issued shares might be dynamic to adapt to the needs of the network. DCF is not the right framework to estimate a crypto network’s financial upside. Last but not least investors innovating in crypto are exposed to vastly different dimensions of risk spanning operations security, regulation, and liquidity.

Given these differences: What are the key criteria for you as a fund when working with custody/infrastructure providers?

Custody and operations security is a core dimension of risk for operators in the industry. Any mistake might be fatal and result in the loss of assets. The core selection factors for our custody service providers are in that order: security, governance (multi-sig), product and asset availability, customer service, value-added services (staking, voting), and agility concerning the onboarding of new assets and other integrations. I vetted over 20 different custody providers throughout the past 3 years, and as a customer and VC, Finoa stood out in multiple ways.

What are you currently spending your time on and what’s your outlook for the next 12 months?

Currently, I’m spending 1/3 of my time on investor relations, 1/3 on research and due diligence for the new investments, and 1/3 on working with portfolio founders on various topics. In the summer of 2021, I expect us to be in the next bull cycle with Bitcoin trading at around $30,000 and a lot of hype around decentralized finance.