Original title: "Dialogue with Founders Fund Partner Joey Krug: Discussing the entrepreneurial journey and technical challenges in the field of cryptocurrency"

Original source: TechFlow

In the field of venture capital, Founders Fund is an absolute legend.

In 2002, Peter Thiel, known as the "Godfather of Silicon Valley", sold PayPal, which he co-founded, to eBay for $1.5 billion, and founded Founders Fund in 2005, mainly investing in consumer Internet companies, including Facebook, Space X, Palantir, LinkedIn, Spotify and other Silicon Valley star companies. At present, Founders Fund's asset management scale has exceeded $12 billion.

In April 2024, Alliance, the largest accelerator in the crypto world, announced that it had received a strategic long-term investment from Founders Fund. The size of the investment was not disclosed. As part of the investment, Founders Fund will provide support for Alliance's portfolio companies.

As a "bonus" (extra reward) for this investment, Alliance co-founder Imran Khan talked with several partners and marketing directors of Founders Fund, most of whom have direct entrepreneurial experience, and discussed how founders can drive sales and growth of startups, how to build cryptocurrency brands, and how to find the right partners... It condensed all kinds of entrepreneurial dry goods.

TechFlow compiled this collection of conversations in Chinese to share with everyone.

Introduction

In this interview, Joey discussed in detail his experience in the Auger project and his role and investment strategy at Founders Fund. He also conducted an in-depth analysis of the challenges and opportunities in the cryptocurrency prediction market and explored how the development of encryption technology affects the strategy and operations of emerging companies. In addition, it also involves how to use social media platforms such as Twitter to promote blockchain projects and how to deal with potential security risks of projects. The entire conversation provides deep insights into the future direction of blockchain technology and has a high reference value for entrepreneurs and investors in related fields.

Joey’s Background: Joey first came into crypto in 2014, building prediction markets through the Auger platform. He became the Chief Investment Officer of Antera Capital in 2017, where he worked for nearly six years, and then joined Founders Fund to focus on the crypto space and other projects of interest.

What advice would Joey give to his younger self: If Joey could talk to his younger self, he would recommend staying on the current path of exploration and optimization, focusing on building meaningful subcomponents to support large projects like Auger, and not changing too much.

Predicting Product Market Fit (PMF): Prediction markets are not an easy thing to do both inside and outside of crypto, and are usually only successful in specific areas such as elections and sports betting. Joey feels that crypto prediction markets have not yet achieved product market fit due to the lack of necessary infrastructure and tools.

Memes: Regarding memes, Joey believes that they are not really prediction markets, but rather trend-based trading tools. These coins reflect the popularity of a specific event or topic, but do not necessarily predict the outcome of future events.

Top 100 Customers: Joey mentioned that Auger sees users as participants rather than customers in the traditional sense. As an open source project, Auger has not specifically engaged in user acquisition, and the influx of users is more based on interest in the platform's features.

How to acquire customers in the crypto space: Joey emphasized the importance of building publicly in the crypto space, as transparency and community trust are essential. He mentioned using social media platforms such as Twitter to increase the visibility of the project and attract users.

Build publicly: Building publicly helps enhance the transparency of the project and gain support from the community, although this may bring criticism and feedback, but ultimately helps improve and iterate the project.

Security First: Security is of paramount importance in crypto projects. Joey recommends strict code audits and generous bug bounties to prevent security vulnerabilities and improve the overall security of the project.

Pre-coin PMF: Before introducing tokens or airdrops, you should make sure that the project has achieved product-market fit. Joey warned against misjudging product demand by introducing tokens in advance.

Advice for building on Ethereum: For founders building on Ethereum, Joey recommends considering different technical approaches such as Ethereum direct, second-layer solutions, or Rollup services, and choosing the right technical framework based on the specific needs and characteristics of the project

Transformations in Crypto: Joey discussed major transformations in crypto, such as Alchemy’s move from providing data to providing RPC infrastructure, which shows how projects may need to adjust their service and product direction as market demands change.

Characteristics of Successful Crypto Founders: Joey believes that successful crypto founders have strong persuasiveness, persistence, and an excellent work ethic. They are able to effectively sell the vision to all parties and drive the project forward through continuous effort and optimization.

Here are the main takeaways from this conversation:

Joey’s Background:

Imran: Joey, can you briefly introduce your own background?

Joey: I got into the cryptocurrency space in 2014 through the Auger prediction market. I was CIO at Antera Capital for almost 6 years in 2017, I left earlier this year and joined Founders Fund, and I spend about 80% of my time in crypto and the other 20% in areas that interest me.

Imran: I started getting into crypto around 2013, and one of the first applications I saw was Auger. A lot has changed, and if you look at where we are today, there weren't enough wallets or computers, on-rams, off-rams. If you could go back in time and talk to your younger self, what would you tell him?

Joey: I think I would say two things. One is, if you're just optimizing and building something fun, don't really change anything because you're optimizing, trying to build like a startup and a valuable company. In retrospect, I probably would have built smaller subcomponents to make it work for Auger. There are a lot of companies that can solve the problems that we have. For example, I had some small problems with hosting nodes, and Alchemy came along and solved that problem. Another problem we ran into was like how do you access data from the chain and actually put it into the UI. That's kind of like the problem that charts are trying to solve, and the other problem is that you need a decentralized exchange to decentralized prediction markets, so we can build a decentralized exchange. In fact, prediction markets were one of the first automated market makers on Ethereum. So there were a lot of things like that that were needed to make it work, and it was a bit like trying to build an electric car before lithium-ion batteries existed.

Prediction Product Market Fit (PMF)

Imran: Even though we have great developer tools and diverse resources now, the Ethereum ecosystem is still expanding and improving, and there are similarities between prediction markets, gambling sites and things like that. But if you think about crypto prediction markets specifically, it still hasn't found a good market fit, why do you think that is?

Joey: I think it's a difficult product to build, both in crypto and outside of crypto. Historically when you look at prediction markets, they've made inroads in the main areas, like the presidential election in the U.S., which obviously happens every two years, congressional elections, midterm elections, that's another category. They've been very popular in prediction markets like sports betting. And then the stuff in between, nobody's really made it work. I think the closest thing I've seen is what the Polymarket guys are doing, like Sam's Market and other things like that. I think it's just one of those things, it's a very challenging market.

About memes

Imran: Do you think about the proliferation or commoditization of memes, or do memes represent some kind of theme. Recently, Elon Musk had a falling out with Bob Baig, and some of the themes from that conversation became tradable tokens themselves. Do you think this is a form of prediction market, or a way to trade based on current trends?

Joey: Prediction markets are where at a certain time, you're going to get a certain outcome, and people get paid based on their predictions of the outcome on that date. There are a lot of people trading around memes, but I don't think they're prediction markets, but they're definitely some kind of weird financial market that falls into another category.

First 100 Customers

Imran: Okay, back to Auger, how did you get your first 100 customers?

Joey: We don't think of users as customers in the traditional sense, Auger is a decentralized platform that allows users to create prediction markets autonomously. There's not a good answer to how we got the first hundred users because Auger is more of an open source project than a startup. One thing we did is we never really tried to acquire users or do any marketing. We did talk about what we were building, but from a regulatory perspective, we didn't want to pay for activities like user acquisition. We just wanted to write this code and release it.

To answer the question more directly, like how did the first 100 people use it, where did they come from, it was more people who were just interested in prediction markets, they were people who used to prediction markets, like in trading, betting on BET, some of them were really into sports betting, and people who like sports betting generally tend to bet on things outside of sports as well. They thought they had an edge, and there was really no one else doing prediction markets at the time, so it was kind of like if you were interested in this weird space, you heard about Auger at some point, and then used it.

How to acquire customers in crypto

Imran: Compared to traditional industries, the ways to acquire customers in crypto and the channels that you can use are very limited, and we mainly use Twitter. I found Auger through Twitter. So every crypto founder has an idea of how can you manage Twitter so that you can get the growth that you need for your startup? So maybe we can start with the basics, how do you build these channels on Twitter?

Joey: When I was working on Auger, very early on we released the white paper publicly, we released it on Reddit and Twitter, and as soon as we had the code base, we released it and open sourced it on Github. About a few weeks after building it, I just wanted something that actually compiled. And then whenever we had updates, we would publish them on some blog so that people could know what kind of developments were happening. And then I think another thing that we talked about was interesting potential use cases. One of them is my favorite, there are two that I use frequently. One is, what is the likelihood of Russia invading Ukraine, and there are other issues like will SpaceX's next rocket launch be successful. So we talk about some of the things you could theoretically do with it, which gets people excited about it, and then people start using it in their own directions.

Build publicly

Imran: So what advice do you have for founders who are concerned about building a social media audience? Why is this so important for crypto founders?

Joey: I think in crypto, it's important to build publicly. Because if you don't, people won't trust you, and there are people who build smart contract systems like closed source. But people don't really trust these people, and they tend not to get a lot of attention. Another reason is that people need to know what you're building, and crypto is not like a traditional SaaS startup, where you can hire a traditional sales team and call other companies, and there are some crypto companies that do that, but that's not the case with the protocol side or directly to the end user. So, you can't acquire users in a traditional way. So I think it's important, whether it's you or your co-founder or someone else, to have someone on the founding team who understands how to go to market and build evangelism in the crypto space. I've invested in founding teams that didn't do that in the past, and either they hired someone very quickly, or they were a de facto co-founder, or they got really lucky, right place, right time, right product. If you don't talk about it publicly, the project will never work.

Imran: So what mistakes have you made when building publicly?

Joey: When building publicly, people who don't follow the project often may not understand the changes or updates that have been made. We have deep discussions and consensus building processes in the community, but occasionally we encounter repeated concerns, which are usually addressed in previous discussions. Usually I think the easiest way to solve it is to connect people to the previous discussion, and most of their concerns have been discussed in that discussion. Occasionally, someone will propose something that no one has thought of, and it may lead to changes in the protocol design, which is actually the other side or positive side of public construction, making your system more powerful.

Auger One of the interesting things is that it is one of the oldest smart contract systems on Ethereum, and it is also one of the most complex, with a large number of contracts and a very high number of lines of code. We have fixed some security vulnerabilities in later versions, but it has never had any cases like large amounts of funds being stolen or anything like that. I think public construction is an important part of it, and a lot of things can be discovered by people.

Security First

Imran: Security, is that still the most important element of cryptocurrencies? A lot of people compare it to building a rocket ship in public, how do you see the process of new founders building public facilities? They are considering launching their products in beta, what security parameters and frameworks should they consider when going public?

Joey: To ensure security, first of all, you should have your code reviewed by top auditing firms. Secondly, set up generous bug bounties for serious vulnerabilities. In addition, those seemingly uncommon edge cases should be taken seriously, which are often potential risks. As often happens in these security issues, you will see replays of similar incidents, usually someone previously raised concerns about an area of the code, and you can patch it and refactor the code a little bit. Often someone will say that it can't actually be hacked, but when you find yourself in this logic, you are usually wrong. So I think that clean and concise code is actually very important and you can't underestimate it. In addition to this, in terms of beta launches, whether it is like hard limits on the chain or just encouraging people not to invest too much money. And then I think the last thing is, if someone finds a security vulnerability, you pay them a bug bounty. There are a lot of projects that basically have a track record of not paying or only giving out small bounties, and then they get hacked.

Imran: I don't know if you've seen a protocol for when startups get hacked. What should they think about in that case? Or if they get hacked, can you give similar guidelines?

Joey: I don't think there's a lot you can do. After you've been hacked, everything is reactive. First, you should alert other people in the ecosystem that you've been hacked. Second, it's also necessary to contact law enforcement agencies in a timely manner, even though they're slower to deal with it, but they'll eventually take action. I remember someone got hacked in 2016, and the issue was resolved a year later.

Besides that, another thing is that after a hack, if you need to restart the protocol, be careful to prevent it from being attacked again. There are actually many projects that have been hacked, and someone attacked him with a small amount of money, and they somehow stopped the hack early, or some good hacker noticed the hack, and then hacked all the money back to people, and there are many such cases, people often restarted quickly, and then they got hacked again, and this time, it was not a friendly hacker, and their money was gone.

PMF before Token Launch

Imran: Now turning to the market, the elements that projects bring are mainly cryptocurrencies, tokens, how do founders think about building in public, while there is the potential for airdrops or tokens? How should you design the token system?

Joey: I think the best thing you can do is not mention tokens or airdrops or anything like that, so that you know if your product fits the market. I would prioritize product market fit. We invested in a company called Seen Futures, and I remember they wanted to get a certain level of attention before you launched the token, because they would at least know that their product market fit was real, but you had to be very rigorous and you couldn't mention the token. DYDX is a good example. There is actually no right answer, and I think there is probably a wrong answer, adding a token before the product market fit is determined, you will not be able to see the market clearly, and you need to optimize before launching the token.

Advice for Building on Ethereum

Imran: New founders are looking to build on Ethereum. A lot has changed since Auger, what advice would you give to founders who want to build on Ethereum?

Joey: From a technical perspective, my advice is there are three main options today. One is you can, launch it like the Ethereum mainnet itself, if what you're building requires a lot of integrations or something, that might be the outcome. The second is, you can launch like through a rollup as a service, like Caldera, you can launch like any L3. That model I think is useful, if your application needs the benefits of crypto and blockchain, you might need to connect USDC, maybe you need to connect eth, but once you've built that, you don't need much else. Prediction markets are actually a good example, if I was building Auger today, I would probably build it with Caldera or something like that. And then the last category, is there are things that exist on L2 that make sense in their own right, you're building a DEX for arbitrum.

Outside of the technology, I think the most important thing is hiring a team where everyone is very smart and you want to form a very balanced team. You need a very smart technical person, you need a very smart marketing person. You ultimately need a very good operations person, and you want to make sure that you have a very high standard like the people you hire and that they are very united, that's the most important thing.

Transformations in Crypto

Imran: You've spent six years as an investor, and one of the things I'd like to learn more about is, what are the biggest transformations in crypto that you've heard of? Because it's rare to hear about this publicly, but I'm curious if you've seen any big transformation stories in crypto and what lessons can be drawn from that transformation.

Joey: I think the biggest transformation that I can think of is probably Alchemy. Alchemy started out as a data provider for hedge funds, and they basically built all this infrastructure to take the Ethereum blockchain and bundle the data and sell it to hedge funds. Their on-chain analytics used to provide this service, providing clustered address data at a much faster rate. They eventually realized that the infrastructure they built for all the RPCs was actually more valuable because there were a lot of startups that when they tried to build it in-house or do other things, they would get unreliable data, so that was probably the biggest turning point I can think of.

Imran: When you started building Auger, there were a lot of other different directions you could have gone in, but one of them probably solved a lot of customer pain points.

Joey: The best example is Instagram, which started out as an app for people to post pictures of whiskey. The founder’s wife said, this is stupid, you should let people post pictures of anything. Then she encouraged adding filters. It was a small market that became a huge market by tweaking what they were building.

Characteristics of Successful Crypto Founders

Imran: You’ve been in this space for over a decade, you’ve seen the good and the bad. What do founders and successful founders have in common when it comes to crypto?

Joey: I think there are some common traits that great founders have, and one of them is that they are extremely persuasive. For example, if you ask people what they think of a founder, you can usually get comments about their persuasiveness. There is a mental model that can help explain this: imagine someone threatens your life and asks you to drive for 24 hours or more. If you fall asleep, the other party will shoot. If the founder and CEO of the company are sitting next to you at this time, they can't let you listen to music and can only talk to you. Can they keep you awake through the conversation? This actually tests their sales ability-can they effectively convey their ideas and visions to customers, potential employees and investors.

The second important trait is that good founders have great perseverance and hard work. As Charlie Munger mentioned in an interview, even if they make mistakes, they think that if they avoid these mistakes, they may achieve greater success. This mentality reflects the characteristics of truly great founders, no matter how successful they are, they think they need to do more and better.

Some of their characteristics can be observed in conversations with founders, such as the example of the Alchemy team. I noticed that although there is only a small team supporting their customer service, they can respond quickly after you send a message, even at 3:30 in the morning, you can get feedback within five minutes. This responsiveness at all times not only reflects their excellent support service, but also reflects their strong desire to win. Good founders usually don't build companies simply to make money or do something. Their main driving force almost always comes from the desire to win. This attitude is the key driving force that drives them to succeed in their business.

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