Rolling out a $100 million fund in a bear market is a bold adventure, but from the looks of it, the Algo Capital team is excited to capitalize on the high potential of cryptocurrency and blockchain projects.
Algo Capital, a blockchain-focused venture-capital group, will invest in emerging disruptors looking to build on the Algorand decentralized platform over the next ten years. Founded by MIT professor, cryptography pioneer, and Turing Award winner Silvio Micali, the Algorand protocol is looking to gain traction as a decentralized platform at a time when many platforms are taking market-related beatings.
CoinCentral connected with Algo Capital Managing Partners Arul Murugan and David Garcia, and Algorand CEO Steve Kokinos.
Funded with $100 million, what does the ideal Algo Capital portfolio composition look like? Is there pressure to onboard projects early so that the Algorand network can be more quickly developed?
We are looking to start investing as soon as the Algorand main net is launched. This is scheduled for late Q1. In the meantime, we are in the process of conducting due diligence with several companies. We believe that adoption and users are key to creating and capturing value, so in the initial phase, we will focus our portfolio in startups with a proven product-market fit and with real traction to bring users. We will be investing in high-quality infrastructure projects, as well alongside the applications.
As part of Phase 2, we are looking to invest in earlier-stage projects and work closely with incubators and venture labs across the globe. Moreover, we will have a huge exposure to Algos, the native coin of Algorand, which we will strategically manage. Of the capital invested in startups, we are looking to deploy 10% of it in Algos and the remaining (90% more) in USD.
Furthermore, we are looking to use the remaining Algo holdings to participate actively in the network by running a node in the initial bootstrapping phase and staking them to generate further rewards for the fund.
What does the decision process look like for funding proposed projects? Walk us through from pitch-decks to product launch.
Conducting a very critical due diligence process at the current early stage of the technology is fundamental. There is currently significant noise regarding all the different applications promised by this technology.
That being said, we will also focus our decision process at the beginning mainly in use cases where the current state of blockchain technology has proven usability. We are going to be extremely focused on product and not just technology. Team, product market fit, and the ability to scale will be three key aspects in our evaluation and decision-making process. In addition to the business review, we will engage in deep technical due diligence led by our CTO.
Centralization vs. Decentralization in the application stack, economic model, and blockchain use will also be part of our decision process. We will have an investment committee which has to approve every investment. After the investment has been made, one of the partner in Algo Capital will be actively involved in the startup as a board member or a role that is appropriate to help them gain market traction and achieve growth.
Why does Algo Capital intend on initially focusing on fintech applications for the Algorand Ecosystem?
Our initial focus is in fintech applications for two main reasons. First, blockchain technology is naturally poised to significantly disrupt financial services and secondly, Algorand is a natural fit for tackling financial service use cases through its embedded financial primitives that are embedded into the protocol. This will allow, for instance, asset issuance with many specifications through the simple use of opcodes without the need to use complex and inefficient smart contracts. We believe Algorand will power major capital markets in the future thanks to these features.
How does Algo Capital separate the wheat from the chaff when looking at proposed projects. Are there absolute “must-haves” a team or technology requires for consideration? Alternatively, what are the red flags you see most often holding back blockchain projects from funding?
As previously mentioned, product market fit and ability to scale are the key aspects we look for in companies. Having a strong team that can execute and deliver is going to be the absolute must-have.
Major red flags for us include not having a minimum product-market fit validation, enforcement of blockchain technology to solve problems that can be better addressed with other solutions, and teams without a clear vision nor the ability to execute on it.
In such a nascent industry it seems that investment funds are increasingly required to participate and guide their portfolio projects. How involved will Algo Capital be in the projects they invest in and support?
All four partners of Algo Capital are former technology entrepreneurs, and our CTO has a vast and proven expertise in blockchain technology for several years. We are looking to roll our sleeves and help our portfolio companies actively in bringing customers / users and driving adoption. We look at our role as a value-add partners to our portfolio companies. Additionally, Algo Capital’s ecosystem status puts us in a privileged position to defend our investments by leveraging our close relationship with Algorand and the rest of the major players of the future ecosystem.
Can you expand on what the Algo Capital blockchain laboratory will provide to developers and entrepreneurs? What advantages does the blockchain laboratory hope to give its users outside what they can achieve on their own?
Our Partner and CTO Pablo Yabo is also the founder and director of Coinfabrik, one of the biggest Blockchain labs in Latin America and around the world. They have been working with different blockchains and deep tech since 2013. He is now leading a spin-off of Coinfabrik that will exclusively focus on Algorand technology.
The lab will be working closely with the Algorand team and with external companies. This Lab will be called AlgoFabrik; Pablo and his team will be able to share more information about this project soon. AlgoFabrik will be a close partner to Algo Capital helping our companies navigate the technology challenges and providing technical advice to the fund in its investment decisions.
AlgoFabrik’s deep insights into the roadmap and the technology development of Algorand will allow Algo Capital to timely identify important developments and trends when looking for investment opportunities.
In the future, if Algo Capital is able to successfully bootstrap the Algorand ecosystem, will the fund look for opportunities to support the blockchain community outside of Algorand?
Based on our underlying belief that Algorand is the right technology for business and mainstream adoption of blockchain, we are looking to deploy and manage capital for the next 10 years focusing on companies that are leveraging the decentralized economy powered by Algorand.
This doesn’t mean that the companies of our portfolio will be restricted to use other blockchain technologies if that make sense for their business interests and goals.
Let’s assume I’m a budding blockchain developer… Why am I am most excited to build in the Algorand ecosystem as opposed to other interoperability solution like Cosmos or Tezos?
First off, Algorand is focused on not only enabling and supporting the community of developers focused on blockchain, but also the broader community of developers around the world working on a variety of platforms, languages, and programs. At Algorand, we have a vision for the future that is very different than other interoperability solutions.
Second, in terms of our developer community, our focus is on simplicity. Developers, both those who are experienced with blockchain and those who are new to blockchain, will find that we have robust developer APIs, content, and tools to ensure that building on Algorand is as clear, fast, and easy as possible. These programs will make it straightforward for developers to both assist in transitioning legacy business processes to blockchain as well as building new layer two products on top of Algorand.
(For Steve Kokinos) Coming from a long-term success with Fuze, what lesson from your experience there has best transferred over to your work with Algorand?
Successful businesses have to create a balance between technical and business excellence. At Algorand we have taken the revolutionary technology developed by our Founder Silvio Micali and a team of leading experts in cryptography, theory, mathematics, distributed systems, and engineering, and combined that tech with exceptional execution and go-to-market capability in our business team.
Any company will suffer if the tech is leading edge and the business execution is only average. We solved that at Fuze, and I like to think we have solved it at Algorand as well.
(For Steve Kokinos) Alternatively, what’s a unique challenge that a blockchain based project like Algorand faces compared to other more traditional cloud-based infrastructure.
Blockchain represents a fundamental shift in the way people transact and exchange value. Like the cloud, we certainly expect that businesses will want to move various standard processes to blockchain protocols for the efficiencies it provides.
However, at Algorand, we are building foundational technology that will significantly increase the number of individuals who can access meaningful economic opportunity, and build economic opportunity in a truly borderless and decentralized economy.