The Generalist - Multicoin Capital: The Outsiders

Hello friends,

Multicoin Capital is one of the most fascinating and impressive funds I have studied. Not only has the Austin-based firm produced some of the craziest returns of all time, they have done so by taking a radically different tack than the majority of the crypto market. In particular, they’ve made highly-concentrated bets on non-consensus assets like Helium, The Graph, and Solana.

What gives Multicoin the confidence to back companies and projects that many other investors pass over?

Over the past seven months, I’ve gone as deep as possible, conducting extensive research and interviewing twenty sources including limited partners, rival investors, crypto founders, and Multicoin’s team. The result is, I believe, the most detailed picture of Multicoin’s insane performance and intelligent internal operations.

Over the next three weeks, we’ll explore Multicoin’s origins, operations, strategic moves, and financial returns. We’ll also talk about where the firm seems to be looking for its next big winners. To get started, jump in below: ​
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IN COLLABORATION WITH MASTERWORKS...

When fintech collides with art: Investing magic is born

Since its launch in 2017, innovative art investment app Masterworks has earned significant attention. Over the last year, the company has been featured in the WSJ, Forbes, and Bloomberg. This attention was accompanied by significant capitalization – Masterworks raised a $110 million Series A at a $1 billion valuation.

Masterworks’ unicorn valuation comes from growing assets under management, with the company now overseeing more than $500 million. On top of that, Masterworks has offered investments into 116 paintings with three successful exits.

Here’s their track record to date:

• George Condo's “Staring into Space”: +31.7% net IRR (2020-2022)
• Banksy’s “Mona Lisa”: +32% net IRR (2019-2020)
• Albert Oehlen’s “Doppelbild”: +33.8% net IRR (2020-2021)

I didn’t participate in any of these, unfortunately. But I did recently invest in my sixth painting via the platform. This time around, I bought shares in the work of one of my favorite artists: Rothko. If you want to invest alongside me, skip the waitlist with my special link.*

MULTICOIN CAPITAL: THE OUTSIDERS (PART 1)

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Multicoin Capital’s origins. (We’ll refer to the firm as “Multicoin” going forward.)

• Multicoin may be the highest-returning venture fund of all-time. Firms like Union Square Ventures and Lowercase Capital are legendary for funds with 14x and 76x returns, respectively. Multicoin’s first-ever venture vehicle appears to have them beat.
• The firm has won by taking a contrarian approach. When Multicoin started, the investing landscape was dominated by funds focused on Bitcoin and Ethereum. Founders Kyle Samani and Tushar Jain saw opportunity elsewhere, making contrarian bets on Helium, The Graph, and Solana.
• To drive outsized returns, make concentrated bets. Part of Multicoin’s genius is its willingness to back up its conviction with capital. Many of the firm’s best-performing investments were sized aggressively, contributing to the fund’s outpermance.
• Investing in EOS was a flop…that led to Multicoin’s biggest winner. The firm’s outspoken support for alternative blockchain EOS rubbed some the wrong way. When that project floundered, critics celebrated Multicoin’s mistake. But it was by backing EOS that Multicoin recognized the potential for monster hit, Solana.
• Multicoin has its critics, but founders are extremely positive. In the partisan world of crypto, Multicoin’s strident support of its investments can anger dissenters. Loathed by some as a result, the firm is loved by its entrepreneurs. Portfolio founders are exceptionally positive about Multicoin’s contributions.

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In 2017, Kyle Samani and Tushar Jain decided to start a hedge fund for cryptocurrencies. Neither one of them had held an investing job before, let alone run a fund of their own. They had not worked at one of the sector’s budding startups nor built a protocol. They were not friends with Vitalik Buterin or Gavin Wood or some other crypto luminary who might have walked them into buying Ethereum at its public offering price. Their names meant nothing, and with the exception of a few clever personal investments beginning in 2016, they had little record to suggest they were suited to the endeavor at hand. They were, in short, crypto outsiders.

It has proven to be their greatest weapon. While Samani and Jain may not have had the bonafides of a tenured manager or the expertise of a blockchain builder, they brought formidable gifts to bear, not least a willingness to question the status quo. Even a space as novel and fluid as crypto in 2017 had sacred cows and accepted wisdom. With no preconceptions to cherish or cliques to guard, Samani and Jain could hone their investing acumen with few biases, conducting deep research and reasoning from first principles.

The result is a portfolio that looks starkly different to almost any other firm of its era. Today, Multicoin is not just a viable participant in the crypto investing landscape but one of its dominant forces. It has earned its formidable reputation by making concentrated, non-consensus bets into massive winners like Solana, The Graph, Helium, and others. It is high-conviction, contrarian investing at its best.

Achieving such returns has not been easy. Not only have several of Multicoin’s best investments been close to collapse at various points, the firm itself has weathered negative performance and brutal market shocks. Some of its highest-profile investments, like EOS, have ended in ignominious failure. And yet, Samani and Jain have outperformed their peers, producing returns that may very well be historic.

In today’s piece, we’ll unpack what makes Multicoin special, touching on:

• Unlikely origins. Kyle Samani’s first business involved building apps for the ill-fated Google Glass device. Tushar Jain also started a company that failed to pan out.
• Thinking in public. Without an established investing track record, Samani and Jain built a reputation through their thoughtful writing on the crypto space.
• LPs’ assessments. Those that invested in Multicoin’s early vehicles saw more than just two intelligent, hungry investors. They saw an idiosyncratic strategy with asymmetric upside.
• Strategic shifts. Though Multicoin began as a US hedge fund, it has expanded its mandate over time.
• Four bets. Multicoin’s personality as a fund can be best understood by looking at a quartet of investments, three of which were massive winners. One was a disaster.
• Returns and reputation. Investors may be mostly judged by their financial returns, but reputation among founders may be the more important leading variable.

We’ll go even deeper into the firm’s operations, decision-making, and future in Parts 2 and 3.

IN A MEME
​​​For the pictorially inclined, here's the whole piece — all 10,500 words of it — in a single meme.

PUZZLER
​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

With impressive alacrity, Tim S sniffed out the falsehood in last week’s familial fix-up. He was joined by fellow detectives Tamar L, Kaitlyn R, Jim W, Lyndon B, Thomas K, Ali M, Lisa O, Tord N, K.C.O., Michael K, Austin V, Parth B, Aaron M, Jo E, Neil H, Jeb B, John G, Sangeeta V, Andy B, Eli G, Hari A, William J, Shaw C, and Robert H. All recognized the trickery at the heart of this conundrum:

The answer? The three women are nuns, sisters only in service of their religion. An equally cromulent answer was posed by several readers, suggesting that the women might be sorority sisters. Others suggested a sperm donor might be at work or perhaps that they are sisters to other people but not each other. Creative work, across the board.

It feels like spring in New York this weekend – gloriously sunny with a gentle breeze. The rooftop of my apartment building is calling me for some reading and relaxing.

See you for Part ✌️,

Mario

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*Past performance doesn’t guarantee future results. See important Reg A disclosures. See offering circular.