Multicoin Capital: In Search of Outliers

Hello friends,

Here’s a question: how do you find the next Solana?

That project started 2020 priced at $1.52 and now sits at $140, meaning a cool $11K investment would have netted you around a million dollars.

One way to try and identify the next breakout winner is to pay attention to where Multicoin Capital sees opportunity. The fund won bigger on Solana than any other firm, before mentioning its early investments in Helium, Perpetual Protocol, The Graph, Audius, Serum, and many others.

To understand how Multicoin sees the future, I spent time interviewing their team and researching prior talks and written work. In today’s piece, the final part of the Multicoin trilogy, we’ll walk through what themes the fund is focused on. In the process, we’ll highlight pre-breakout investments and areas in which new startups may soon emerge.

Jump right in to start reading. ​
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MULTICOIN CAPITAL: IN SEARCH OF OUTLIERS (PART 3)

Actionable insights

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

• Composability is coming into its own. Crypto-money Legos have reached maturity, making it easier for these building blocks to combine and create novel applications. Multicoin has backed several startups that fit this theme.
• Data DAOs allow us to profit from our personal information. All of us create data that companies like Google and Facebook monetize. Crypto networks give us control over our data that we can use to our benefit. We might see decentralized hedge funds, banks, and health insurance companies built on this premise.
• Crypto has real-world applications. Projects like Helium show the power crypto incentives have to secure and grow tangible networks. We could see similar efforts create alternative power grids, ridesharing platforms, and logistics providers.
• Multicoin isn’t interested in empire-building. Managing Partners Tushar Jain and Kyle Samani aren’t looking to staff a large team or grow assets under management (AUM) too rapidly. Instead, Multicoin is focused on expanding the “state” of crypto networks – a computer science concept that refers to the sum of remembered user interactions.

***

The greatest football* coach of all time is Sir Alex Ferguson. Over a nearly forty-year managerial career, the Scotsman won every prize available at the club level, guiding Manchester United through a period of unprecedented dominance. When asked about the difficulties of his work, Ferguson highlighted the challenge of winning back-to-back championships. So much effort and ambition is expended in winning one title that it can be difficult to summon the same energy to secure a second. Not to mention that one’s competitors, stung by defeat, up their game in response. Such were Ferguson’s gifts that he managed back-to-back Premier League titles six times, even stringing together three-in-a-row twice. Perhaps more than any other achievement, this endurance has given his team’s the patina of history, the sense of a dynasty – an admission that gives me no pleasure to admit as a lifelong Chelsea fan.

The same dynamics exist in the venture capital industry. It is undoubtedly impressive to produce a top-decile fund, let alone one with the historic return profile of Multicoin’s inaugural vehicle. But true greatness requires endurance and persistence. To demonstrate one’s skill as an investor, it is not enough to do it once – you must show you can succeed again and again, across cycles and market conditions.

This is Multicoin’s task over the next fund cycle and beyond: prove it can maintain a winning edge. It must do so even as large funds push into once deserted territory and as the market recognizes the wisdom of Jain and Samani’s early moves and tries to mimic them. As with every great team, Multicoin must find new ways to win. In the context of VC, that means finding and financing the next Solana, Helium, and The Graph – finding the next outlier capable of returning a fund many times over.

Today’s piece will use Multicoin’s public admissions and context from private interviews and research to see where Jain and Samani are looking for their next megahit. In particular, we’ll touch on three investment themes and how they might manifest:

1. Composability. Crypto has created a collection of “money Legos” – primitives that can be combined in unusual and impactful ways, especially in DeFi. Now may be the moment to build with them more decisively.
2. Data DAOs. Consumers are used to having their data siphoned by Google and Facebook. Crypto makes it possible for us to take sovereignty over this information. Once under our control, what might we do with it? Web3 applications abound.
3. Proof of physical work. We may think of crypto as a somewhat intangible realm. But projects like Helium have shown that the industry can help real-world networks emerge. In the future, we might hail taxis, receive packages, and get our power from decentralized entities.

To finish, we’ll also think through what the future holds for Multicoin itself.

On we go.

*I cannot betray my English upbringing and use the term “soccer” in good faith.

IN A MEME
​​​For the pictorially inclined, here's the whole piece — all 4,600 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.

Tim S was first to claim the sweet rest of the victorious last time around. He was followed by a growing army of fellow decipherers, including Attison B, Shaw C, Vikram P, Jim W, Greg K, Peter F, Keshav J, Avi Z, Krishna N, Michael W, Thomas K, Ryan C, Robert H, Daniel M, David P, Dan M, Kaitlyn R, Maitreyee J, Tord N, Steven R, Ashi M, Hari A, Jonathan R, Amira K, John G, Nicolas S, Kofi A, Aaron M, SM, Jamie M, William J, Joshua K, Jamie L, Peter L, Anthony M, Mark H, Parth B, and Kunal G. All saw through last week’s puzzler:

The answer? They’re all beds! A very good riddle, indeed. Well done to all that played. Wherever you are in the world, I wish you a lovely, peaceful day.

See you soon,

Mario

PS – 634 brilliant minds have already joined The Generalist community. You should add yours to the mix. Join us here.​