Courtesy of Nick Tomaino
Nick Tomaino, founder of 1confirmation
As more and more money seeks to enter the burgeoning field of blockchain-based crypto assets including more than a dozen hedge funds opening up this summer Coinbase alum Nick Tomaino launches a crypto venture fund, 1confirmation.
The fund, which is aiming to raise $20 million, has also secured investment from billionaire, Shark Tank judge and Dallas Mavericks owner Mark Cuban.
Differentiating himself from the hedge funds in the space, Tomaino says, Im most excited by entrepreneurs building new projects, and theres no fund right now thats solely focused on investing in both tokens and projects at the earliest stage of project development. (1confirmation’s name refers to the fact that blockchain-based transactions typically aren’t considered final until several blocks of transactions have been confirmed as added to the blockchain.)
Noting his experience as an early employee at Coinbase working in business and marketing, Tomaino says he plans, as a seed-stage investor, to help teams with the same kind of non-technical work: Im not a passive investor investing in passively in tokens. The fund plans to invest via a new type of document called a simple agreement for future tokens (SAFT) based on a similar document for future equity in startups, as well as in tokens themselves.
Adding that many of the projects that have raised some of the $2 billion in funding through initial coin offerings so far will likely fail because of their short-term focus on fundraising, Tomaino says he is seeking founders strategically building for the long term. (Listen to Tomaino talk about the future token economy on my podcast, Unchained.)
A wave of entrepreneurs, motivated by the money to be created out of thin air by offering the crowd a new crypto asset in a sale called an initial coin offering, is building what many are calling the decentralized web, or web 3.0, which many envision will be decentralized networks in which tokens incentivize the various ecosystem players to fulfill certain roles, creating a token economy. For instance, someone in a decentralized storage network might be motivated to earn coins by offering disk space, while another actor might be motivated by the cheap price to buy some tokens and use that storage space.
Because many early investors hope the value of the tokens rise along with the demand for the network, crypto tokens have also gotten attention from the Securities and Exchange Commission for the possibility they may be unregistered securities. For this reason, Tomaino says he will also focus on teams with regulatory compliance in mind.
I think Nick is smart and understands the space, wrote Cuban via email, about what it is his first investment in any crypto fund. was one of several unique investments that will provide me a chance to learn more.
1confirmation, whose launch was reported Monday by WSJ Pro Venture Capital, is the second venture fund announced in the crypto space. (CNBC earlier reported on a new crypto venture fund, Placeholder Capital, by Union Square Ventures alum Joel Monegro and former ARK Investment Management analyst Chris Burniske.)
Tomaino believes 1confirmation is set apart from the many hedge funds in the space: They have 80% invested in bitcoin, and 15% in ether, and the rest in other tokens. So Im telling my people, if you want exposure to the existing asset class, thats going to get easier, you shouldnt pay 2-and-20 for that a reference to the common hedge fund fees of 2% for management and 20% of performance. If you want exposure to the best early-stage projects in the world — and only that — and thats something you cant do otherwise, you should invest in me, he said.
Though Tomaino would not count out the possibility of tokenizing the fund, which would give his LPs liquidity, he says he prefers to have quality capital from people who he knows can help him. For now, his emphasis is on building lasting products. The biggest challenge for the whole space remains developers building stuff that people actually want to use, he said.
When asked how he intends to figure that out, he said it comes down to the founders. The thesis for the fund is that people matter most in the space, he said. People tend want to read white papers and understand the technology, and I think that stuff is less important than people actually think. At the end of the day, the entrepreneurs behind these projects are the most important thing. Case in point, he said, was Ethereum cofounder Vitalik Buterin, who he said has been the recipient of a lot of hate but has been unemotional and objective in response.
Tomaino is also bullish on what he calls work tokens, which give users the right to contribute work to a distributed organization. For instance, he cites prediction market Augur as an example, since users do not need its REP token to use the prediction market, but do to work in it.
Via email, Cuban, wrote that the potential to create networks using crypto assets was one of the unique benefits of ICOs. On the other hand, he said, one of the risks in the crypto space is the distributed nature of the networks. It’s what makes it unique and extensible to almost any application. It also what makes it far more susceptible to internal and external politics. When people are part of something that has a big impact on extreme wealth opportunities, they tend to want to control it which leads to leadership conflict. He wrote external politics are also a risk. I have a hard time believing all sovereign nations will accept any one or even several currencies.
Like Amazon and Google came out of the internet bubble there will be winners and losers in cryptocurrencies, he wrote, though he acknowledged it was a long time before the trend would go mainstream. It’s too hard to buy for most people, harder to trust that it won’t be hacked, and even harder for most to understand.