Former Crypto Lawyer and ICO Advisor Julian Zegelman: Investing in ICOs Is a Risk on Dynamite

A talk with a venture capitalist about advising ICO projects, giving up his legal career and high-risk ratios.

Julian Zegelman, a lawyer with many years of experience, has turned into a VC — he’s now a general partner at TMT Blockchain Fund, a venture capital fund investing in blockchain technology projects.

But why did he end his legal career?

Catherine Ross: I was going to ask you a bunch of legal questions, but you've mentioned that you're not a lawyer anymore. How did that happen?

Julian Zegelman: It's like being a recovering alcoholic, you know? When you've been drinking for a long time, people remember that you used to drink. Personally, I don't drink [Eds: this is just a colorful metaphor]. But you go to the meetings and everyone there says, “Oh, you were an alcoholic.” And I’m not an alcoholic anymore. Leave me alone. I like skiing now.

I used to be a lawyer for a very long time; but in parallel, I was always drawn to business and I was always drawn to the creativity of business, which to me was creating new opportunities. And so, parallel to being a lawyer, I was an entrepreneur. I co-founded four companies: Two of them got acquired, two of them failed. I learned a lot from the failures.

CR: But did you work with the legal side of the crypto/blockchain industry?

JZ: Yes, a lot. Absolutely. That’s how I first got into it.

CR: Great! And my question is, how does a lawyer become a crypto lawyer? Are there any courses or training?

JZ: I think [it involves] meditating to Satoshi’s image.

CR: So, it means I might become one as well!

JZ: Absolutely. But seriously, you touched upon an excellent point. I think being a blockchain lawyer is about the question of what blockchain is — it is securities law, privacy law, contracts, or enforcement.

CR: But since blockchain is a technology, can it be regulated as any other technology is?

JZ: I think you need to have a general understanding of technology and the law for technology, and the ability to learn and adapt quickly. And then, you need to have an underlying, solid foundation in an area of law that is imposed — that's impacted by blockchain. I know criminal lawyers who are blockchain lawyers. They help people when, for example, there is a criminal matter and cryptocurrency is involved.

I know litigators who are blockchain litigators because they’ve done enough cases to understand some unique aspects. A lot of securities lawyers make great blockchain lawyers because now, more and more tokens are regulated as securities.

CT: And what does a regular VC company do in the crypto space? Do they only focus on crypto projects?

JZ: I like the word ‘blockchain.’ And you bring the wonderful distinction, because I like to break the distinction between three separate, but related things, which are blockchain as a technology; tokenization and token economics as a socioeconomic phenomena; and cryptocurrencies —  which everybody is excited about. [But] I haven’t even looked [at the Bitcoin price]. I don’t know what it is today. It could be $30,000 per Bitcoin, for all I care.

The interview has been edited and condensed. To watch a full interview, go here:

CR: Does that mean you focus on blockchain projects? Would that be correct?

JZ: In real-life language, we invest in companies that happen to use blockchain to solve real-life problems. In other words, they've got customers, and customers pay them money — or will pay them money in the foreseeable future — and we bet on the fact that somebody will buy their product.

CR: So, how do you decide in which companies to invest? How do you do your due diligence?

JZ: I’m going to be very contrarian, and very boring, and entirely non-sexy right now. The way we look at it is in a very traditional, boring way.

All flash to Lamborghinis, big conferences, people saying they're going to wipe out the banking system, the government, everybody is going to load into a rocket and Elon Musk is going to take everybody to the moon in exchange for tokens — it's got great entertainment potential, but we don’t invest there.

I talk to a lot of leading blockchain research groups — at Stanford, MIT, CalTech, Oxford, etc. — I [also] talk to people who are leaving large corporations or leaving the blockchain teams at large corporations to launch something else.

I look at serial entrepreneurs, I look at coders, we [at TMT Blockchain Fund] go to a lot of hackathons. We look in places where there are people who are going to build real technology. And then, we dig deeper and we look at the real technologies that could solve actual problems. And then, we dig even deeper and we think, “How do you build a sexy product or service out of this combination of a real technology that gives a solution to a real-life need?”

CR: And all them use ICOs, as a way of fundraising?  

JZ: Most of the time, they don’t. And I want to preface this with the fact that we have invested in ICOs and we probably will continue to invest in ICOs. And also, we’ve invested in what we call ‘special situations,’ which is, especially early in 2017, when we looked at opportunities that we believed had very good short-term profit potential, but we did not necessarily want to stay there in the long run.

CR: Traditional VC firms have been very considerate about the industry. Do you think we’ll see bigger interest from them in the future?

JZ: That market is changing.

As VCs, we didn't want to get into that because, a) that's insane, and b) the risk profile: The legislation wasn't there, the understanding of what will happen afterward wasn’t there.

CR: Okay, got it — it’s a gray area and VCs don’t like gray areas.

JZ: Extremely, yeah. It was extremely gray. Yeah, VCs don’t like gray areas because think about it as you’re starting a new relationship and your partner is bipolar — and I mean, I don't mean to be mean to anybody who has a psychological condition, but I’m just trying to bring some lightness.

A new relationship is a gray area anyway. A new relationship with the bipolar person is like going into a space that has…

CR: A high-risk ratio?

JZ: High-risk ratio: That's what ICO investing is.

A startup is risky — any startup is. And then, you snap down to ICO and unregulated markets on top of that, that’s like risk on dynamite.

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