Intelligent Investing In the Blockchain Space with Tomer Federman

In this episode Trent Lapinski and Tomer Federman discuss why he left Facebook to start his own crypto and blockchain investment fund.

“I think this technology is truly revolutionary, is going to disrupt the financial ecosystem, and is going to have major impact across entire industries in years to come.”

“Crypto shouldn’t be about getting rich quickly. It should be about creating meaningful products that solve real world needs, and address real pain points.”

“If I’m right and blockchain is going to be so transformative, it’s obviously going to generate significant returns for investors who invest wisely. The ability for people to transact with no intermediaries involved, and for the transactions to be recorded in an open way and settled almost immediately, the opportunities for building on top of the technology is just mind blowing.” — Tomer Federman

Intelligent Investing In the Blockchain Space with Tomer Federman

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Also check out February top stories, the latest stories and today’s homepage.Transcript of episode:

Welcome to the podcast I’m here with Tomer. Hey Tomer, tell us a little bit about who you are and what you’re working on.

Yea, sure. My name is Tomer Federman. I am the founder and CEO of Federman capital. We’re a new hedge fund that’s about to launch soon, focused on investments in blockchain technology and cryptoassets. We aim to invest, of course, the entire asset class, from taking positions in well established cryptocurrencies, all the way to investing in real estate startups, blockchain startups, in some cases even before they go live. In terms of my background, I have 15 years of experience in Tech, working both in startups and major tech companies. I spent the last 3 years at Facebook where I led Product Strategy and Global Growth for some of Facebook’s major ad products, and I’m based in London, but spent the majority of my … and in Silicon Valley where I got my MBA at Stanford. Later after finishing graduate school I actually had a startup incubated by Stanford. Thanks for the invite, really excited to be here today.

Yeah, awesome. So you recently wrote an article about how you left Facebook and wanted to join the crypto space. Can you talk a little bit about what led to that decision?

Yeah, of course. Facebook is a really amazing company, and I was really lucky to work there for a few years. And it’s not just you know, the benefits and perks you get, but it’s also, and most importantly, it’s about working with the best and the brightest in my mind. And, you know, working with products that have millions of advertisers and billions of users, and generate multi-million dollar revenues. It was a once in a lifetime opportunity and I’ve learned a ton being on the product side there. But for me, I wrote this post about why I decided to leave what I call the best job in the world. For me there were primarily three reasons to starting the fund and leaving Facebook. The first is my passion for distributed ledger technology. I really believe this technology is truly revolutionary, and is going to disrupt the financial ecosystem and is going to have major impact across entire industries in years to come. Secondly, beyond just my passion for the technology and the impact that I think it’s going to have, I think it’s also it’s a major opportunity. It’s ripe for an investor to get exposure across various verticals, such as financial services, or identity management, or supply chain management. The way we create data and share it with others and so forth. It’s just going to impact so many facets of our lives. And so for me, initially, I kind of thought about starting a company. That’s what I do, build products. But ultimately, I decided to start the fund just because I don’t want to go very deep into one niche and spend the next few years doing that. I want to have broad exposure to blockchain and crypto across various verticals just because I think it’s going to be so transformative. That’s why I decided to become an investor and entrepreneur. And the third reason is really because I think there’s a major opportunity here from an investor’s perspective. If I’m right and blockchain is going to be so transformative, it’s obviously going to generate significant returns for investors who invest wisely. These are kind of the three reason. It was a tough decision for sure, but I am just so passionate about this and I am really convinced that the technology have major impact. Sometimes in life you just gotta go for it.

Yeah, and what are your thought on tokenized assets and where you see some of the stuff going, because to me I think 2019 which this episode will probably air in. I’ve been telling people that it will be the year of the security token or STO. You know, offerings and more tokenization of digital assets and in that kind of direction. Do you have any thoughts there?

Yeah, definitely, I think you’re right, and there’s a huge opportunity with STOs moving forward. The financial ecosystem and the way it works hasn’t changed for decades. Certainly, as an Israeli who went to school in the US and lived there for a few years, and now living in the UK, I’m very familiar and fortunate with the difficulties of wiring money across borders. It takes so long. The fees are so ridiculously high. Sometimes it gets delayed if you wire large amounts of money. The bank calls you. Nobody knows where the money is at some points. There’s so many intermediaries involved. It’s just a mess.

I’ve been going through it recently, personally. I have a wire that’s been who knows where.

And you don’t know right? As you go through this and the money still hasn’t arrived. There’s several banks involved sometimes, it’s just ridiculous. Actually, the first time I made a transaction using cryptocurrencies, and within a few seconds the money was done. I could see where it is, and I could see it settled. I was blown away, and I just felt like I just got a window into the future, and I couldn’t stop thinking about it ever since. I think right now it’s a very early stage, and it’s very, very early days. For me, the comparison is 1994 if we’re talking in internet terms. We’re kind of in the dialup stage right now for blockchain, and the infrastructure just isn’t there yet. Scalability isn’t very good for most projects. For most significant blockchains UI is terrible. My mother wouldn’t know how to use it right now. It’s just too difficult. The design is pretty poor for most of these apps. The fact is the vast majority of people certainly in the western side have never actually bought a crypto or bitcoin. While they may have heard about it, they haven’t actually used it. For me the investment is really about focusing on the infrastructure. In the next 2 years, I think there is a major opportunity to improve the infrastructure side. And then, I can see consumer apps kind of evolving from there, making major impact. Our focus is going to be mostly on infrastructure right now and solving problems across that spectrum and in the next 2 years or so at least. I think STO’s are a big part of that. … talking about tokenized funds and tokenizing things like real estate. We’re already starting to see things like this happening, and I think it’s super exciting.

Do you have any thought on what’s happening with the crypto markets? At the time we’re recording this, the markets have been pretty down lately. There’s been a lot of news stories recently about crypto startups that had to lay people off. There’s definitely been some steam taken out of the market. Do you have any thoughts on what we’re seeing with the current market at this moment? How does that affect where your thinking is moving forward?

Yeah, to be honest, I’m not really surprised. If you’ve been in the tech for quite some time …

(fixing mic dialogue around 9:00)

So can you just start your thought process over again, and the question was what are your thoughts on the crypto market and the recent crash?

My view is kind of on many of these topics. I’d like to think it’s pretty pragmatic and influenced by my previous experience. When you look at some of these crypto projects that had huge valuations last year with close to zero usage, and in really ambitious projects in some cases. Many of the whitepapers using a ton of buzzwords to describe things like incredible throughput and so forth, but how they actually do that nobody really knows. In my view it’s actually very good what’s happening right now. Of course, people are losing money and that’s never nice. It’s a shame that it’s happening, but at the same time as an industry we have to be focused on the fundamentals. While there’s not necessarily a way to do a BCF or LBO analysis and there’s no cash flow that’s happening right now, it certainly has to make some sense. When you look at some of these projects that have raised tens of millions of dollars with retail investors in some cases investing without really understanding the fundamentals and the underlying technology, that I think is just not healthy, and certainly not sustainable. We’re experiencing it now. For instance, basically the public ICO market being dead now and companies having to go for a more traditional route of meeting with accredited investors and pitching to funds and so forth, and having to go through that whole deal before, in the vast majority of cases, they can offer it to retail investors and hit the exchanges. If you’re a retail investor, and you’re investing in something that has been vetted by professionals by people who are at least supposed to know what you’re doing, that’s a good thing. I’ve heard some horror stories, honestly. I think the people who are in it and really believe in the technology and share the vision for a more open financial system, and beyond that just improving financial system across the board and the way we keep records, they’re going to stay and they’re going to focus on building. Price is almost a distraction at this point. The people who are in it for getting rich quickly, if they’re not in it now is probably a good thing. Crypto shouldn’t be about getting rich quickly. It should be about creating meaning products that solve real world needs, and address real pain points. In some cases, blockchain doesn’t make these products better, in fact it just makes them more costly and difficult to maintain. If that’s the case, it’s probably not a very good product market fit. I think what’s happening right now is really healthy in the longer term. In a way, the 2000s .com bubble bursting for the internet was a good thing. We no longer saw pets.com and these types of companies, but in the years following that we saw companies like Amazon and Google emerging. I think we’re going to see something similar happening in crypto as well.

We kind of saw this even with social networking I would argue. You had your Friendster and your Myspace, and your initial social networks. Then you had Facebook, which you worked at, come in and dominate that entire sector. We’ve seen this evolution in the tech industry before going through these phases of this initial burst of energy and opportunity in a market, then it kind of fizzles out, and then the real players who are in it for the long term show up.

Exactly, exactly.

You mentioned horror stories before. I’ve heard quite a few, especially recently, with the market being down. I heard about one company. I believe they raised about $30 million, and I heard some inside info, they only had about 5000 users. That’s what we’re looking at right now with these crypto projects. How can you raise $30 million dollars, build a product, and not have any money left over to do marketing and build a user base? Now they’re focused on user growth, but it took them a couple of years to get there. I’m seeing that same kind of pattern emerge, and now I’m seeing a new trend where people are trying to get users and trying to figure out what that user interface looks like, what that product actually looks like, so that we can solve those problems for people.

Yeah, totally. You see some things that honestly make no sense. As someone that worked on some pretty big products, I was talking with an entrepreneur the other day and he was telling me how the entire team is decentralized. So he’s sitting in Canada and the lead engineer is in South America and some of the sales team are back in Europe. That’s never going to work. Not never, but it’s going to make it so much more difficult to work. When I was building products, I want my designer sitting next to me, and I want the person doing the research sitting next to me as well. That proximity … and all these casual conversation that happen, without planning them just make you move so much faster. You get so many insights that you wouldn’t otherwise. You just talk to the designer and go “you know, I just noticed this and that problem”. If you were sitting across the globe you wouldn’t schedule a meeting just for that. I call this decentralization mania, and a lot of the folks I talk to try to prove how decentralized the teams are. You know what? When I look at governance, I like to see some sort of centralization, having a clear leadership put in place. A much more effective decision making process gives me much more confidence that the team can execute on the vision. The product should be decentralized. There is a lot of benefits for decentralization on the product level, but that doesn’t mean everything should be decentralized. My view in many of these things, rather than reinventing the wheel, we can take some best practices and learn from things that worked. The internet created some really amazing companies, and we should just think how can we make them even better, rather then “let’s break everything apart and start from scratch” and reinvent governance and the way we run companies. I’m not surprise a lot of these companies are struggling. You make a very good point. I’ve seen companies that have raised tens of millions of dollars and have 50 users, not even 5000. It’s just ridiculous. And this information is public. You can go to many websites and track usage. We have to go back to the fundamentals and think how we leverage blockchain technology to solve real problems, and I think there’s a lot of problems to be solved. I think blockchain is an amazing and revolutionary technology, but we have to be smart about this. There’s also a lot of talent now that we see shifting gradually more and more towards the space. Over time, organically, we’ll see higher quality teams and projects being built. Certainly, I already see a lot of exciting things happening, but I would say a vast majority of them are still not going to work in the long term.

There’s definitely some business models that people are trying to apply that don’t make sense. I fully agree, there has to be a centralized component to some of these organizations and companies, and a decentralized component. Those two need to work together. I personally call them hybrid systems. I think where people are going to have to take a step back and say “ok, I have to build a hybrid solution right now” because that’s where the technology actually is. We are in the early days like you were talking about before, and that’s ok. That’s normal. It’s normal to build a bridge, whether you’re crossing a valley or river, to get there. You shouldn’t expect to build a fully decentralized solution tomorrow and do everything you can do with the centralized solution. The tech’s arguably not there yet. Eventually it can be, but that’s ultimately why you’re starting an investment firm and investing in infrastructure and figure out who those players are going to be. Scalability is still a huge concern.

Oh, yeah. It is huge: scalability, UI. There’s a lot of these issues, but again we should learn from the great businesses that have been built online over the past 15–20 years. There’s a lot to be learned there. There’s a lot that we can probably make better.

(video messed up, Tomer restates his thought)

Some of these companies become gatekeepers to some of these technologies, and decentralizing that and making it more open and transparent is a good thing. We should strive towards that, but some elements of it we should use best practices for leadership and governance and other examples. We can attribute a lot of value to early-stage first mover advantage and things like that. The companies and token that are up right now almost seems inevitable, but if you look at the internet, who’s the ultravistas. Some people laugh, but I remember using ultravista as a kid. Ultravista was the number 1 search engine. The way that has changed is likely to also happen in the blockchain space. Many of the companies, perhaps even in the top 10 right now in terms of market cap, are not necessarily going to be there 5–10 years down the road, which is why it’s such an exciting opportunity for an investor. The next Amazons and Googles of the world are getting built right now and maybe haven’t even started getting built on blockchain technology.

So tell us about your fund and where you are at right now? Are you still in the process of raising your fund?

Yeah, we haven’t made an official announcement yet about the launch. I expect that to happen soon. We’re getting a lot of positive feedback, thankfully, and a lot of investor interest as well. Right now, we’re just talking to a lot of investors who are interested in getting involved and are basically setting up the fund. I expect to make an official announcement soon.

Maybe by the time this episode airs or shortly after. This is the HackerNoon podcast so I have to ask about a time in your life when you had to hack something.

That’s a great question. By the way, I’m a big fan of your podcast and I think your doing an amazing job. I think the hacker mentality is a big piece of it. I used to work for a company based on the idea of “one hack away”. I can relate to that in a way, but actually a hack, if you will, like a life … related to my experience in tech over the years. I find that the more senior and experienced you become, obviously you become more busy. For me, that resulted in recent years, not exercising a lot. I have not been exercising nearly as much as I would have wanted to. Also, I find I can get so deep into things, I feel it’s good sometimes to step back and reflect on things and see the bigger picture. What I’ve been doing recently is just taking long walks, where I take a walk for an hour to an hour and a half, often listening to podcasts. One of my favorite being HackerNoon. That’s just something that’s had a really positive impact on me. I get more exercise and gives me the opportunity to relax, breathe, and reflect on things. That’s kind of like a life hack that’s worked for me recently.

I think that was one of Steve Jobs hacks as well. He was know for taking people on walks. He kind of did it alone initially, and then started taking people with him. He actually held meetings this way.

Yeah, when I worked in California, a lot of them like to do walking meetings. In London it’s a little more difficult because the weather is unpredictable unfortunately. Steve Jobs is certainly someone I can look up to.

Well, can you give us a bit of your final thoughts on crypto, and your investment firm, and everything we’ve talked about so far.

Yeah, this is really an exciting time for crypto. People talk about the market being down, and certainly the market has crashed this year. When you take a step back, even with Bitcoin being at the time of this recording around $3500, generally, even last year, Bitcoin was worth $1000 at one point. Today, we’re still talking about an asset class that performs incredibly well over the past few years. I think this is just the beginning as I said earlier. Some of the projects I see right now and some of the opportunities are just limitless. The ability for people to transact with no intermediaries involved, and for the transactions to be recorded in an open way and settled almost immediately, the opportunities for building on top of the technology is just mind blowing. I’m super bullish on the space. I’m really excited about the opportunities. If people want to learn more, they definitely should look more into it. I remember people talking about the internet saying that it will never work, so I’m excited to see what’s next.

Yeah, we know decentralization works, just look at AirBnB and Uber. These are ultimately hybrid systems, where you have a centralized component and a decentralized component. They disrupted hotels and the taxi industry. It’s just a matter of time now before we get those similar disruptions. So where can people find you?

I’m on twitter, that’s one of the better ways to follow me. Also, they can go to our website, we have a public email that’s being actively monitored at FedermanCapital.com. Plus, I write from time to time on Medium.

Well, thank you for coming on our show.

Yeah, thanks for having me.

Intelligent Investing In the Blockchain Space with Tomer Federman was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.