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Crypto Needs More Product, Investing In Great Founders | Craig Burel

By Lightspeed

Published on 2024-03-12

Craig Burel discusses Reciprocal Ventures' journey into Solana, the importance of product and go-to-market strategy in crypto, and insights on investing in founders and applications versus tokens.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

Reciprocal Ventures: A Journey into Crypto

Reciprocal Ventures, led by partner Craig Burel, has been a key player in the cryptocurrency space since the early days of Solana. Burel's journey into crypto began during his time at Morgan Stanley, where he worked on the equity trading floor covering technology, media, and telecom sectors. Despite initial skepticism towards Bitcoin, Burel's interest in nascent technologies led him to explore the potential of blockchain and cryptocurrencies.

After leaving Morgan Stanley, Burel joined an early-stage AI company called FiscalNote, where he honed his skills in commercializing emerging technologies. It was during his time at FiscalNote that Burel encountered Ethereum and had his "aha moment" about the potential of smart contract platforms. This realization prompted him to transition into venture capital, joining forces with Mike, the founder of Reciprocal Ventures.

The Solana Connection

Reciprocal Ventures' involvement with Solana began in 2018 when Burel met Anatoly Yakovenko and Raj Gokal, the founders of Solana. The initial pitch for Solana, described as "NASDAQ on blockchain speed," resonated with Burel and aligned with Reciprocal's belief in the need for scalable blockchain solutions. This meeting led to Reciprocal investing in Solana's seed round, marking the beginning of a long-standing relationship with the ecosystem.

Burel explains the appeal of Solana: "We really, truly believed it was going to expand the design space of what could be accomplished on a blockchain by orders of magnitude." This belief has been validated over time, with Solana consistently delivering on its promises and attracting innovative projects to its ecosystem.

Founder Market Fit: The Key to Early-Stage Investments

For Reciprocal Ventures, the founder is paramount when it comes to early-stage investments. Burel emphasizes the importance of "founder market fit" - the alignment between a founder's experience, vision, and the market they're targeting. He explains:

"We're looking for like grit, tenacity, determined as like all these different character traits that really you can tell when you meet someone that they're going to push through friction, that they're going to break through walls."

This focus on the founder extends beyond just their technical abilities. Reciprocal Ventures looks for individuals who have a deep understanding of the sector they're targeting and possess unique qualities that make them "uniquely dangerous" in their chosen market.

The Importance of Go-to-Market Strategy in Crypto

One of the key insights Burel shares is the critical importance of go-to-market strategy in the crypto space. He argues that many projects in the past have relied too heavily on a "build it and they will come" mentality, which is insufficient in today's crowded market. Burel praises Solana's approach:

"That was actually one of the things that really stood out to me about Solana is that they had the complete opposite approach. They were totally ready to sell even before Mainnet."

Burel advises founders to start engaging with potential customers and partners early in the development process. He recommends talking to at least 20 potential design partners to test assumptions and shape the initial product and go-to-market strategy. This approach not only helps refine the product but also builds a foundation for future growth and adoption.

Investing in SOL vs. Applications

When it comes to the question of investing in the underlying token (SOL) versus applications built on Solana, Burel offers a nuanced perspective. While acknowledging that tokens can be seen as a levered bet on the underlying L1, he argues that there's value in investing in revenue-generating entities that provide services to large enterprises:

"I think there are unlocks from investing in a revenue generating entity that's handling the relationships and the service provisioning to large enterprises that can't necessarily just be captured in the publicly traded token."

This approach allows investors to capture returns that may not be fully reflected in the token price of the underlying blockchain.

The State of Crypto Gaming

Burel is particularly enthusiastic about the potential of crypto gaming, citing Photo Finish as an example of a successful implementation. He draws parallels between Photo Finish and early daily fantasy sports, highlighting the skill-based nature of the game and its ability to create a strong community:

"It's like you feel like you're a part of something by being a part of playing this game. And I think that's also what makes it unique from the historical extra-earn games where you're kind of grinding."

Burel challenges the notion that all crypto games need to be AAA titles, pointing out that simpler, well-executed games can be just as engaging and successful. He sees Photo Finish as a prime example of a digital economy within the crypto space, complete with asset ownership, staking, and community involvement.

The Convergence of Traditional Finance and Crypto

A significant portion of the discussion focuses on the ongoing convergence between traditional finance (TradFi), centralized finance (CeFi), and decentralized finance (DeFi). Burel outlines Reciprocal Ventures' thesis on this convergence, which is occurring on three levels:

  1. Shared technology use
  2. Shared assets
  3. Shared regulatory frameworks

The recent approval of Bitcoin ETFs is seen as a watershed moment for the crypto industry, signaling a new level of institutionalization. Burel predicts that this trend will likely extend to other assets like Ethereum and potentially Solana in the future.

Tokenization and Its Impact on Traditional Finance

The conversation touches on the growing interest in tokenization from traditional financial institutions. Burel explains that the primary driver for this interest is the potential for significant cost savings, particularly in areas like settlement and transfer agent fees. He cites Franklin Templeton's experience with their "Benji" operation, where moving to a blockchain-based system cut transfer agent costs by 90%.

Burel outlines a "crawl, walk, run" model for the adoption of blockchain technology by traditional banks:

  1. Crawl: Private, permissioned enterprise blockchains
  2. Walk: White-labeled access to public blockchains or L2 solutions
  3. Run: Fully integrated on-chain identity and seamless movement between protocols

The Rise of Meme Coins

The discussion concludes with thoughts on the recent surge in meme coin popularity. Burel views meme coins as a natural extension of crypto's internet-native community, combining capital markets with fun and humor. He explains their appeal:

"I think it's because, you know, there's like zero barriers to entry to like participating in a meme coin community. Like, you could put $5 in, right? Like you put $10, like it doesn't matter."

This low barrier to entry allows for broad distribution and community participation, which can be more challenging with other crypto assets like NFTs that often have higher price points.

The Future of Crypto: More Products and Applications Needed

Throughout the discussion, Burel emphasizes the need for more focus on product development and user experience in the crypto space. He sees Solana as being particularly well-positioned to foster innovative applications due to its high performance and growing ecosystem.

Burel is optimistic about the next few years for Solana, anticipating a wave of new applications that will showcase unique capabilities enabled by blockchain technology. He points to recent developments in DeFi, such as Jupiter and Kamino, as examples of projects delivering smooth, user-friendly experiences that rival traditional finance applications.

Advice for Crypto Founders

For aspiring crypto founders, Burel offers several key pieces of advice:

  1. Focus on founder market fit and develop a deep understanding of your target sector
  2. Start engaging with potential customers and partners early in the development process
  3. Don't neglect go-to-market strategy and sales - these are crucial for success in the crowded crypto space
  4. Consider bringing in investors who can provide valuable expertise in areas like go-to-market strategy
  5. Read extensively about sales and product development to build necessary skills

The Role of Venture Capital in Crypto

Reciprocal Ventures sees its role as more than just a source of capital. Burel emphasizes their hands-on approach to portfolio support, viewing it as a "profit center" rather than a cost center. This approach allows them to stay closely connected to the cutting edge of the industry and provide valuable insights and connections to their portfolio companies.

Conclusion: The Evolving Crypto Landscape

As the crypto industry continues to mature, the conversation with Craig Burel highlights several key trends and opportunities:

  1. The growing convergence between traditional finance and crypto
  2. The need for more focus on product development and user experience
  3. The potential for innovative applications, particularly in gaming and DeFi
  4. The importance of strong go-to-market strategies for crypto projects
  5. The ongoing evolution of investment strategies in the crypto space

With Solana's continued technical progress and growing ecosystem, the platform is well-positioned to be at the forefront of these developments. As more institutional players enter the space and new applications showcase the unique capabilities of blockchain technology, the crypto industry is poised for significant growth and innovation in the coming years.

Facts + Figures

  • Craig Burel is a partner at Reciprocal Ventures, which has been investing in crypto since early 2017
  • Reciprocal Ventures invested in Solana's seed round in 2018
  • The original pitch for Solana was "NASDAQ on blockchain speed"
  • Solana has consistently delivered on its promises and attracted innovative projects
  • Reciprocal Ventures focuses on early-stage investments (pre-seed through Series A)
  • The firm also invests in public tokens in some cases
  • Franklin Templeton's "Benji" operation cut transfer agent costs by 90% by moving to a blockchain-based system
  • Photo Finish, a horse racing game on Solana, is cited as a successful example of crypto gaming
  • The approval of Bitcoin ETFs is seen as a watershed moment for the crypto industry
  • Meme coins are viewed as having zero barriers to entry, allowing for broad community participation
  • Reciprocal Ventures has a thesis on the convergence of TradFi, CeFi, and DeFi
  • The firm recommends founders talk to at least 20 potential design partners early in the development process
  • Burel predicts that Ethereum and potentially Solana ETFs may follow the Bitcoin ETF in the future
  • Jupiter and Kamino are mentioned as examples of DeFi projects with smooth, user-friendly experiences
  • Reciprocal Ventures views portfolio support as a "profit center" rather than a cost center

Questions Answered

What is Reciprocal Ventures' investment strategy in crypto?

Reciprocal Ventures focuses on early-stage investments, from pre-seed through Series A rounds, in the crypto space. They prioritize founder market fit and look for entrepreneurs with grit, tenacity, and a deep understanding of their target sector. The firm also invests in public tokens in some cases and takes a hands-on approach to portfolio support, viewing it as a profit center rather than a cost center.

How did Reciprocal Ventures get involved with Solana?

Reciprocal Ventures became involved with Solana in 2018 when Craig Burel met Anatoly Yakovenko and Raj Gokal, the founders of Solana. The initial pitch for Solana as "NASDAQ on blockchain speed" aligned with Reciprocal's belief in the need for scalable blockchain solutions. This meeting led to Reciprocal investing in Solana's seed round, marking the beginning of a long-standing relationship with the ecosystem.

What does Craig Burel think about the state of crypto gaming?

Craig Burel is optimistic about the potential of crypto gaming, citing Photo Finish as a successful example. He believes that not all crypto games need to be AAA titles and that simpler, well-executed games can be engaging and successful. Burel sees crypto gaming as a prime example of digital economies within the crypto space, complete with asset ownership, staking, and strong community involvement.

How does Reciprocal Ventures view the convergence of traditional finance and crypto?

Reciprocal Ventures has a thesis on the convergence of traditional finance (TradFi), centralized finance (CeFi), and decentralized finance (DeFi). They believe this convergence is occurring on three levels: shared technology use, shared assets, and shared regulatory frameworks. The recent approval of Bitcoin ETFs is seen as a significant step in this convergence, signaling increased institutionalization of the crypto industry.

What advice does Craig Burel offer to crypto founders?

Craig Burel advises crypto founders to focus on founder market fit, engage with potential customers early in the development process, prioritize go-to-market strategy and sales, consider bringing in investors with relevant expertise, and continuously educate themselves on sales and product development. He emphasizes the importance of having a clear vision and the ability to execute in the competitive crypto space.

How does Reciprocal Ventures view meme coins in the crypto ecosystem?

Craig Burel sees meme coins as a natural extension of crypto's internet-native community, combining capital markets with fun and humor. He notes that their low barriers to entry allow for broad distribution and community participation, which can be more challenging with other crypto assets. While not dismissing their popularity, Burel emphasizes the need for more focus on product development and user experience in the broader crypto space.

What are the key trends Craig Burel sees in the future of crypto?

Craig Burel highlights several key trends for the future of crypto: the need for more focus on product development and user experience, the potential for innovative applications (particularly in gaming and DeFi), the importance of strong go-to-market strategies, and the ongoing evolution of investment strategies in the crypto space. He is particularly optimistic about Solana's potential to foster innovative applications due to its high performance and growing ecosystem.

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