The Origins of Placeholder: A Hybrid Approach to Crypto Investing

In the ever-evolving world of cryptocurrency and blockchain technology, innovative investment strategies are crucial for navigating the volatile market landscape. Placeholder, a cryptocurrency venture capital firm founded by Chris Burniske and Joel Monegro, has emerged as a pioneer in blending traditional venture capital structures with public market practices. This unique approach has positioned them at the forefront of crypto investing, allowing them to capitalize on opportunities across both private and public markets.

The genesis of Placeholder can be traced back to a chance meeting between Burniske and Monegro at an NYU blockchain conference in 2016. At the time, Burniske was working at ARK Invest, a public asset manager, while Monegro was employed at Union Square Ventures, a venture capital firm. Their diverse backgrounds in public markets and venture capital respectively laid the foundation for Placeholder's innovative investment strategy.

Bridging the Gap: Venture Capital and Public Market Strategies

Placeholder's hybrid model is designed to leverage the strengths of both venture capital and public market investing. The firm utilizes a venture capital structure to manage the inherent volatility of the crypto market over extended periods. This approach allows them to make long-term bets on promising projects and technologies. Simultaneously, they maintain a public market practice that enables them to capitalize on shorter-term opportunities and market fluctuations.

This dual approach sets Placeholder apart from traditional venture capital firms and hedge funds in the crypto space. While many firms focus exclusively on either private investments or public market trading, Placeholder's strategy allows them to operate effectively across both domains. This flexibility has proven invaluable in an industry where the lines between private and public markets are often blurred.

The Placeholder Investment Philosophy: Long-Term Holds and Distressed Asset Buying

At the core of Placeholder's investment strategy is a focus on multi-year holds, typically ranging from three to ten years. This long-term perspective allows the firm to weather short-term market volatility and capitalize on the fundamental value of their investments. Chris Burniske emphasizes the importance of understanding what constitutes a good valuation and maintaining discipline in investment decisions:

"A lot of our internal work is keeping ourselves sane in what can be an insane industry and saying, okay, this is a really interesting opportunity, but it's overpriced. And so it's not a good investment to make."

This disciplined approach has led Placeholder to become adept at distressed asset buying in public markets. The firm often accumulates positions during bear markets or periods of market stress, such as late 2022 and early 2023. This strategy allows them to acquire assets at attractive valuations, positioning themselves for significant upside potential when market conditions improve.

Solana: A Case Study in Placeholder's Investment Approach

Placeholder's investment in Solana serves as a prime example of their ability to identify promising projects and build conviction over time. The firm's journey with Solana began with conversations with the project's founders in 2020. While they initially decided not to invest, they continued to monitor the project's progress closely.

Their entry into the Solana ecosystem came through an investment in Orca, a decentralized exchange built on Solana. This initial foray allowed Placeholder to gain deeper insights into the Solana ecosystem and its potential. As they observed the quality of entrepreneurs and projects being built on Solana, their conviction in the platform grew.

The collapse of FTX in late 2022 proved to be a turning point for Placeholder's investment in Solana. While many in the market viewed this event negatively, Placeholder saw it as an opportunity to double down on their conviction. The firm was impressed by the commitment and resilience demonstrated by teams building on Solana in the aftermath of the FTX crisis.

Valuation Dynamics: Solana vs. Ethereum

Placeholder's investment thesis for Solana was further strengthened by favorable valuation dynamics compared to Ethereum. During the 2022-2023 bear market, Solana's fully diluted valuation (FDV) bottomed at around $4-5 billion, significantly below Ethereum's bottom valuation of $9.6 billion in the 2018-2019 bear market.

This valuation discrepancy, coupled with the quality of entrepreneurs and development activity on Solana, provided Placeholder with a compelling risk-reward proposition. As Chris Burniske notes:

"Sol is now trading at 50% beneath Ethereum's bottom valuation in 1819. But the quality of the entrepreneurs and the deaths that we see being built and the likely future fundamentals are likely to match that of Ethereum at that point in time."

The Importance of Entrepreneur Quality in Ecosystem Development

A key factor in Placeholder's investment decisions is the quality of entrepreneurs building within an ecosystem. In the case of Solana, the firm was particularly impressed by the efficiency and speed with which teams were able to develop high-quality applications.

Joel Monegro highlights the example of Tensor, a successful application built on Solana by a small team with minimal resources:

"A great example here is the Tensor team, which probably exemplifies the extreme of efficiency in this case, were two young guys delivered one of the more successful applications in crypto at the time, which had a supreme user experience compared to things that we were seeing on Ethereum, teams that were on Ethereum that raised 100 times more money and had teams that were 20 times the size."

This ability to deliver high-quality products with minimal resources and time-to-market is a testament to the efficiency of the Solana ecosystem and its appeal to talented developers.

The Solana vs. Ethereum Paradigm: Complementary Approaches

Rather than viewing Solana and Ethereum as direct competitors, Placeholder sees them as complementary ecosystems catering to different market segments and use cases. Joel Monegro draws an analogy to the mobile operating system market, comparing Ethereum's modular, distributed architecture to Android, while likening Solana's integrated approach to Apple's iOS.

This perspective allows Placeholder to invest in both ecosystems, recognizing that different segments of the market will gravitate towards different architectures. As the crypto industry matures, the firm anticipates that many applications will become multi-chain, deploying across both Solana and Ethereum to maximize their reach and utility.

Navigating the Challenges of Crypto Fundraising

For entrepreneurs looking to raise capital in the crypto space, Placeholder offers valuable insights based on their extensive experience. The firm emphasizes the importance of approaching fundraising strategically, starting with lower-stakes pitches to friends and family before working up to more consequential investors.

Chris Burniske advises entrepreneurs to be cautious of early term sheets and not to succumb to pressure:

"If you get a term sheet very quickly, and you're feeling pressure from someone, you as the entrepreneur are in the driver's seat. So there's no reason to succumb to that pressure and be like, I have to take this term sheet."

This advice underscores the importance of entrepreneurs maintaining control over their fundraising process and not rushing into deals that may not be in their best long-term interests.

The Pitfalls of Overvaluation and Excessive Fundraising

While the crypto market has seen its fair share of flashy, high-valuation raises, Placeholder cautions against the dangers of raising too much money or setting unrealistic valuations. Chris Burniske draws an analogy to living in an expensive neighborhood:

"If you raise hundreds of millions of dollars, you're basically living that the analogy I actually use is you're living in one of the biggest houses in an expensive neighborhood. Any window installations, doorknob replacements, plumbing issues, electrical issues, that's all going to cost you two to three X more than it should."

This perspective highlights the hidden costs and pressures that come with high valuations and large fundraises. Entrepreneurs may find themselves burdened by inflated expectations and increased scrutiny, potentially distracting from their core mission of building and innovating.

The Complexity of Token Launches and Market Dynamics

The process of launching a token and managing its early-stage market dynamics presents a unique set of challenges for crypto projects. Placeholder recognizes the delicate balance that must be struck between attracting sufficient liquidity and avoiding excessive speculation or manipulation.

Joel Monegro points out the catch-22 that many projects face when it comes to exchange listings and market infrastructure:

"Before you launch exchanges, custodians, etc., they don't want to spend a lot of resources listing a $30 million market cap asset because they're not going to make a lot of money doing that. The custodians charge, make money based on assets under custody and then the exchanges make money on trading volumes which are correlated to a large degree to the market cap."

This dynamic often creates pressure for projects to aim for higher initial valuations to attract the necessary market infrastructure support. However, this can come at the cost of long-term sustainability and community building.

The Role of Decentralized Exchanges in Token Distribution

Placeholder sees potential in leveraging decentralized exchanges (DEXs) for more equitable and controlled token distributions. Chris Burniske suggests that a revival of Initial DEX Offerings (IDOs) or similar mechanisms could provide a middle ground between private sales and centralized exchange listings:

"Can we have a funnel where you have the single A's AA's, triple A's of liquidity up to the major leagues of the centralized exchanges? Can you build up in that process?"

This approach could allow projects to build liquidity and community support more organically before seeking listings on major centralized exchanges.

Balancing Institutional and Retail Participation

One of the ongoing challenges in the crypto market is finding the right balance between institutional and retail participation in token launches and early-stage projects. Placeholder recognizes the importance of creating opportunities for individual investors while also accommodating the needs and constraints of institutional capital.

The firm suggests that a well-designed capital structure should aim to balance participation across private markets, centralized liquidity venues, and decentralized liquidity venues. This balanced approach can help projects build a diverse and resilient community of supporters and users.

Advice for Aspiring Crypto Entrepreneurs

For those looking to enter the crypto space as entrepreneurs, Placeholder emphasizes the importance of immersing oneself in the community and building genuine connections. Chris Burniske highlights the value of in-person meetups and small, intimate gatherings:

"For such a digitally dominated industry, I do think that meeting people in real life, especially in smaller venues, is a key part of this. Learning the inside game through really honest conversation."

This advice underscores the importance of building a strong network and gaining deep, nuanced insights into the industry beyond what is publicly available on social media or in formal presentations.

The Future of Crypto Investing: Adapting to Evolving Market Dynamics

As the crypto market continues to mature and evolve, firms like Placeholder are at the forefront of developing new investment strategies and approaches. The firm's hybrid model, combining venture capital structures with public market practices, serves as a blueprint for how investors can navigate the unique challenges and opportunities presented by the crypto ecosystem.

By maintaining a long-term perspective while also remaining responsive to short-term market dynamics, Placeholder has positioned itself to capitalize on opportunities across the spectrum of crypto investments. Their success in identifying and supporting promising projects like Solana demonstrates the value of this flexible, multi-faceted approach.

Conclusion: Lessons for Investors and Entrepreneurs in the Crypto Space

The insights shared by Chris Burniske and Joel Monegro offer valuable lessons for both investors and entrepreneurs operating in the crypto space. Their emphasis on disciplined valuation, long-term thinking, and adaptability provides a framework for navigating the often turbulent waters of crypto markets.

For entrepreneurs, the key takeaways include the importance of strategic fundraising, building strong relationships within the community, and maintaining a balanced approach to token distribution and market dynamics. By learning from the experiences and strategies of successful firms like Placeholder, aspiring crypto founders can better position themselves for long-term success in this rapidly evolving industry.

As the crypto ecosystem continues to grow and mature, the principles and strategies discussed by Placeholder will likely play an increasingly important role in shaping the future of blockchain technology and digital asset investments. By fostering a more sustainable and equitable approach to crypto investing and project development, firms like Placeholder are helping to build a stronger foundation for the long-term success of the entire ecosystem.

Facts + Figures

• Placeholder was founded by Chris Burniske and Joel Monegro in 2017
• The firm combines venture capital structures with public market practices
• Placeholder's funds are typically around $150 million in size
• The firm aims to call about 70% of committed funds over a roughly three-year period
• Placeholder focuses on multi-year holds, ranging from 3 to 10 years
• During the 2018-2019 bear market, Ethereum bottomed at about $80, with a $9.6 billion fully diluted valuation (FDV)
• In the 2022-2023 bear market, Solana bottomed at $7-$8, with a $4-5 billion FDV
• Placeholder made its first investment in the Solana ecosystem through Orca, a decentralized exchange
• The firm has invested in several Solana projects, including Tensor, Drip, Squads, and Jito
• Placeholder encourages portfolio companies to offer the public the same valuation as the last private round when listing tokens
• The firm suggests that staking income from locked tokens should be subject to the same lockup as the originating token

Questions Answered

How does Placeholder's investment strategy differ from traditional venture capital firms?

Placeholder combines venture capital structures with public market practices, allowing them to invest in both private companies and liquid assets. This hybrid approach enables the firm to manage long-term investments while also capitalizing on short-term market opportunities. Unlike traditional VC firms that focus solely on private investments, Placeholder can adapt its strategy based on market conditions and opportunities across both private and public markets.

What attracted Placeholder to invest in the Solana ecosystem?

Placeholder was attracted to Solana due to the quality of entrepreneurs building on the platform, the efficiency of development, and favorable valuation dynamics compared to Ethereum. The firm was impressed by the ability of small teams to deliver high-quality applications quickly and with minimal resources. Additionally, during the 2022-2023 bear market, Solana's valuation dropped to levels that Placeholder found attractive, especially when compared to Ethereum's valuation during previous market cycles.

How does Placeholder approach valuation and timing in crypto investments?

Placeholder focuses on understanding what constitutes a good valuation and maintaining discipline in investment decisions. The firm often acts as a distressed asset buyer, accumulating positions during bear markets or periods of market stress. They use a strategy of buying through market bottoms, spreading their purchases over time rather than trying to time the exact bottom. This approach allows them to build significant positions while managing risk in the volatile crypto market.

What advice does Placeholder offer to entrepreneurs looking to raise funds in the crypto space?

Placeholder advises entrepreneurs to approach fundraising strategically, starting with lower-stakes pitches to friends and family before approaching more significant investors. They caution against succumbing to pressure from early term sheets and emphasize the importance of maintaining control over the fundraising process. The firm also warns against the dangers of raising too much money or setting unrealistic valuations, as this can create unnecessary pressure and expectations.

How does Placeholder view the relationship between Solana and Ethereum?

Rather than seeing Solana and Ethereum as direct competitors, Placeholder views them as complementary ecosystems catering to different market segments and use cases. They draw an analogy to the mobile operating system market, comparing Ethereum's modular, distributed architecture to Android, while likening Solana's integrated approach to Apple's iOS. This perspective allows Placeholder to invest in both ecosystems, recognizing that different segments of the market will gravitate towards different architectures.

What challenges do crypto projects face when launching tokens?

Crypto projects face a complex set of challenges when launching tokens, including attracting sufficient liquidity, avoiding excessive speculation, and navigating the requirements of exchanges and market makers. Placeholder highlights the catch-22 where projects need high valuations to attract market infrastructure support, but this can come at the cost of long-term sustainability. The firm suggests exploring alternatives like leveraging decentralized exchanges for more controlled and equitable token distributions.

How important is community engagement for crypto entrepreneurs?

Placeholder emphasizes the crucial role of community engagement for crypto entrepreneurs. Despite the digital nature of the industry, the firm highly values in-person meetups and small, intimate gatherings for building genuine connections and gaining deep insights. They advise aspiring entrepreneurs to immerse themselves in the community, attend focused events like white paper discussions, and build a strong network beyond what is available through social media or formal presentations.

What is Placeholder's perspective on the future of crypto investing?

Placeholder sees the future of crypto investing as requiring adaptability to evolving market dynamics. Their hybrid model, combining venture capital structures with public market practices, serves as a blueprint for navigating the unique challenges and opportunities in the crypto ecosystem. The firm believes in maintaining a long-term perspective while remaining responsive to short-term market movements, allowing them to capitalize on opportunities across the spectrum of crypto investments.