You say you want a revolution? Well, you know…..
Welcome to post number one of the ‘Diary of a Crypto Entrepreneur.’ Truth be told it was Tim Draper who put me up to this. We have been challenging each other since we were 6 years old. If you are lucky enough to have anchored yourself in the same town you grew up in like we have, nothing really seems to change. This has been a tremendous gift, and Tim has been a tremendous friend.
It all started a few months back in a email chat between a small group of newly baptised crypto-heads, where I began lamenting the idea that the token business has no real valuation basis. I said something like, “This craze is so out of control, it makes it look like we were playing with Tinkertoys during the Internet Bubble.” That’s when Drape boomed in, “Perk, when are we going to see the book ‘Crypto Bubble.”
The fodder for Tim’s challenge was the fact that back in 1999, my brother Michael and I wrote what turned out to be an international best-selling book called The Internet Bubble: What You Need to Know to Avoid the Coming Shakeout (HarperBusiness 1999). For our analysis, we simply borrowed an algorithm created by the now famous VC Bill Gurley of Benchmark who, at the time, was making a name for himself as an out-of-the-box Wall Street analyst. When we applied Mr. Gurley’s equation to the trading values of all the Internet companies that had gone public you didn’t have to be a MIT statistics professor to see that it was time to run for cover. Hence the first sentence of our book; ‘If you own any of the 217 stocks listed in the back of the book — Sell Now! — because if the party is not over by the time you read this book, it will be shortly thereafter.’
It is not my style to wallow too much in the past, but in retrospect, I was living a very surreal existence in those days. On one hand, as founder and editor of Red Herring, I was minting fiat currency selling ads to Morgan Stanley, Microsoft and Stoli, and hopscotching the planet proclaiming with a straight face that ‘Silicon Valley is the Athens of the Information Age!’ On the other hand, I was doing the math, scratching my head and, well, the rest is history.
So here I am again. When it comes to the blockchain revolution — like Tim — I am all in. Playing a role in the commercialization of the Internet was amazing, but the blockchain represents a fulfillment of the original dream. There will be hours of time in this diary to talk about all the virtues of this new protective layer to the Internet. But for my first post, let me emphasize one more time, ‘I am all in.’ We are turning anarchy into an industry and I love, love, love everything about.
It must be noted, that compared to Tim’s bet on cryptocurrencies, I am the one who looks like he is playing with Tinkertoys. My guess is Tim is holding well north of $250 million in bitcoins and I know that he has invested in over 40 crypto deals. On the night of his Block(chain) party, Tim was beamed into the Tucker Carlson Tonight who introduced him as ‘the most famous venture capitalist in the world.’ Tim has been good to bitcoin and bitcoin has been good to Tim.
The surreal part in this new chapter is I could look you straight in the eyes and say, ‘Bitcoin could be worth nothing.’ I don’t happen to believe that bitcoin will go to zero, but there is no Gurley algorithm that can prove that it will or it won’t. The Gurley formula works on public stocks because it factors in the fundamental and unavoidable premise that a company must ultimately established a rational relationship between its stock value and the cash flow and earnings generated by its business (remember the good old P/E ratio?). During the top of the bubble, investors so dramatically blew up the stock price of virtually every public Internet company, that it would have taken a gazillion years before any of them could ever grow into their value. With calculator in hand, Bill Gurley single handedly proved that reality had been officially suspended.
In the same way, we are again living in a distorted reality. Compounding our challenge is the fact that we do not have the comfort of a P/E ratio in our back pockets to help rationalize the value (or not) of our new found poker chips. In the world of crypto investing, there may be a P, but the value of any E goes to the equity holders, not the folks holding the tokens. From what I can tell, token gamblers are betting on some intrinsict, ethereal, and otherworldly ‘enterprise value’ only comprehensible to cannabis connoisseurs. For our own good, part of the current crypto journey must include an earnest quest to find the Gurley algorithm for cryptocurrency value. If you have any math equations that helps solve these mysteries, I am all ears at firstname.lastname@example.org.
Drape, I accept the challenge. It clear already that these kind of conversations need to be encouraged. Whether this straw will turn into an actual book, only the good Lord knows for certain, but I do promise to hack away on my Mac every week and tell a story from the streets of the global Silicon Valley.
In the world’s best selling novel by a living author, The Alchemist, Paulo Coelho tells the journey of an Andalusian shepherd boy named Santiago on the road to find the meaning of life. Along the way, Santiago meets the old king of Salem, named Melchizedek, who tells him to sell his sheep, go to Egypt and introduces the idea of a Personal Legend. ‘Your Personal Legend is what you have always wanted to accomplish. Everyone, when they are young, knows what their Personal Legend is’, the King counseled. ‘When you want something, all the universe conspires in helping you to achieve it.’
Like Tim, Paulo is a friend I listen to. I am so very grateful that the Universe continues to conspire on my behalf. I wish the same for all. Let’s go make it happen!
…We all want to change the world.