Something important just happened. Something profound. For most of the world it was a surprise. For us, it has been our focus for most of our working careers of more than 35 years. It is far from unexpected. So let's revisit the fundamentals in this issue of our newsletter and make sense of GameStop together:
The world is transitioning into a new digital world that we call the Fifth Era.
Generation C has been born into this new world and will shape it to their own preferences and behaviors.
GameStop is not a one off event. It is a harbinger of the future.
For financial institutions, if you are not yet ready, you are going to lose (with an example of private banking).
For Investors, this represents the greatest wealth creation event the world has ever seen.
Each is discussed in turn.
1. The world is transitioning into a new digital world that we call the Fifth Era.
We are not going to rehash this topic here. Our free ebook, The Fifth Era, is available for you to download to get the macro story. In outline, "The Internet didn’t even exist 30 years ago, and now billions of people are connected to the web every day, and remarkable new technologies have been invented that will dramatically change the way humans exist on our planet. This emerging playing field is not well understood and not everyone who was successful in the past will be able to benefit from this momentous shift."
Central to our thesis is that the work still ahead of humankind is to solve the fundamental challenges that the Internet and TCP/IP upon which it is built, were designed to be a communication platform and protocol respectively. This means that we have to solve issues of security, identity, concentration, lack of digital monies, and lack of digital assets to fully bridge to the new world. Our book Blockchain Competitive Advantage discusses this in great detail. Suffice to say, the Bitcoin Blockchain protocol designed by the anonymous Satoshi Nakamoto provides the best conceptual breakthrough we have for accomplishing this task. You can read the original Satoshi Nakamoto white paper at our Just The Blockchain Essentials site.
2. Generation C has been born into this new world and will shape it to their own preferences and behaviors.
To make this transition more complex is the reality that the next generation are very different. They are now moving into their power curve years. The years in which they earn a lot, accumulate wealth, and drive the business, financial, and political decisions that will shape the future. More than a decade a go, Matthew was part of a global team that conducted deep research into thousands of these 'digital natives'. You can read the high level report that was published in 2010 called The Rise of Generation C- Implications for the World of 2020. "In the course of the next 10 years, a new generation—Generation C—will emerge. Born after 1990, these “digital natives,” just now beginning to attend university and enter the workforce, will transform the world as we know it. Their interests will help drive massive change in how people around the world socialize, work, and live their passions—and in the information and communication technologies they use to do so."
You MUST read this to understand GameStop and the future of global financial services and investing.
However, if you prefer to read novels to white papers, Matthew wrote The Ministry of Bitcoin for you. The book, which is fiction, is the story of who really created Bitcoin, why it was invented, and what it means for each one of us. But for the purposes of this newsletter and today's synthesis, the reason you should read it is because it includes a detailed description of a group of Generation C characters including the lead protagonist. It explains the skills they have, the experiences that have shaped their lives so far, and the ways in which they think, work, and behave. Without letting you off the hook of reading the book, a few points:
Generation C grew up in a social, mobile, connected world. It is wired into their brains.
They learned skills from the moment they tapped the keys of their parents' computers and then, iPads (see the image at the head of this newsletter). Most of us just don't get it like they get it.
When they played games, they were massively multiplayer online role playing games and virtual worlds. They grew up knowing how to buy, sell, hold, and raid scarce digital goods using virtual digital currencies. They were born to trade.
Some of them became adept at leading and motivating vast clans to do their bidding. Using real time communications tools to manage large scale, economically motivated plans of attack - in the hundreds and thousands of actors working together.
They used these skills to win games and accumulate in-game wealth.
A few of them went even further and became the world's most sophisticated computer scientists, hackers, scammers, and social manipulators - think fake news and wonder who has the skills to shape large populations of people's behavior. Whether they are hired by Facebook, WikiLeaks, Cambridge Analytica, or the NSA and CIA, these are the same people.
They then moved to use these skills in the world of cryptocurrencies, cryptocommodities. and protocol tokens.
And here comes the punchline:
3. GameStop is not a one off event. It is a harbinger of the future.
So is GameStop a one off? Can the genie be put back into the bottle? Can regulators put the lid back on Pandora's box?
Well we have seen this before. When we were in the London office of McKinsey back in the 1980's we worked on the Big Bang. Remember that? When around the world paper based trading, fixed minimum commissions, open outcry and the world of the waving hands of traditional jobbers, market makers, and brokers was destroyed by the arrival of electronic public equities. We saw the rise of algorithmic trading, high speed electronic information arbitrage, and massive hedge funds. A host of firms was wiped out, and in their place we saw the rise of Blackrock, Citadel, Virtu, Interactive Brokers, and others. A lot of people worked really hard to protect the past and their livelihoods. They lost.
Did innovation stop? Are the massive institutions that won in the aftermath of the big bang inviolable? Will Amazon destroy Sears and JC Penney, but nothing will ever bring down the current model of information-based trading practiced on Wall Street? Will only centralized Wall Street power brokers be able to share their thoughts and tips to each other as they ride their bikes at the New York Athletic Club or brainstorm over a drink at Cipriani?
Most people are commenting on GameStop as if it was a one off specific trading situation and that the regulators will get their hands around it and it won't happen again. We think that as Generation C natives take over they won't drop back into the past. They will fully deploy their skills and accelerate us into the future. A few of them are doing so already. The fact that they are becoming wealthy beyond comprehension in the shadows of Bitcoin, Blockchain and DeFi should not confuse us.
They are here already and their skills are making them central players in value creation and trading!
These are the people we are backing through Blockchain Coinvestors and the more than 300 - and growing - blockchain companies and projects in our combined portfolio.
4. For financial institutions, if you are not yet ready, you are going to lose (with an example of private banking).
What does this narrative and prediction imply for established financial institutions? The CEO of one of the US's best banks asked us that question and we jotted down some thoughts and now share them here. They are not confidential. They are also not final. But using private banking as an example we think they may be helpful:
A. Future Beliefs/Guiding Principles
1) The future will be in the hands of Generation C (Digital Natives), and we already know what they want.
2) They are coming into their peak earning years and are beginning (predictably) to need what every 35+ year old person needs:
A mortgage and perhaps a HELOC
Some educational financing
The beginnings of their investment strategy
The establishment of their retirement strategy, accounts etc.
3) The difference is that they want all of those to be provided on digital first, mobile first platforms designed for easy and real time experiences.
4) When asked about what is top of their minds from a financial perspective they all say the same things:
Housing is a must and while they may be okay with smaller footprint living, they still want to get this right and most need help.
From an investment perspective, their top investment desires are Bitcoin, the private tech companies they use and admire (eg Tesla, Robinhood, Apple), and some like real estate too.
Conversely, they mostly don't want to own the Dow Jones industrial companies of the past.
In fact many of them hold a deep aversion to typical investments, typical investment advisors and typical investment business models - fees, carries, etc etc.
5) In addition:
They have a deep distrust of the corporate titans of the past
They show a willingness to put their money behind the heroes from their own generation
They want to be sure that their money goes to companies and causes that demonstrably make a positive difference
They hold a deep belief that a clean and sustainable planet is a must (and they loathe the generation who has made it so threatened)
While the transaction account still provides privileged access in their lives, they expect it to be given to them for free and in very easy to use, real time, frictionless ways
While to some extent, they may become more traditional as they age, they will never look like the Boomers so a Boomer focused private banking model will not be fit for purpose for this generation.
B. Given the above
A leading private bank of the future will have to serve those future clients on the terms that they favor;
Since it takes time to build a seamless mobile first, multi-product, digital platform, the likelihood is that most private banks will fall behind;
They may not even realize it since the assets, loans and profitability of the boomers will carry them along for at least another decade;
But when the 'cadillac' moment arrives and realization occurs, it will be too late to play catch up.
C. Therefore
A private bank that wants to be sure that it will be a leader in the future, would begin now to create a platform that meets the very specific expectations of the digital natives.
Where would you go to look for the signs of what that will look like (we don't think anyone has the silver bullet yet):
Then to see pieces of the future that are in place today in the West (our private investments in blue for disclosure reasons):
Crypto and digital mobile investing: Coinbase, Robinhood, Uphold
Trading: SFOX, Amber
Lending and Mortgages: Affirm, Blend, Unison
Private Securities: Securitize, Linqto
Crowdfunding: Republic, AngelList, DeFi like Aave, Compound, Uniswap
Payments: Brex, Square, PayPal, but blockchain based payments may upset them too, so adding Wyre
That should get you started if you run a bank, private bank, wealth or asset manager. If you are in some other area of financial services just extrapolate.
5. For Investors, this represents the greatest wealth creation event the world has ever seen.
Now we come to early stage technology investing which is how we spend most of our time at Blockchain Coinvestors. In this context, we are living through the greatest value and wealth creation moment that the world has ever seen and the returns are highest and the value captured by those who invest at the outset. For any sophisticated investor the implications are obvious. Move quickly to place some capital in front of the leitmotif and tailwinds of the rest of our lives: Blockchain and Fintech. Be highly diversified, investing with the best investors in the space on a global basis. Don't wait until the late stage when the valuations have already crossed their inflection point. Get in early. Including in areas like DeFi which feel edgy today, but could be the drivers of the future.
If this is of interest to you we have recorded our investment thesis here. In addition, we encourage you to move quickly and email us at ir@fifthera.com. As you will read in the next section we have a final closing in March.
Thank you for reading and we hope you are staying safe and well.
Alison Davis
Matthew C. Le Merle
Fund Performance & Access
We will be holding the final closing of Blockchain Coinvestors at the end of March. We are limited to 99 investors and currently have over 60 with another 15 in process. We may have to turn people away so please email us at your earliest convenience at ir@fifthera.com if you are interested. Existing investors may increase their commitment if they would like to by sending an email to the same address - we will provide an increase in commitment letter in return.
Blockchain Coinvestors Funds are continuing to generate strong returns. To date, over 80% of the funds we are invested in are performing as top quartile funds against the Cambridge Associates benchmark. This remarkable performance results from powerful tailwinds driving the world towards a future in which digital monies and digital assets are ubiquitous and the businesses and projects providing blockchain and crypto products, services, and infrastructure benefit disproportionately.
Blockchain Coinvestors funds are open to Accredited Investors and can take investments via IRAs. We support several providers, including Millennium Trust Company and Pacific Premier Trust Company (Pensco).
Our coinvestment program provides opportunities to invest into the follow-on rounds of the most promising of our combined portfolio of 250 and more blockchain companies.
Blockchain Coinvestors AngelList - Our syndicate on AngelList providing access to rounds that we are investing in. Blockchain, Crypto and Fintech. Click here to go to our Syndicate page on AngelList.
Please visit the Blockchain Coinvestors website to learn more about our offerings. You can also reach our Investor Relations team directly at ir@fifthera.com.
Register Now For Our Upcoming Webinars
We have been working on Digital Monies and Assets for more than 30 years. Why is now a seminal moment, how will this impact the global financial industry and how can investors take advantage?
Digital Monies and Assets: The Road Ahead, Feb 15th at 7:00am PST
Digital Monies and Assets: The Road Ahead, Feb 15th at 12:00pm PST
Blockchain Coinvestors has a simple goal - provide the broadest coverage of the fastest growing blockchain companies and emerging unicorns. This webinar presents our investment strategy.
Blockchain Coinvestors Investment Thesis - March 1st, 7:00am PST
Blockchain Coinvestors Investment Thesis - March 1st, 12:00pm PST
Do you know the primary Blockchain VCs? Let us educate you about the VCs that are most closely connected to the blockchain ecosystem.
Meet the Blockchain VCs - March 15th, 7:00am PST
Meet the Blockchain VCs - March 15th, 12:00pm PST
Our webinar library can now be found at www.fifthera.com/webinars.
Appearances in 2020
We had the honor of presenting at multiple online conferences this year. A selection follows. Click links to listen to any you may have missed:
Inspired Insider: Early-stage investing hack and emerging opportunities
Digital Future: Why Digital Monies Change Everything for Business on VoiceAmerica podcast.
On The Brink: How to make sense of Digital Monies and Assets
We thank you once again for your support, and we hope that in this challenging time you and your family and loved ones are staying safe and healthy.
Best wishes,
Alison Davis
Matthew C. Le Merle
To Learn More About Us:
Fifth Era - Our private investment office focused on digital technologies, fintech and blockchain. Also the manager of Blockchain Coinvestors. Click here to learn more.
Blockchain Coinvestors - Our second blockchain venture fund of funds, offering unparalleled access to the top blockchain companies. Click here for an overview and materials. We have a very limited number of spots available.
Blockchain Coinvestors AngelList - Our syndicate on AngelList providing access to rounds that we are investing in. Blockchain, Crypto and Fintech. Click here to go to our Syndicate page on AngelList.
The Intelligent Investor: Silicon Valley on sale now!
From the bestselling authors of The Fifth Era, Corporate Innovation in the Fifth Era, and Blockchain Competitive Advantage comes a new book full of practical wisdom for investors and entrepreneurs from 50 leading Silicon Valley angels and venture capitalists.
