Will Tribe Capital succeed with its Crypto Investments
Cryptocurrencies and their underlying blockchain technology will bring about the third big innovation wave, Arjun Sethi said on CNBC today. He is the co-founder and chief executive of San Francisco based Tribe Capital, which manages over $1 billion in assets.
The first wave was the widespread adoption of the internet in the 1990’s, which led to the growth of businesses like Amazon and Google. The next phase during the 2000’s, Sethi says, was the spread of social media with Facebook, Twitter and WhatsApp.
The current third wave, with cryptocurrencies and blockchain technology, will widely impact consumers and businesses, especially in the financial arena, Sethi says. He foresees five, ten, hundred-fold gains from investing in fast growing companies in lending, transactions, payments, settlements, securitization, tokenization and other financial fields.
Tribe, its Investments and VC Competition
Tribe, founded in 2018, faces a tough path as a venture investor. With the U.S. venture capital (VC) business being around for more than six decades, there are established, dominant firms who provide funds, make business and talent introductions and offer technical, business, legal and other advice.
Such funds range from Sequoia Capital in the Silicon Valley, founded in 1972, which has raised over $19 billion and invested early in Google, Airbnb, Oracle and other major companies, to Union Square Ventures in New York, founded in 2003 and with $1.9 billion raised, with investments including Coinbase, Twitter and Meetup.
Founders, who set up successful start-ups, find that VCs are eager to invest in their new business. Typically, they select established VC firms – not new ones -for their funding needs. So new VC firms aim to invest in start-ups set up by first-time founders, which can bring huge investment gains and thereby attract both investors and founders.
Tribe has reportedly invested $120 million in Kraken, an online trading platform to buy and sell bitcoin, ether and other cryptocurrencies. Kraken, which has a valuation of over $5 billion, according to Tribe, competes with Coinbase which went public last month and has a market value of $59 billion.
Bitcoin - an Open Ponzi scheme?
The blockchain technology, which underlies cryptocurrencies, is a digital ledger of transactions that is duplicated and distributed across all computers in the network. Experts view the technology as having wide business applications and hence offering potentially lucrative investment opportunities.
But bitcoin, ether and other cryptocurrencies, based on the technology, is viewed as a con game by Charlie Munger, vice chairman of $538 billion Berkshire Hathaway and several other leading business managers and investors.
Over the past four weeks, the price of bitcoin and other cryptocurrencies collapsed by 50% or more, wiping out over $500 billion from the accounts of those speculating in them.
“There’s no connection between inflation and bitcoin,” Nassim Nicholas Taleb, author of the best seller The Black Swan, told CNBC last month. It is an “open Ponzi scheme”, added Taleb, a retired distinguished professor of finance and risk engineering at New York University.
A Flood of Blank Check Companies
Tribe has also invested in Relativity Space, which is fusing 3D printing, artificial intelligence, and autonomous robotics to change how rockets are built and flown. Relativity has a valuation of over $2 billion.
Its other investments include Bolt, a payment and fraud solutions vendor; and Chipper Cash, a mobile money marketplace in Africa. They both have a valuation of over $500 million.
Sethi views Tribe as a financial company which deploys capital in early stage to late-stage start-ups as well as mature companies via venture, growth equity and loan vehicles. It also seeks $10,000 or more per investment from institutions and high net worth individuals who want to co-invest in its deals.
In March Tribe raised $240 million for its Tribe Capital Growth Corp. I, a special purpose acquisition vehicle (SPAC) or blank check company, listed on the Nasdaq stock exchange. Like other SPACs, Tribe Corp. plans to merge with an operating business which needs the capital to fund its growth and use the public listing to offer stock options to attract talent.
However, today there are more than 400 SPACs in the U.S. searching for businesses to merge with, according to SPAC Research. This collapse in demand, which began in February this year, is due to tighter regulation and excess supply.
In 2020, various sponsors raised $83.4 billion for SPACs in the U.S., more than six-fold higher than in 2019. Within the first three months of this year, that is by the middle of March, sponsors eclipsed last year’s total by raising $87 billion in SPACs.
Arjun Sethi’s Path from studying history to tech investing
Prior to co-founding Tribe, with fellow Social Capital alums Jonathan Hsu, Ted Maidenberg, and Jake Ellowitz, Sethi had been a partner, from 2016 to 2018, at Social Capital, founded by Chamath Palihapitiya.
Earlier in 2012, Sethi founded MessageMe, a messaging app which was acquired by Yahoo in 2014. He stayed on as an executive at Yahoo till 2016. Sethi co-founded LOLapps, a mobile gaming and applications company, which was sold to 6waves, a subsidiary of Nexon.
Sethi graduated from the University of Maryland College Park, with a bachelor’s degree in history.
He has invested in over 100 high-growth technology companies, including independently investing in successful start-ups such as Opendoor, an online platform to buy, sell and finance home purchases, Gusto, a payroll and human resources company, and Truecaller, a caller ID and spam blocking app.
With Tribe, he has a platform to expand his investments and wealth.
Editorial Comment: Are Indian Professionals in the U.S. proud of a minority label
Typically, private equity, venture capital and other investment firms raise most of their capital from pension funds and university endowments. The pension funds and endowments seek to hire more minority owned investment firms. In recent years, they have been hiring Indian owned investment firms since Indians, being Asian, are considered a minority.
The term “minority” in this context is not a statistical measure. It is applied to various groups in the U.S. who hold few or no positions of power.
But the pension funds and endowments ignore that, unlike Blacks and Hispanics, Indians do not qualify as minorities. Indian professionals in the U.S. are almost all from middle-or-upper class families, who were educated at good schools and colleges in India and the U.S. Also, except for descendants of Sikh farmers who migrated to the U.S. in the early 20th century, none of them suffered any historical discrimination and economic hardships in America.
The original goal for including Asians among minorities was to help uplift the historically disadvantaged people from Hawaii, Guam, Samoa and other U.S. jurisdictions in Asia and the Pacific, descendants of nineteenth century Chinese railroad workers and Japanese Americans in internment camps during World War Two.
Indian professionals face rising criticism from minorities, White Americans as well as conservative and right-wing politicians for securing minority business contracts and jobs.
In this environment, Indian fund managers should tell the pension funds and endowments that hire them that they be excluded from lists they compile to show their commitment to meeting diversity goals. This will ensure that the employers hire Blacks, Hispanics, Native Americans and other minorities, who legitimately qualify.
Also, it is in the self-interest of Indian professionals to clearly establish that their hiring was based on merit. Otherwise, their business achievements will be doubted, even as they are burdened with the label of being hired to fill minority quotas. This experience would be similar to that of minorities who meet the intent of diversity goals. There is an underlying and often unfounded assumption that such minorities do not possess the requisite qualifications and skills.
Most Indian professionals in America – from chief executives Sundar Pichai at Google, Satya Nadella at Microsoft, Anjali Sud at Vimeo and Sonia Syngal at Gap; Ajit Jain, vice chairman at Berkshire Hathaway; Srikant Datar, dean of the Harvard Business School; Vanita Gupta, Associate U.S. Attorney General; and on down – deserve their success given their educational credentials, training and skills. So, it should be unsettling for them to be counted and represented as evidence of ethnically diverse “minority” hiring.
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