Chain Venturer: Astrid and Alexander of SMAPE Capital

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have Astrid & Alexader from SMAPE Capital.

SMAPE is a team of seasoned investors and industry thought leaders with over a decade of experience in digital asset analysis, design, and investments. The team has been investing collectively for the last 3 years before launching their first fund, focusing on web3 infrastructure investments at the start of 2023.

Before that, Astrid was a natural scientist and had an extensive career in the technology transfer sector, and Alexander was a financial professional with extensive banking and private equity experience.

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What a G

Astrid & Alexander of SMAPE Capital

Astrid Woollard and Alexander Lenz are key figures at SMAPE Capital, where Astrid serves as co-founder, general partner, and CIO, and Alex as general partner and COO.

• SMAPE is a team of seasoned investors and industry thought leaders with more than a decade of experience in digital asset analysis, design, and investments.

• The team has been investing collectively for the last 3 years before launching their first fund with a focus on web3 infrastructure investments at the start of 2023. 

Astrid started her career in the technology transfer sector, where she identified novel technological concepts at top academic institutions across Europe; she was instrumental in establishing initial business strategies and kickstarted promising startups. Astrid then shifted into the venture capital sector having contributed to the initial concept of Xista Science Ventures (previously IST Cube), and later became Managing Partner and Head of Research at Scytale Digital (previously Scytale Ventures) before founding SMAPE Capital as crypto-native, infrastructure agnostic, Web3-focused fund.

Astrid is a natural scientist by training holding a Masters in Microbiology/Genetics from the University of Vienna and holds a DPhil in Plant Sciences/Cell Biology from the University of Oxford. She also holds a Master's in Intellectual Property Law from the Center for International Intellectual Property Studies (CEIPI) and a Master’s in Digital Currency from the University of Nicosia. 

Alex began his career in banking in various positions, from structuring ABS transactions to establishing an Austrian direct bank from scratch. After his tenure at a Big4 firm where he advised international banking clients on transactions, restructurings, and operating efficiencies, Alex worked for a New York-based private equity company before he joined SMAPE in 2022.

Alex holds a Master’s in Banking and Corporate Finance from WU (Vienna University of Economics and Business).

Alex will be attending CRYPTO2030 (formerly known as the World Crypto Forum) in Davos, Switzerland, from January 15-19, 2024. You can meet him there. If you wish to greet him beforehand, feel free to connect with and message him through his LinkedIn.

Here’s my conversation with Astrid Woollard and Alexander Lenz.

Quick takeaways:

• SMAPE began as an investment collective but is now a fully-fledged fund established in Germany, focusing on web3 infrastructure.

• SMAPE emphasizes the importance for projects to develop their token flow system, taking into account their unique replication, stakeholders, and objectives.

• In many cases, equity becomes less relevant as companies transition to non-profit foundations, making the real value hinge on the token's utility and value accrual mechanisms.

• SMAPE is bullish on Bitcoin infrastructure, stating that the more liquidity you can unlock for the Bitcoin ecosystem, the better it is.

• NFT is a fascinating technology that extends far beyond just JPEGs - it’s unfortunate that this narrow view misses the true power and versatility of NFTs.

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What was the defining moment that drew you into the world of crypto?

Astrid: During her studies at Oxford University, Astrid was deeply inspired by the vibrant entrepreneurial ecosystem and the plethora of innovative ideas for a better world. Transitioning from her background in natural science, she dedicated her career to innovation management and technology transfer, facilitating the journey of academic innovations into practical applications. 

• During this time, Astrid learned about distributed ledger technology from friends who co-founded Ethereum with Vitalik Buterin. She witnessed the early days of the foundation of Ethereum and the challenges the team had in building up the technology not just from a technological but also from a regulatory and operational standpoint as talent was even scarcer than these days and key developers were spread around the world. This early exposure to blockchain technology's potential and limitations sparked her fascination, though she wasn't ready to dive in fully at that point.

The defining moment: Ever since learning about Ethereum, Astrid advised some of the early Web3-focused companies on business strategy and intellectual property management in a part-time capacity while keeping her full-time job in technology transfer and venture capital. She promptly received an offer to work as Managing Partner and Head of Research at a Web3 fund.

This role aligned well with her interest in intellectually challenging projects that integrate ideas from various disciplines. It felt more in tune with her natural inclinations than her initial scientific path. Embracing this opportunity, Astrid found her place in the crypto space and has since co-founded SMAPE Capital.

Alex: Alex's path to crypto is grounded in over 15 years of banking and finance experiencing several financial crises and subsequent downturns. Understanding how the financial system works and gaining deep insight into the operations of financial institutions led him to believe that traditional banking and monetary systems will not advance and should be challenged and complemented by self-determined and decentralized alternatives.

• Throughout his career, Alex observed a centralization of power in the financial sector. This led him to the concept of crypto and Web3, attracted by the potential for decentralization and the empowerment of communities. He believes in the importance of financial literacy as a prerequisite for engaging with crypto.

The defining moment: Alex's introduction to the crypto world came through Christian Niedermueller, another co-founder of SMAPE. Alex made his first crypto investments in late 2017 and has been closely following the industry since. 

The transition to a crypto-focused career occurred in 2021 when Christian introduced him to Astrid and the venture they were developing, SMAPE. Finding a strong professional synergy with Astrid and complementing skillsets, Alex left his traditional finance career for a full-time dedication to establish SMAPE as a registered and regulated fund manager in Germany and transitioning their existing investment collective into this new endeavor. Their first fund, SMAPE Smart Perspectives I, launched on 1 January 2023.

I gotta ask - what does it take to build a bank from scratch?

I’m particularly interested because of the difficulties faced in the crypto industry by projects trying to obtain bank accounts.

Alex: Building a bank from scratch is a complex and demanding process, as Alex explains. Operationally, a viable setup can be achieved relatively quickly, but the major challenges lie elsewhere. Firstly, obtaining a banking license is crucial and hinges on presenting a robust and solid business case that prioritizes customer deposit protection and thorough risk management. Regulators are wary of risky and highly leveraged balance sheets, so a well-founded business is essential for license approval. Additionally, compliance with extensive banking regulations demands significant attention, especially for global operations. 

In the context of Web3, integrating its decentralization principles and token characteristics with traditional banking systems presents unique challenges. Alex notes that navigating this space involves walking a fine line between the innovative aspects of Web3 and the stringent requirements of a regulated - traditional - banking environment. This balance is especially pertinent when considering the difficulties in the crypto industry and securing banking accounts for open projects across various countries.

What is SMAPE Capital?

Alex: SMAPE Capital initially began as an investment collective, where a group of individuals pooled their funds for early-stage financing in promising token projects. This collective approach allowed for participation in more significant deals than individual contributions could achieve. For nearly two years, SMAPE invested as a collective before encountering a shift in 2021 where early rounds increasingly favoured institutionalized investors with larger ticket sizes, driven by the substantial capital flow in the industry that year.

In response, SMAPE transitioned from an investment collective into a registered and regulated fund manager. This evolution was supported by venture partners and advisors, particularly in Germany, where the fund was established. Alex recalls a memorable moment on January 1st, 2023, when he and Astrid, amidst New Year celebrations, were signing LPAs to accept LPs into the fund.

• SMAPE's fund focuses on infrastructure within the Web3 ecosystem, encompassing all projects that enable the ecosystem to expand and scale. 

• Their investment strategy is centred on fostering growth and scalability in Web3. The projects SMAPE has invested in reflecting a diverse interpretation of infrastructure, demonstrating their commitment to advancing the Web3 space. 

• This approach highlights SMAPE's excitement about sectors that contribute to the development and expansion of the Web3 ecosystem.

What are your thoughts on how deals are currently being structured in the crypto industry, particularly regarding the balance between equities and token warrants?

Astrid: The structure of deals in the crypto industry often varies with market cycles. In bull markets, token instruments are more common, while bear markets see a shift towards equities. This fluctuation, she observes, reflects investor psychology and concerns about token viability and value.

In many cases, equity becomes less relevant as companies transition to non-profit foundations, making the real value hinge on the token's utility and value accrual mechanisms. The challenge lies in designing tokens that are not only technically sound but also meet the needs of all stakeholders. This requires thorough due diligence and technical understanding, whether for early-stage investments or liquid assets available to the public.

• SMAPE subscribes to a multi-chain Web3 concept, recognizing that different chains excel in various functions. 

• The value accrual is heavily dependent on the design of the system. While some layer 0 platforms haven't accrued value from built-on applications, they still hold inherent worth. 

• However, user experience remains a significant barrier to broader adoption in the Web3 ecosystem. 

• Improving this aspect is crucial for bringing less tech-savvy individuals into the crypto space.

Looking towards the future, Astrid envisions a world where diverse tokens are used for everyday transactions, such as paying utility bills. She anticipates a shift towards a decentralized token economy, especially considering global challenges like the climate crisis. In such a future, decentralized currencies, as opposed to those based on any single nation's economy, could become more relevant. Astrid believes that while this transition is not imminent, it is a possibility in the coming decades, driven by key developments in the field.

What is your opinion or your personal preference on token design? Are there any specific features or characteristics within the token ecosystem that you view positively?

Astrid: Astrid believes that token design can be viewed positively or negatively, depending on the context of what is being built.

She emphasizes the importance for projects to develop their token flow system, taking into account their unique replication, stakeholders, and objectives. Understanding who benefits from a higher or lower token price, or who prefers a stable price for planning security, is crucial.

Astrid advises projects to thoroughly map out their needs to determine whether a single-token system is sufficient or if multiple tokens are necessary. Some projects, she notes, find multi-token systems to be highly effective. However, Astrid asserts that there isn't a one-size-fits-all answer to token design. Each project must consider its specific circumstances and goals to develop an appropriate token model. This tailored approach to token design is a key characteristic that she views positively in the token ecosystem.

What are your thoughts on the Cosmos ecosystem's development and future, especially with its fragmentation and UI/UX challenges, and the role of elements like Celestia?

Astrid: Astrid views the Cosmos ecosystem with optimism, acknowledging its significant progress and lessons learned from past mistakes. She highlights Cosmos's successful expansion, doubling its chains in the past year, and commends its efforts in onboarding new chains, providing strong tooling and comprehensive documentation. This, she notes, sets it apart from other infrastructures.

The Inter-Blockchain Communication (IBC) protocol in Cosmos has been particularly effective, becoming a standard for cross-chain communication. Its integration into other ecosystems is a positive indicator of its robustness. Astrid also points out improvements in the Cosmos (ATOM) token utility, addressing earlier design flaws that allowed projects built on the Cosmos SDK to bypass the need for its token.

This evolution in token design underscores the dynamic nature of the field. Astrid believes that anyone looking to specialize in token design will find it a rich and relatively untapped area within Web3, offering a promising future. Overall, SMAPE sees Cosmos as performing well, overcoming its initial UI/UX and fragmentation challenges, and shaping up to be a strong player in the Web3 space.

What are your views on value accrual in the blockchain ecosystem, particularly between L2 solutions and alt L1s?

Astrid: Astrid believes that value distribution in the blockchain ecosystem, whether in L2 solutions or alternative L1s, largely depends on their usage and token design.

She emphasizes that blockchains can function without tokens, which are essentially an added financial incentive layer. This perspective is crucial to remember when considering the necessity of a token for a public blockchain.

The potential for value accrual in these structures is tied to how they are utilized and the effectiveness of their token design. Every infrastructure, according to Astrid, can accrue substantial value if it attracts enough users and implements a viable fee model or token design. She draws parallels to the Web2 world, where the success of a service is not just about its technological superiority but also its go-to-market strategy and business model. For a token to be successful, the service it represents must be valuable, and its business model must be well-thought-out.

Astrid and SMAPE focus heavily on evaluating the business models of projects they invest in. She warns that transitioning from a free model to introducing fees can be challenging and might not be well-received by users. Therefore, planning a sustainable token economy from the outset is crucial for long-term success. This approach reflects SMAPE's belief in the importance of strategic design and usage patterns in determining the value accrual of both L2 tokens and singular chain models.

Alex: Alex adds that the success of a project doesn't necessarily depend on having the best token design or value accrual mechanism but reiterates Astrid's earlier point that user experience and usability are equally crucial to making a project a success.

According to Alex, the current state of the blockchain space is still in its early stages, providing ample opportunity to learn from past technology cycles and hypes. He suggests that projects should pay attention to lessons from previous technological advancements, not just in terms of technology but also in community development and user interface design.

For Alex, the key to scaling a project and ensuring its financial success involves focusing on four core areas: technology, community building, usability, and market expansion to encourage adoption.

He believes that a well-rounded approach that considers these elements is essential for the success of any project in the blockchain ecosystem, whether they are L2s or L1s. This holistic view is crucial for understanding how value can accrue in different blockchain models.

Are you bullish on bitcoin infra with all the recent stuff that's going on?

Astrid is bullish on bitcoin infrastructure, recognizing it as highly decentralised despite its limitations. She acknowledges the role of side chains like Stacks and Liquid in addressing these limitations and views the innovations within the Bitcoin ecosystem as important contributions to the evolving Web3 landscape.

• SMAPE is investing in Stroom, a protocol on the Bitcoin Lightning network that aims to provide a bridge between the Bitcoin Lightning Network and Ethereum’s DeFi ecosystem.

Alex adds by saying liquidity in the market is key. So the more liquidity you can unlock, the better. 

What are your thoughts on the overall trajectory of crypto in the EU region?

Alex: Alex commends the EU for its proactive approach to crypto regulation. Unlike other regions, the EU “swiftly” developed a comprehensive framework, offering clarity and certainty to all stakeholders within its jurisdiction. This prompt action, spearheaded by the MiCA regulation, positions the EU competitively on a global scale, providing a cohesive set of rules for founders, investors, funds, and intermediaries.

Despite a healthy scepticism towards crypto from EU authorities and regulators, which Alex views as a positive stance, the uniform regulations offer a distinct advantage over other jurisdictions lacking such cohesion. He acknowledges disparities in taxation and the ease of setting up foundational entities across EU countries but sees these as minor compared to the benefits provided by the regulatory environment.

SMAPE chose Germany for their fund, appreciating BaFin's early engagement with crypto and Web3 and their effort to understand beyond the headlines. This understanding allowed SMAPE to register their fund more efficiently, benefiting from a knowledgeable regulator who balanced innovation with their duty to oversee the financial system.

Alex notes that from a taxation perspective, Germany offers similar benefits to other European countries. He sees the EU's current regulatory advantage with MiCA as a significant opportunity for growth in the crypto ecosystem, urging the EU to leverage this to attract and retain resources and talent. For Alex, the EU's approach, providing a level playing field, is key to the region's future success in the crypto industry.

Rapid Fire Questions

1. What's one piece of content every aspiring investment professional should read/watch?

   • Astrid: Getting to Yes with Yourself—and Other Worthy Opponents, by William Ury & The Lean Startup, by Eric Ries.

   • Alex: Any resource that helps in understanding financial products at their heart (e.g., The Handbook of Fixed Income Securities by Frank J. Fabozzi) and how markets work and at which points markets move (e.g., Technical Analysis of the Financial Markets by John J. Murphy)

2. What’s your biggest investment mistake?

   • Astrid: Not taking more risk at some time.

   • Alex: Not having sold/liquidated more in the hypes of 2021.

3. What’s the most underrated use case of crypto?

   • Astrid: DeSci, decentralized healthcare, DePin.

   • Alex: DePin and IoT.

4. What’s your most contrarian view in crypto right now?

   • Astrid and Alex: NFT technology is fascinating and extends far beyond just JPEGs. It's unfortunate that many people only recognize NFTs for these images and overlook their potential in numerous other applications. This narrow view misses the true power and versatility of NFTs.

5. What’s the biggest risk that the crypto space is facing?

   • Astrid: Regulation going the wrong way and people misunderstanding (the blockchain) technology.

   • Alex: (Crypto) Losing its credibility because of outliers that exploit inexperienced investors. That is why regulation will help maintain this credibility and increase it.

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