Chain Venturer: JJ Alicea of Anagram

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have JJ Alicea from Anagram.

Anagram is a diversified crypto holding company. Anagram is not a fund, it doesn’t take fees on capital or assets under management or invest with specific time horizons to return a fund. Anagram operates as a crypto LLC with a permanent capital structure focused on three core pillars: build, advise, and invest.

If you would like to participate in a future episode, DM me here.

-Marco

In case you don’t know…

I’m an investor at Primitive Ventures. We back founders who believe that crypto represents the new socioeconomic primitive that will redefine individual sovereignty and financial paradigms.

If you’re building an interesting project → DM me here.

If your project is too early in the lifecycle, I also run a syndicate, you can check it out here.

Anyway, enjoy this week’s conversation.

no moooore

JJ Alicea of Anagram

JJ Alicea functions across the Investment, Advisory, and Build arms of Anagram, a digital assets holding company dedicated to building, incubating, and investing in innovative crypto projects with a focus on deep research and hands-on expertise in building distributed systems. 

Currently, he is also the Senior Advisor & Director of Blockchain Research at Rinzo. JJ began his career as a Legislative intern with the New York State Assembly and participated in internship/summer analyst programs at notable companies, including Data Analysis at Nielsen, Private Equity at Jefferson River Capital, and fixed-income sales, Trading, and Structuring at Deutsche Bank. During that time, he also worked as a teaching assistant at Bucknell University, where he earned his BA as an International Relations and Economics double major.

From 2020 to 2022, he worked as a DeFi consultant for Emerald, a Fortune 500 incubator. Additionally, he served on the Product Advisory Board at Akkompany, an early conversational AI interface, from 2021 to 2022 and was the Lead Blockchain Researcher for the Financial Innovations Group at VegaX from 2021 to 2023. 

Here’s my conversation with JJ Alicea.

Quick takeaways:

• JJ's crypto journey began when he encountered Bitcoin during behavioral economics research, realizing the asset' as a natural evolution in the financial system, aligning with his principles of self-sovereignty and borderless payments.

• Anagram operates as a diversified crypto holding company, not a fund, focusing on building, advising, and investing in crypto projects. Anagram's strategy emphasizes the synergy between building and investing.

• Anagram differentiates itself from other venture firms by providing deeply integrated advisory services. It combines traditional finance rigor with crypto-native innovation, employing a permanent capital structure and an in-house team of engineers for product development and incubation.

• JJ highlights the broken discovery process in crypto, noting a shift from principled, utility-driven entry to financially motivated participation. This disconnect leads to unrealistic expectations and a high churn rate, with many new users leaving after losses.

• The need for better education and realistic onboarding is critical to improving the crypto space's sustainability and growth.

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

JJ's journey into the world of crypto mirrors that of many others who initially heard about Bitcoin and other crypto but have yet to dive in. However, one defining moment in his journey prompted a deeper exploration.

The defining moment: During university, JJ worked as an economics professor's assistant, making him a co-professor for some classes. He taught recitations, graded papers, and produced coursework. Additionally, he assisted his professor with a piece of research in the behavioral economics department. This research focused on how people value different forms of monetary transfer, irrespective of the actual currency amount. They examined cash (US dollars), mobile payment services (like Venmo, Cash App, PayPal), and cryptocurrency (specifically Bitcoin).

A significant part of this research involved analyzing spending and saving habits across these different currencies. To gain a deeper understanding, JJ read Bitcoin’s white paper. Before this, he had a superficial knowledge of Bitcoin but had never delved into its intricacies. Reading the white paper was a pivotal moment for him. It made perfect sense and represented the natural progression of the financial system.

JJ observed that while various industries—information services, computing, healthcare, transportation, and supply chain logistics—had seen massive improvements over the past decades, the financial system remained largely unchanged. The lack of innovation in transacting and engaging with the financial system stood out starkly.

For JJ, Bitcoin represented not just a financial innovation but also aligned with his principles of self-sovereignty and the need for a cross-border means of transfer that couldn't be manipulated or accessed by third parties. He saw Bitcoin as the natural next step for currencies in an increasingly globalized and interconnected world, offering a borderless means of payment.

How did your journey, including your experience at various crypto companies and DeFi projects, eventually bring you to Anagram?

JJ viewed his time in private equity and at Deutsche Bank as a crash course in financial markets. He aimed to find the most appealing market that matched his skill set. Private equity provided a highly analytical environment, where he spent hours creating Excel models and PowerPoint presentations to analyze different companies. His experience trading high-yield bonds at Deutsche Bank offered a public-facing role, executing trades and engaging with actively trading companies. This blend of private and public market experience gave him a comprehensive view of the financial world.

Taking this experience into the crypto industry felt like a natural progression for JJ. His journey in crypto began in earnest at VegaX, a Korean market maker, prop shop, and product studio. At VegaX, he led the Financial Innovation Group as head blockchain researcher, focusing on identifying strategies to gain a market edge, onboarding exchanges, and creating index products for institutional investors. These products provided institutions with access to crypto assets without the complexities of direct ownership. Additionally, he developed DeFi products like Alchemy and TaBit, facilitating decentralized foreign exchange trading using stablecoins.

JJ's time at VegaX was marked by significant events, including the Luna crash and being a counterparty to 3AC via the Genesis lending book. These experiences were a crash course in dealing with black swan events and crisis management, which ultimately honed his risk management skills.

During the end of his tenure at VegaX, JJ connected with the Anagram team. At that time, Anagram was a nascent company with just six or seven full-time employees. JJ joined as employee number eight in late 2022. 

What is Anagram?

Anagram is a diversified crypto holding company. Anagram is not a fund, it doesn’t take fees on capital or assets under management or invest with specific time horizons to return a fund. Anagram operates as a crypto LLC with a permanent capital structure focused on three core pillars: build, advise, and invest.

Founded by Joseph Egan and Lily Liu, Anagram was created to offer a better structure for investing in and supporting crypto portfolio companies. Joseph Egan, previously a hedge fund portfolio manager and operator, joined Polychain as President in 2017, one of the few crypto venture funds. Lily Liu co-founded Earn.com with Balaji Srinivasan, sold that business to Coinbase, was on the founding team of Osmosis, and is now the president of the Solana Foundation. Together, they envisioned Anagram as a unique entity, falling between the fund and holding company models, offering the flexibility to invest while deploying labor as needed.

Build

On the build side, Anagram employs an in-house team of engineers dedicated to creating products from zero to one. These products can be spun out as standalone businesses, raising capital and hiring executives, or launched under the Anagram umbrella as subsidiaries. Anagram also engages in incubations and runs an entrepreneur-in-residence program to support exceptionally talented founders, even those without a fully scoped product or MVP. Currently, Anagram is nurturing Anera Labs, founded by Vishwa and Konrad, which is part of this program.

Invest

As a strategic investor, Anagram aims to build alongside its investments and invest alongside its builds. For example, if Anagram had built Ethereum, it would have wanted to invest in Compound, or if it had invested in Compound, it would have built something like Morpho Finance to enhance the ecosystem. The goal is to ensure that investments and builds complement each other, maximizing interoperability and positive outcomes across the portfolio.

Advise

The advisory pillar is where Anagram deploys extensive human capital to support startups. With a team of 24 experts in engineering, recruiting, research, investing, legal, finance, and operations, Anagram provides tailored support to startups at any stage. This advisory service ensures that startups receive the guidance and resources they need to grow and succeed, regardless of their phase in the lifecycle.

How does Anagram differ from those of firms like Scribe or Spartan, which also have venture and advisory arms?

Anagram is a perfect melting pot of crypto-native experience mixed with TradFi's operations and financial know-how. Anagram combines the meticulous, goal-oriented approach of traditional finance with the innovative, agile mindset of the crypto world.

Everyone at Anagram is crypto native. For instance, one of Anagram's engineers wrote compressed NFTs on Solana, another worked at Jump and Wormhole, and another was one of the first engineers at 0x and later the lead engineer at Matcha.

JJ has been experimenting on-chain for about seven years and has built brand-new crypto-native products. This collective experience is crucial in navigating the complexities of the crypto space.

Anagram combines technical and strategic expertise, offering a unique blend highly valuable to startups, especially in challenging market conditions. Unlike traditional venture firms, Anagram is not mandated to return funds or deploy large checks. Instead, Anagram writes relatively smaller checks and adds substantial value through hands-on relationships.

Anagram's advisory services stand out due to this hands-on, deeply integrated approach. For example, Anagram's team created foundation structures on the legal and operational side for Stride, the Solana Foundation, and Osmosis. JJ worked closely with the Stride team and sat on their multi-sig while a few massive proposals passed. JJ is on the board of the Solana Research DAO, which funds novel technical research in Solana. Anagram built a PWA using portfolio companies' key management software, then highlighted it on Anagram's blog and open-sourced it for others. Anagram also open-sourced a ZK co-processor for Solana using RISC Zero's Bonsai.

Anagram builds really cool public goods and in-house products, combining them to support the entire portfolio. Unlike other venture studio models, Anagram focuses 100% on maximizing the value of portfolio companies. This flexibility allows Anagram to solve strategic goals for startups, whether that involves contacting exchanges for listings, assisting with operational or legal processes, or instilling new hiring processes.

The real value of Anagram lies in the breadth and depth of coverage paired with crypto-native experience. This unique holistic approach offers a new way of functioning in these markets.

What's the average of Anagram’s check sizes?

Anagram's approach to check sizes reflects its focus on early-stage investments in companies where it can make a meaningful impact.

Their average check size is around $250K, with a median size in this range. However, depending on various factors, they can write larger checks, up to $1.5M, or smaller ones, down to $50K. This approach allows Anagram to target sectors they know well and where they can add significant value, particularly in engineering, recruiting, or research.

Can you elaborate more on your thinking/thesis on crypto’s discovery process? (JJ writes a post on Anagram’s blog titled: Fugitive Narratives: Crypto’s Broken Discovery Process)

Blog post: https://blog.anagram.xyz/fugitive-narratives-cryptos-broken-discovery-process/

JJ elaborates on the broken discovery process in crypto, highlighting its fundamental flaws. Initially, the entry into Bitcoin was driven by principles, utility, or a need for transaction privacy. However, a shift occurred around 2017-2018, attracting new entrants seeking financial gains. This schism created a disconnect between early adopters and newcomers.

Unlike traditional assets like stocks, which provide tangible value or services, crypto lack this tangibility for the average user. This leads to unrealistic expectations and a need for more understanding among new users. The advertising and onboarding process further exacerbate this issue, attracting risk-loving individuals with promises of financial freedom but providing no education on the assets.

This results in a high churn rate, with many users leaving crypto after losing money and developing negative perceptions. Thus, crypto's discovery process is broken, as it promises financial freedom without providing the necessary tools or education for users to make informed decisions. 

Rapid Fire Questions

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

   • When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein.

2. What’s your biggest investment mistake?

   • Holding onto holding onto winners until they become losers.

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

   • Supply chain and logistics.

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

   • I don't think L2s are playing out the way that people thought they would. I am optimistically bearish on L2s right now. So bearish, but hoping that the future will be wrong.

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

   • Lack of lack of tangible real-world use case.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.