Chain Venturer: Joeri & Simon of NxGen

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have Simon & Joeri from NxGen.

Simon & Joeri are the founders of NxGen, a crypto investment and consulting/advisory firm that provides human, financial, and social capital to web3 founders.

NxGen provides full GTM lifecycle support through its inhouse and industry networks, including audits, talent/advisors, further fundraising, business development, and many more.

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Anyway, enjoy this week’s conversation.

Blast off.

Joeri & Simon, Founding Partners of NxGen

Joeri and Simon are the founding partners of NxGen, a new-generation crypto investment and consulting firm that provides human, financial, and social capital to founders, VC investors, and DAOs.

Joeri is a seasoned professional with over 10 years of experience in commercial and management roles at global firms spanning the Energy, Supply Chain, and Digital Technology sectors. He was the Managing Director of APAC at Prysm Group, an economic consulting firm known for its blockchain expertise and leadership by eminent economists. He has also been a web3 networker since 2016, serving as an active advisor to multiple projects (e.g., API3, Aleph Zero) and startup mentor at Outlier Ventures, Plug and Play, F10, and Algorand EU accelerator. 

Simon has been a web3 native since 2015, he serves as an advisor for Chainlink Labs, KILT, and UpLink Foundation. He is also a strategic partner at Economy and the Internet Economy Foundation, a digital think tank out of Germany. Simon is a member of multiple DAOs and an NFT collector. He was in BD and product roles in crypto startups with XAYN.com, Ocean Protocol and others.

Here’s my conversation with Joeri and Simon.

Quick takeaways:

• NxGen has interest in the infrastructure, privacy solutions, scalability, and interoperability, and cross-chain solutions.

• Imbalances in vesting schedules between founders/advisors and investors still often lead to conflicts.

• Optimistic about MiCA (EU crypto regulation).

• EU’s digital assets regulation around stablecoin can potentially challenge American payment providers, enhancing Europe's financial independence from the US.

• Incentives are incredibly important in crypto as users can easily migrate to more attractive options if incentives aren't well-aligned.

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

Joeri's transition into the crypto realm began when a trusted contact introduced him to Ethereum in 2016, intriguing him to start investing. By 2017, the ICO boom had fully drawn him in. 

Moving to Singapore in 2018 for its crypto-friendly environment, he joined the Dutch company Kryha, which designs architectural blockchain solutions for major enterprises. At Korea Blockchain Week 2019, he met with his old friend who is the founding partner of Prysm Group, leading him to work in economic consultancy for the web3 space.

• The defining moment: The defining moment for Joeri was Ethereum's narrative as a decentralized supercomputer platform, which led him to explore its scalability and decentralization aspects. The surge of Ethereum's ICOs in 2017 deepened his engagement in the crypto sector.

Simon's introduction to the crypto world started in college when he and a roommate mined Bitcoin and Dogecoin, initially to cover rent. However, high electricity costs soon rendered this effort impractical, leading to a temporary wane in his interest. Simon’s enthusiasm reignited in 2015 during his master's in data science when he discovered blockchain technology. He was particularly intrigued by its immutable nature, providing a digital equivalent to the physical world's uniqueness, where duplication is impossible.

His thesis on privacy and blockchain technology led to a collaboration with BigchainDB in Berlin, which evolved into the Ocean Protocol. Simon also co-founded Xain, combining blockchain, AI, and IoT technologies.

• The defining moment: Simon's defining moment in blockchain was fueled by the technology's potential and the philosophy behind decentralized systems, especially Ethereum. Early interactions with influential figures like Juan Bennett from Filecoin further solidified his interest in the philosophical aspects of decentralization and nation-state dynamics. His journey through the blockchain space eventually brought him to the Polkadot ecosystem, where he contributed to projects like the KILT protocol, focusing on identity layers and other initiatives.

During the DeFi summer, Joeri met Simon online, and they began investing together. This partnership culminated in the creation of NxGen in 2021, a family office to professionalize their web3 investing activities.

What is NxGen?

NxGen is divided into two core divisions: the capital investment arm and NxGen Labs.

The capital division focuses on angel, pre-seed, and seed-stage investments, leveraging its extensive social capital and industry connections to assist founders in fundraising and market navigation.

In contrast, NxGen Labs provides comprehensive support to founders, featuring a Web3 ecosystem database crucial for launching tokenized economies. This database offers a blend of objective data, like market maker volumes and marketing firm retainers, and qualitative feedback from portfolio founders about their experiences with various investors and service providers.

This integrated approach is designed to help founders make well-informed decisions, avoid common pitfalls, and streamline their strategies for entering the market. NxGen positions itself as a guiding partner for Web3 founders, particularly between the pre-seed and seed stages, offering substantial hands-on support. The company's forte lies in its expertise with early-stage ventures, dedicating about 90% of its portfolio to investments ranging from angel to seed stage. The remaining 10% of the portfolio includes investments in NFTs, liquid tokens, and occasional OTC deals. However, NxGen's primary focus is on classic ventures, covering both equity and tokens, underscoring its commitment to nurturing early-stage companies in the Web3 space.

What sectors of investments are NxGen particularly interested in?

NxGen adopts a flexible investment strategy, blending counter-cyclical and trend-following approaches in the dynamic crypto market. Instead of a narrowly focused thesis, NxGen diversifies across main narratives in the industry, like infrastructure trends involving L1, L2, and zk. This approach helps them stay attuned to the market's evolving narratives and avoid missing out on significant investment opportunities influenced by major players or trends.

In their portfolio, the largest share of investments is in infrastructure and tooling, reflecting the current phase of building foundational blockchain elements. NxGen recognizes the shifting focus towards the primitives layer, or the product layer, where user interface (UI) and security are key challenges. They foresee a greater emphasis on on-chain gaming and Web3-enabled games, acknowledging that the industry is still transitioning from Web 2.5 to a more integrated Web3 phase.

• Another area of focus for NxGen is privacy solutions, scalability, and interoperability, particularly cross-chain solutions.

They advocate moving beyond protocol loyalty to a more integrated approach, akin to the evolution of web protocols. NxGen is also actively involved in pioneering DAO communities, primarily investment DAOs, recognizing the potential of collective decision-making in these platforms.

NxGen keeps a keen eye on emerging sectors like NFTs, the Metaverse, and SocialFi. They understand the varying maturity levels of these sectors for investment. Their investment philosophy, described as "vibe capital," favors short-term, practical, and actionable projects while maintaining a perspective on long-term industry trends. In the rapidly evolving crypto environment, NxGen's adaptable strategy positions them to capitalize on both immediate and future opportunities within the burgeoning sectors of the crypto landscape.

What are your thoughts on the state of the EU crypto landscape?

Simon offers a nuanced perspective on the state of the EU's crypto landscape. He anticipates the introduction of Central Bank Digital Currencies (CBDCs) in Europe around 2025, following initial testing in 2024. However, he notes that the structure and reliance on crypto technology for these CBDCs are still uncertain, with the influence of the banking sector's lobbying efforts being a significant factor.

Turning to regulatory matters, Simon is optimistic about the Markets in Crypto-Assets (MiCA) framework.

• He views it as a crucial step towards establishing regulatory clarity in Europe, which he believes could lead to the development of Euro stablecoins.

• These stablecoins could potentially challenge American payment providers, enhancing Europe's financial independence from the US.

• Additionally, he points out the prospect of crypto derivatives trading licenses in Europe, which could mirror platforms like FTX but under a regulated framework. This development could spur growth and innovation within the EU's crypto sector.

However, Simon cautions against regulations that could impede usability, drawing on his research on GDPR and blockchain. He believes that straightforward and transparent regulations, as expected with MiCA, will be attractive to major financial entities like BlackRock. Such clarity and security could entice larger corporations to confidently engage in the crypto space.

When it comes to developer talent and innovation, Simon sees Europe as a fertile environment.

• He highlights the presence of exceptional, cost-effective talent and strong academic institutions.

• While acknowledging his pro-European bias, he also recognizes Europe's challenge in defining its long-term strategic position between the global powerhouses of the US and China.

In summary, Simon views the EU's crypto landscape as a promising and dynamic field, on the cusp of significant growth and innovation. This potential is particularly bolstered by the expected clarity and structure from upcoming regulatory frameworks like MiCA.

What is your view on token design? Is there any trend that you can speak about from the tokenomics perspective?

Joeri has observed a significant evolution in token design and tokenomics since the rise of ICOs in 2017.

He notes a positive shift towards vesting schedules, which contrasts with the earlier trend of distributing all tokens immediately. However, he points out an imbalance in these schedules between founders/advisors and investors. He expresses concern about market instability caused by early liquidation from founders and advisors, who often hold a substantial portion of the cap table.

A notable trend Joeri highlights is the integration of incentive mechanisms such as staking or rewards in projects.

• These incentives aim to engage investors longer and discourage them from rapidly liquidating their holdings.

• However, he also acknowledges the regulatory uncertainties in token economics, mentioning arrangements like equity agreements with token warrants. Such arrangements can create transparency issues and misaligned expectations among investors, founders, and community members.

Joeri emphasizes the importance of aligning incentives in the crypto space. He notes that ecosystem participants, facing low switching costs, can easily migrate to more attractive options if incentives aren't well-aligned. This emphasizes the need for thoughtfully designed tokenomics to maintain engagement.

Simon, on the other hand, stresses the role of network effects in determining a token's value.

He observes that many investors in token projects are not necessarily engaged in using the token's utility, especially in layer one projects like Ethereum. He remarks on the human element in token investments, where personal stakes often influence decisions. This bias, according to Simon, is crucial in forming and sustaining projects and partnerships.

Simon also points out that many projects fail to adequately consider their incentive structures, leading to the emergence of less robust projects, often labelled as altcoins or "shitcoins."

Despite these challenges, he is satisfied with his portfolio's performance, acknowledging a low percentage of hard defaults. He questions the definition of scams in the crypto space, pondering whether failures due to mismanagement should be considered scams or simply a lack of professionalism. This view underscores the complex nature of token economics and the importance of learning from experiences in the crypto landscape.

Rapid Fire Questions

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

   • Joeri: The Lean Startup - Eric Ries; The Great CEO Within: The Tactical Guide to Company Building - Matt Mochary, Alex MacCaw, Misha Talavera; Seeking Wisdom: From Darwin to Munger - Peter Bevelin

   • Simon: The Lean Startup - Eric Ries

2. What’s your biggest investment mistake?

   • Joeri: Investing in too many projects that rely on tokens, but with unclear TGE dates or plans.

   • Simon: Being too greedy and too selfish during a good environment without proper hedging strategies.

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

   • Joeri: DLT and blockchain will be the instant transaction layer for financial transactions that will be happening in the AI and IoT space — it will also enable digital identity kind for autonomous economy in the future.

   • Simon: DeSci, AI, and IoT.

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

   • Joeri & Simon: There will be an eventual convergence of centralized and decentralized systems, driven by superior technology and necessitating regulatory clarity. There’s a future where technology from both spectrum integrates into institutional and public domains.

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

   • Joeri: Regulatory decision paralysis.

     Simon: The entry of powerful actors like BlackRock into crypto will also carry some risk, including potential systemic challenges along with their involvement.

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