Chain Venturer: William Kurniawan of Caballeros Capital

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have William Kurniawan from Caballeros Capital.

William has been in the crypto space since 2017 and has a deep knowledge of the space, including an expertise in China and broader Asia crypto ecosystems.

Caballeros Capital has backed 45+ companies to date. It is a founder-driven early-stage venture firm focused on Web3 that provides value-added support within Chinese-speaking and Southeast Asian communities.

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• Operational support: Relationships with a recruiting firm and offshore service providers that can help our portfolio companies scale while minimizing burn.

Anyway, enjoy this week’s conversation.

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William Kurniawan, Co-Founder and Partner at Caballeros Capital

William Kurniawan is the co-founder and partner at Caballeros Capital, a founder-driven early-stage venture firm focusing on web3 protocols, projects, and companies. The firm has a particular emphasis on providing value-added support within Chinese-speaking and Southeast Asian communities. Caballeros Capital has backed 45+ companies to date.

William began his career as an Investment and BD person at TitanBlock, an investment and advisory firm with a focus on empowering decentralised economies. He also advised and consulted several blockchain startups from 2018-2020, including China-based startups that needed help with global expansion.

From 2020 to 2022, William worked in Investments and corporate relations at SOSV, collaborating with numerous Fortune 500 and government companies (e.g., Korea Institute of Startup & Entrepreneurship Development (KISED) and Italia’s Cassa Depositi e Prestiti) to launch innovative projects in areas like Web3, B2B SaaS, E-commerce, Fintech, and Sourced startups. He led the investment process and managed a portfolio of companies in Southeast Asia, India, Pakistan, and China.

William earned his Bachelor’s at Carnegie Mellon University, and his Master’s at Columbia University. 

Here’s my conversation with William Kurniawan.

Quick takeaways:

• Caballeros Capital is a strategic venture firm that invests between $100K to $1M in companies, providing value both technically and in business development.

• Caballeros Capital has been trying to focus towards projects in the application layer, particularly those in consumer and consumer social sectors.

• China recognizes the permanence of crypto, it aims to regulate and benefit from it without exposing the general retail public to potential risks.

• William’s approach to the cryptocurrency market emphasizes a pragmatic and opportunistic strategy, rather than attempting to predict future trends with certainty.

• William outlines two potential scenarios for the market: either the onset of a sustained bull run leading to continued growth until around 2025 or 2026 or a situation akin to 2019.

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

While there was no one particular moment, William’s journey to the world crypto is one that’s particularly unique, spanning across the globe and multiple jurisdictions.

William moved to the United States at the age of 17. He completed his high school in a boarding school before attending Carnegie Mellon for his undergraduate studies, followed by a year of graduate school at Columbia. It was during his undergraduate years, specifically in 2014, that William first encountered the concept of cryptocurrencies.

His curiosity was piqued by a documentary about crypto, which he found fascinating. William amusingly recalls wondering who the CEO of Bitcoin was, unaware of the decentralized nature of the technology. His intrigue deepened upon realizing Bitcoin's lack of a central authority, and he recalls Bitcoin's value being between $250 and $500 at the time.

William describes himself as part of the "crypto class of 2017," having only made a small investment as a student, grappling with the complexities of using a paper wallet. His roommate, a Stanford-bound PhD candidate in chemical engineering, was initially sceptical of cryptocurrencies. However, this scepticism shifted over time, and the roommate later sought William's insights into the crypto world.

• William's deep dive into the crypto space accelerated during his time in New York, where he attended various Bitcoin meetups and learned about Ethereum when it was still a nascent asset on Coinbase. However, academic commitments led him to momentarily put his crypto interests aside. He later realized the missed opportunity when Ethereum's value surged while he was completing his graduate studies.

The defining moment: After graduating, William found himself at a crossroads, deciding against a traditional career path in consulting or banking. Seeking to take more risks and be at the forefront of a burgeoning trend, he chose to move to China. Despite China's complex stance on cryptocurrencies, William recognized the vibrant crypto scene, including influential projects and funds originating from the country.

In China, William worked for Guotai Junan for a short duration, it is a state-owned investment bank, where he was involved in technology research. He then transitioned to TitanBlock, a UK-based fund and advisory firm with a focus on empowering decentralised economies, where he assisted Western companies in fundraising and navigating the Asian market. After TitanBlock, William joined SOSV, where he gained valuable insights into traditional venture investing and global technology trends. His time at SOSV proved to be formative, honing his skills in working with founders and understanding venture dynamics. 

In late 2022, William left SOSV to dedicate himself fully to Caballeros Capital, applying his diverse experiences and insights to this new venture. 

What is Caballeros Capital?

As a pure play venture firm, Caballeros Capital focuses exclusively on venture deals, typically investing amounts ranging from $100K to $1M. They categorize themselves as strategic investors, offering two main types of value to the companies they back.

Firstly, on the technical front:

• Caballeros Capital boasts an in-house team with notable contributions to projects like Filecoin Lotus, Yearn, and zkScroll. 

• This allows them to provide valuable advice and feedback to founders, especially those working on application-layer projects, including aspects like Solidity, smart contract development, and technical architecture.

Secondly, on the business side: 

• Caballeros Capital excels in market strategy and community building, particularly in Asia. 

• This is bolstered by investments in Chinese media and crypto companies, granting them significant influence and a grassroots presence in the Chinese community. 

• They assist with marketing, press releases, and broadening awareness of new companies or projects within this region.

Unlike some funds that focus on leading investment rounds, Caballeros Capital typically does not lead rounds, preferring to collaborate with other investors and find a specific fit for each project. Their investment philosophy is not about predicting the future or adhering to a rigid thesis. Instead, they adopt an opportunistic approach, backing founders who demonstrate a clear vision and understanding of their domain.

William, speaking about Caballeros Capital, emphasizes their strengths in providing diverse support to founders, ranging from technical assistance to objective business feedback. William highlights that while they are knowledgeable and savvy, they do not claim to have predictive insights into the future. Rather, their focus is on being a supportive and reliable partner to the founders they invest in, aligning with the core values encapsulated in their name, Caballeros.

• Caballeros Capital derives its name from the Spanish word "caballeros," meaning gentlemen or knights. 

• The naming was influenced by one of the partners, Jeff, who had spent time in Colombia and was drawn to the connotations of camaraderie and trust associated with the term. 

• This ethos is at the heart of Caballeros Capital's approach to working with founders.

What sectors are you most excited about these days?

Recently, Caballeros Capital has been trying to focus towards projects in the application layer, particularly those in consumer and consumer social sectors. This marks a significant change for the firm, which historically leaned towards infrastructure and DeFi due to the survival necessities in the crypto space during the years 2016 and 2017.

While consumer-focused crypto projects are still emerging, only a few names such as Zora, FriendTech, Farcaster, and Lens have gained traction. William believes that the next opportunities reside in crypto consumers apps. Alas, Caballeros has made strategic investments in ventures like Pudgy Penguins, Interface, and Sofamon (where William is an angel investor), to highlight this new focus.

William acknowledges that the traditional approach in crypto, such as developing another layer 1 blockchain, is becoming outdated and does not significantly contribute to actual adoption. He understands the allure of high valuations and compelling narratives for venture funds, especially when backing technically impressive projects. However, he argues that these investments, while safe and logical from an LP standpoint, don't necessarily advance the industry in terms of broad user adoption.

Reflecting on his journey in crypto, William recognizes that while the initial fascination with smart contracts and token-based incentives was compelling, the industry needs to evolve beyond survival strategies.

He stresses the importance of consumer-focused crypto applications, predicting that failure to create a crypto consumer app with significant user engagement within the next five years would be a bearish sign for the industry.

What's the actual true sentiment of crypto in China these days?

William, having lived in China and witnessed the evolution of the cryptocurrency space there, offers a nuanced perspective on the current sentiment towards crypto in China. Despite being an outsider as a foreigner, his observations are insightful.

During his time in China from 2018 to 2021, William observed a significant transformation in the crypto landscape. Initially, in 2018, there was a more open environment, with companies like VeChain, Qtum, NEO, and Ontology having a visible presence in Shanghai and actively engaging in the crypto space. Notably, Ontology even received investment from Fosun International, a major traditional Chinese conglomerate.

However, the situation started to deteriorate in 2019. William recounts instances of police raids on crypto companies, including those with offices in Shanghai like Binance, and the subsequent mining crackdown in 2020 and 2021.

These actions reflect the ideological clash between China's centralized governance and the decentralized nature of cryptocurrencies. He points out that cryptocurrencies were often used by high-net-worth individuals, including CCP members, for capital outflow, leading to heightened scrutiny and legal repercussions.

• The shift in Hong Kong's regulatory stance towards crypto initially raised William's skepticism, suspecting it might be a strategy to lure players back to China with the intention of exerting control later. However, recent developments might also suggest a possible change in approach by the Chinese leadership, recognizing the inevitability of crypto's presence and influence.

William speculates that the Chinese government may be seeking ways to benefit from the crypto industry while maintaining control, using Hong Kong's financial hub status as a strategic advantage. This adaptation might be akin to China's eventual shift in COVID-19 management strategy, moving from strict control to a more pragmatic approach.

Amidst various conspiracy theories and uncertainties, William's theory suggests that while China recognizes the permanence of crypto, it aims to regulate and benefit from it without exposing the general retail public to potential risks. He acknowledges the complexity of fully understanding the nuances of this sentiment without being deeply ingrained in the Chinese culture and political landscape.

What are your thoughts about the market right now and how do you foresee 2024 playing out?

William, reflecting on his approach to the cryptocurrency market, emphasizes a pragmatic and opportunistic strategy, rather than attempting to predict future trends with certainty. He admits that the recent rally in the market took him by surprise, challenging his initial expectation of a recovery starting next year. This unpredictability reinforces his philosophy of staying open-minded and adaptable to changing market conditions.

He outlines two potential scenarios for the market: Either the onset of a sustained bull run leading to continued growth until around 2025 or 2026 or a situation akin to 2019, where a significant rally was followed by a sharp pullback. William candidly admits that predicting which of these paths the market will take is beyond his expertise, as he is not a macroeconomic specialist or a sophisticated trader.

His investment approach, shaped by his venture investing background, is guided by a simple yet effective principle: buy low and sell high. William's strategy is to assess opportunities based on their risk-reward ratio. He is comfortable with investments where the potential upside significantly outweighs the downside, even if it means not timing the market perfectly.

For William, the key is not to catch the absolute bottom of the market but to make sound investments that promise substantial returns, even if they entail risks. He acknowledges that while there might have been opportunities with lower downside and higher upside, such as in late 2020, his goal is not to be a market genius but to make informed and strategic choices.

He stresses the importance of choosing the right "waves" to ride in the crypto market, acknowledging that not every trend or wave aligns with his expertise or understanding. William is selective in his investments, focusing on areas he feels confident about, rather than chasing every new trend.

Rapid Fire Questions

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

   • Charlie Munger's Full 1995 speech at Harvard on the Psychology of Human Misjudgment.

2. What’s your biggest investment mistake?

   • Getting caught up with emotion and not being able to see the objective when you have a lot of peer pressure or during the euphoria.

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

   • Anything that does not include a token, embraces decentralization, and utilizes the true utility of a distributed ledger.

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

   • RWAs that are currently underserved by TradFi.

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

   • Crypto’s highly cyclical nature. Which is characterized by extreme boom and bust cycles every four years. The volatility deters talented individuals from entering the industry.

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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.