Mike Dudas of 6th Man Ventures on Crypto, LinksDAO, and Applying a DAO Model to Biotech

Today’s guest is a good friend Mike Dudas. Mike Dudas is a fireball of creativity. He has many micknames, but I like ‘Fudas’ because he is not scared of an extra meal or five. I’m an LP in his fund, 6th Man Ventures, which he started with his best friend Serge Kassardjian. Before 6th Man, Mike was the founder of The Block, a leading crypto research and news site on digital assets. He’s been on every side of the field, up and down and around; VC Investor, Founder, Trader, you name it. Mike was the co-founder of Button, a mobile marketing platform. He’s worked at Google, Braintree/Venmo, and PayPal. Mike started his career in corporate M&A at Disney. He’s got a BA from Stanford and an MBA from Kellogg. There’s a lot to learn here, and I hope you enjoy this episode as much as I enjoyed making it.

You can listen to the podcast here on Spotify or Apple podcast and now all the episodes are on my Youtube channel as well. You can click subscribe on any of these channels and get the podcast alert each week.

You can also listen right here on the blog:

More details on the podcast are below…

Guest: Mike Dudas

Profile: Founder and GP at 6th Man Ventures

Where to Find Him: LinkedIn, Twitter

What’s Mike Panicked About?: His jpeg portfolio

Show Notes:

  • Introduction (00:38)
  • Welcome Mike Dudas to Panic with Friends (05:07)
  • Mike founds The Block around the end of the first crypto bubble and gets Howard’s advice. (06:16)
  • Being in the right role as a founder versus an operator. (09:31)
  • The business of Golf and the LinksDAO thesis. (11:16)
  • Operating and developing a high quality golf experience that’s accessible to everyone. (15:26)
  • If you don’t know crypto, just pay the 2 and 20. (19:34)
  • Using bitcoin as a store of value in a really high long-term inflation environment. (21:11)
  • Tokens allow you to have power in the network by incentivizing certain activities and helps with coordination. (22:21)
  • The smartest people in the world are not experts on which layer two solution will be dominant in five years time. (23:22)
  • We can’t all be Zuckerberg; the world needs operators. (26:14)
  • Starting 6th Man Ventures. (26:38)
  • New York is back baby! (31:23)
  • Mike’s younger days and starting at Disney. (33:56)
  • The Vibe bio project. A DAO model for getting drug discovery through clinical trials and into development. (38:41)
  • Wrapping up. (40:39)
  • Closing thoughts. (42:19)

© Panic with Friends, 2022. All rights reserved.

Host: Howard Lindzon | Producer: Knut Jensen | Researcher: Pete Weishaupt

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures: https://howardlindzon.com/disclaimer/

 

Zoom Zoom Crash…Zoom?

I own Zoom ($ZM).

It was easy for a long time and I sold on the way up and felt stupid as it kept going higher.

I have been buying here on the way down below $200 and now I feel stupid again as it trades below $100.

I could have bought so many barrels of oil instead.

Once a day on Stocktwits and Twitter I link to some mistake someone made and add ‘Investing Is Easy’.

It is not!

Anyone that has invested for any reasonable period of time soon realizes it so damn hard and frustrating most of the time.

My pal Charlie who oversees my overall asset allocation strategy and is so good with common sense and data had this to share yesterday on Zoom which sums up how hard investing and specifically owning a growth stock like Zoom can be, even when it is growing:

I will get 100 emails today saying…’Howard you imbecile…growth is slowing’ and/or ‘Howard the Duck, the technicals suck (and you have a big mole on your big nose)’.

I can’t argue. They are right.

While I don’t get into arguments about stocks I do respond to personal insults with …’dad?’.

I digress…

I am in retreat on Zoom because of my risk tolerance and the markets, but Zoom is still an amazing product with an incredibly large market opportunity ahead.

What To Expect – Let The Fear Peddling Begin

Good morning everyone.

My link the other day to the Y Combinator letter advising founders to plan for the worst post did not work. Here is the post.

Onwards…

I am going to do a series of posts on ‘What To Expect Next’ (across public and private markets) as I continue to digest calls and quarterlies and discussions with some of my favorite investors.

Today I will start with ‘fear’.

It feels like I have spent the last five months being a grump on this blog about the markets and investing. I hope it has helped some of you.

I have good news and bad news…

The good news is I am going to stop being a grump and talking about the bear market (other than Momentum Monday’s).

Also – used car prices are finally falling:

And Rolex pricing:

The bad news is the rest of the media world is going to be upping their grumpiness and fear mongering.

Be on the lookout for this and how it affects your mood. Take a look at this chart below of the ‘bear market’ headlines:

This fear mongering will be tiresome and awful, but it is part of the cycle.

I am already on the other side of it looking for alpha and opportunities.

Momentum Monday – The Rotating Bear Market

As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.

Happy Monday everyone.

This may be a major week for stocks. Will we rally? Will we ‘flush’ and follow quickly with a rally? Will we continue to melt down without a rally?

This is a big earnings week as well. Here is a link to all the big names reporting.

As always, Ivanhoff and I got together on a Zoom to tour the markets looking for momentum.

You can watch/listen to the show here on YouTube. I lay out a bunch of my scenarios about the tech bear market in the episode. I have embedded the Youtube video below as well:

Here are Ivanhoff’s thoughts:

That bear market bounce didn’t last long. SPY and QQQ rallied to their previous low where they found resistance. Then, they continued down and finished at new 52-week lows. The silver lining is that many stocks and ETFs did not make new 52-week lows alongside the indexes which is a bullish breadth divergence. This is not a reason to buy blindly; just a signal that selling is starting to weaken.

In a bear market, eventually, all stocks get hit. We saw a glimpse of that last week when even consumer staples like Costco went down more than 15% on weak earnings reports from competitors Walmart and Target. Everyone’s favorite Big-Tech stocks have also been under heavy pressure as they have become a source of liquidity for many – AAPL, GOOGL, MSFT, AMZN, NVDA, and TSLA are down 25-50% from their 52-week highs.

The issue with prolonged downtrends is that they can become self-fulfilling prophecies to a certain degree. Companies without a positive cash flow have to raise more money to survive which means diluting current shareholders. Younger tech companies that compete for talent with Big Tech, have to give their employees more stocks and options to keep them from leaving – which means again diluting current shareholders. In a way, lower prices bring more supply from both the companies and shareholders who want out. This is why most rips don’t last long during downtrends. There’s too much overhead supply.

The good news is that the market is cyclical and no trend lasts forever. Out of every bear market and economic situation, there is always a new set of winners that will set up and go on to make 5-100x returns. This one won’t be any different.

In the meantime, it pays to remain nimble (focused on really short-term trades) and with a high cash position.

Here’s how I think the three stages of a market bottom are formed:

Stage 1 – Bullish breadth divergences – the main indexes will make new 52-week lows but many stocks and ETFs won’t. This is not a reason to buy. Just a sign and selling might be getting weaker.

Stage 2 – Heavy-volume wide-spread buying – the majority of stocks and main indexes go up 5-10%+ on 3-5x their average daily volume.

Stage 3 – More and more long setups start to show up and breakouts are following through. If this does not happen, Stage 2 is likely to be just a bear market bounce and new lows are likely to follow.

Back to Howard here…

Take it slow this week. This is one of the toughest markets I have had to maneuver.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here

Sunday Reads …The Glut of Overpriced Companies in The Private Markets

Happy Sunday.

I am heading out on my long weekly ride after I finish this post.

Tomorrow I am excited to be attending Springboard at The Coronado Navy Seals Base for a one day workshop on leadership and networking with special operator entrepreneurs. I’ve lived on Coronado for years but never gotten a tour of the base.

Onwards…

Yesterday I mentioned that I have been reading quarterly letters and mea culpa’s from some of the ‘best in the investing business. I know of two funds that I am a personal investor in that are down over 50 percent the last year and that does not count their private sidecar investments.

I will start with Softbank and Masa who somehow has already lost 2/3 of his fortune. That seems impossible since the Nasdaq is only down 30 percent from all-time highs. Anyways, he is cutting investments by 50-75 percent.

YC (Y Combinator) is advising founders to ‘plan for the worst’ amid the market teardown. Much respect for YC, but they have been so loose with this last generation ‘notes and high valuations’ that will take years to work through the system.

Josh Wolfe, a very successful venture capitalist shared excerpts from his quarterly letter that had some great ‘what were we thinking‘ anecdotes. Definitely have a scroll and a read.

I have written here before that I never could have imagined a post Softbank/WeWork and Theranos world filled with 10 more Softbanks, but that we got (Tiger, Coature, D1 etc.). We might have been lucky that Theranos and WeWork never got public and imploded retail investors, but now we have a private market filled with hundreds of Unicorns from Softbank and its clones that will have to work through the system.

At the seed stage level, Bobby Goodlatte summed up how I have felt the last 18 months mostly sitting on my hands:

It’s not difficult to deploy a seed fund that superficially looks successful:

You just go logo shopping. Get tiny allocations in hype deals, pay up for A, B rounds, ignore portfolio construction. It’s much more difficult to deploy a seed fund that actually returns multiples.

What about the tens of thousands of LP’s from this last 2-3 years of crazy prices and activity? Paddy Cosgrave summed up how people feel best:

I’m not sure how long this all takes to work through the system, but it will be messy and it will not be covered by a financial media focused on politics, inflation, rising rates and the stock market.

How ‘accredited investors’ and venture capitalists behave will have a lot to do with how bad it gets in the private markets.

Weird Moment in Time..Is A Crash Possible?

I have been spending all day, everyday the past week, talking to founders, reading quarterly letters and mea culpa’s (will share my faves tomorrow) and talking to hedge funds and venture fund managers trying to get a feel for any sense of a bottom, a turn or even an acceleration down.

I sense we are in a weird moment in time. A lot of funds and investors are carrying high cash levels of overvalued US dollars (other than energy one of the best performing asset classes the last year) that has nowhere to go because rates are not high enough and stocks are not low enough.

Thinking out loud, one event to cure that would be a crash.

I am not sure I have used that term on my blog in my 16 years of blogging.

This week we saw a few crashes in stocks including Target, Walmart and Tesla. These are large cap index stocks that can scare the index holders into selling. As we all know on this blog, there has been a slow motion crash the last six months in high growth software and cloud stocks.

The private markets have not had prices crash yet, but it is coming. Ranjan Roy had an excellent piece titled ‘Late Stage Prisoner Dilemma‘ that everyone should read. The gist:

In almost no scenario should those inflated private valuations hold. Even in the best-case scenario, a startup follows the suddenly-in-vogue pivot to generating cash, but that means they’ll have to slash growth. Those gigantic valuations were modeled on assumptions of strong growth and become dead in the water. But if startups don’t do this, they’ll need to go out and raise more, inevitably repricing to a down round. Given the state of the economy, public market comparables, waning consumer demand, and a million other negative factors, it’s clear companies should be revisiting those valuations.

The biggest question right now is what could trigger these revaluations?

Will it be the LPs who start the markdowns? I spoke with a friend in the industry who said there are certain provisions for institutional investors where audits and markdowns can and will quietly take place. Maybe that’s why you always hear the name Fidelity whenever some news of a markdown leaks to the press. Will Fidelity quietly be the HFC grim reaper?

So we’re back to that table where everyone’s sweating. Who will budge first? What incentives are there for any of the players involved to mark down the investment?

Personally, I have no ‘crash trades’ on. I have a high percentage of cash and have taken losses to get there. I intend to redeploy and am building scenarios and lists, but I don’t have to redeploy anytime soon.

If we do get a ‘crash’ or ‘whoosh down’ in the public markets in the coming weeks, I want to be prepared. If the markets just reverse course Monday and last week was a bottom, even better.

At some point, inflation will cool, prices will fall enough, rates will start heading down, and or comps for growth companies will start looking good again to get the next cycle going again. Those are some macro calls that I have no idea how to predict, so I will keep checking prices, making the calls, helping portfolio companies and continue to build lists.

Bear markets are a grind.

Ryan Spoon, COO of Sorare on the Intersection of Fantasy Sports, Blockchain, and Community

In this episode my good friend Ryan Spoon makes his first appearance. We’ve known each other forever on the internet and met in person seven years ago when Greg Bettinelli introduced us at the Upfront conference. Ryan is a great connector – a super connector. Ryan is an operator extraordinaire. He was a senior vice president of digital and social at ESPN for eight years. He’s seen growth, he knows sports, he knows mobile, he knows entertainment.  And now he’s the COO of Sorare – the intersection of fantasy sports, blockchain, and community. You’ve heard me say it often: the world needs operators. Everybody can start a company, everybody has an idea, and until a few months ago, everybody could raise money; building companies beyond the 0 to 1 is incredibly hard and people like Ryan are the ones that make it happen.

You can listen to the podcast here on Spotify or Apple podcast and now all the episodes are on my Youtube channel as well. You can click subscribe on any of these channels and get the podcast alert each week.

You can also listen right here on the blog:

I hope you enjoy this episode. More details on the podcast are below…

Guest: Ryan Spoon

Profile: Chief Operating Officer at Sorare

Where to Find Him: Twitter, LinkedIn

What’s Ryan Panicked About?: Howard being let back into the country.

Show Notes:

  • Introduction and a guest appearance by former President Donald Trump (00:40)
  • Welcome Ryan Spoon to Panic with Friends (06:16)
  • Ryan explains what it means to be a great “operator” (07:01)
  • Why Ryan was attracted to Sorare – the NFT based fantasy sports gaming company (08:42)
  • How Ryan met the Sorare founders through Benchmark (12:03)
  • What Ryan has had to learn about crypto and why there’s still much to learn (14:11)
  • The role of NFTs within fantasy sports (15:44)
  • How to get started and the onboarding experience (18:11)
  • Leveraging soccers global reach (19:41)
  • Why adding baseball is a no-brainer (25:14)
  • How professional athletes increase fandom and engagement (28:55)
  • Teaching your kids about investing (32:17)
  • Gambling – everything is regulated but kids can YOLO their last $200 of food money over the weekend (34:26)
  • What worries Ryan in 2022 coming out of COVID (38:03)
  • What is it about the holy grail of data that keeps Ryan excited (40:48)
  • Why Ryan is bonkers over Sleep 8 and getting a good night’s sleep (42:13)
  • How Benchmark and Sorare found each other (47:00)
  • Wrapping up and closing thoughts (47:57)

Related episodes:


© Panic with Friends, 2022. All rights reserved.

Host: Howard Lindzon | Producer: Knut Jensen | Researcher: Pete Weishaupt

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures: https://howardlindzon.com/disclaimer/

 

How Bad Is It? …AND Selling Stocks and Buying Indexes

How bad is it out there right now in the markets?

The summer of road travel that Americans love is at hand at gasoline prices are the highest EVER:

If next week is down for $QQQ it would be the 8th in a row and would tie 2001 and 2008 a couple of notorious tech bear markets:

I liked this data set from Ryan Detrick that shows what has happened one year out after SIX fown weeks in the S&P which we are having right now:

You will notice that the two worst events from this data set were 2000 and 2008 so if we are to have an outlier year like those we should be prepared for at least another 30 percent drop in the indexes.

Until I see a change in the FED actions and tone, I am allocating as if we are in the worse case environment.

Someone asked me yesterday if I was buying the dips (stocks).

I answered that since January I had been selling the dips with a few nibbles and trades along the way.

I have been through a few bear markets and sometimes your second, third and even fourth losses are your best loss.

Every sell I have made that I have NOT wanted to in the last 5 months has been a good sell.

The question with/about ‘selling the dips’ is when to get back.

For me, buying the indexes when we are in a bear market (and well below the 200 day moving averages) is better than picking stocks.

When hundreds of growth stocks are breaking out and you have upward sloping moving averages, I find it much easier to use/pick individual stocks.

So for now, for the most part I will be focused on using indexes for market exposure and not stocks.

Venture and Startups in Down Markets – Listen To Josh Kopelman and Bill Gurley

I have not taken enough pitches in the last 60 days to know if seed prices have come down in any meaningful way.

I have been working through my pipeline and helping companies already in the portfolio.

I have a bunch scheduled over the next few weeks and assume a much different tone and dialogue.

Yesterday, Josh Kopelman, a legendary venture investor said:

I’ve seen more term sheets pulled in the last month than in the last decade.

That says two things to me (its a given that there was too much money sloshing around)…

Too many new investors with little or no experience have been running around writing term sheets for too long.

There are thousands of companies funded in the last 12-18 months that had these same investors NOT pull really poorly constructed term sheets at bad prices that will need to work through the system.

Bill Gurley sums up this issue well and founders best:

An entire generation of entrepreneurs & tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run. The “unlearning” process could be painful, surprising, & unsettling to many. I anticipate denial. Some thoughts:

1) Previous “all-time” highs are completely irrelevant. It’s not “cheap” because it is down 70%. Forget those prices happened.
2) Valuation multiples are always a hack proxy. Dangerous to use. If you insist, 10X should be considered AMAZING and an upper limit. Over that silly.
3) You may be shocked to learn that people want to value your company on FCF and earnings. Facebook trades at 14X GAAP EPS, & is growing 23%. What earnings multiple are you assuming?
4) Revenue & earnings QUALITY matter.

The venture firm A16z offered up ‘A Framework For Navigating Down Markets‘ that is a good read for founders in the growth stage.

I tell early stage founders the same thing ALWAYS:

Pick investors/partners you want to work with for next 10 years.

Focus on a price and valuation that helps you BUILD momentum with the capital you raise.

Way too many founders have risked all their momentum by maximizing price and ownership in the seed round. It is easy to blame the sloppy money coming from ‘green’ venture capitalists, but it is the founders responsibility to understand what Bill Gurley is saying above.

Back to work.