Julian Zegelman is a well-known angel investor and corporate attorney who provides guidance to both startups and established businesses with a spectacular business portfolio. Having started from a scratch in early 2000-ies, he is now one of the co-founders of TMT Investments, a tech-focused firm with $70 million under management that has previously invested in companies including recruitment analytics firm Gild, cloud storage firm Backblaze, and ecommerce startup Wanelo. After looking into crypto industry for a while, last year, he started a $60 million-large TMT Crypto Fund which is aimed at investing in blockchain-related technological startups. We approached Zegelman with questions concerning his investor’s preferences, current crypto market background and general “dos and don’ts” for startuppers.
Why have you decided to organize a crypto fund?
JZ: I have been involved in the blockchain space since 2014. My investment activities progressed from buying bitcoin to participating in token sales and investing in equity in blockchain startups. My partners and I decided to organize TMT CryptoFund in late 2017 when we felt that the blockchain market was maturing and more sustainable companies were being created.
Do you think it will be more profitable than the venture one?
JZ: We use a hybrid investment model where we invest both in equity and tokens of portfolio companies. Equity allows us to participate in the ultimate exit events, such as IPO or M&A, of portfolio companies. Tokens give us potential higher return rate because of higher volatility of crypto markets and earlier liquidity then equity tokens. This is a more profitable and novel investment model than traditional equity based venture model.
Which kind of projects do you prefer to invest in?
JZ: We prefer to invest in deep blockchain technologies, such as new protocols, infrastructure, large scale decentralized applications (dApps) and mining hardware. We also invest in tokenization of existing successful Business 2 Consumer (B2C) companies, such as consumer subscription models, marketplaces, and etc.
Which of your investments were most successful?
JZ: Personally I was an early investor in ShapeShift, Protocol Labs (Filecoin), and Bitso (largest crypto exchange in Latin America). All of this companies are growing nicely and serving millions of customers. I was also an equity and token investor in Cindicator, which achieved current crypto market cap of $80M and provided me with over 60% ROI.
Which principles are the most important for you while analyzing White Paper of a potentially interesting project?
JZ: 1) Blockchain technology must be essential to the business model, 2) there is a real unmet need for the product / service, and 3) team has relevant experience and prior success.
Which consequences do the cryptocurrency restrictions of US policy (SEC investigations of ICOs), ban in China and lack of law regulations in Eastern Europe have on your business?
JZ: We are certainly relying on legal counsel more when doing due diligence of potential projects. On average the token sale process is taking longer now because it is more complex from a legal standpoint.
How does the cryptocurrency and ICO ban in China affect partnership with Asian investors?
JZ: From our experience there is more of a crypto investment market in South Korea and Japan now. Mainland China, where the ban is effective, is not as active as it used to be.
From your point of view, are there any projects that can be successful in one country and fail in another? If so, how to make a choice for project location?
JZ: Absolutely! Each market has its own unique needs and challenges. For example, Netflix is extremely successful in US where there is strong enforcement of IP rights and users chose to buy licensed content. Similar companies have been launched but failed to achieve similar success in Eastern Europe, where the IP rights are much less enforceable. This is just one example of a business model that works great in one jurisdiction but does not take off in another.
Which projects do you recommend to consider for investments in this year?
JZ: This year we will see more tokenization from existing later stage businesses. I am also excited to see more projects in decentralized insurance, healthcare, and energy generation / storage.