Evan Fisher: Analyst of the Month

What is your story? What was your journey into investing and crypto?

After starting my career at Goldman Sachs IBD, I joined Insight Partners ($90B AUM global VC fund) and began investing across technology. My investments ranged from early stage to pre-IPO rounds globally across software, internet, FinTech, and crypto.

I first learned about crypto through a close childhood friend. He discovered Bitcoin in 2013. I followed the industry through him in the early years. I remember him telling me about the invention of smart contracts, major events like the DAO Hack, and the creation of MakerDAO.

Over time, I realized this was a new asset class in the making. I became obsessed with the potential of this technology to create new types of products and businesses. While at Insight, I had the realization that new asset classes create new types of investors.

Why did you start Portal and decide to focus on pre-seed stage investing given Insight is a growth stage fund?

Crypto protocols are fundamentally a new asset class. The business model is new, the methods in which they are de-risked are distinct from software, and the market structure is unique. Asset management firms are often purpose-built for a specific asset class. I launched Portal Ventures in late 2021 with one goal. As firms like Insight pioneered software investing, I wanted to do for protocol investing.

We aim to do this through thesis-driven investing at the inception stage. We help accelerate founders, and we do that by becoming world class in specific domains.

What do you think most crypto investors get wrong in June 2024?

Despite the potential market cap creation of crypto protocols, it remains a very risky asset class. Risk management is key to good investing, and the riskier the asset class the more important the skill. We spend a lot of time thinking about risk / reward. What’s a return curve we’re comfortable with? If there’s some probability of an asset going to zero, how do we need to be compensated on the upside? Our north star is risk / reward - be it at the pre-seed or a liquid token, this is often the biggest point of discussion internally.

What frameworks do you use to think about crypto fundamental investing? 

The high level ideas are very similar to traditional venture investing. Identify world-class teams solving real problems in end markets that support a public markets outcome. Focus on businesses with the moats, pricing power, and capital efficiency necessary to capture value. And, do so at the stage and price that properly compensates you for the upside potential of the asset, relative to risk. The goal is to buy mispriced risk.

The differences appear in the way this framework is applied. As compared to software, protocols enable different types of products, create new revenue models, have different stages of de-risking, and serve new markets.

We wouldn’t use software investing frameworks to underwrite a biotech business. Similarly, we shouldn’t use software investing frameworks to underwrite a protocol.

How should one think about applying your frameworks to an asset like Ethereum?

Let’s first set the stage. What is Ethereum? It is a business that sells a product called blockspace. The price of this product is variable, as a function of its demand at any point in time. Payments are collected through ‘gas fees.’ Ethereum produces blockspace through a network of validators. Validators provide something called consensus, which is a necessary input to the production of blockspace. The Cost of Consensus is equivalent to COGS. Fees less Cost of Consensus is profit to the Ethereum protocol. Instead of accumulating profit on the balance sheet, the Ethereum protocol burns a piece of its tokens. This is equivalent to a company doing an automatic share buyback with every dollar of profit it generates. At its peak profitability, Ethereum operated at a ~60% profit margin. It’s unclear where long-term margins fall.

At a high level, Ethereum is a product that has an addressable market on par with payments, financial services, and internet companies. TAM is under 1% penetrated on both users and total value locked (similar to AUM). Its peak monthly run-rate revenue was >$20B. If you pro forma that for its new PoS business model that would have been equivalent to ~$12B of run-rate EBITDA at its peak. This has all happened within the first 10 years of launch.

Through this framework, investors can begin constructing a case on Ethereum as a business. You could drill into competitive dynamics for blockspace providers, take a view on pricing power, and get more precise on TAM. It’s unclear where Ethereum is in 5-10 years, but it has certainly demonstrated the power of the protocol business model.

What secular tailwinds and areas of crypto are you excited about?

There are a lot. Crypto is a horizontal technology. We’ve been investing into both market creating categories, like the Bitcoin economy, and businesses that enhance existing markets, like DePIN.

Some of our more recent investments have both enhanced existing markets and expanded their TAMs concurrently. We led a pre-seed in Plume earlier this year to enable easier access to RWA assets on-chain, ranging from solar farms to leverage on GPUs. We also co-led a pre-seed in SkyTrade, which unlocks capital markets for air rights - a massive underexplored market.

What do you think blockchain usage will look like 10 years from now? What applications do you think will drive most of blockchain activity in 2034?

The two areas I think most drive blockchain usage are finance and the ‘computer-to-computer’ economy.

I think about innovation through a) new market creation and b) increased market efficiencies. Blockchains do both.

On the latter, I think people still underestimate the TAM of financial services / payments that is addressable by blockchains. It’s hard to imagine a world in 2034 where blockchains do not power a very material amount of the financial system globally.

On the former, I’m most excited about what I call the computer-to-computer economy. In the 20th century economic activity was predominantly human-to-human. Over the past two decades, we’ve seen a massive increase in the human-to-computer economy. Looking ahead, I expect the computer-to-computer economy to inflect, and this will be built predominantly with crypto.

How have you been able to use Artemis in your fundamental research?

Another way crypto is unique is access to real-time usage data and financial information. Artemis is my go-to for accessing this info. We use it to understand user preferences, spot growth / shifts in trends, and constantly refine our framing. While most of our investing is in the private markets, access to this info helps us better understand what success looks like.

You can find or reach out to Evan Fisher on LinkedIn or X.com

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