Investing $100 Million into the Bitcoin Ecosystem
A look back on what we've done and a preview of what's to come
As we are now in Ten31’s fourth year investing in companies building in the bitcoin ecosystem, I wanted to provide some commentary on our progress to date, reflect on what we’ve seen in the market over that time (particularly more recently), and share some of our plans for Ten31 looking forward. I also wanted to provide some perspectives on how Ten31 views the investable landscape for bitcoin companies, most notably how we expect it to grow over the coming years.
Ten31 Thesis and Vision
Ten31 was formed as an investment platform to scale and institutionalize investments in companies building products, services and infrastructure dedicated solely to the bitcoin ecosystem. Our thesis is simple: bitcoin is a humanity-shaping technology whose value and potential economic, societal and ethical benefits globally are not yet understood, and there is both a significant need and an asymmetric opportunity to invest in the companies building foundational infrastructure to support the growing demand for bitcoin products and services as more consumers and institutions inevitably adopt bitcoin over time based on its superior monetary properties.
The Ten31 Thesis.
As a result of broad investor misunderstanding of bitcoin (which generally still exists today), there has been a dramatic imbalance of capital allocated to newer, unproven “crypto” projects which were mostly speculation platforms built on poor incentives with significant counterparty and securities regulation risk, leading to an incredible under appreciation of more fundamentally sound bitcoin infrastructure. It is undeniable that the multidimensional nature of bitcoin–rooted in cryptography, game theory, monetary economics and energy–make it a very difficult topic to attempt to begin to grasp, and therefore it is understandable that most initially ignore or dismiss it, often instead gravitating elsewhere and accepting the fancy terminology and bold claims of crypto at face value without appreciating that the real innovation and focus of their attention and capital should be on bitcoin. But this flawed common perception of bitcoin vs. crypto is inherently why the asymmetry (still) exists in investing in bitcoin infrastructure.
We recognized there was a significant gap in the market for bitcoin-aligned capital partners, which were highly desired by founders and companies in the bitcoin space but in scarce supply, and with Ten31 we thought we could not only fill that void, but also attract institutional capital into the ecosystem and bring an institutional investing pedigree to the space while providing unique value to the bitcoin companies. When we announced more publicly in 2021 what we had been building, our strategy for investing in the space, and our plans for the future (“Ten31 - A Vision for Supporting the Bitcoin Ecosystem”), we asserted that a bitcoin-focused strategy–even though it was not popular at the time–would prove to be more successful than the approaches taken by other traditional and crypto-focused investors who did not yet understand bitcoin, and that we would create more value investing $50 million in the bitcoin ecosystem than traditional VCs investing billions across crypto more broadly.
The initial vision articulated for Ten31.
Progress
Ten31 Positioning and Backing
I have been an institutional investor by profession and working directly with companies in that capacity for nearly 20 years. With Ten31 we have combined institutional investing experience at leading global investment firms (CVC Capital Partners, Goldman Sachs and Citadel), matched with deep industry and technical talent and specialist advisors providing subject matter expertise (bitcoin financial services, technical advisory, and energy/mining). Our team has been involved in bitcoin for over 10 years, and from the outset we have presented Ten31 as "bitcoiners supporting bitcoiners". We very deliberately and explicitly do not refer to Ten31 as a ‘VC fund’; we are an investment platform. It is incredibly important to differentiate ourselves from traditional venture capital, operating with a mindset and approach which contrasts with the stereotypes associated with the VC label. Just as bitcoin requires a new way of thinking about money, we believe the same applies to investing in companies and supporting the growth of the ecosystem.
We began building an initial portfolio of investments from a first fund in 2020 (Low Time Preference Fund I), came out of stealth in 2021, and then proceeded to raise the largest institutional-oriented fund focused exclusively on bitcoin (Low Time Preference Fund II). Our investors include long time bitcoiners, HNWIs, family offices, university endowments, pension funds, well-known bitcoin-focused institutions, even some of the other known bitcoin funds and their partners, and other institutional investors.
Fast forward two years, and we have raised and deployed capital across two funds, directing over $100 million into leading companies in the space, and we will soon start deploying a third fund, which we expect will take our support of the bitcoin ecosystem to the next level.
Investment Portfolio and Partnerships
We are incredibly proud to be backing and supporting a portfolio of over 30 leading bitcoin companies working to make bitcoin more accessible, usable, and robust for current and future bitcoin holders. Ultimately, bitcoin is a movement of individuals, and we have endeavored to support the best founders and teams in the space building critical technology to push bitcoin forward.
There has been much debate over whether the bitcoin ecosystem could support a more significant level of equity-oriented capital similar to what has been raised across broader crypto, and we believe we have proven in the affirmative that yes, not only is it possible, but it is also the correct strategy, further validated by the differentiation of bitcoin vs. crypto last year. Amid a sea of crypto blowups in 2022, bitcoin companies were largely unscathed, with many thriving as more users and industry observers recognized the resiliency of the ecosystem and flocked to bitcoin.
Ten31 has led the charge in deploying capital at scale in the industry, assembling a differentiated blue chip portfolio. We have often been the first investor in some of the most promising bitcoin companies, but we have also led large rounds for more established and higher profile companies (e.g. Strike’s Series B, Unchained’s Series A+). We invest across all parts of the bitcoin ecosystem, and our portfolio demonstrates healthy diversification across sectors.
Low Time Preference Fund II portfolio mix by capital deployed.
Further, we are not afraid to go against the grain. We pride ourselves on leaning into opportunities others will not and making investments that don’t fit a typical VC profile. For example: we invest in hardware; we invest in profitable businesses (which we have long written about and referred to as ‘sats flowing’ businesses); we support and invest in tools providing privacy services; we have been extensive investors in mining (and even mine directly into our fund leveraging stranded gas assets); and we invest in and are one of the most active supporters of open source businesses (discussed below).
One of the most underappreciated aspects of investing in the bitcoin ecosystem is the significant opportunities for synergies that exist across the portfolio. Because of bitcoin’s open network, each company’s success contributes to the development of the entire ecosystem (benefiting all other participants, which I have written about and referred to as the “bitcoin infrastructure flywheel”), but that is not all. The open nature of bitcoin also allows cross-industry and cross-portfolio collaboration and partnerships in a way I don’t think you can find elsewhere in a traditional VC portfolio (e.g. Strike/Bitnob, which is just one among several others in our portfolio with either formal partnerships or ongoing collaboration). It is a very powerful concept that one company in a portfolio can contribute positively to the investment performance of the rest of the portfolio (and that there would be many such opportunities across a portfolio), and we think that will become more appreciated over time. As a result, we have been deliberate about trying to facilitate relationship building and collaboration across our portfolio, particularly where a potential partnership might not have occurred naturally otherwise (e.g. teams in different geographies or with non-overlapping areas of business focus). We host an annual retreat exclusively for Ten31 portfolio companies explicitly for that purpose.
Ten31 Bearclaw Retreat, 2022.
Our relationships with founders and companies are our most valuable assets. In addition to leveraging a wealth of prior experience across all functional areas of business to support companies at the board level, the value proposition we offer bitcoin companies is that we live and breathe bitcoin 24/7, we are bitcoiners and active contributors to the space on a day-to-day basis, and we can open up a deep network to our partners and provide extended reach, which in aggregate is a differentiated combination they can’t find anywhere else. Since bitcoin companies and new entrants to the bitcoin ecosystem often navigate issues unique to this industry, our focus, experience and expertise are very much valued, making it very difficult for unaligned crypto funds and traditional VC funds dabbling in the space (but mostly focused elsewhere) to compete.
Open Source Contributions
We are very proud to be significant supporters of open source development in the bitcoin ecosystem. We have historically written about the importance of supporting and investing in open source businesses in bitcoin, and Ten31 has been the most active investor supporting businesses with FOSS business models and other companies contributing to the open source movement in some way.
In addition, a key tenet of Ten31 from day one is to use a portion of our management fees to provide non-investment capital as grants to developers and others making important contributions to the open source ecosystem. We thought this first-of-its-kind management fee-driven contribution framework would be an attractive way to create a recurring developer support model that other funds would also consider emulating.
We were a founding contributor to OpenSats, gave a grant to BitcoinQnA for his work in bitcoin education, sponsored the travel of several open source developers to attend the Oslo Freedom Forum, provided an early grant for the open-source Fedimint protocol, and support both the Bitcoin Commons and Bitcoin Park providing a Ten31 sponsorship seat for a developer contributing to open source (our first sponsorship seat was with Justin Moon contributing to Fedimint while working out of the Commons in Austin).
Through the Ten31 grant program we will continue to support open source development centered around the areas we believe are most in need of support and/or where the impact could be most meaningful. We expect our grants in 2023 will be centered around advancing the federated mining pools idea and supporting development in the nostr ecosystem, and we look forward to providing more details once the 2023 grants are finalized.
Ten31 Tribe
In the spirit of bitcoin’s open monetary network, we created the “Ten31 Tribe” as a network of active Ten31 investors combined with Ten31 portfolio companies and other bitcoin founders/entrepreneurs. The idea was to eliminate the walled gardens that typically exist at traditional funds between a fund’s LPs and the founders and teams behind its underlying investments, and instead offer an open network to encourage relationship building and facilitate potential support and collaboration opportunities. We typically host monthly virtual events and quarterly in-person events, typically with 50%+ of our investors participating regularly. These events have already led to productive relationships, including partnerships and financial investments outside of Ten31’s direct involvement.
Ten31 Tribe goals.
Thought Leadership
Education is one of the most important ways to drive continued growth in the ecosystem: not just educating consumers and institutions about why bitcoin matters and how to use the tools, but also educating investors and capital allocators about the merits of deploying capital into the space to support development. We strive to consistently produce content to present unique insights from an investor’s perspective, and over time we hope these efforts, combined with attractive investment performance, will drive increased capital into the space. We therefore proactively put our thoughts out in the open. We have written about investing in bitcoin infrastructure, bitcoin corporate finance, open source business models, the expected enhanced utility of bitcoin blockspace, bitcoin and FedNow as settlement networks, and the expected coming intersection of bitcoin and AI, among other topics. We also produce one of the best weekly newsletters in the space, the Ten31 Timestamp.
A drumbeat of Ten31 bitcoin content.
Reflections on Recent Market Trends
2022 was the year when those who were once considered the “smartest guys in the room” were exposed, as excess leverage and misinformed “crypto” capital was flushed. We estimate over $100 billion of enterprise value was wiped out last year just from a handful of names which were once considered the darlings of the crypto industry. Just in BlockFi alone, roughly $1.4 billion in previously raised equity capital was wiped out, roughly 10x the amount of capital that had been raised in aggregate across bitcoin-focused VC funds (in just one deal!).
Crypto carnage, exposing fraud, leverage and counterparty risk…
Meanwhile, bitcoin companies were largely unscathed (with many of our portfolio companies recording their best years ever in 2022), as there was (yet again) a clear separation of bitcoin and ‘everything else’. While it is still far too early to declare victory from an investment performance and value creation perspective, we remain optimistic about the health of our portfolio and the ecosystem more broadly, which we suspect looks quite different from your run-of-the-mill crypto funds, most of which will already be littered with write-offs amid the crypto chaos and bloodbath from last year.
Looking over a multi-year horizon specifically in the bitcoin ecosystem, we have clearly seen an uptick in activity. It is of course not surprising the fundraising environment was relatively quiet from 2018-2020 during the previous bear market and that transaction activity picked up with the market rebound in 2021 (and also coinciding with the entry of new bitcoin focused investors the last couple years). But we do see evidence the uptick in activity is also driven by underlying growth and development in the ecosystem, both in early stage company formation but also in the continued growth and maturation of existing businesses.
Based on the data we’ve tracked, bitcoin-only funding rounds (i.e. fundraising by companies with an exclusive focus on bitcoin) have been growing in both size and scale, even through the more recent bear market of 2022. In addition, our data suggests more businesses are maturing to the Series A and B stages, while the number of new early-stage companies continues to grow. We expect growth in the ecosystem to continue unabated as the next wave of adoption inevitably approaches. In addition, the total addressable market will expand as companies from outside the bitcoin ecosystem enter the market, as further described below.
Looking forward
Investable Landscape for Bitcoin Infrastructure
The Ten31 thesis is founded on the conviction that bitcoin is going to play an increasingly important role in the global economy over time and will eventually become the world reserve asset and the standard upon which economic, monetary and human activity is coordinated. As a result, we firmly believe every person, every company, and every institution will eventually hold bitcoin, and in order for that to happen they’re going to need not just bitcoin but also infrastructure built around it.
That is what initially defines the investable landscape for Ten31: the companies focused on delivering products and services that are (or are expected to be) desired and valued by holders of bitcoin (i.e. that bitcoin holders are willing to pay for). This includes many obvious initial categories, such as custody, financial services, payments, security services, business-to-business services, and a whole host of consumer-facing and institutional applications, as well as the energy- and mining-related infrastructure and services underpinning the network.
We expect that everyone will eventually need to plug into the new open monetary network of bitcoin in some capacity and will also require products and services to support their participation. As such, the implication is that investing in the new infrastructure required to support that transition will have an end market of potentially everybody. That is effectively the largest total addressable market that could exist, and therefore offers huge asymmetry to those who are supporting its early buildout.
By that logic, it also follows that all companies will eventually adopt bitcoin in some way. At Ten31 we like to say that just like after the ‘90s every company eventually became an internet company, every company will also eventually become a bitcoin company. That means that the total investable landscape will expand dramatically as a wave of new entrants from outside the bitcoin ecosystem begin to learn about bitcoin, evaluate its relevance and potential use in their businesses, and eventually use it or leverage the technology in some way. We expect initially this shift will be driven predominantly by technology companies who are more primed to consider it, and we are already seeing early glimpses of this in Ten31’s portfolio (e.g. StatMuse, which is an AI/ML-first business focused on sports/media but an early mover within their field into bitcoin with plans to grow a bitcoin-oriented business within their platform).
We expect $500mm+ will be invested in bitcoin companies in the next two years, and the entrance of other technology companies as I describe above along with founders and entrepreneurs from outside the bitcoin ecosystem could take the investable TAM to $1-2 billion. We believe there will be tremendous value in having specialist bitcoin platforms like Ten31 to help these companies navigate their bitcoin strategy, and with industry valuations still largely depressed from 2022 and the investable landscape on the precipice of significant expansion, there has never been a more attractive time to invest in this space.
Ten31 Future Plans
We are proud of what we have achieved so far at Ten31, but we are just getting started. As our next fund comes online to continue the same strategy we’ve proven out with our last two funds, we will be adding to our team and expect to make an announcement on the team front in the near future.
In addition, we also plan to share more on a new initiative we have in the works to help incubate new projects in the space, which we are tentatively calling Ten31 Timelock. This won’t be a high volume, formal accelerator model, but will instead focus on leveraging our on-the-ground presence to take a very selective approach to helping launch projects in a few areas we believe are in most need, more akin to an incubator or studio model. We’ve already had heavy involvement doing this with a few of our current portfolio companies, so we view this as a natural extension of what we are already doing and complementary to our existing business. We look forward to sharing more details soon!
Growing Ten31 into the largest bitcoin-only investment platform and partnering with many of the industry's most brilliant and driven founders has only deepened my conviction in the positive change that will be propelled by this industry in the years to come. We are seeing the future being built before our eyes. At Ten31, we see supporting bitcoin companies as both the most exciting investment opportunity in a generation and the best way for us to help move the world to a bitcoin standard, and we look forward to ramping up our commitment even further with our next fund and beyond.
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¹ Data refer to private financings of bitcoin-exclusive companies that were publicly announced or of which Ten31 was aware, including mining-related and later-stage fundraisings falling within Ten31’s investment mandate. Charts are representative of the most relevant fundraising activity but do not provide a complete accounting of all bitcoin-only deals given the availability of data.