Framework Ventures co-founder Vance Spencer recalls the fateful day in 2019 when he and his housemate Michael Anderson went all in on their first fund.Having been into crypto since 2013, the pair were early ETH adopters and scooped up as much as they could afford from $2 while Spencer worked at Netflix and Anderson was at Snapchat and Dropbox.That nest egg was certainly a big part of scraping the money together for the fund, which had just one outside limited partner and also swallowed up the money theyd made from selling their Hashletes digital collectibles business.
We were all in, Spencer tells Magazine.
I remember the day we sold our 401(k)s. I remember the day we sold all our stock in Netflix and Snapchat. And there was basically no Plan B. It was: This was going to work, or its gonna be negative net worth.
From the beginning, with wildly successful early investments in Chainlink and Synthetix, the firms modus operandi was to buy up around 5% of a projects token supply, roll up their sleeves and stake coins, provide liquidity, trade and try to improve governance.
Spencer says the strategy was born of, honestly, just desperation. Like we needed shit to work, and we needed it to work in our first fund.
Nobody asked us to do it. And frankly, we didnt know what we were doing half the time, but we learned, he says.
The team was two people for the first two years. It was Michael and I [spending] nights at the kitchen table. We didnt have an office. We didnt take any management fees from our fund. We just said, Pay us on performance.
But with a knack for seeing where things were heading before the rest of the space caught on too early, in some cases Framework expanded in 2020 with an $8 million raise that saw the kitchen table work farmed out to Framework Labs, which also ran nodes on Chainlink and The Graph.
I've been involved in crypto for 11 years now Sometimes the superpower is just consistently believing and also not blowing yourself up along the way
— Vance Spencer (@pythianism) January 29, 2024
$400 million fund for Framework Ventures
When Magazine caught up with Anderson in 2021, the pair had raised $115 million across two funds and invested in Aave, The Graph, Tokemak, Zapper, Uniswap, Compound and more. In April 2022, they raised $400 million for a third fund, by which time Framework had amassed $1.4 billion in assets.
Their success is a big fuck you to the Silicon Valley VC community whod looked down on them when they were first pitching the fund.
Michael Anderson and Vance Spencer talking about crypto gaming. (X)
They were like, This isnt the right model like, Fuck you, youre not doing it right. And I think we still have that. Everyone just perennially disrespects crypto. They think its a scam, they think its a joke, he says.
But I just think its the most incredible industry. And were here to make Framework work. But were also here to make the industry work. Theres not a lot of main characters, good characters, side characters that are still here, and that are still pushing crypto in a positive direction and we want to be those people.
Avoiding dogshit SBF projects
While some crypto VCs buy in cheap, talk up the project until their tokens are unlocked, and then dump on retail, Frameworks has avoided the easy money so far.We had opportunities to invest in SBFs projects when he was kind of courting us. We had opportunities to invest in clear dogshit, he says. And Im just not, and Michaels not, willing to do that ever, he says, noting that their investments all had long time horizons.We can hold things in our fund for up to 10 years. And thats what we intend to do for a lot of these projects, he says.
Crypto startups are booming.Framework Ventures Co-Founder Michael Anderson explains the company's new $400 million fund focused on investing in young, blockchain startups: https://t.co/bnET3jIrU8 pic.twitter.com/FbQiTGkEQW
— Bloomberg Crypto (@crypto) April 23, 2022
Around $200 million of the most recent fund was earmarked for their conviction bet on blockchain gaming, with investments in Illuvium and AI Arena, among others. Illuvium founder Kieran Warwick recalls theyd spent weeks in grueling meetings with firms and had finally closed the projects seed funding round when his brother, Synthetix founder Kain Warwick, realized hed forgotten to introduce them to Framework.A few minutes into Kierans pitch, Spencer requested a brief pause, had a quick chat with Anderson, and then offered to fund the entire round.
I couldnt contain my laughter, recalling our exhaustive month of negotiating with over 50 firms. Here we were, moments into a meeting, and they were ready to commit to our entire round. Vance and Michael also thought it was hilarious and blamed Kain for the oversight.
Kieran says Vances insights and strategies were crucial to helping the project make it through the bear market.
Vance Spencer on stage with Anthony Scaramucci. (X) Ethereum and blind roommate dates
Born in Toronto, the son of a bank manager, Spencer had a pretty normal middle-class life at least until he moved to the U.S. for high school and started experimenting with identities and ideas.I was in the communist club in high school. I was really trying to experiment with different philosophies, he says. I was the kid who wanted to skateboard and do philosophy but also had really good standardized test metrics. And thats kind of what got me to college.
He studied philosophy for a semester in 2009 at the University of Southern California before realizing he couldnt possibly get a job and switched to economics. Upon graduation, he got a job with Monitor Deloitte for a couple of years.
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In 2015, a couple of life-changing events happened: First, he read the Ethereum white paper. Instantly, it was just like a light bulb went off in my head, he says. A lot of the things I felt about myself were manifest in this technology. It was tech-forward, but it was fringe. And Spencer and the Ethereum project both wanted to change the world for the better.
Second, he got a job at a mail-order DVD company called Netflix. It was not a cool company to join, he says of his three years at the firm, which saw him move to Tokyo. But I saw the whole arc of them launching streaming, them launching originals, them launching internationally. It was a blast.He says the streaming service was struggling in Japan when he joined, but Japan ended up one of its largest markets in Asia. And as soon as that happened, I was like, Alright, I want to go do something else. And I moved back to the States and started on the real crypto journey with Michael.
Why is a redenomination important for Maker?@RuneKek makes the case pic.twitter.com/Bbh34IVBZy
— Framework Ventures (@hiFramework) December 19, 2023
Vance Spencer meets Michael Anderson
Spencer met his long-term business partner, Anderson, on a blind roommate date in 2015. Anderson was a Yale graduate whod been shaken by the financial system meltdown in 2008. The pair bonded immediately and lived together for years, first in Venice, California, and later in San Francisco.
First dinner, we talked about ETH, and it was on. ETH was like, I think, $2 at that point, and we both just started buying as much ETH as possible. And that was the genesis of our competitive friendship of wanting to scheme on business ideas and do things in crypto, Spencer recalls.
I lived in an apartment with him together, and we had no money, and we put everything into the fund. I lived in his moms basement for like six months. So yeah, I mean, weve been through basically everything together.
He describes Anderson as the warm center of the universe. The reasonable one. Im probably the more hard-charging, you know, on-the-margins frontier [guy].But weve been working together for basically eight years at this point, and weve literally never had an argument. Its rare.
Framework Ventures has a very rare Dino in their SF office space pic.twitter.com/4gMcrb1rY2
— Frank Chaparro (@fintechfrank) September 27, 2022
Framework Venture founders invented Top Shot early
Not everything they touched turned to gold, however. Inspired by CryptoKitties, they foresaw enormous potential in combining sports fandom with NFT collectibles and created Hashletes, an NFL-licensed collectibles game in 2018.
We created Top Shot before Top Shot existed, he says of the later, vastly more successful NBA collectibles platform. I think, ultimately, we were just like a year, or a year and a half, too early.
We were the first crypto deal that was negotiated with a major sports league. We were the first real crypto app that was on the iOS App Store, he says. But the rights cost $6 million a year, meaning that even Hashletes 50,000 users werent enough to keep it afloat, and they sold it after 18 months.
They took the money from that and their crypto investments and basically put it all in that first fund. And yeah, I mean, that first one was just like what really put us on the map.
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Although theyd made angel investments in about 20 projects, it was their 2017 decision to pump between a third and half of their funds into Chainlinks initial coin offering and LINK tokens at around the $0.15$0.17 mark that solidified their reputation.For us personally, it was everything. On the fund, it was probably that range [of 33% to 50%].
Theyd gotten interested in the project after reading a Cornell University paper called Town Crier by Ari Juels (who went on to co-author the Chainlink white paper) that described an authenticated data feed for smart contracts.
At the time, getting reliable data on real-world prices and events into smart contracts was extremely difficult, and problems with this data could cause massive losses as it did when an errant oracle caused a $1 billion loss in an hour to Synthetix in 2019.Blockchains dont have an internet connection. They cant go and search Google, he explains, Even from the earliest days, even when you didnt know what the use cases were going to be, you knew that that was gonna be a problem for any of them.
They were also impressed by Chainlink founder Sergey Nazarov, whod been in crypto since 2012 when hed nabbed the smartcontract.com domain. Back then, there werent many good entrepreneurs to invest in, Spencer says.
You can read their December 2017 Chainlink thesis online. Suffice it to say that LINK blew past their $1 base case and $20 bull case, hitting nearly $50 by 2021. Todays price of around $20 represents a nearly 12,000% return on the ICO investment.
With Chainlink oracles powering much of DeFi, the investment also opened doors to investments in Aave, dHEDGE Synthetix, Yearn.finance, Dodo, Edgeware, Fractal, Futureswap, Kava, Pods, Primitive, Teller, The Graph and Zapper.
Vance Spencer on stage. (X) Big bet on Synthetix pays off
The other major early success was buying up 5% or 7% of the SNX supply at under $0.30 back in 2019. Theyd met Synthetix founder Kain at a Polkadot conference and got excited about his plan to pivot the old Havven stablecoin project into a weird new derivatives protocol.
And we knew derivatives were a big market in crypto, and they were really the first project that was taking aim at that, he says. We just knew the community was super strong, we knew Kain was a good leader, and we knew that they were going to do something. We just didnt anticipate it just absolutely popping off when it did.
Synthetix built up a head of steam during DeFi Summer in 2020, and SNX topped $28 in early 2021. While Spencer wont go into when or how the fund took profits during the bull market, he says, A large portion of our portfolio was derisked, you know, at a really good time.
This is a lesson that anyone whos seen more than one cycle will tell you: If you never take profits, you never make any money before the cycle ends.
My first Coinbase account was opened in 2012, 2013. So, Ive seen this happen, I think, four times at this point, he says.
Vance Spencers predictions about crypto in 2024
While their Synthetix investment has paid off in spades, the thesis that it would grab a decent slice of the derivatives market hasnt really played out yet its annual volume is still less than Binances daily derivatives volume.
Crypto gaming hasnt yet come to fruition, either. Around $200 million of the 2022 fund was earmarked for the sector.
It took longer than I thought to ship these games. Theyre not DeFi protocols. You cant ship it with two dudes and some Red Bull, he says. So, he thinks it just needs a little more time on the stove. Let time pass, and let teams build I just think its been one that hasnt played out yet.
Spencer is a regular guest on Bankless. (X)
But Spencers successful predictions vastly outweigh those yet to come to pass. During a Bankless interview in 2019, he predicted that DeFi TVL would go from $5 billion to $100 billion. And it did, you know, and I invested in all the right protocols to ride that wave. And we did well on that.So, how does he see the space evolving today? If youve heard him interviewed on Bankless, youll be familiar with the SMELL portfolio, which is essentially a core group of protocols that are similar in importance to DeFi as the FAANG stocks are to traditional markets: Synthetix, Maker, Ethereum, Lido and LINK (Chainlink).
Look at what happened the past 10 to 15 years with tech companies, the ones that were winning, the ones that had distribution, branding, scale they just kept compounding. And thats exactly whats gonna happen here.
Spencer argues that Maker and Lido, in particular, both have a path to $500 million to a billion dollars in earnings in the next couple of years.I think in the next year, youre probably gonna see $10 billion of real-world assets on-chain, and thatll scale to probably $100 billion to a trillion in the next three or four years after that, he says, arguing Wall Street will be attracted by lower costs, faster settlement and wider distribution from being on-chain.
That chain will be Ethereum, of course, as big money isnt going to risk very valuable assets on a blockchain that isnt bomb-proof: For now, that market lives on Ethereum.
Crypto predictions further ahead
He also believes that artificial intelligence will eventually govern decentralized autonomous organizations: Theres just no reason to have humans in meatspace in the middle. Its just not a good solution.And I think, you know, if you look back at the previous cycle, the games were some of the biggest outcomes, he says. I dont think you should be surprised if you see one or two or three games just to really grow far faster than people expect.Looking further ahead, he says:
Crypto is inevitable to some extent. And really, all the ideas that have been thrown out there are going to work at some point. So, I think Im just kind of a steward of it to some extent, and its just going to take some time to play out. But Ive been here for 10 years already. Im good to do another 20 or 30!
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