WBD004 Audio Transcription

Crypto Asset Valuation and Speculation with Mike Jones From Science Inc

Interview date: Friday 26th January

Note: the following is a transcription of my interview with Mike Jones. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this podcast, I chat with venture capitalist, ex CEO of MySpace and CEO of venture fund Science Inc, Mike Jones. We discuss the shape of the current crypto market, asset valuation and speculation.

Interview Transcription

Peter McCormack: Hi, Mike.  Thank you for having me here in your office and doing this interview.  We first connected a few months ago when I was on a plane over to LA and you contacted me, because I think you'd read a Medium post, and we've been chatting a little bit.  So, thank you for coming on the podcast.  I want to ask you a bunch of questions related to crypto and venture and how venture guys think about investing in this space.

Mike Jones: Sounds great.  Thanks for having me.

Peter McCormack: Cool.  So, can you give me just a bit of your career background because the first thing I was aware of is that you were once CEO of Myspace.  So, can you just give us a background?

Mike Jones: Sure.  So, I grew up in the Pacific Northwest.  I was born to two entrepreneurs and early in my college career, I started building companies.  It was right at the time when the web was becoming something unique and special and eventually big.  I built two or three small businesses and the third one I ended up selling to AOL.  I spent two years as a Senior Vice President at AOL and then left to work in private equity, running some different companies.  Then I was recruited to go take over Myspace when they were facing these massive challenges from Facebook.

So, I've been both an early-stage entrepreneur to running some medium-sized businesses to then running a very large, distressed company.  And then subsequent to selling Myspace, I started Science with a handful of other great operators I knew as a venture capital and incubation firm.

Peter McCormack: Can you tell us a bit about Science, the background, what it's done so far?

Mike Jones: Yes.  So, we're around six years old and we brought together a group of maybe 12 to 15 individuals that are really good at building and scaling companies.  Our goal is to identify early talent, work with them on their ideas, invest alongside them, invest in them and then hopefully, realise the benefit through an eventual M&A and exit. 

So, we're a great place to go if you're an early-stage dreamer, entrepreneur that wants to build a business, but you really want a strong team around you to increase the likelihood of your success.

Peter McCormack: You've also now completed your first ICO.

Mike Jones: That's right.  So, originally, we had raised traditional venture capital and traditional LP capital, which is how you fund incubators and venture firms.  We used that money to build companies like Dollar Shave Club and FameBit and HelloSociety and Mammoth Media and the whole large portfolio of nearly 150 companies that worked here with us at Science.

We started becoming interested in crypto four or five years ago and then when 2017 happened and at the early stages of 2017, we became obviously re-engaged.  The market fully came back and suddenly there were some incredible new innovations to work with.  And as you said, we did our own ICO in a unique, securitised structure to create a new pool of capital to essentially build crypto companies.

Peter McCormack: On a personal level, when did you first become exposed to Bitcoin and when did you start to think it was something that should be taken seriously?

Mike Jones: I started four or five years ago.  I began buying Bitcoin.  I think a lot of my friends that I knew inside the gaming communities that had participated in World of Warcraft, gold and different kind of digital goods, this was really natural to them.  I wasn’t as immersed in that community, but they brought me in to understanding Bitcoin.  I think originally, it felt like something that was novel.  I think the more I understood it, I think we all quickly came to the conclusion that there was Bitcoin and blockchain and these are two different things and we started to understand the importance if the impact of this new infrastructure, and then seeing these unique use cases and eventually the growing value of Bitcoin.

So, I was exposed to it early, depending on what you consider early.  I was buying Bitcoin when it was in the teens and I stayed with it.  When I first really understood it was right around the time before the Mt. Gox debacle and we had really focused Science on it.  What's nice about Science is I had this great team around me, and I had ready capital, so when we find something we love we can go really deep.  So, we did find it; I did catch that bug that everyone catches with this sector; and I did push Science deep into crypto.  This is quite a while ago. 

The problem was there was not a lot of legal framework to work with.  We had a hard time finding banks.  Venture capital was really weary of it and the legal landscape of whether you could own or trade was very complicated.  So, four or five years ago, we basically decided that I would quarantine my Bitcoin enthusiasm to owning Bitcoin and not building things in the ecosystem.  And obviously that changed last year.

Peter McCormack: What was the kicker last year; what happened?  Was it just the explosion of everything, or was it a specific thing that changed it for you guys?

Mike Jones: ICOs, I think, probably easily changed everything.  Between the time of Bitcoin crashing from its peak of, call it $1,000 down to wherever it crashed.

Peter McCormack: $250 or something, was it?

Mike Jones: Right.

Peter McCormack: $150, I can't remember.

Mike Jones: $150, whatever.

Peter McCormack: Yeah.

Mike Jones: Right at that point of that happening, there were two industries that were being really well-funded from venture capital.  It was the Bitcoin blockchain industry and it was VR.  After the Bitcoin collapse of price, the next two to three years we saw this massive dry-up of venture capital into blockchain-related businesses and you actually saw it also in the VR where it looked like there were these two sectors that venture thought were going to be so exciting and sexy and would just want to adopt them, and it just never happened.

At a point, we'd be seeing venture capitalists and they'd be, "Oh, I have all this money locked up in these VR start-ups and I did a bunch of Bitcoin stuff and it never went anywhere" and it looked like there were just these two holes, just these two holes of value that had been created.  Then obviously, you know, January, February, March of 2016 come around and suddenly ICOs just go bananas, right.  So, suddenly you have ready access to alternative capital. 

Although there was a desert, a dryness available to venture capital in 2015 for blockchain start-ups, or 2015/16; 2017 suddenly there's all this capital being fuelled by the industry that really was fuelled because the price of Bitcoin rose.  Suddenly, the price of Bitcoin rose.  Suddenly, people that had a lot of Bitcoin wanted to diversify their crypto signature into other crypto projects, you know, ICO or the Ethereum Foundation and the release of the Ethereum tokens; that entire wave of wealth washed over everyone and then suddenly people wanted to put money into crypto. 

Although the venture capital coming to that point was not really supporting it, the internal crypto community did support it and thus we saw all this development and all these new projects come to the world.

Peter McCormack: Having lived and worked through the early days of dotcom, the first era, the first crash, how does the market now for blockchain and crypto compare to what you experienced back then?

Mike Jones: I was graduating in college when companies were IPO-ing after their A round, so I wasn't quite in the middle of it.  But I obviously hear a lot of tales and I hear stories like, "Oh, you venture capitalists today have it so hard because we used to have full liquidity and IPO businesses nine months after they launched" and it was just this incredible moment.  And then, there was obviously fury of the public pouring dollars into this stock market.  But I wasn't really one of those companies.  Back then, I was building products, but I wasn't raising money for venture capital and I really wasn't aware of how you could IPO a business, so I never saw it.

But as I meet with people who are legacy investors that really lived through that, they certainly draw a lot of similarities to that fury as now, where you have a lot of public capital going into companies that they may not completely understand; and those companies have promising new innovative technology, but maybe no actual customers or revenue.  And so, there's just a ton of obviously speculation around these technology companies and the valuation/the market cap, so their tokens are extraordinarily high.

Peter McCormack: One of the things that I theorise around this is that even though these valuations are really high, that because of the speculation and the opportunity to make money, it then drives innovation and it creates a race to create the best products.  So, when the first dotcom crash happened, out of that became some really exciting businesses; we have Google, we have Facebook.  So, is it such a bad thing that this happens, or do you see it as a good thing; what's your view on that?

Mike Jones: I think in a very long-term view, there certainly will be great technology companies created through this entire wave of ICOs and tokens and blockchain; maybe a lot.  One problem is, it's a little hard to know who they're going to be.  The second piece is, it's a little hard to know what the trough looks like and how long you'll be in that trough. 

So, a very conservative investor could say, "Let’s wait for the shake-out to happen.  I’ll buy back in the trough.  After all the speculative investors leave, I'll come in with conviction and then I'll wait for those companies to become great".  And I haven't actually mapped what was the peak of Yahoo, what was the trough of Yahoo, what was the subsequent hopefully peak of Yahoo, what was the natural exit of Yahoo, if that was one company that weathered that storm and/or Google or whomever you put in that bucket. 

But I certainly know that yes, there will be great companies on a very long perspective.  You would hope those companies have a tremendous amount of value.  One thing that obviously must cause everyone pause is that some of the companies we're seeing in crypto are valued more than some of the greatest companies that we see in tech.  So, you have to then have a very long view that some of these companies will be greater than their current peers.  That is one framework.

The other framework is also that you could say we, as investors, have a hard time separating commodity token value from equity value; we talk about it as one thing.  It's funny that we talk about these things as market caps.  Market cap for me typically means the total enterprise value of a company and what it might be acquired for, but these aren't really market caps.  These are the total value of the tradeable commodities.  They might only not even be the total tradeable commodities; they might be the total value of the currently traded commodities and not the entire future to-be-released traded commodities.  So, the other thing that I wrestle with is it just may not be an apples-to-apples comparison.

Peter McCormack: Right, so actually the market caps could be misleading anyway?

Mike Jones: It could be misleading.  For instance, you could say if Facebook's worth X, but every like on Facebook is worth 0.1X, well there's certainly way more likes on Facebook at 0.1X than the total enterprise value of Facebook.  If you somehow put a value on those 0.1X likes, then suddenly maybe you'd have to value it differently.

Peter McCormack: So, we don't really have an economic framework to work here then?

Mike Jones: Yes, the only ones I can get around are maybe real estate management companies that have portfolios of property, and the property has a fluctuating value, but the management companies have a set value; or physical mines that have speculative commodity value in gold or silver; or speculation of oil wells where there's a value of the company that owns the rigging that drills the wells, and there's the speculative value of the oil that will come out of the land that they're leasing to drill the wells. 

But in technology, I've never had a look at a company where I'm like, "Oh, here's the value of the company and here's the prospective value of, for instance, a giant patent portfolio or IP rights".  I just typically don't value the companies that way.  Venture capital has a hard time looking at companies that way as there's this secondary pool of value.  Now, these companies have a potential secondary or an actual secondary pool of higher liquid value.

Peter McCormack: There's almost with some of them two ways to value them.  You value the business and you value the token.

Mike Jones: Right.  The thing that I also wrestle with is as somebody who's made a lot of capital and driven a lot of returns out of the equity value of these companies, I have to start asking myself, "Well, do these crypto companies have equity value?  What does it mean for them to have a massive amount of token liquidity?"  Also, what does it mean for the management and the staff of that company if they're not really aligned to equity value, they're really aligned against token liquidity and token value. 

Then also, how do you incentivise that over a long period of time if suddenly the people that have amassed a lot of wealth through these tokens, even if they haven't built a functional or valuable company?  So, it changes a lot of things.

Peter McCormack: Do you think they may not even need an enterprise value?

Mike Jones: I would have a hard time actually saying this, but you could say that maybe enterprise value is an antiquated way of looking at company value and in a tokenised world, which is also a very broad statement; but in a company where there's token value, does the enterprise value even really matter?

Peter McCormack: Are there things in this that are therefore worrying you or do you just see it as a new model that's been created that we're all learning on the job, as they would say?

Mike Jones: Do you know I oscillate between those two things.  So, there's certainly times when I can convince myself this is just a big over-valued dotcom bubble; there'll be a massive shake-out and people will go back to aligning things the way they are previously.  On the flip side, sometimes you're like, "Gosh, maybe this is something really fundamentally different and we have to think about value differently and we have to think about value creation and play engagement differently"; I'm not sure.

Peter McCormack: Therefore, are you bullish?

Mike Jones: I'm bullish.  It's exciting and certainly the token framework solves a lot of interesting problems that technology is locked up on.  So, from an alternative viewpoint, one of the reasons why the West Coast, in particular Silicon Valley, has benefited from such great innovation is because they have such great readily accessible capital.  You've all this venture capital and even the companies that we build in LA most often than not spend their time in Silicon Valley raising money from the Silicon Valley giant VCs.  That provides the United States and us a lot of potential benefit because we create hopefully great, useful companies that drive our lives to be better in some more efficient way. 

There's a lot of places outside of Silicon Valley where they don't get access to that capital which is why Silicon Valley is a very unique entity because they've really trapped up a lot of innovation simply because they have the capital to empower innovation.  If I was a country that was not the United States and I'd want to drive innovation and suddenly, I have a totally alternative way to raise capital to allow engineers and developers and entrepreneurs and dreamers to build new companies, this becomes really intriguing to me because it's unlocked a bunch of power that was sitting inside Silicon Valley. 

So, I get excited about that, because it means that there might be ideas or concepts that previously weren't within the very small tight-knit club of Silicon Valley that can now be explored and developed through these alternative capital sources, which should be exciting for all of us.

Peter McCormack: Around the people you know and the space, has this had any kind of ripple effect on venture capital and is there less opportunity now or less deals for venture capital, because tech guys are moving into crypto and blockchain?

Mike Jones: I think you have a bit of a -- I wouldn't even say a split, because that would somehow infer it was 50/50, but let's say you have a fractioning where you have certain people in venture capital that are very excited about it and spending time in deploying capital inside the framework of tokens and trading and investing in these companies.  Then you have a large force of venture capital that I don't think is yet ready for it and they understand equity. 

You also have a lot of very unique legal issues around how a venture capital firm might be formed, what they can or can't put their money into that may or may not prevent them from actually buying it only in tokens inside these start-ups, which again provides an opportunity to other countries that may want to drive innovation.  So, you definitely have a fracture between people in the venture capital community that support and really want to build here, and other ones that really just don't see the value of it and want to stick within equity investments.

For the people like me, where I'm looking at companies now and I have some level of capital and, granted, my capital is compartmentalised between equity capital versus token capital, it's a little simpler.  But in the realm of somebody cutting a cheque, so if you're an angel investor and you're used to cutting cheques and you can now cut an angel cheque or you've been cutting angel cheques for others, like I've cut angel cheques for whoever, if I give somebody between $50,000 and $250,000, and I might wait five to seven years to see that money ever come back, 80% to 90% of that capital goes to zero because start-ups fail at a high frequency. 

Then the ones that come back hopefully make up for all my losses and give me some gains; and now I can take that angel cheque and I can give it to somebody that's doing a token or investing in a token.  Whereas now I'm getting, in theory, highly appreciating tech exposure to a new and emerging start-up with immediate optionality in liquidity.

Peter McCormack: You can go in and out of the project as and when you want.

Mike Jones: Right.

Peter McCormack: Okay.

Mike Jones: It also means that capital that I may not have previously wanted to put into early-stage tech, I now might be willing to do it because I no longer feel like I'm signing up for a five to seven-year lock-up; I actually have some level of optionality.

Peter McCormack: But when you're raising money through venture, you get a lot of other things apart from the money, right?

Mike Jones: True.

Peter McCormack: Whereas if you're raising money through an ICO and you haven't got any investment in the background, there must be things you’re missing as a team.

Mike Jones: Yeah, I mean I think it depends on the team.  There are certain industries that you might need to navigate that are complicated and require historical relationships and a lot of structure and governance and oversight and guidance.  There's other industries that you might not necessarily need that. 

So, just as I wouldn't say every entrepreneur would benefit from a great board, I would also not say that every ICO benefits from not having great advisors and board members and structures around that; it's just going to depend on the team and the thing that you're going after and whether or not those people help.  But certainly, venture capital/standard corporate framework generally, I believe, helps companies progress in the right direction, helps management, helps navigate complicated issues, helps preserve and grow shareholder value.  So, generally we've come to the acceptance that's probably a good thing and obviously within the ICO framework, you typically don't have that.

Peter McCormack: So, the Science fund, does that bridge that gap then?

Mike Jones: It could.  The capital inside the Science blockchain vehicle can be used to help companies navigate the ICO landscape; it can be used to incubate companies from start to scale; it can be used for a lot of things.  Generally, as in myself and the team that I share myself with, I feel like we're good at what we do.  We certainly don't need to know anything and we're very good at understanding how to build and launch products and navigate complicated BD deals and growth and all the kind of things that go along with it.

So, I generally like to believe that when we get involved in something it's more than our capital and that's probably true hopefully over half the time.  There are certain times when maybe our capital is the only value that we can bring, which is fine too.  So yes, if there's a start-up and they're looking at navigating this, whether it's equity or an ICO blockchain strategy, generally I believe that we add a lot of value to that discussion with them.

Peter McCormack: Are there any specific areas within blockchain that you're looking to move those funds into, certain types of companies or projects?  What are you interested in?

Mike Jones: First and foremost, we're very good at consumer, we understand mass consumer adoption products really, really well and getting things in hands and used by millions of people.  I think we're great at that.  The second piece is I think that there's a logical use of blockchain where you have this need for user-controlled data, maybe certain levels of anonymity, maybe certain levels of obviously transferability with some levels of irrevocability; and so that might manifest in something like people's credit scores.  It's a very easy example. 

I think it makes a lot of sense that my credit score should be owned by me and stored some place that I can give someone else access to.  I really don't like my credit score to be owned by Experion or a corporation.  That feels odd to me.  Now in a lens where you suddenly can have these autonomous data pools that are not controlled by a singular company, I start thinking to myself about the things that represent me or the things that I own and how maybe I don't want that ownership or that identity of mine to be managed by a corporation, and maybe that would be better if it was an autonomous data pool that I have some level of control over and that would be a great project.

Peter McCormack: If anyone is working on those kinds of projects, should they be getting in touch with you?

Mike Jones: Oh, 100%.  Listen, I think we're interested in the space and we're deep and we look at tons of deals.  We know a ton of investors in the space and I think we have a good sense of what works and doesn't work; so, there's very little we don't want to see.  When we immerse ourselves in an ecosystem, we want to see it all.  I don't think we’re going to be the best people to evaluate some depth of technology or cryptography, we're not going to bring that level of technical expertise; but when you're starting to think through the way you might structure an ICO or structure an offering or making sure you can navigate the complicated regulatory environment, if you're thinking about we're talking to investors, rolling out a product, getting into consumers, hiring staff, building teams, we're great partners for that.

Peter McCormack: What were the things you learned running the ICO?

Mike Jones: We chose to do a Reg D exemption to the SEC's guidelines, which basically means that we are falling under this thing that everyone's calling a security token.  Blockchain capital did this as well.  It provides a lot more restrictions relative to the way the tokens can be sold and transferred, which basically means you can't discount them, there are certain restrictions over how you can transfer them, you have to have accredited investors that can actually purchase them, there's a ton of disclosure on how they work. 

The reason why we chose this is, first off, we are setting it up much more like a fund and we needed some very specific provisions that work with it being a securitised ICO; that's one reason.  But the second reason is that I think in the future, everyone is exploring utility ICOs so effectively and there's all these great utility tokens with lots of usage, but I think there's this other world on securitised, tokenised ownership that could be really, really fascinating, whether it's touching a vehicle like ours or touching the ownership over your car, I think it's super fascinating.

So, we wanted to go through that process; we went through that process.  It's very complicated and very expensive and I don't think it's right for many of the ICOs we see, but we chose to do it that way and I'm happy we did and we had a good result because of it.  I think it actually gave us more experience on how you will structure ICOs even in the utility realm where you'll be safe from hopefully future scrutiny from the SEC.

Peter McCormack: You see ICOs as just now a new way of raising funds and this is just going to continue and grow?

Mike Jones: I think it will continue and I'm assuming it will grow.  I'm not sure it will grow; it could restrict; I think that we’ll probably generally see probably fewer of these; I think they will probably be bigger.  The same way that often in venture capital cycles, you first see a ton of -- when a new thing happens, like when everyone became connected to the iPhone, and everyone and your brother wanted to create an app, and suddenly all these individuals were funding these tiny little app projects to create the next big app, there was almost too much being funded on too thin of a basis.  Then over time, it started concentrating. 

So, it's very possible that we see ICOs will continue but they may concentrate to much larger, more substantial ICOs with more structure and formality around them.  Some of the small ones may just not exist the way they do today.

Peter McCormack: So, you see ICOs potentially being adopted by traditional mainstream companies as a way of raising funding?

Mike Jones: Listen, we talk to traditional mainstream companies, we talk to public companies, we talk to large private companies and we talk to companies about acquisitions that want to use ICOs as an alternative form of capital.  So, everyone's thinking about it; no one is not paying attention to this, everyone's paying attention.  There's too much capital flowing in here for them not to be aware of.  I ,think we're also still figuring out the right use case and there's quite a few use cases that we don't have a pioneer in yet.  So, people need to bust through the wall first to show us the way to get it done.

Peter McCormack: Cool, okay.  So, most of the people who listen to my podcast are traders.  Most of them are interested in specific projects.  I think it's going to be really interesting to get your take on a few of them.  We're going to talk about a few.

Mike Jones: Yes.

Peter McCormack: The first one I'm going to put out there is Ripple because we've spoken about Ripple and I kind of know your views on it, but Ripple is a project which has twice now had a huge growth in the value of the coin.  The XRP token hit nearly 350 this week with a valuation of -- well, on that market cap thing we talked about, $125 billion and I think one of the guys owned 60% or something and he's worth $55 billion.  So, the numbers are crazy, yet there is a question over if there's any intrinsic value to the XRP tokens.  Can you give me your take on Ripple?

Mike Jones: Ripple's a funny token because I definitely find that we talk to a lot of people about it and there's very opposite opinions.  I know a bunch of the Ripple management and I know a bunch of the Ripple investors.  And the CEO of Ripple is a fellow named Brad and he's a really good, solid CEO that's been in the industry for a long period of time.  Generally, if you'd come up to me and said, "I've got this well-funded start-up run by your friend Brad and we think it's going to do great", I would generally be super supportive of that because I think he, as a CEO, is actually a really great CEO and I think if we looked at the management, we might be super pleased.

On the flip side, the crypto community has very different feelings on whether the value of the XRP token is right or not and whether they do or don't adhere to formal blockchain principles.  I can't really speak to that because, to be honest, I have not looked at the Ripple code set, I don't think I'm technically astute enough to really tell you why they are or are not following decentralisation. 

What I can tell you is that if there's banks and those banks want to work with blockchain, and they can get the CEO of Ripple on the phone, I think he will do a really good job at convincing that bank to work with him, because I think he's a very good CEO and I think he will attract people that will trust him.  And I think the venture capitalist names and the equity they've raised will further encourage large corporations to want to do business deals with Ripple.

Now, I've no idea what the right price of a Ripple token is.  From a business perspective, I'd say that's a good team and they should be able to do big projects with large corporates that will feel very comfortable working with that management group and that equity in that venture capital group.  I have no idea the right price of that token or the token concentration or the ethics around the token concentration or individual ownership.  I have no idea.

Peter McCormack: What about Bitcoin itself?

Mike Jones: I think Bitcoin is here for a long period of time.  I think it's obviously the most well-known brand at this point.  It's funny that it has no CEO, right.  So, I heard an argument recently that Bitcoin would be worth a lot more if they had a management team that was helping promote the use of Bitcoin inside of countries with highly inflating or deflating currencies.  So, I think that people trust Bitcoin.  I don't know the right price of Bitcoin the same way I don't know the right price of gold.  But I do think that there's a lot of people all over the planet that may want to store their value into a digital product.  I think right now they're going to choose Bitcoin. 

I think for them to choose Ethereum feels weird to me, because Ethereum to me truly does feel like an application platform that we can all build upon and we're building companies in essence on top of Ethereum.  We're not building companies on top of Bitcoin and that's okay, because I don't know if I want to build companies on top of money and if Bitcoin is being used as a store of value, even if everyone doesn't think that's the sexiest use of Bitcoin, but if that's what we're telling the public, that they should store value in Bitcoin and, "Oh my gosh, you're in Venezuela, you should buy Bitcoin" and that's what the public message is, I don't think we're also going to say, "Oh, and I'm going to build my application on top of your money" and it just maybe kind of feels weird.

So, I think the public likes to have things in boxes.  If you say, "This thing over here is where you can store value and this thing is where you can build things, and this thing is where you can transfer things", they generally like that and so, I think we'll continue to see people wanting to own Bitcoin.  I have no idea what it means with whales dumping and hedge funds coming in and individuals pouring in dollars. 

Generally, it feels to me like I would speculate over the next year there's more money that wants to enter the ecosystem than wants to leave the ecosystem.  And just from all the people I know or we all collectively know that are raising funds to get exposure to this asset class, they're probably going to enter through Bitcoin.  So, I'd expect a lot of money to flow into it.  If that changes the price, I guess we'll have to see.

Peter McCormack: Is it mainly Bitcoin they're going into because it has the liquidity they require or safety?  Why would this institution money pick Bitcoin?

Mike Jones: I think that there is certainly a market cap component to it.  So, I've talked to large LPs and I said, "Look, we should really get you into crypto as an exposure to asset allocation to crypto".  And they'd said, "Well, what's the market cap?" right.  And I would say, "The entire crypto market cap, let's say, [back then it was] $600 billion or $700 billion".  What they might say is, "It's just too small a market cap".

Peter McCormack: Right.

Mike Jones: You always forget that there are very wealthy countries and institutions all over the world and they pour a lot of money into the different markets, and they generally want to pour money into very big markets, because they never want to be a large percentage of any single market.  That makes them very nervous; it's too concentrated a risk.  So yes, I think there's one component that the bigger Bitcoin gets, the more comfortable large institutions will be in pouring in money. 

But there's also the second thing that's much simpler which is that people know the name and they know the word and it's been spoken of all over the place, and it's more likely that they will start there just because of brand recognition.

Peter McCormack: So, actually the size of the market triggers more money to come in?

Mike Jones: Yeah, that's exactly right.

Peter McCormack: Wow.  Do you have any views on the scaling issues?  Do you see Bitcoin Cash as a good thing that accompanies it, or do you see it as a threat?  Do you have an opinion on Bitcoin Cash?

Mike Jones: I don't have a distinct opinion on it.  I don't like the confusion in the brand.  So, as somebody that wants to see this ecosystem grow and flourish, I don't like the fact that someone's going to come up to me being like, "Mike, should I buy Bitcoin or Bitcoin Cash?"  I don't like to have to explain that to them, and I don't think they like the fact that there's different prices.  So, I think that's a bad idea.

Peter McCormack: Right.

Mike Jones: I understand why it's done, and I genuinely understand the reason why there's a technical split and why there's this fork, and I understand this.  But do I really want to go to explain that to a family office that wants to put $100 million into crypto; how they split their value between Bitcoin and Bitcoin Cash?  And then I'm going to talk about, what, the fork of the code and Roger Ver and the block size; these are things they really don't want to hear about. 

Peter McCormack: Don't you find yourself talking about this all the time now?

Mike Jones: Now I have to talk about it.  It would be easier if I didn't have to talk about it, because I wouldn't have to explain it, because now it goes from complicated to just more complicated.  If I told you, "Well, you should buy Apple stock, it's great" you're like, "Oh, that sounds great.  Shall I buy Apple stock or Apple iPhone stock or Apple iMac stock?"  And, "Well, the Apple iMac stock is run by miners but the Apple iPhone stock has an unlimited supply and there's this one guy that's split the Apple iTunes stock into iTunes A and iTunes B, but then the iTunes A only has 3 megabyte songs but iTunes B has 10 megabyte songs.  So, you choose".  You know, you're, "Yeah, you know what?  Maybe I'll just go buy Google". 

I'm not sure everyone realises it, but as much as we're all getting into this technology and these nuances, a normal person approaching the market, now they have two choices versus one, it just makes it a little bit harder for them to understand.

Peter McCormack: Right, okay.  I've not heard that analogy; that's great.  You mentioned Ethereum, so you like that as a project?

Mike Jones: Sure.

Peter McCormack: Okay.  What about the other protocols, because we now have EOS, we have Cardano.  There's a lot to keep up with and a lot of them have very high valuations without really any working product.  What do you think about the multiple protocols?  Do you think the ecosystem can support it; do you think they will consolidate; anything you specifically like?

Mike Jones: Well, so I can only draw parallels back to internet protocols and so, I know the internet runs off a lot of different protocols, HTTP, FTP, whatever, IP addresses, DNS servers.  There's a whole bunch of protocols that we use to run the internet and they all have different uses.  Then, there's also all sorts of programming languages that you could choose to write whatever application you're going to put through HTTP or through FTP or through SMTP in order to write the application that runs on top of the protocol.

I would imagine this should look similar to that, where there will be a series of widely adopted protocols and there'll be Betamax versus, was it VHS?

Peter McCormack: VHS, yes.

Mike Jones: And then VHS1.  Overall, at the protocol level, assuming that we're considering that a protocol, there will be leaders that will clearly be the dominant protocol.  Then, there may be lots of application languages to build on top of those protocols.  Right now, it's a little funny because sometimes the application languages are protocols and sometimes there's not; it's a little bit confusing.  But I would assume that all sorts out over time.  That's the first answer.

The second answer is I have no idea of the right value of those protocols.  The only parallel that I can get my mind around is domain names.  At some point, ICAN or whomever it was, Network Solutions, said, "Congratulations, there's this free register, you can register as many domain names as you want".  Speculators believed that HTTP and DNS is going to be really important, so we all go and register all these domain names, then suddenly people start building websites through a variety of different applications.  They're running on top of the protocol of DNS and HTTP, etc, and then suddenly our names that we were sitting on that we speculatedly purchased have a ton of value, and then we sell them for multiple millions of dollars, right.

Peter McCormack: Right.

Mike Jones: Maybe that's a good parallel.

Peter McCormack: Are there any other projects out there that you like specifically?

Mike Jones: We stay really close to the EOS team because we like them, we understand them.  They have a presence in LA, we talk to their team and generally their engineers are very excited about what they're talking about and some of the test things they've seen; so we get excited about that and we have purchased and we sit on EOS tokens, and I personally own EOS tokens, because I believe in that team. 

Although it's not a protocol, we really are in love with WAX.  We know the management there.  We're really excited about the size and scale of the OPSkins business.  That is the primary game skins trading marketplace globally.  They're at a scale that's, honestly I wouldn't want to say publicly, but it's hard to comprehend how large they are; it's really a big surprise.  The fact that they've created their own globally usable token in WAX to me just becomes really exciting.  We own WAX; I will buy more WAX; I'm a big believer in that as something that's going to have a lot of money, I believe will transfer through their token trading.

Those are the two things that we're very excited about.  But luckily, I've got a solid team of partners here that all have different positions in different tokens that they have conviction around.  And I try to stay a little bit autonomous to it and let them really get into the weeds on it.

Peter McCormack: Going forward, is there anything specifically that you think the market needs to approach, deal with, anything it needs to work on; anything specific, I don't know, like security, we've talked about security?

Mike Jones: Yeah, I think that there's obviously benefits and negatives to this decentralisation, public key/private key wallet structure.  I think for normal people, I believe most people have an internal self-doubt and they actually are more comfortable having other individuals or other institutions be a secondary line of trust and protection for them.  I think they genuinely like that because they doubt themselves.  I think it's really awkward for individuals to know that they could have this master private key, that if someone gets a hold of it, they can be robbed.  I think that's a really awkward idea for people.

Now, I was thinking about it as -- I remember talking to somebody.  We do a lot of work in India and I always remember talking to somebody and they were, "Oh, it's like my grandmother".  I'm like, "Oh, what's up with your grandmother?"  "Oh, my grandmother kept all her money in gold in her house and she had this place that she stored all her money and all her entire wealth was stored within her house" which is probably the way it used to be.  When everyone's storing their wealth in their house, they probably felt really good about it, "I store my wealth.  Maybe I have a gun and I protect my wealth, and this is where my wealth sits". 

Then at some point somebody creates a bank and, "If you put your wealth me, it's much more portable and I'll secure it for you".  I would bet there's a lot of people right then that said, "I'm not giving my money to a bank.  I don't trust you with my money; my money's in my house; I know exactly where my money sits, it sits right there, it's gold, it's under my floorboards, it's in my safe, whatever.  This is my stuff".  But then there's all these young kids, "Oh no, you've got to trust the bank.  You've got to trust the bank.  You've got to put the money in the bank, it's so much better.  It's so much easier, you don't have to worry about the house, you don't have to secure the house".  And everyone must have been, "Your money's in a bank, that's crazy.  You put money in your wallet, and you all have a private key.  But what if I…?"  "No, that's old thinking". 

So, when you think about the protection of value, it probably started where it was highly decentralised and then it moved to a very central infrastructure and now it's moving out to a decentralised infrastructure again.  I wonder if the barriers are more cultural.

Peter McCormack: Also, you've got people keeping their private keys in a bank in a safety --

Mike Jones: Right.

Peter McCormack: You've got a decentralised bank inside a centralised bank.

Mike Jones: Yes.  I have a feeling this will actually be one of those things that age will be the separating line.  If you were under the age of 18 when you bought and held your first Bitcoin or ETH or any kind of alt token and you held it in your own managed wallet, you will think that's normal and you will be very comfortable with it.  But if you're probably over the age of 25 or 30 when you started actually managing your own stuff, I have a feeling it's always going to feel weird to you.

Peter McCormack: Yeah.  You've got kids and I've got kids.  My kids don't watch TV on a schedule.

Mike Jones: Yeah, that's right.

Peter McCormack: They watch it on demand.  They don't know of a time of no internet, so I guess it will be a cultural difference.  And, what I've also noticed is the younger people I've been meeting, they feel a lot more comfortable with crypto; it just feels something natural to them.

Mike Jones: It's funny because, yeah, it is a funny thing.  I think it's also because the stock market, for most people I think, feels very untouchable.  It's hard to understand, it's complicated, it's ruled by all these people that we don't really understand.  There's puppet masters controlling it, there's all these rules and regulations around it and people go to jail for it, and I never can really touch it.  And suddenly, there's crypto which, in a weird way, is actually easier to understand.  I buy this thing and I have it in this wallet, I can move it over here, there's no one telling me what to do with it, I can give it to you; I can do all this stuff.

So, in a weird way, I think if you're not in finance, crypto's actually understandable.  Sometimes I wonder whether -- there's so many interesting original stories around this entire marketplace, but part of me likes to think that there is a group of technologists that said, "I don't really understand or care about the stock market, so I'm just going to build my own thing".  And so, they kind of just did.  They're, "This makes a lot more sense to me".  Technologists just reinvented that world for themselves. 

Peter McCormack: Everyone's trading now.

Mike Jones: Everyone's trading now.

Peter McCormack: Everyone's trading now.  I must speak to 10 to 15 people a day who are just regularly trading, who are friends and family and everyone's getting involved.

Mike Jones: Yeah.

Peter McCormack: Just a couple more questions.  We've got a huge market cap at the moment of $750 billion; we could go over $1 trillion very soon, or everything could tumble down.  Are there any specific things that you're looking at as key signals for market sentiment?

Mike Jones: I look at big headlines and I get nervous.  I don't get nervous with the Jamie Dimon or today it was Warren --

Peter McCormack: He regrets it now.

Mike Jones: Sure.  But Warren Buffett today was some quote around, "Bitcoin will end in failure or something".

Peter McCormack: Really.

Mike Jones: But I look for -- I think there are certain headlines that will change public sentiment.  That's something that I think we all just have to be aware of, because if public sentiment really turns, that'll be a big deal.  The second thing is we have non-leaders but leaders in this community.  They may not be our chosen leaders and they may not control, from an organisational perspective, Bitcoin, but they're definitely leaders in this community. 

What they say matters and how they position themselves and how they position the crypto community matters.  If they say the wrong things, it can bring a lot more scrutiny to what we're doing; if they say the right things, maybe it can bring a lot more support.  So, you also have to pay attention to how leaders, just the same as you might think about the leaders of the stock market, are talking about the crypto world.  I think that's important.

The third thing is, I think a lot about the historical public sentiment on this stuff.  Mt. Gox feels like a long time ago for me and yet it comes up so frequently in conversations with people that are new to the industry, "Well, what about Mt. Gox?"  It's, "That feels like a long time ago".

Peter McCormack: Yeah.

Mike Jones: That and the other thing I keep getting is, when large dollars are talking about coming in, they're still bringing up Silk Road and drugs.  I'm like, "Are we still there?  Oh, my gosh".  You know, "You're still thinking about that.  When I say Bitcoin, you think drugs".  And I'm, "Oh, because I don't think about that.  I think Coinbase, I think store of value, I think GDAX, I think exchanges, I think networks".

Peter McCormack: Three years ago, maybe.

Mike Jones: Yes, and so what we forget is we've all been indoctrinated to this in a different light, and we see it very differently.  People that aren't so close to this actually have these historical stereotypes that are tethered to these words and terms, and it affects the way they think about it.  Yeah, it would not be great right now to read about a giant drug raid that had the word, Bitcoin, in the headline.  That would not be great for all of us, because I'm telling you the general investing public does not feel super great if they're backing a currency that is being called out for elicit uses; it doesn't make them feel good.

That’s certainly one of those headlines I pay a lot of attention to and then, of course, we've got lots of systems that monitor markets and movements and buy and sells and trades.  We obviously look at the correlation between alt tokens and ETH and DAT and Bitcoin and all these things to try to understand.  It definitely feels like a market that you have to pay fairly close attention to if you're active.  It's not like you can just buy five stocks and close your eyes.  I think you have to either pick the right five things and close your eyes, or you need to be super active with it, right.

Peter McCormack: Right.  Conversely, what are you looking out for as a bullish signal to see this market fly even further?

Mike Jones: I'm excited for commercial use cases.  When I hear about companies that are, "We're about to announce that we have a substantial amount of customers that are transacting with our token for actual goods and services, that have driven us revenue that will support our functional business", I get really excited about that.  There is one thing I know is we've done an immense amount of start-ups here.  Every time I sit in an initial PowerPoint pitch, it all sounds so exciting and it's all going to be a monster and it's all going to be the breakout company.  Every CEO's convincing me of that first month's numbers are just going to blow it through the graph. 

What I know is that on any company launch, the start will almost always be slower than you anticipate.  It just always is.  As sad as that may seem -- and even with Dollar Shave Club, $1 billion exit, Unilever, complete breakout, viral video, I would even say that if I showed you the metrics of that company two months after their launch and I told you, "You need to invest in this and it's valued at $1 billion" there's no way you'd do it, and that is a full breakout company.

So, even in the view of a full breakout company, the early numbers are typically small and slow.  That's just the reality of the way companies work.  I know that because I've done a lot of companies.  But I see a lot of blockchain start-ups that have these stratosphere tokens and they're prepping for their launch, and they're prepping for their consumer adoption.  What I fear is that the consumer adoption would be way slower than they anticipate.

Peter McCormack: Right, okay.  Cool, okay.  Just to finish up, what's the future for you?  What's the future for Science?  How can people follow you, get in touch if you want to hear from them?  You just give us some…

Mike Jones: Sure.  My Twitter's @mjones.  I tweet fairly infrequently, sadly.  Science-inc.com is our website; there's an entities page that talks about our various funds.  I see every email that goes into there, so you can click on any of the contact links and it will probably come across my desk, for sure.  We have a news section there, where we post official news.  Because the Science blockchain vehicle is a Reg D-exempted security, we post official news for the blockchain on the blockchain entity page.  I'm fairly easy to get in contact with.

 We're happy to look at ICOs.  Generally, when companies come to me, I'm looking at it through three lenses: (a) is it a company that I'm interested in the equity; (b) is it a company that I'm interested in working with to build whatever that founder and that founding team's dream is; and (c) is it a company that would be ripe for our ICO team to participate and purchase and maybe trade within.  So, I'm looking for the right slot to put these companies.  It's easier for me if you can tell me that when we start talking.

Peter McCormack: Right.  Any closing thoughts?

Mike Jones: No, I think it's an exciting time.  It changes every day and at least from my perspective, this is the place to spend time right now.  There's really nothing more exciting happening, I think, than what we're seeing right now.  I'm open to it and there's lots of time in the future where everyone can go and get regular jobs, but right now I think you've got to go all in on this because it's just too amazing.

Peter McCormack: I completely agree.  Great.  Thanks, Mike.  I really appreciate your time.

Mike Jones: Yeah. Thanks for having me.