Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. What a crazy start it's been for the tech sector in 2022. It's a sector that's grown quickly in recent years and continues to change the way we live and work. I wanted today to see what the future holds for the sector, not just from an investment perspective, but what the next great innovations might just be. Chris Barter is a former investment banker at Goldman Sachs,, and now one of the founding partners of King River Capital. Chris, welcome to Fear and Greed.

Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. What a crazy start it's been for the tech sector in 2022. It's a sector that's grown quickly in recent years and continues to change the way we live and work. I wanted today to see what the future holds for the sector, not just from an investment perspective, but what the next great innovations might just be. Chris Barter is a former investment banker at Goldman Sachs,, and now one of the founding partners of King River Capital. Chris, welcome to Fear and Greed.

Thanks, Sean.

Thanks, Sean.

So just before we get into the future, what a crazy sector to be investing in. Talk about fickle.

So just before we get into the future, what a crazy sector to be investing in. Talk about fickle.

Yeah, I think technology is no stranger to volatility, and we're experiencing that right now. I think no one really complains when the volatility's upwards.

Yeah, I think technology is no stranger to volatility, and we're experiencing that right now. I think no one really complains when the volatility's upwards.

Yeah.

Yeah.

We've seen extraordinary volatility upwards over the last 18 months, and it feels like the huge markets crisis that we faced 18 months ago when the pandemic was at its peak feels like 20 years ago. But here we are, and we're entering a new phase of volatility. This one driven by inflationary fears as opposed to fears of pandemic impact and the unknown. We haven't really faced this kind of inflationary- driven crisis and quite some time. So, there's a lot of newness here.

We've seen extraordinary volatility upwards over the last 18 months, and it feels like the huge markets crisis that we faced 18 months ago when the pandemic was at its peak feels like 20 years ago. But here we are, and we're entering a new phase of volatility. This one driven by inflationary fears as opposed to fears of pandemic impact and the unknown. We haven't really faced this kind of inflationary- driven crisis and quite some time. So, there's a lot of newness here.

Yeah. It'll be really interesting, I think, to see how the investors in the tech sector but the sector itself evolves in the next few years given the challenges, which really they have never faced to be perfectly honest, because inflation has pretty much been in control for 20 years, you can argue. It almost is like a maturation of the tech sector to some extent, in terms of investments.

Yeah. It'll be really interesting, I think, to see how the investors in the tech sector but the sector itself evolves in the next few years given the challenges, which really they have never faced to be perfectly honest, because inflation has pretty much been in control for 20 years, you can argue. It almost is like a maturation of the tech sector to some extent, in terms of investments.

Yeah, I agree with that. I think the reality is that the markets just don't really know at this stage. I mean, people have been talking about inflation for the last over a year and worried about it, but markets have shrugged it off, technology's shrugged it off saying, " Oh, well they'll figure it out." And Central Banks are telling us that it's all transitory. But now, it's pretty clear that it's not, and it's very, very unclear how many rate hikes or what the Central Banks have to do to put the genie back in the bottle. So, feels a little bit reminiscent of what was going on in the world in the '70s. And as we all know, they had to be very, very draconian action taken by Volker and other Central Bankers to get that genie back in the bottle back then we all. We all hope that won't be the case now. But technology is along for the ride at this stage. It's not driving that volatility, it's being driven by it, but that's why it's great to be a VC and not a public markets investor right now. I mean, we take five to 10 year views on companies, not five to 10 weeks.

Yeah, I agree with that. I think the reality is that the markets just don't really know at this stage. I mean, people have been talking about inflation for the last over a year and worried about it, but markets have shrugged it off, technology's shrugged it off saying, " Oh, well they'll figure it out." And Central Banks are telling us that it's all transitory. But now, it's pretty clear that it's not, and it's very, very unclear how many rate hikes or what the Central Banks have to do to put the genie back in the bottle. So, feels a little bit reminiscent of what was going on in the world in the '70s. And as we all know, they had to be very, very draconian action taken by Volker and other Central Bankers to get that genie back in the bottle back then we all. We all hope that won't be the case now. But technology is along for the ride at this stage. It's not driving that volatility, it's being driven by it, but that's why it's great to be a VC and not a public markets investor right now. I mean, we take five to 10 year views on companies, not five to 10 weeks.

Okay. So, King River Capital, as you said, is a venture capital company. When you're investing in a company at the moment, are you thinking more about big trends? Is it more about specific companies that you just really like their management or what they're working on? You're going to answer, " It's a bit of both," I know that, but where do you start? Is it the really big picture?

Okay. So, King River Capital, as you said, is a venture capital company. When you're investing in a company at the moment, are you thinking more about big trends? Is it more about specific companies that you just really like their management or what they're working on? You're going to answer, " It's a bit of both," I know that, but where do you start? Is it the really big picture?

Yeah, really good question, because it always looks very easy in hindsight to pick a great company say, " Oh, yeah, that was obvious." But let's talk a little bit about, what is the pattern recognition that we look for when we start looking at companies? And we look hundreds and hundreds of companies every year and invest in only a handful of those companies. So first and foremost, we're looking at the founder. The founder herself. I mean, is she one of these visionaries, one of these people that, within the first five minutes of talking to you get the feeling that, come hell or high water, she's going to be a money maker? She's going to figure out how to crack the market? I say that, it sounds glib, but it's really probably the most important initial gateway that we look at. The next gateway we look at is obviously the product itself. And if we see the product as being on the one hand IP that's truly distinct and that has a sizable moat and the particular company has a really good head start, it would be hard to catch up. And then thirdly and very, very importantly, we look at the total addressable market, the TAM. Because you can have the best idea in the world and it can be very, very unique IP and no one else can be anywhere close. But if it's solving a very, very small problem, that's just not what we really want to invest in. But typically, a very, very visionary, very inspiring type of founder that we like to invest in, she's going to have a focus that's already on a very, a large problem that's being solved.

Yeah, really good question, because it always looks very easy in hindsight to pick a great company say, " Oh, yeah, that was obvious." But let's talk a little bit about, what is the pattern recognition that we look for when we start looking at companies? And we look hundreds and hundreds of companies every year and invest in only a handful of those companies. So first and foremost, we're looking at the founder. The founder herself. I mean, is she one of these visionaries, one of these people that, within the first five minutes of talking to you get the feeling that, come hell or high water, she's going to be a money maker? She's going to figure out how to crack the market? I say that, it sounds glib, but it's really probably the most important initial gateway that we look at. The next gateway we look at is obviously the product itself. And if we see the product as being on the one hand IP that's truly distinct and that has a sizable moat and the particular company has a really good head start, it would be hard to catch up. And then thirdly and very, very importantly, we look at the total addressable market, the TAM. Because you can have the best idea in the world and it can be very, very unique IP and no one else can be anywhere close. But if it's solving a very, very small problem, that's just not what we really want to invest in. But typically, a very, very visionary, very inspiring type of founder that we like to invest in, she's going to have a focus that's already on a very, a large problem that's being solved.

So, how many of those hundreds of companies that you see every year... Well, you say you only invest in a handful so I suppose that's the answer, but there must be many companies with great ideas that just don't have a market for it? Or alternatively, huge markets that there's no answer from the founder.

So, how many of those hundreds of companies that you see every year... Well, you say you only invest in a handful so I suppose that's the answer, but there must be many companies with great ideas that just don't have a market for it? Or alternatively, huge markets that there's no answer from the founder.

Yeah. That's true. Typically though, what we see, we see a lot of really extraordinary companies. I mean, really well run companies, really good founders that are working on problems that are more trend driven, meaning there are just many, many companies working on the same problem. The problem's very large and it's very large TAM, but it's extremely competitive. But what they find is it's easier to start in a very competitive area because it's a known area and it's well funded. We tend to steer a little bit away from that because it's just about return expectations. I mean, King River won't invest in a business where we don't see at least a 10X return.

Yeah. That's true. Typically though, what we see, we see a lot of really extraordinary companies. I mean, really well run companies, really good founders that are working on problems that are more trend driven, meaning there are just many, many companies working on the same problem. The problem's very large and it's very large TAM, but it's extremely competitive. But what they find is it's easier to start in a very competitive area because it's a known area and it's well funded. We tend to steer a little bit away from that because it's just about return expectations. I mean, King River won't invest in a business where we don't see at least a 10X return.

Right.

Right.

And that does not mean in any sense that we always achieve a 10X return. That's impossible.

And that does not mean in any sense that we always achieve a 10X return. That's impossible.

No, no, no, but that's the goal. Yep.

No, no, no, but that's the goal. Yep.

That's the goal. But we turn down many, many great companies solving these very competitive problems that are very likely 3X- 4X returns, but we can't afford to make those bets in a small portfolio because otherwise our average return will be dragged down.

That's the goal. But we turn down many, many great companies solving these very competitive problems that are very likely 3X- 4X returns, but we can't afford to make those bets in a small portfolio because otherwise our average return will be dragged down.

Stay with me, Chris, we'll be back in a minute. My guest this morning is Chris Barter, founding partner at King River Capital. Okay. So, tell me about Immutable. It's an Australian business. Just explain what they do and why you invested in them,

Stay with me, Chris, we'll be back in a minute. My guest this morning is Chris Barter, founding partner at King River Capital. Okay. So, tell me about Immutable. It's an Australian business. Just explain what they do and why you invested in them,

Yeah. That's a really interesting company. We came across Immutable about a year ago. One of our LPs actually invested in their A round, and we just wanted to...

Yeah. That's a really interesting company. We came across Immutable about a year ago. One of our LPs actually invested in their A round, and we just wanted to...

Sorry, an LP is a...?

Sorry, an LP is a...?

Oh, sorry. Limited Partners. One of our investors in one of our earlier funds had invested in their Series A, which was led by Naspers and Galaxy. We had heard about it through him, so we went to meet the founders, Robbie and James Ferguson. So, Immutable has, like many great technology companies gone through an odyssey, a series of pivots and transformations. Initially what Robbie and James wanted to tackle was the ownership of in- game items. So, they launched one of the world's first crypto gaming companies. They built a game called Gods Unchained, which is a card game. It's a mix of Pokemon meets Dungeons and Dragons kind of thing.

Oh, sorry. Limited Partners. One of our investors in one of our earlier funds had invested in their Series A, which was led by Naspers and Galaxy. We had heard about it through him, so we went to meet the founders, Robbie and James Ferguson. So, Immutable has, like many great technology companies gone through an odyssey, a series of pivots and transformations. Initially what Robbie and James wanted to tackle was the ownership of in- game items. So, they launched one of the world's first crypto gaming companies. They built a game called Gods Unchained, which is a card game. It's a mix of Pokemon meets Dungeons and Dragons kind of thing.

Right. Right.

Right. Right.

Players purchase playing cards and compete with each other in a game setting. And so, what Robbie and James thought was perplexing was, at that time, many, many billions of dollars were being spent every year on in game items, but players don't really own those items. They just borrow them from the game. And to them, it seemed strange that you wouldn't, if you're paying a lot of money for the items or games are making most of the revenue from the items that people wouldn't want to be able to have a deed of ownership for those items and be able to trade those items or move them to other games. So, they built Gods Unchained on Ethereum, and used an NFT, a Non- Fungible Token, as a deed of ownership for the playing cards. And that was concept they launched in 2018. The beta officially launched in 2019, and they sold up till 2021 something around $ 15 million of in game items, which was a lot, and players really liked it. They then took another step and they said, " Well, why wouldn't we allow other games to trade their in- game items on the infrastructure that we built? Why should it just be Gods Unchained?" But they had to solve a very, very big problem before they could expand their NFT infrastructure to other games, and that's called the scaling problem on Ethereum. So, many of your listeners are probably familiar with this, but I'll just explain it. Because of the sheer size and scale of Ethereum, it takes a huge amount of energy consumption and time to update the entirety of Ethereum for every new transaction that occurs. So every time when they mint a new playing card or someone trades a playing card, the entirety of Ethereum needs to be updated. And that entails very high, what we call, gas fees. Gas fees now are north of $ 30. When we looked at Immutable, they were about $ 15. So, the gas fees are a reflection of energy cost to do this huge update process globally. And Robbie and James sensibly asked the question, " Well, why would anyone spend $ 15 or $ 20 or $ 30 to purchase in- game items like a playing card or any other skin or a weapon or any type of in game item, if the item only costs $ 5, $ 10, or $ 15? No one's going to do it." So, they had to solve this problem. And what they ended up creating is very unique IP called a ZK- rollup. So, without going down the rabbit hole of really the cryptography and everything behind a ZK- rollup, effectively what it does is batches 7, 000 transactions at a time, 7,000 Ethereum updates, into one update. So, the gas costs are 1/ 7000th of the gas cost of a normal ledger update, and you can do not seven trades a second, but 7, 000 trades a second.

Players purchase playing cards and compete with each other in a game setting. And so, what Robbie and James thought was perplexing was, at that time, many, many billions of dollars were being spent every year on in game items, but players don't really own those items. They just borrow them from the game. And to them, it seemed strange that you wouldn't, if you're paying a lot of money for the items or games are making most of the revenue from the items that people wouldn't want to be able to have a deed of ownership for those items and be able to trade those items or move them to other games. So, they built Gods Unchained on Ethereum, and used an NFT, a Non- Fungible Token, as a deed of ownership for the playing cards. And that was concept they launched in 2018. The beta officially launched in 2019, and they sold up till 2021 something around $ 15 million of in game items, which was a lot, and players really liked it. They then took another step and they said, " Well, why wouldn't we allow other games to trade their in- game items on the infrastructure that we built? Why should it just be Gods Unchained?" But they had to solve a very, very big problem before they could expand their NFT infrastructure to other games, and that's called the scaling problem on Ethereum. So, many of your listeners are probably familiar with this, but I'll just explain it. Because of the sheer size and scale of Ethereum, it takes a huge amount of energy consumption and time to update the entirety of Ethereum for every new transaction that occurs. So every time when they mint a new playing card or someone trades a playing card, the entirety of Ethereum needs to be updated. And that entails very high, what we call, gas fees. Gas fees now are north of $ 30. When we looked at Immutable, they were about $ 15. So, the gas fees are a reflection of energy cost to do this huge update process globally. And Robbie and James sensibly asked the question, " Well, why would anyone spend $ 15 or $ 20 or $ 30 to purchase in- game items like a playing card or any other skin or a weapon or any type of in game item, if the item only costs $ 5, $ 10, or $ 15? No one's going to do it." So, they had to solve this problem. And what they ended up creating is very unique IP called a ZK- rollup. So, without going down the rabbit hole of really the cryptography and everything behind a ZK- rollup, effectively what it does is batches 7, 000 transactions at a time, 7,000 Ethereum updates, into one update. So, the gas costs are 1/ 7000th of the gas cost of a normal ledger update, and you can do not seven trades a second, but 7, 000 trades a second.

This is a world of which I'm not particularly familiar with, though my children might be. The whole non- fungible tokens idea, it is creating or perhaps it's already there a real world value and use for NFTs rather than just the novelty factor. It really is a whole new world. NFTs with a real world value, which someone can ascribe to in the way that Immutable does it. Is that fair to say?

This is a world of which I'm not particularly familiar with, though my children might be. The whole non- fungible tokens idea, it is creating or perhaps it's already there a real world value and use for NFTs rather than just the novelty factor. It really is a whole new world. NFTs with a real world value, which someone can ascribe to in the way that Immutable does it. Is that fair to say?

Yes, you're absolutely right. So, we're moving away from the novelty concept of NFTs; very elite art collectors buying pieces of digital art for tens and hundreds or millions of dollars, and moving into a realm where people, everyday users of in- game items are able to own those items, so mint them as NFTs, and be able to trade then with each other. So, that's where this gets really, really interesting because we're entering a world of utility away from a world of speculation and just very, very niche application. Just to give you a sense of, we talked about TAM earlier as being a key gating item for King River and our investing. The TAM for the in game item market last year alone was $ 100 billion.

Yes, you're absolutely right. So, we're moving away from the novelty concept of NFTs; very elite art collectors buying pieces of digital art for tens and hundreds or millions of dollars, and moving into a realm where people, everyday users of in- game items are able to own those items, so mint them as NFTs, and be able to trade then with each other. So, that's where this gets really, really interesting because we're entering a world of utility away from a world of speculation and just very, very niche application. Just to give you a sense of, we talked about TAM earlier as being a key gating item for King River and our investing. The TAM for the in game item market last year alone was $ 100 billion.

Wow.

Wow.

$ 100 billion of in- game items were purchased. And as I said before, very small fraction of that are minted as NFTs. And so, no one's even able to trade them. So, think of the scale of being able to use this solution that Immutable has developed called the ZK- rollup, which is built onto its NFT exchange that it launched to the world last year. So, you get a sense for this very, very massive scale of the problem that they're solving.

$ 100 billion of in- game items were purchased. And as I said before, very small fraction of that are minted as NFTs. And so, no one's even able to trade them. So, think of the scale of being able to use this solution that Immutable has developed called the ZK- rollup, which is built onto its NFT exchange that it launched to the world last year. So, you get a sense for this very, very massive scale of the problem that they're solving.

Yeah. I mean, notwithstanding Immutable's solution to the gas fee, there still is a cloud hanging over a lot of NFTs, cryptos, just the energy they use still. Is that something that innovation will solve eventually, do you think, or is it a real issue?

Yeah. I mean, notwithstanding Immutable's solution to the gas fee, there still is a cloud hanging over a lot of NFTs, cryptos, just the energy they use still. Is that something that innovation will solve eventually, do you think, or is it a real issue?

Well, first of all, it's a massive issue for the world today, and King River has a very high ESG bar for everything we invest in. And so, this is absolutely mission critical to get solved. Will it get solved? Absolutely convinced it will, and there are many, many different work streams to solve this. One is the upgrade of Ethereum to 2. 0, which is going to move from proof of work to proof of stake. That will save a large amount of energy, but that's not really good enough. ZK- rollup Solutions is part of a class of solutions on Ethereum called Layer 2 Solutions, which still sit in the decentralized trustless realm of Ethereum. It's on the main chain, but it's a layer above it.

Well, first of all, it's a massive issue for the world today, and King River has a very high ESG bar for everything we invest in. And so, this is absolutely mission critical to get solved. Will it get solved? Absolutely convinced it will, and there are many, many different work streams to solve this. One is the upgrade of Ethereum to 2. 0, which is going to move from proof of work to proof of stake. That will save a large amount of energy, but that's not really good enough. ZK- rollup Solutions is part of a class of solutions on Ethereum called Layer 2 Solutions, which still sit in the decentralized trustless realm of Ethereum. It's on the main chain, but it's a layer above it.

Right.

Right.

And that's really important because the other types of solutions to the scaling problem are so- called side chains. The problem with side is you actually leave the main chain to very, very small chains and then reenter the main chain like Ethereum. And the issue there is your security's very compromised when you're on a very small chain. Security of a chain is directly correlated to the size of the total value lock on that chain. And so, to truly solve this scaling problem, you need to stay on Ethereum, and Layer 2 is so far the most innovative and breakthrough solution to tackling the scaling problem. But look, this is an arms race. There will be many, many other Layer 2 solutions developed, and we know of many that are going on, which is great because that, to us, means that scaling problem, this gas cost energy problem will get tackled.

And that's really important because the other types of solutions to the scaling problem are so- called side chains. The problem with side is you actually leave the main chain to very, very small chains and then reenter the main chain like Ethereum. And the issue there is your security's very compromised when you're on a very small chain. Security of a chain is directly correlated to the size of the total value lock on that chain. And so, to truly solve this scaling problem, you need to stay on Ethereum, and Layer 2 is so far the most innovative and breakthrough solution to tackling the scaling problem. But look, this is an arms race. There will be many, many other Layer 2 solutions developed, and we know of many that are going on, which is great because that, to us, means that scaling problem, this gas cost energy problem will get tackled.

Chris, we are way over time, but I have really found this interesting so I have learnt so much about that NFT market and what's going on there. I do have to ask though, what's the next big thing? What is it that, in terms of your venture capital fund, what is it that you are looking at thinking, " Ah, that's so we should keep an eye on"?

Chris, we are way over time, but I have really found this interesting so I have learnt so much about that NFT market and what's going on there. I do have to ask though, what's the next big thing? What is it that, in terms of your venture capital fund, what is it that you are looking at thinking, " Ah, that's so we should keep an eye on"?

Yeah, look. So, I would say the biggest revolution we are seeing right now is in the area of decentralized finance, DeFi, and I throw NFTs into that bucket too. We think that the world of financial services is undergoing first innings, the beginnings of a disruption on a scale that will be even larger than the disruption of eCommerce in the late '90s.

Yeah, look. So, I would say the biggest revolution we are seeing right now is in the area of decentralized finance, DeFi, and I throw NFTs into that bucket too. We think that the world of financial services is undergoing first innings, the beginnings of a disruption on a scale that will be even larger than the disruption of eCommerce in the late '90s.

Wow.

Wow.

So, this feels like the ability to use blockchain to effortlessly and basically costlessly execute very mundane financial transactions like transferring money, doing FX, earning deposits, borrowing money; is going to completely upend financial services globally and has huge, huge implications. And we're at the very, very beginning of that. So, we see that as the biggest revolution happening right now. We're playing the theme very heavily of, we have three of those investments in fund two, and we're close to launching a token fund that will be playing on the utility of DeFi and NFTs.

So, this feels like the ability to use blockchain to effortlessly and basically costlessly execute very mundane financial transactions like transferring money, doing FX, earning deposits, borrowing money; is going to completely upend financial services globally and has huge, huge implications. And we're at the very, very beginning of that. So, we see that as the biggest revolution happening right now. We're playing the theme very heavily of, we have three of those investments in fund two, and we're close to launching a token fund that will be playing on the utility of DeFi and NFTs.

And presumably, a lot of the disruption will be people we haven't heard of. I mean, certainly not the banks, the banks may disrupt a little bit, but we're talking about well and truly outside the traditional banking sector here.

And presumably, a lot of the disruption will be people we haven't heard of. I mean, certainly not the banks, the banks may disrupt a little bit, but we're talking about well and truly outside the traditional banking sector here.

That's correct, yeah. I think it's going to be, the big stakeholders in the financial system that are going to really struggle here are the banks, because a big, big component of the banks value add in today's economy and traditional finance is effectively being a middle man in transactions. Being a broker and being a trusted source of truth. And none of that is necessary on the blockchain and decentralized finance. And secondly, the regulators. I mean, I find it quite sad to see a lot of commentators on Twitter in the crypto world just deriding regulators and saying they don't know what they're doing. They're trapped in the 20th century, and they just don't understand the power of Web 3 and DeFi. If you really look at the enormity of the problem that the regulators have to solve, it's very tough because they need to put sensible guardrails on, on the system. But allowing things to go in one direction or another has massive implications for everything from money supply to inflation, to regulating anti- money laundering, et cetera. So, they have to tread carefully. But the regulator really needs to get on top of this stuff as soon as possible because it's growing bigger than nation state economies.

That's correct, yeah. I think it's going to be, the big stakeholders in the financial system that are going to really struggle here are the banks, because a big, big component of the banks value add in today's economy and traditional finance is effectively being a middle man in transactions. Being a broker and being a trusted source of truth. And none of that is necessary on the blockchain and decentralized finance. And secondly, the regulators. I mean, I find it quite sad to see a lot of commentators on Twitter in the crypto world just deriding regulators and saying they don't know what they're doing. They're trapped in the 20th century, and they just don't understand the power of Web 3 and DeFi. If you really look at the enormity of the problem that the regulators have to solve, it's very tough because they need to put sensible guardrails on, on the system. But allowing things to go in one direction or another has massive implications for everything from money supply to inflation, to regulating anti- money laundering, et cetera. So, they have to tread carefully. But the regulator really needs to get on top of this stuff as soon as possible because it's growing bigger than nation state economies.

Chris, thank you for talking to Fear and Greed.

Chris, thank you for talking to Fear and Greed.

Thanks, Sean. Thanks for having me. Really appreciate it.

Thanks, Sean. Thanks for having me. Really appreciate it.

That was Chris Barter, one of the founding partners of King River Capital. This is the Fear and Green daily interview. Join me every morning for the full Fear and Greed podcast with all the business news you need to know. I'm Sean Aylmer, enjoy your day.

That was Chris Barter, one of the founding partners of King River Capital. This is the Fear and Green daily interview. Join me every morning for the full Fear and Greed podcast with all the business news you need to know. I'm Sean Aylmer, enjoy your day.