I am Alyse Killeen, general and managing partner at Stillmark. AMA
Hello Everyone! My name is Alyse (@AlyseKilleen), Founding managing partner at Stillmark (@HelloStillmark), the first Bitcoin-focused venture capital firm. Started in 2019, the firm invests in and supports companies and entrepreneurs that are building products, services and technologies to support the Bitcoin ecosystem.
We currently have 11 portfolio companies (companies in which we have invested) including some names with whom you may be rather familiar, some you may not (yet) – but all that you should want to know.
And a little more about me: I’ve been in the venture capital industry since 2012 and began advising and investing in Bitcoin and blockchain startups in 2013. I serve on the board of Blockstream, Satoshi Energy and IBEX Mercado. I love working with founders and their teams, helping them to achieve their ambitions while changing the world by leveraging Bitcoin to create equitable participation in the financial economy.
Ask me about: • Why Bitcoin over other cryptocurrencies > https://www.reddit.com/r/Bitcoin/comments/nsx5hx/alyse_killeen_mic_drop_at_bitcoin_2021/ • The current state of Bitcoin/news and events • Venture capital • Advantages of a bear market • What it’s like to start a company
Thanks for being here and let’s get started.
What do you think is the biggest barrier Bitcoin and/or the Lightning Network has to break through to reach mass adoption?
At what point do you think is the right time for a project or startup to reach out to a VC company? And on that, is there a minimum set of requirements you typically look for before investing in a company?
Thanks for doing an AMA! What do you see as the most exciting and investable company types within the Bitcoin/Lightning ecosystem? Is there a "type" (exchanges, infrastructure, mining, payments, SaaS type tooling, others?) of business that you are most excited about?
Stillmark is a generalist fund in the Bitcoin field investing across the spectrum of Bitcoin innovation: infra, apps, mining, dev tools, etc.
In Q3 2022, we've been particularly excited about infrastructure and mining. On the former, there's still critical infrastructure to be built to financialize BTC and to progress LN for payments. You see this reflected in our most recent investment activity: Hoseki, Amboss, IBEX, Voltage.
https://www.hoseki.app/ https://www.amboss.space/ https://www.ibexmercado.com/ibex-hub-info https://voltage.cloud/
Another thing that these teams share, along with the rest of our portfolio companies, is that they're led and staffed by very high quality decision makers, engineers, and operators. Talent comes first. Stillmark has been very fortunate to partner with incredibly gifted entrepreneurs and that quality is much more important than sector or company type.
Besides Lightning, are there any other layered pieces of the Bitcoin stack you're excited about or investing in? Stacks, Liquid, etc?
Stillmark's investment mandate includes startups built on Bitcoin's sidechains, such as Liquid Network, as well as Lightning Network. When considering a company for investment, we also have to evaluate and weigh the state of the protocols it depends on. We're also bullish on the impact Lightning Lab's Taro protocol will have on the design space available to developers and other entrepreneurs.
How much does the tailwind of bitcoin's growing adoption play in to the growth plans of the founders you talk to?
Stillmark meets with several hundred startups every year, so there's a lot of variability in the founders that we talk to!
In any growing market, the opportunity for new companies is to benefit from the market's growth. There's an undeniable tailwind for Bitcoin and Lightning Network-based companies, just as there was in 2008 for companies built to leverage either the advantages or adoption of cloud technologies and mobile platforms. For the early stage companies in our portfolio, the aim is not just to match the market's growth but to surpass it. In other words, the target is to grow market share or penetration as the market grows.
On the flip side, in a bear market, a more modest growth cadence that still surpasses the state of the market can be expected from even the top tier of companies.
In summary: When we evaluate a company's growth and progress, we do so in context of how it's matched the state of market adoption. In determining progress we adjust for the conditions of a bull or bear market.
What are some of the most underrated L2 applications?
Good question! The impact of LN for payments in general is under appreciated. LN allows for any exchange to be done more efficiently and independently (i.e. without gate keepers), which opens up global commerce in a new way.
One area that we've been excited to see develop is the efficient monetization of machine to machine communication (e.g. APIs), perhaps via Lightning Labs LSAT protocol.
In 2020 or earlier, VC Angela Strange (a16z main fund) noted the trend towards "Every company becoming a fintech company". That's a trend that can be significantly accelerated by Lightning Network. Her premise is an acknowledge of how ubiquitous payments/payments tech are in the everyday lives of people in developed markets- in other words, people with access to a debit or credit card.
But better than access that is access to a Lightning wallet.
App developers generally rely on > third parties for payment processing and through them the > traditional payment rails that those payment processors depend on. That defines what type of payments can be done, when, with whom, etc. LN opens up the field by reducing the friction of the traditional payment rails. One of the simplest demonstrations of that is the new viability of micropayments. This is relevant to various forms of content consumption (gaming, blogs, pods, voice and video, etc.), machine to machine value exchange, and so on.
if you had to pick just one bitcoin company to outperform BTC over the next decade, which one would you pick?
That's a tough question because we're not necessarily looking to outperform BTC- The types of companies we back should help drive BTC's adoption and utility, which could have the impact of supporting BTC's fundamental value (and perhaps its exchange rate). Historically, BTC's adoption and price have been positively correlated. If that relationship continues to hold, then the work of many of the companies in Stillmark's portfolio will have a positive impact on BTC's price.
What kind of current financial metrics and growth profiles do you look for in portfolio companies? How do you think about returns comparing portfolio companies and Bitcoin the asset (and the adoption rates and growth of each) when investing in companies?
Great question, difficult to answer. The financial metrics and KPIs that we look for ahead of a new investment is specific to the company and the company's stage.
Generally speaking, a very early stage company should demonstrate a clear understanding of an opportunity to (a) provide value to an identified user group and (b) a plan to monetize that value efficiently. Variable (a) is the product and (b) is the business model.
For example, "BTC hodlers in Southeast Asia need X. We believe we can acquire these users for $Y/user and charge $Z/user/yr."
As a company matures, these hypotheses are tested and user feedback can be applied to evolve the product and marketing. This should accelerate growth and drive a company's financial health and overall progress. Metrics that prove such an evolution are evaluated at that stage.
what separates good board members from great ones?
Good board members are prepared. Great board members are prepared, empathetic, and impervious in temperament to the peaks and troughs that comprise a private company's development.
Do a majority of the companies you invest in opérate on a bitcoin standard or have bitcoin in their treasury?
Treasury management strategy has been especially important for bitcoin companies. Many have been able to diversify their treasury to include BTC, buying low and hodling to extend runway in a non-dilutive way as BTC appreciates over the long term. Of course, depending on BTC to appreciate or remain stable in the short term is antithetical to mature treasury management.
When evaluating a company's health and runway, we review both the cash-only (USD) runway and the cash + BTC runway. The cash-only runway should be sufficient to assure the health and stability of the company over an appropriate period of time. In current conditions, a company's cash-only runway should probably fall between 18-36 months. In a stronger macro environment, it may be appropriate to maintain a 12-month cash-only runway, converting BTC to USD as runway falls below 12-months.
Because a company's liabilities are still denominated in fiat (USD), most companies will need to/choose to observe the same standard.
Do you have a view on how we can encourage more people to build on Bitcoin or Lightning?
Developers are in such high demand everywhere, so wondering how we get people to focus their attention and time, when the short-term financial incentive is perhaps not there?
Any companies building with DLCs you’re keeping an eye on? The trending usecase seems to be L1 peer-to-peer derivatives. (e.g. itchysats and AtomicFinance)
What's your favorite place to travel?
places I haven't been yet + Italy, Singapore, and NYC all for different reasons
Is there competition between VCs for bitcoin-only companies?
We think of other funds that invest in Bitcoin companies as an extension of our own team at Stillmark. Collaborating with other investors to support and resource founders is a very standard part of the work and something that I really enjoy.
It looks like you have been investing in this space since 2014?! How have things changed from your perspective over the last 8 years? What are you most excited about (and concerned about) over the next 5 years?
The design space for founders is much vaster today than 8 years ago. For example, payments at scale are now possible via Lightning Network. Soon stablecoins on Lightning Network (Taro) will allow for LN adoption by people without the means to tolerate BTC's volatility. As the design space widens, the number of people and types of business that can find value in bitcoin technologies grows (i.e. the addressable market is expanding). The pace of innovation is very fast and every year presents a new set of entrepreneurial opportunities.
What I'm most excited and concerned about is founder attention to user feedback. Companies that dive into their engagement KPIs to understand what's working and what's not, what products are providing sustainable value for their users and what's lacking, will have a significant advantage. The opportunity to iterate based on user feedback to find greater adoption is critical.
Because bitcoin companies don't rely on tokens to drive early adoption of their technology or product, user metrics and clean and can drive key discovery about their user base and product.
What's are the biggest challenges your portfolio companies share?
Building a company is challenging in any field. Every company's trajectory will have peaks and troughs, and every successful company will have great luck and opportunity as well as incredibly strenuous periods.
In Bitcoin, while you have the key advantage of building on or alongside a secure, reliable, and consistent protocol (vs. alt-protocols that may have significantly more downtime, security gaps or uncertainties, and broad malleability), you're also building in a field that is undercapitalized. There are fewer venture dollars available for Bitcoin startups than for crypto startups. (Note that we expect that this will change over time.)
While money seems to be deployed without study in the Web3/crypto/token field, the same is not true in Bitcoin. Founders have to prove more to access the same resources as their peers in the "crypto" field.
The strongest founders use these constraints to their advantage. They get to breakeven quicker by focusing on revenue and cash flow, rely on careful treasury management to extend runway, and go heads down on customer feedback - both qualitative and quantitative - to accelerate product-market fit, revenue growth, and the company's independence quicker than others who've had the luxury of depending on easy cash from venture investors.
Would it be safe to say build a bitcoin startup like vc investment is never coming?
What's something you believe about bitcoin that few bitcoiner agree with you on?
I'm so thrilled and grateful to work with bitcoiners advancing bitcoin's/BTC's adoption. Bitcoiners aren't a monolith, but what is true of many is that they care about financial inclusion and freedom and are keen to learn or re-learn about what money is and what it can or should be through bitcoin. Software rules without rulers- there's a modesty required in adopting an asset (bitcoin!) that is defined by this standard.
Bitcoin will mean different things to different types of users, and the approach I take is to view all engagement without judgement. In other words, I don't think there's a right way or a wrong way to use bitcoin. I expect that many users still yet to onboard to bitcoin will use it very differently than I do today. I'm excited and curious about what that will look like and the value they will find. An example of this may be introduced via Taro: USDT/stablecoins on Lightning Network such that the LN protocol can be used for nearly free, instant, 24/7, global payments without users being exposed to BTC's volatility. I can imagine that serving an acute need for underbanked populations that don't have extra funds to save at the end of the month.
What is the last product/service you have personally paid for with Bitcoin, outside of this website/investment capital in a company?
Of the companies you have on the books now, which one would you say has the most potential to really drive adoption of bitcoin and it’s utilities for an everyday person?
Favorite SciFi novel?
Thanks for the AMA Alyse, big fan of your work and the signal you push out, was wondering how business owners can gain support to pivot their business to a bitcoin standard.
I have a business, but I want to add Bitcoin/LN support into the service and add a host of new micro monetisation functions into it that wasn't possible under fiat. Would we first need to create the use case and show user uptake or do we pitch the idea to VCs first
A lot of the people I have spoken to previously are more blockchain and that I feel bastardises the product and creates broken incentives, how do you find funding in this space? Is it harder to find relevant projects?
Why do some many other VCs/crypto funds seem to focus on everything but Bitcoin in the space?