Inside Crypto LP Big Leagues: ‘A Lot More Reference Checks’
‘It’s their reputation that gets them deal flow,’ Cambridge’s top crypto executive told Blockworks at iConnections this week
Joe Marenda, partner at Cambridge Associates | Cambridge Associates modified by Blockworks
What’s an institutional allocator to do in a crypto winter like this?
Pay attention to the online footprints of the traders vying for the players with abundant dry powder still in the wings. Keep dialing up references. Call them again. And then call them again.
In sum: due diligence checks that run the gamut from crypto natives to Wall Street types with a vested interest, according to Joe Marenda, a partner at Cambridge Associates.
Marenda, for going on a year now, has held the title of global head of crypto investing for the Boston-based Cambridge, which specializes in devising customizable portfolio blends for the likes of pensions and endowments. He’s been drawing on his deep experience in vetting traditional asset management strategies to do due diligence on digital asset portfolio managers. And he has a suggestion or two along those lines.
Marenda spoke to Blockworks at the iConnections Global Alts conference in Miami this week, dishing out his thoughts on where we are in the cycle, how we got here and where we are going.
The gist: The bottom may well be in. “Crypto is still very much emerging, with very few exceptions,” valuations are returning to something approaching normal, and volatility at the moment should surprise no one.
Picking up the phone and knocking on doors and doing the (due diligence) work is perhaps now more important in the industry than ever, the San Francisco-based Marenda said. Managers may want to err on the side of patience for the foreseeable as those rigorous processes play out.
Read More: How “radio silence” from crypto traders drove LPs “all but mad” in Q4
Here’s how he’s going about it. Marenda declined to comment on specific funds or clients, and expressed his personal opinion throughout.
Blockworks: Cambridge has been around for decades. Crypto has not. You all have due diligence on traditional strategies down, right? What’s different?
Marenda: There’s a lot more reference checks, to start…What the entrepreneurs in the space think of [venture capitalists] is crucial. And it’s their reputation that gets them deal flow — one of the fascinating things about crypto entrepreneurs is they have no filters. So, when you actually interview them, they’re very blunt and honest about how they evaluate what they think of this VC versus that VC.
They’ll just tell you if somebody promised something to get on the cap table, and they didn’t deliver, they will throw them under the bus.
Blockworks: Which you would almost never see in TradFi.
Marenda: Exactly…that has been wonderful. That tells you more about a fund than anything else. And the fact that they will talk about other funds when you’re like, “I’ll call them about Fund X. And then they start talking about Fund Y, Z, ABC.”
It’s incredibly useful, because the reputation of the fund ultimately is what drives the deal flow. That’s very different from traditional finance.
Blockworks: What else is different?
Marenda: The other aspect I think that’s really different is the fact that this is such a [broadly] social-dominated industry. There’s a lot more information out there that you have, that you can call on — and it’s not just crypto Twitter. It’s Reddit…It’s Substack and everything.
Because there, you can build an entire history of their thought processes on investing. And if they tell a different story now [compared to earlier in Cambridge’s due diligence process]…I see there’s a difference between what you say now and what you said before, so that’s a big deal.
The other one is something that I’ve been asking about recently, looking at their true social posts to see what kind of lifestyle they’re living.
Blockworks: The lambo lifestyle? A little less buttoned-up lifestyle?
Marenda: I’ve been thinking about whether they’re actually more interested in investing or in the lifestyle than investing, you know. [Crypto] allows them to do that, and I want people that just love investing, and, if they walk everywhere, that’s probably something that’s pretty exciting.
As long as they’re looking both ways when they cross the street.
This interview was edited for brevity and clarity.
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