This might be the most baller title for a blog post I’ve ever written.
This week at Lithium Ventures, we raised $300k for our second public early-crypto fund. This, combined with the $200k we raised for our first fund, means that in the last month we’ve raised half a million dollars, and this doesn’t even include everyone’s who’s invested in the holding company.
Half a million dollars. In one month.
The crazy part? Over 90% of this cash was raised from strangers, through the instant messaging app, Telegram.
I’m not an influencer with 10's of thousands of followers, or a particularly well-networked startup investor, I don’t have decades of experience managing funds. I also don’t have a large pool of cash at my disposal to throw at marketing efforts.
What I, and the team at Lithium, do possess is a couple of things that make this kind of wild success far more likely.
In this article I’ll share with you the elements that have led to this wild success, perhaps giving you some insight into how you could cultivate them. I’ll also share the tactics we used to execute on our position.
If you want to wild financial success, there are three things you need. These are pre-requisites. If you have these three things, it’s really for you to fuck up.
Specific knowledge, simply put, is knowledge that can’t be taught. A false belief often held is that every skill can be taught. Not true. All knowledge can be learned, and the most valuable knowledge can only be learned, not taught. Specific knowledge is something you’ll need if you want wild success.
Here are a few reasons why knowledge might not be able to be taught and is therefore specific.
Let’s break this down into the practical, by looking at the example of various roles in an investment bank, contrasting the lowly analyst, with the senior partner.
Say the analyst works 60 hours a week, earning £50k a year. Pre-tax that’s about £17/hour, only twice the minimum wage. Not great. Contrast this to the partner working 45 hours a week and getting £400k a year, that’s £208/hour, over 20x the minimum wage. Pretty good.
To the analyst, this may seem unfair. They are doing all the ‘work’. They are busting their ass off providing charts, figures and slides for clients, while the partner schmoozes about, seemingly adding no value. The reason for the disparity? Specific knowledge.
Everything the analyst has learned, can be taught. To work for an investment bank you’ll need good A-levels and a good degree (taught knowledge). You’ll need to pass the interviews, including case studies (you can take courses on this), and of course, pass the investment banks training and external examinations (again taught knowledge). I’m not arguing this is by any means easy for our analyst — it might be the death of them — only that they haven’t done anything that can’t be taught to an army of other highly intellectual and ambitious individuals, an army of individuals who’d all do whatever it takes to claim our analysts place. The comparative ease to replace this analyst means he doesn’t earn good money, he gets paid what he’s worth.
Let’s compare this to the schmoozing partner, first by dissecting the associated verb. To schmooze is to charm, to influence, to manipulate, to seduce. We (read I) look down on schmoozing as a necessary evil to all business that one must engage in periodically, a skill that doesn’t add any real value, compared to say engaging in analysis or creative thought.
The hard to stomach reality though is that schmoozing is specific knowledge. To schmooze successfully you need a range of soft skills, skills that can’t be taught.
The partner has also learned, through her years in the industry, the ins and outs of deal structuring, how to kick off projects, the right people to go to for the right questions, this is all on-the-job training that can’t be taught. The partner also has acquired a network of clients that will allow her to contribute to deal flow at her firm. All of this means the partner is much harder to replace, as her knowledge is specific.
Going through the years of on-the-job training at an investment bank is a fairly inefficient way to gain specific knowledge, at Lithium we obtained it in a much shorter time frame, we did this by combining two elements of specific knowledge.
Firstly, we are operating in a space that is on the cutting edge. Early-crypto investing is something very, very few companies are doing. Because of this, there is no one to teach people how to do it. If you combine this with the fact the investing and trading are great examples of specific knowledge (on-the-job training), we have the box of specific knowledge well and truly checked.
Specific knowledge is no good if the market doesn’t want it. No point spending years of your life learning how to craft the best quality chain-mail armour, when no one needs that shit. Enter product:market fit. I could try and explain it, but let’s use the iconic quote from the iconic investor, Marc Andreeson
“The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can”
Of course, product:market fit isn’t a binary, and the description above trends towards extreme product:market fit, but the point is, if you have real PMF it shouldn’t feel like a struggle to sell your product. It just happens. Once you have PMF it’s really yours to fuck up.
At Lithium, it was clear from the off we had PMF. Our Telegram was bombarded with hundreds of questions an hour, investors were queuing up to give us cash for the funds. It feels fast, it feels frenetic, its feels like product:market fit.
The observation here shouldn’t be that unless you feel PMF from the off you should quit, thousands of companies have iterated their way to PMF over a number of years, the only observation is if you want wild success, you will need to find PMF, one way or another.
If you want wild success, you need to get paid for your specific knowledge at scale. This is where leverage comes in.
The first form of leverage was labour. If you owned a farm, you could employ 10 people to work the soil, while you sat back and oversaw the operation. Many still think labour is a good form of leverage, hence people naively assuming your responsibility at a company is dependent on how many people you manage, or that an entrepreneurs success by how many people they employ.
For certain industries, leverage through labour is unavoidable, like in service-based industries or those that require the building of a physical product. Labour leverage is in many ways sub-optimal, people are messy, expensive, and can be a huge source of stress.
Financial leverage is a ‘cleaner’ form of leverage. By investing your cash in companies you can see huge upside utilising your specific knowledge. Cash does what it’s told and doesn’t need to be paid a pension. Unfortunately, it’s very difficult to gain financial leverage, by definition you need access to a tonne of capital.
The main benefit of the information age is that it has unlocked leverage through automation. The average joe now has, at his fingertips, fast amounts of labour leverage, that does not need to paid, will always do exactly what it is told, and is completely predictable. Of course, we call this labour computers. By amassing a small team of engineers, designers and product builders the work of 4–5 people can leverage code to do the work of 5000. A landing page can do the job of 100 salespeople, a software product, can reach more people than the products of hundreds of high-output factories.
Leverage is the difference between the surgeon who gets paid £1000 for carrying out a hip replacement and the surgeon who gets paid £1000 each time someone buys his online course on how to do a hip replacement.
At Lithium, we leveraged code to obtain the capital required to gain financial leverage.
If you want to find out more about leverage, check out this article, where I cover it more extensively.
So far, this article has been more theory-based, than practical. In this section, we’ll take a look at how we combined specific knowledge, product:market fit and leverage to achieve wild success.
Specific knowledge is no good if you can’t prove it. Our specific knowledge is getting great returns in early-crypto (and building products that serve the early-crypto space, although this is less demonstrable right now).
We proved our specific knowledge by reporting every day the margins of our Delta One Fund. After a 15%, risk-adjusted return in month one, people had some proof that we had the specific knowledge required to operate in the space.
It doesn’t matter how you show your specific knowledge, but it must be shown. We are currently experiencing a wave of ‘fake gurus’, people selling courses on trading, when they’ve never made a cent from it, or people selling gigs as ‘motivations speakers’ when they’ve never achieved shit. Most of these ‘entrepreneurs’ either won’t get going, or their success will be shortlived because their specific knowledge was not proved.
I just bought a course on sketching with storytelling by Aaron Alto. The reason? His whole Twitter feed is him telling stories through sketching. He’s shown me his specific knowledge.
Demonstrating specific knowledge is one thing, but building trust is harder to do.
At Lithium, we built trust through constant communication. We recruited a team of 20 moderators for our Telegram chat (mainly volunteers) trained them with a consistent message and tone of voice and made sure to answer any questions from our community. This transparent, instant communication did wonders to show we were serious.
We also made AMA’s (ask me anything’s) a core part of our communication strategy, frequently engaging in voice chats with our community to answer any concerns they had in an open way.
Finally, we produced content. Lots of content. I created videos and articles specifying how the funds work, how they tie in with our product, and made sure these pieces of content were of high quality. Shit design, websites, marketing assets, content of any kind are no longer acceptable, consumers expect things to look polished. A considered, well put together video, is a sign that other elements of the projects are equally considered.
As well as product:market fit there is product:channel fit. Product:channel fit is essentially making sure you are communicating your specific knowledge on a channel where people who want your specific knowledge hang out, and in a way that that knowledge can be communicated.
If you’re selling bedding, you’ll want to be on Instagram, if you’re selling a niche course, Twitter, if you’re selling cringe, LinkedIn. Telegram is the weapon of choice for crypto enthusiasts, so that’s where we set up shop.
Although Telegram is great for engagement, its not a tool for delivering lasting content, that’s why we decided to use YouTube and Medium for these purposes.
One mistake we made with our first fund was communicating the value. Retails investors don’t really know what arbitrage trading is. They don’t know what risk-adjusted returns are, and they don’t understand the concept of a hurdle rate. You can’t change the past but we can take these lessons forward, so we made our communication for our second fund very simple.
We take stakes in projects, before they launch, at a 30% discount. We keep 20% of profits made.
We communicated this message over and over again, emphasising the point that as individuals, it would be a lot of work, if not impossible for them to negotiate making a seed investment in pre-launch projects. This message got home, and by the end of the fund random members of the community were educating each other on the value prop we bought to the table.
I’ve been guilty, and I think too many founders are, of making their value prop far too complex, or even worse, trying to have multiple value props. Find one that works, stick with it, and beat it home until everyone understands.
So there you are, the story of how I raised half a million dollars from strangers on the internet. Entrepreneurship has no formula, but I do believe that by applying the principles of specific knowledge, product:market fit and leverage, and combining these principles with the execution of demonstrating your value, building trust, and clear communication, there’s no reason why anyone can’t achieve wild success.
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