What Does Bitcoin-Native Mean?
In December 2019 after deploying our first fund, TVP started a process for what would become the first in an entirely new dedicated venture fund series for investment in Bitcoin-native startups: the TVP Bitcoin Venture Funds. We knew what we were building in terms of the bitcoin-native startup investment strategy—the kinds of companies we would invest in. “Bitcoin-native” is a term that the community has increasingly used over the past five or six years to express the idea of startup companies building directly on the layers of the Bitcoin stack, potentially with Lightning Network or other scaling technologies, as examples. Those of us in the community saying “bitcoin native” knew what we meant when we said it, but no one had taken the time to define “bitcoin native.”
Having long-term and deep involvement with the Bitcoin community, I knew back in 2020 some questions that we would get from our investors might be something along the lines of: “what investments will you not do? What will not be a fit for this fund?” Dustin and I would ask these questions if we were placing capital with another investment manager, and yet it’s very difficult to effectively enumerate every kind of investment you will not do. This would require hypothetical examples or opining on existing companies and whether they are or are not a fit. What we needed was a north star: a working definition of “bitcoin-native companies” as a guide that we could point to.
To that end, we asked for input from bitcoin company founders, colleague investors, and industry leaders to build up a baseline working definition for bitcoin-native startups. Here is our bitcoin native working definition:
“ Bitcoin-Native Company: A company founded with the first principle that bitcoin is the global monetary asset of the future and internet-native digital cash. The company builds a product the success of which is mutually aligned with the success of Bitcoin. The company leverages the Bitcoin protocol stack in various ways to create value for its customers. Innovation at the various “layers” of the protocol stack enables the business to flourish technically and propels business model innovation. ”Our Working Bitcoin Native Definition
Having developed this definition in the summer of 2020, we included it in the first TVP Bitcoin Venture Fund’s private placement memorandum to positively address how we think about what investments are a fit for our investment strategy, as opposed to trying to enumerate all of the kinds of investments we will not do. It felt helpful for everyone.
Using the Definition
Having created a working definition for bitcoin native companies, we have found it useful in our growth as a firm. Our definition helps align on core investment theses and questions of fit for our investment strategy and it gives us a guide to point to when there seems to be less than consensus on fit. In particular, the second sentence of the definition “The company builds a product the success of which is mutually aligned with the success of Bitcoin” has been especially useful for the past 3+ years now. Upon closer inspection, certain bitcoin and bitcoin-adjacent projects seem to use the Bitcoin Network in some lower-impact way like as a kind of timekeeper. However, they do not always interact with bitcoin the asset in a way that would drive increased usage and therefore eventual upward price pressure. This could give us an indication as to whether the particular company or project is truly aligned with bitcoin’s ultimate success. We make it our job to look at all projects in the ecosystem, but we do care about mutual alignment with Bitcoin’s ultimate global adoption.
The Definition Combined With Smart Policy
TVP partners have been career technologists and we do have opinions on things related to technology, including Bitcoin Core. But as a matter of policy, we never weigh in on bitcoin improvement proposals. As an example, we were quiet small blockers prior to Segregated Witness being merged into Core, but we avoided weighing in on the process.
Similarly, as a matter of policy we do not make investments where the company’s success is tied to any changes to Core. Of course we will look at projects that rely on updates after the change has been made. After all, Lightning Network-powered companies comprise a significant portion of the TVP portfolio, and Lightning was only possible due to changes merged into Core via SegWit. At the end of the day we all work for Bitcoin. For TVP, our expertise lies in investing in and helping to build companies, not determining changes to Bitcoin Core with their potential unintended consequences.
Bitcoiners know more than most about incentives. Investing in a company that intends to subsequently lobby for a change to Core is potentially misaligned with Bitcoin and our values. Going outside of our lane where we have edge, we’d be in danger of supporting a change that could harm the internet’s monetary layer. That isn’t our area of expertise, so we avoid this as a firm-level policy. We’ve clearly defined where we spend our time and where we can have maximal impact: studying market forces and deploying capital where we think there’s an opportunity for asymmetrical return and game-changing bitcoin adoption.
We always closely monitor developments and improvement proposals; we’re simply not inserting ourselves into the discussion and process. There are many questions in terms of motives in venture capital around bitcoin and “crypto.” We believe that staying in our lane builds long-term credibility because of this discipline. Smart policies for when to invest and when not to invest—even if a proposal is ultimately accepted into Core—better aligns our firm with Bitcoin long term. It also removes the human possibility of us inadvertently influencing a change that could do irrevocable harm to Bitcoin.
As this is a working definition, we invite others to think about this with us. Feel free to use our definition or if you have thoughts, discuss ways to improve it. It is a working definition after all!