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Mike Novogratz, a former hedge fund manager who was captain of the wrestling team at Princeton College, was described as several things, including in a New Yorker article in which he had been featured last year . An occasional billionaire. A marginal legend of Wall Street. "Bombastic". "Full of shit." A former party animal whose "lifestyle issues" led him to leave his partner position at Goldman Sachs in 2000.
Although Novogratz seems to appeal to many friends, despite these qualities or perhaps because of them, he is perhaps more remarkable as a risk taker who has accumulated big wins – and big losses – in first to Goldman, then to Fortress Investments. He is now trying to replenish his fortune with his own business bank, Galaxy Digital, which describes himself as a "bridge between the crypto and institutional worlds" and which focuses on crypto-currencies and the promise of new technologies to blockchain base. This can be a smashing success, but a failure once again appears as an option. At least in November, Galaxy had suffered at least $ 136 million in business losses.
To better understand the company and whether it has what it takes to stay, we discussed last week with Sam Englebart, a long-time investor in media and technology, who started managing money for the Novogratz's family office and co-founded Galaxy with him. Englebart – who was heading to San Francisco from New York for the one-week video game developer conference – oversees the company's major investments and the EOS.io Ecosystem Fund, a $ 325 million joint venture dollars with Block.one, focused on investing in projects using EOS.io blockchain software. We asked about Galaxy 2018 taxes and how Englebart, Novogratz and the rest of their team of 75 people can produce the expected returns. Our cat was edited slightly for length.
TC: For our readers who do not know Galaxy Digital, what is the tone of the elevator?
SE: It's an investment bank with a balance sheet to invest. We are investing in all areas related to blockchain, crypto and the future of technology. We have two pools of capital – our balance sheet and we are also traded on the Toronto Stock Exchange. [having executed a reverse merger with a shell company on the exchange]. We have already invested hundreds of millions of dollars in blockchain and crypto investments and tokens.
TC: One of the things you supervise is a venture capital fund that sees Block.one as the sole sponsor other than Galaxy. Block.one is developing infrastructure software based on a chain of blocks, is not it?
SE: It's an evolution of Bitcoin and Ethereum; it's another blockchain protocol that allows [developers] to build top-down applications that are decentralized. Block.one made a symbolic sale and was hugely successful, raising $ 4 billion. And having collected all this money for the development of their protocol, they wanted to donate some of it to professional VCs who could then invest in an advantageous way for companies. [its own] ecosystem, so they committed $ 1 billion to fund venture capital funds. Well, they manage $ 400 million themselves, and $ 600 million is managed by five partner funds, of which we manage $ 300 million. [The funds] are all geographically diverse. We are the largest and cover North America.
TC: And you have invested $ 25 million to get some skin in the game. Do you co-invest in anything with the funds of other partners or do you share the flow of transactions in any way that this is? In addition, should Block.one approve what you want to finance?
SE: In general, we try to stay a bit close to our geography, but if we see a lot in Asia, we could share it with [former Jefferies Asia CEO Michael Alexander, the fund manager there] and take a part. And our fund is ultimately a fund managed by Galaxy. We work closely with [Block.one] but they are not technically part of our investment committee.
TC: What other Galaxy products does it have?
SE: We are also raising a credit and special opportunities fund to make structured credit investments in space. We have an index fund. It is a portfolio of investment products. More generally, Galaxy Digital has an investment activity, a trading activity – Mike is well known for his macro-trading business and is now trading around encryption tokens and liquid products – as well as in the consulting sector. We are a registered dealer advising on mergers and acquisitions. We are focusing more and more on what we think are opportunities as startups begin to grow. [consolidate their efforts], and also do traditional fundraising for startups and more advanced companies.
TC: Which of these is your biggest deal?
SE: Our investment activity is by far our most important activity. Our trading business is growing rapidly, even due to a slowing market, although it takes the longest to resist like any other trading company. Our consulting activity is [the most nascent].
TC: Galaxy has found a way to become public in August. Why was it important for the company?
SE: If we just wanted to be a risky business, we did not have to go public. But we are in this phase where institutional investors will want and need to be exposed to the blockchain [investments] and crypto, although at the same time it will take some time before they feel comfortable buying these assets directly. Things change. Andreessen Horowitz has a [crypto] funds. [Former Sequoia Capital partner] Matt Huang has a fund now. They are credible investors. But change takes time. And in terms of custody and insurance and ACY-type actions, we felt that the best way to do that was to have a public currency because they did not want to keep their money. capital in a fund, but wanted to bet heavily on the market. .
Not much [Galaxy Digital] is floated. We think that when we prove what we are building [that will change].
TC: Is it safe to say that last year was quite brutal, especially since the firm officially opened in January?
SE: Oh, yes, certainly, although it's a somewhat predictable sale after the fact. I do not care about the asset class, when things go up with this speed, they tend to fall with the same momentum. People were very excited. The peculiarity of crypto and blockchain compared to other retail systems [offerings is that it’s] possible for the average person to buy in the frenzy. The development of other technologies has involved professional investors taking risks in a calculated way, but all of a sudden, [crypto] was available for everyone. And it's the evolution of crowdfunding, social media and information that is spreading rapidly, and when the message is that we can get rich quickly, people get involved.
Presumably, many retail investors who came in came out, as well as people who had been in space for a while and took their profits. So, things were never as good or as bad as it seemed. Despite "crypto winter", companies have been [at work] and a lot of hype is turning into actual work technology.
TC: So no more frenzy or bubbles?
SE: We will certainly see more as this technology continues to develop. We are still far from the transparent technology that we enjoy with the Web. But it's probably not that different from what we experienced last time, where a few companies became extremely important and many of them are not.
TC: How do you evaluate SEC chief Jay Clayton? Are you in favor of the SEC regulating this new world more?
SE: Yes, of course. Fair, research-based and smart regulation is what an industry like this absolutely needs, while ensuring that people understand that there will be standards of behavior and business practices. which each industry needs. I think the more regulation we have, the better for everyone.
TC: Is there a country you would like the United States to adopt the regulation or the approach to?
SE: There is no particular place where, I think, the United States should do this. We are our own country, with our own problems, problems and benefits. I do [hope that] In an increasingly globalized world, we do not regulate ourselves so much that people build technology elsewhere. There is a lot at stake
TC: What excites you most about the offers you see?
SE: Video games and digital objects are one of the reasons for my enthusiasm. Many will integrate blockchain technology in an important way, which will be important this year, and, moreover, I do not think that Web 3.0 and the decentralized Internet are ubiquitous in the same way as we would be. shocked today if we met a company that had no exposure to the internet.
TC: Which applications are close?
SE: The most delicate thing is to remember [not to expect an] old medium with a new tech stuff stuck on it. The reason we talked so much about blockchain and video games, for example, is because [gaming] the world is made up of digital objects. Meanwhile, people have recognized that the blockchain allows you to create really rare digital objects that someone can really own and trade as they would like a physical object. When it comes to games, it means that you can really start owning the digital objects that you are [using in gaming] If you are a collector of certain physical objects, the way you collect them will become fun in digital form.
TC: Meaning. . .
Consider that owning something is really a question of status. You show your friends, you reach the status of owner of this thing, then you put it in your closet or you exchange it for money. In the digital world, it is not necessary to deal with this physical object that must be stored or packaged and shipped to another person. For example, VIRL, a startup that buys custom-made shoes, then scans them using a volumetric camera system transforming them into a visible 3D object on your phone and authenticated as one of only 10 copies. These digital sneakers – these non-fungible chips – can then remain in the collector's inventory or be exchangeable via an exchange. And it just takes a second. You can have your article instantly.
The boundaries between trade and gaming and commerce are becoming increasingly blurred.
TC: What is your driving thesis?
SE: That the digital world will not be different from the physical world because we are investing more and more time in the digital worlds and our digital identity. Included in this is the inventory of things we own. We will demand that no one can take this away from us.
Above: Mike Novogratz speaks at the 2018 Yahoo Finance Summit All Markets at the Times Center on September 20, 2018 in New York.
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