Boris Wertz on web1 and web3

Boris Wertz has lived in Vancouver, British Columbia since 2002. He moved there from Germany three years after his used marketplace startup JustBooks was acquired by AbeBooks and Wertz was asked to become the COO.

By 2007, the business was sold to Amazon. Wertz rode the exit into angel investing and by 2012, founded venture capital firm Version One Ventures, which he continues to run today out of Vancouver, a proud outsider to Silicon Valley, as he explains. "I learned how to invest well because I wasn't raised in a tech city," he says. "I had to teach myself how to see what startups were working well."

Luke Thompson works on special projects at Mercury. Previously, he spent four years as an early-stage investor at a European family office where he focused on SaaS, healthcare, and financial technology. He started his career in growth and product marketing at Dropbox. He has a B.A. from Stanford University.

Wertz and Thompson spoke about the parallels between today’s crypto scene and the early internet; how Wertz discerns whether an entrepreneur is worth investing in; and how he learned that he's a better investor than an entrepreneur.

I feel like there are some echoes between your time entering the early internet and how you as a firm are investing in crypto, which I think a lot of people see as another potential fundamental paradigm shift.

Yes, that’s true. A lot of people ask, why did you have all that conviction in 2016 when you started investing in crypto? Which is relatively early, right.

And I always tell them that it feels like if you had been part of the early internet. The only thing you need to get right at the time is the investment thesis. In crypto in 2016, there were very few projects, there were very few investors, and valuations were pretty reasonable. So you just had to be in the market.

I’m going to play the devil’s advocate. One thing that seems different between you starting JustBooks and you getting into crypto is that the specific problem you were solving with JustBooks seem very tangible — you were trying to sell used books.

Coinbase might have been fundamental infrastructure, but many of these new crypto projects are asking: how are we going to find the problem? How do you evaluate those companies?

Yes and no. If you abstract from the details of crypto and think about it enabling a new ownership layer on top of the internet with tokens and monetizing open source projects, with giving creators, developers, participants, a more fair stake in their underlying creations, that’s a super powerful idea, right?

But I think there are three things that are different compared to the internet that you’re picking up on.

1. Crypto is a financial asset, it’s 24/7, it’s immediately liquid. The get rich quick scheme feels much bigger than in the start of the internet, and there’s no question about that. It’s a financial asset. There was exuberance in the internet ages, but crypto is 10X that. Crypto is always prone to a little bit of unproductive speculation because of that dynamic.
2. Crypto projects compete against dominant incumbents and networks, including credit card networks and banking networks. The internet had more white space. JustBooks is a great example. It made it easy to find out-of-print books. I think it’ll take longer for crypto to succeed against incumbents that have very strong network effects. The crypto approach might be the stronger approach, but it’s not like the underlying problem is being solved for the first time.
3. Because it’s a financial asset, regulation is much tougher. The internet had no regulation until literally about two or three years ago, when people grew worried about social media and antitrust. That’s just not as possible in crypto.

OK, that makes sense. So if I understand the JustBooks timeline correctly, you were probably starting it at the peak wave of the internet and then immediately dealing with the crash.

Yeah, the crash was less than two years in. We started in September ‘99, and March was the peak of the NASDAQ. Private markets didn’t react right away, but by the summer and fall of 2000, we were in nuclear winter. There was no way to raise external funding from a new investor.

We had a super supportive investor. By mid-2001, we decided to see if we could merge the company with somebody else. We found AbeBooks, which was in Victoria, British Columbia (BC). It was a bootstrapped startup, it was profitable, and it didn’t rely on venture capital. They wanted to expand to Europe.

So we put the two companies together. They got to be present in Europe. We got a lifeline. Otherwise, we couldn’t have financed JustBooks further. We had expanded to Germany, England, and France, and we did reasonably well.

But the burn rate was too large relative to how big the internet was at the time. That wasn’t singular to JustBooks; it was the way every single company was at the time.

What was going on for you on an emotional level? Was it dread? Panic? Or were you just along for the ride?

Definitely a little panicky. Sometimes, when you’re running super fast, you don’t even have time to think. But there were moments where we were literally two weeks away from not making payroll. It’s these moments that you stop and reflect that you have a responsibility to employees.

Yeah, that’s what’s always scared me about high-growth venture-backed businesses. Not failure but the fear of not making payroll.

Were you always planning to stay on after JustBooks was acquired by AbeBooks?

Well, after we sold the company, I quickly realized that being the European subsidiary of a bigger company is not that fun. Suddenly, we were the translation office for customer service and a little bit of the marketing office for headquarters. We lost product development. We obviously lost the strategy. So it really was just marketing expansion in Europe.

Within six months, we felt like we needed to move on. It was not what we had signed up for as entrepreneurs. We told the AbeBooks CEO, and he said, ‘I’m not going to accept your resignation. Why don’t you two come to Canada, co-run the company, and take over for me?’

So we did that.

This idea of founders moving on seems to be something that’s sometimes frowned upon. It’s sometimes assumed you’ll have the founder as CEO from pre-seed to IPO. But it’s tough to keep your motivation for that long and not everyone is going to have that skill set.

I mean, I think there have been some companies that have done exceptionally well at keeping founders around, right? Amazon is one of these examples. Jeff Bezos has some of the founders of acquired companies reporting directly to him.

It’s powerful to do that. But the reality is also that they might just be done with it. They might never be interested in being part of a larger company or the organization just fails to integrate them in an appropriate way.

How long into the angel investing process did it take before you were like, oh this is something that I’m not just treating as a hobby?

I think about two years. Investing is always a really frustrating experience at first. It looks like the easiest thing in the world, then a few things don’t work out, and suddenly, it’s the hardest thing in the world.

Then you think you’ve got a theory that works. Until it gets crushed again and you have to start from scratch. But I enjoy it. I’m a better investor than I was an operator or entrepreneur.

What makes you think that? Just on a comparative basis?

I think it’s more that you need to be a little crazy to be a successful entrepreneur. You need to be really living in the future, out there being very passionate about a specific problem you want to solve.

I love thinking about the future, but I’m not at the edge. I’m not obsessed with a specific cause. I’m a few steps behind, which is great for an investor. But as an entrepreneur you wouldn’t want to miss the next big wave.

Some people really equate the firm-building experience with entrepreneurship. Is that how you approach your firm?

I mean partly, yes. Like look at Andreessen Horowitz. It’s built with 3-400 people. It’s an organization at scale.

Having said all that, I think it’s very different. Everybody who works in venture capital (VC) is highly paid and highly incentivized. It’s incredibly easy to hire. It’s very different from running a manufacturing or a software business.

Do you have that same startup ambition though? Are you thinking — I want to get to fund seven and keep growing the investment team, the services team? Or are you looking for more of a mom-and-pop shop where it’s just good business?

I would say it’s more like a craft business. We believe that to do early-stage mentorship really well and create outsized returns for investors, you need to be a small team. The moment you get too large, two things happen:

1. The quality of the average investing partner goes down. The most talented people won’t want to work for a really large organization — they’re going to want to start their own funds.
2. You get to more consensus decisions. The entrepreneur that doesn’t look the best on paper doesn’t get their deals done. People don’t have conviction to go and defend them against a bigger partnership.

And while I think really successful early stage funds don’t stay small. It doesn’t have to be two GPs, like in our case. It can be three or four. But there needs to be a dedicated craft-like approach to venture.

How do you find the line between someone who’s a little unconventional and someone who doesn’t have a clue how the game works?

Yeah, you want to have the crazies, but not too crazy. We’ve seen that what really matters is how quickly founders can learn. Are they real learning machines? We’ve had moments where we’re like, oh this person is a really good founder, but didn’t see that they’d take the company public. And then they develop in this incredibly quick speed and just soak up so much.

Are there specific cases or questions you ask to get a signal on that?

It’s not a science, but I look for:

1. The level at which an entrepreneur understands the problem and have thought about solutions
2. Whether they can describe the product within the ecosystem, because it shows that they have thought about the market widely
3. If they have read about bigger driving factors in the markets they’re approaching, like supply chain issues
4. If they have really broad interests in areas not necessarily connected to business

Having said all of that, investing is such a crapshoot. It involves so much luck. That’s why we’re working on this portfolio of 30. We need 2-3 breakout companies. Ultimately, I know that the odds of finding these breakout companies are maybe 67%. And by being a bit more diligent, we can move into 69-70%.

Sometimes you go back and say, what did I do wrong there? What did I get right here? But sometimes, it’s just luck and has nothing to do with your decision. You want to improve but you also want to have a certain level of zen about it.