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Ripple and XRP, Investment Returns - Good and Bad

The SEC stupidly — and incorrectly — asserted that cryptocurrencies were securities. They did so under the leadership of Monty Burns Gary Gensler, the same idiot who wrote Sarbanes-Oxley, applying a test used in the 1950s to regulate the cutting edge technologies of the the current day. This week, Federal Court in the Southern District of New York ruled that XRP, the cryptocurrency issued and supported by Ripple was “not a security,” and therefore not subject to the overreaching regulation of the SEC.

It was a victory for crypto in general, Ripple and XRP specifically, and a stunning defeat for Gensler who should resign or be fired immediately. The world has changed and our regulatory stance to those changes must change, as well. Everyone on earth knows that cryptocurrencies aren’t securities. No one who bought or sold them ever thought they were, and the internal emails from the SEC Commissioners reveal they didn’t think so either, they were simply looking for a way to regulate something that needed regulating in the opinion of the Chairman.

The authority to regulate comes from Congress, and Congress had not instructed the SEC to extend regulation over cryptocurrency using a test that said “if there is a collective profit motive, it’s a security.” Following this argument, when I sell my used car to my neighbor who’s an Uber driver there’s a profit motive for both of us there, do I now have to register that as a security and get federal government approval to do so? Ridiculous on the face of the argument and it only cost Ripple $200m in fees to prove it.

In the fullest disclosure, I own shares of Ripple and I own XRP as an investment. I largely bought them because I thought the SEC was wrong and it would be proven so. I saw a tremendous opportunity to make money here and if the speculation is even 5% correct, I will do so. Ripple will go public (under the proper procedures established and regulated by the SEC, ironically) and the talk is that it will be the biggest IPO in history. XRP has surged and will continue to do so until its price reflects market demand which is hope will be 400x of what I paid for it when no one else would touch it. It is an incredible technology and in 2 years you won’t transfer money without using it and Ripple’s underlying platform. Thanks in advance for that!

“Learn to pause … or nothing worthwhile will catch up to you.”

—Doug King

It’s not all wins in my portfolio, though. That isn’t how portfolios work, of course. Since the beginning of the Fed-induced credit crunch, we’ve lost several companies who were doing all the right things but counting on the fact that plentiful capital would stay that way.

Most recently, Buzzer, a technology company that parsed sports games and sent you alerts and video snippets of amazing plays customized to your preferences, shut down. It was growing, doing well, weathering the market changes and attempting a pivot to a different business model when capital dried up. It limped along, did layoffs, but finally had to pull the plug. Total Zero for us.

Another company, Viewstub, was founded to reinvent the hybrid even ticketing model and in it’s search for product/market fit, it missed revenue metrics and wasn’t able to raise additional capital to support the mission. In this instance, I recognized the core problem, stepped in and led a recapitalization of the company with two operating partners who know their stuff. The turnaround is slow, painful, and ultimately worth it if we succeed.

Still another portfolio company of ours mis-timed customer spend, borrowed high interest credit to support operations, and ultimately put the company on the precipice of failure. My same partnership group has approached this company to buy some assets to payoff debt and refocus the company on its enterprise play.

I was invested alongside Gary Vaynerchuk in a company providing NFT technology to professional sports leagues and it shuttered when the leagues found it too easy to do the same thing into a very limited demand market. Total Zero there, but small investment. Worth it for the time I spent with Gary on the calls and hearing his analysis of what went right and what went wrong.

The credit crunch is affecting our real estate portfolio, as well. Underlying fundamentals are holding up since pricing really isn’t resetting the way we expected in worse-case scenario analyses, but cashflows have been slammed as loans have ratcheted to levels no one foresaw. Our properties are making enough to cover their loan payments, but not really enough to cashflow the returns to shareholders that we had hoped for. One of my friends and mentors owns about 5000 multifamily doors and he’s feeling the same pressures. It’s a bit of a dark time for people trying to live on that kind of mailbox money.

I hear that the public markets are doing well but I wouldn’t know, I have very little exposure to that racket.

“Beggars mounted, run their horse to death.”

—Shakespeare, Henry VI

There are wins still out there, though. Overall, the money we have placed in the past 3 years is overachieving our return modeling. Early stage companies who get it right are returning for us about 50% per year, above our target of 38%, even with losses. Our core real estate business has been in deleveraging (sell everything you can at high prices) mode for 18 months and I’m thrilled by the prices we continue to get for assets. Premium asset buyers have cash now and are putting that cash into good deals. We are holding that cash for buying opportunities and are finding plenty of those in the right places.

One of the companies we like the most is Regent, a Future of Transportation company that is building the next generation of hydrofoil-like transport. In effect, the company has designed and tested a craft that uses “ground effect” to fly more efficiently over water — like 30 feet over water. It’s insanely cost efficient, and since announcing the team has garnered over $1b in pre-orders for the craft. Anywhere a ferry runs today, Regent Craft will run eventually. We are in their angel round so expect to do very well there.

Another investment of ours in the AI space continues to do well. Alexei is a SaaS based AI company that allows attorneys to increase the quality and breadth of their research without additional work. In essence, they can get the machine to do the research they want on a case, get better results, bill the same amount and make the client happier. Their nearest competitor just sold for $650m and we invested at the sub $10m valuation so we are feeling very good as this team continues to execute.

Still another company is building software to help pharmacies participate in the delivery market with ease, profitability and compliance. You can’t ask Doordash to go grab your Oxycontin from the pharmacy on their way to bring you a Chick-Fil-A sandwich, there’s a ton of compliance that hash to happen there. ScriptDrop is leading the field for this and we expect them to exit for hefty sums to one of the national insurers or Pharmacy Benefit Management companies in the future.

Innovation is alive and well. And the returns that go with supporting it keep me optimistic for my own financial health.