Network Advisor Spotlight: Erik Torenberg, Village Global

Silicon Foundry’s Network Advisors are a distributed network of hyper-connected founders, investors, and cross-industry leaders who are part of our extended Silicon Foundry family. This handpicked group of advisors, who are embedded in innovation hubs across the world, amplify our visibility across the landscape, extend our global network, and serve as resident experts for our Members.

Erik Torenberg is a co-founder and partner at Village Global, an early-stage venture capital firm backed by some of the world’s most successful entrepreneurs, including Bill Gates, Jeff Bezos, Mark Zuckerberg, and Sara Blakely. We caught up with Erik to dive into Village Global’s investment strategy, tokenization, and the most exciting industries of the future.

Tell us about your entrepreneurial path — what are the key experiences that led you to what you’re doing now?

I started my first company, rapt.fm, in Detroit in 2011. We were trying to be Twitch for Music, or American Idol on the internet, but — let’s face it — we were chatroulette for rap battles. I thought group social video platforms — i.e HQ Trivia — would be a thing — and, like many startup ideas that were seen as silly once, I was just a few years too early (or that’s the charitable interpretation…)

When I asked Anthony Saleh, the rapper Nas’s manager, to invest in Rapt.fm, he passed, but became an advisor. Although he chose not to invest in my own startup, I sent him otther startups I found compelling, and he ended up investing in a couple. (My not so secret long-term game is that Nas lets me hop on a track sometime).

In exchange, Anthony allowed me to volunteer as an associate at his firm. I spent time with Adam Corey, who I would go on to bring into Village Global many years later, and saw the inner workings of a seed fund. It was then I knew I’d become an investor.

After Rapt.fm, I joined Product Hunt as a founding team & first employee, which put me at ground zero of startup & VC activity. I also started throwing these dinners for entrepreneurs who were looking to start this next thing, which also gave me a lot of deal flow. (The dinner series would go on to be called On Deck, which is now in almost 20 cities).

I ended up investing in over 40 companies during that time, including Nurx, Rappi, Lattice, Omni, Cover, Scale and many others. I then decided to take my passion of building communities and networks and teamed up with my partners at Village Global to start a $100m early stage network driven fund.

Every firm talks about network — but how do you insert network at every element of a firm’s DNA?

Starting with who invested in us — some of the world’s most successful founders who share their learnings, networks, and time to help our entrepreneurs succeed — to how we invest and help companies: Many of our investments come through a distributed source of network leaders who help source, diligence, and support companies in conjunction with us.

Most recently, I’ve dabbled into the crypto rabbit hole, both in an investing capacity at Village Global and also as Chairman of Token Daily, a company trying to bring discovery and education into the crypto space.

What’s the single most exciting crypto-related opportunity to you right now?

There are too many. On a high level, crypto takes my intellectual interests — economics, technology and understanding complex systems — and marries them that with my interests in community building. I wrote this post that outlines two of the big narratives in the space.

One thing I’m exploring is this question of how VCs and CVCs should participate within crypto, and that brings me to this concept of generalized mining.

Let me zoom out. If you look at last few years of crypto investing, VCs have largely looked at crypto companies effectively as decentralized companies — as equities. But, as things have played out, value hasn’t accrued to equity in the parent company; it has instead accrued to the token network. Speculative value, to be sure, but value nonetheless.

So, VCs responded by amending LPAs to invest directly in digital assets via SAFTS (Simple Agreements for Future Tokens). They figured out custody and other elements, but blockchain is a little more complicated than that, and requires a little more thinking about what is the correct way to structure an investment.

With layer 2 technologies on the horizon, it’s important to note that layer 2 technologies don’t have tokens the way we’re used to. They don’t have investable equity — they are open source projects.

So, yet again, VCs have this investment conundrum: how do you capture the value of decentralized technologies directly? Even more perplexingly: how do you participate as an investor when there’s no token or no equity…? In this new world, you might have to be more technical to participate — might have to *earn* your way in by participating in the network.

Enter this new concept called generalized mining…..

Notation calls it Mining 2.0, Coinfund calls it “Generalized Mining,” but the basic idea is that investors will actively participate in the networks in which they invest. They won’t just contribute capital; they’ll also serve as “miners, stakers, validators, bonders, curators, dispute resolvers, nodes, hubs, watchers, routers for networks, etc.”

To be sure, some of these projects will combine active participation with direct investing, but other projects will not present opportunities to invest — and direct participation in the underlying networks will be the only way one can capture the value of that particular technology.

Why does this matter?

Zooming back out again, VCs always have tried to innovate: First Round came with the platform approach to venture, a16z brought the services model, Village Global, I hope, has helped usher in the networked investing model, etc.

I think Coinfund, Notation, Figment, Bison Trails, and others will bring the active participation model of investing — the crypto native application of of the platform VC approach.

VCs always talk about value add — what’s unique about crypto is that you can make it tangible and measurable.

Firms that actively participate in networks are going to have unfair advantages in terms of deal flow, due diligence, and financial returns. These firms will theoretically be positioned to make more money earning through network participation than through investing alone.

In traditional VC your role was make an investment, then try to provide external guidance/value add to grow the company.

Now, you as a investors will have direct influence. When big changes need to be made to the protocol that will steer the end destination, investors essentially have a liquid board seat that directly impacts the course of the project. This is pretty fundamental.

How can VCs / CVCs compete?

In this network participation approach there are new problems. You not only have the old questions (e.g what are use cases? is it a hedge fund is it a venture fund or hybrid? what’s the lock up?) You now also have the question of team: Do VCs & CVCs have the team to do it?

Crypto investing teams are going to have to be multidisciplinary. It’s not just about having investors and sourcers anymore. Teams are going to have to have the tech chops, understand how game theory scenarios play out, deep legal expertise, and much more.

VCs are smart people, to be sure, but they don’t have deep knowledge of these proof of stake networks — they’re not protocol designers, or consensus algorithm evaluators. The kinds of issues we see in crypto native decentralized networks goes far beyond typical experience of analyzing companies.

It’s not just knowing how to invest, and it’s not just understanding the technology — it’s the combination of all of those things…. I think VCs and CVCs are better off partnering with existing funds and organizations like Notation, Coinfund, Figment, Bison Trails, and Token Daily that are on the cutting edge, rather than building entirely separate teams internally.

VCs & CVCs serving as LPs to these crypto funds could be the perfect role for everyone involved, since native crypto funds may have a tough time getting traditional LPs, who are still trying to wrap their heads around Bitcoin — let alone Generalized Mining. Indeed, it appears that VCs & CVCs can get in on the action after all.