To investors,

News broke yesterday that Consensys, the Brooklyn-based organization that has been focused on building for and investing in the Ethereum ecosystem, announced internally that they would be restructuring the organization. This restructure appears to have two main components:

1. Consensys will separate their software development business from their investing business.

2. Consensys will lay off approximately 14% of the current team.

This news comes after Consensys was reportedly trying to raise up to $200 million in capital during the second half of 2019, which it appears has been an unsuccessful endeavor so far. If true, there are a number of important aspects of this news.

First, laying off 14% of the staff is going to result in 30-80 people losing their job. This round of layoffs comes after Consensys laid off approximately 13% of their staff in 2018. Why would they continuing having these rounds of layoffs? Simple — they are spending more money than they are making, which leads to a depletion of resources. If you want to survive, you can’t run out of money. If you don’t want to run out of money, you either have to make more money or you have to stop spending money. It should go without saying that it is usually easier to stop spending money.

Simultaneous to cutting costs, the business has been trying to grow revenue, but in lieu of that occurring quickly, it appears they have been trying to raise capital as well. Stronger balance sheet means longer runway. But they haven’t been successful raising the capital yet, so what is going on?

This brings us to the decision to separate the software business from the investing business. Most investors will have a hard time investing in a conglomerate organization that does a little bit of everything. I envision those conversations going something like….“Do you build software? Yes. Do you invest? Yes. Do you provide services? Yes. Do you host events? Yes. Ok, well we will pass on the investment then.”

The reason is because investors want to back companies that have (a) a clear focus and (b) have a identifiable path to returning a multiple on investors’ capital. When you have a jack-of-all-trades-master-of-none type structure, the focus is unclear and the path to a return on investment is also unclear. To solve this problem, it appears that Consensys is separating the two businesses. This is probably a smart move and hopefully will accelerate their ability to raise capital.

Once they get the capital injection, Consensys will focus on creating a modular software stack that continues pushing the pace of development for the Ethereum ecosystem. That stack could potentially include Infura, MetaMask, PegaSys, Codefi, and new projects that are built. Overall, a strong Consensys is a net positive to the Ethereum community, which also means a net positive to DeFi and other ETH-related sub-industries.

There are plenty of people across the blockchain and crypto industry that are cheering for the failure of Ethereum, Consensys, one of them, or both of them. I am not one of them, because I believe we should be encouraging as much innovation as possible. The early days of an innovative industry like crypto call for experimentation. They require massive amounts of investment, both intellectual capital and financial capital. Consensys has shown what can happen when a group of people are focused on pushing an ecosystem forward, but it is becoming obvious that they will need to (a) raise the new capital, (b) ruthlessly focus on what they are good at, and (c) find a sustainable business model that ensures they will continue to be strong into the future.

As an investor I never want to see companies struggling, but it is better that they face obstacles (and overcome them!) during the times when Bitcoin and other cryptocurrencies have prices depressed. It allows the organizations to lean out. Find more sustainable strategies. And be prepared for the opportunity that will be presented by the next bull market.

Consensys will likely come out stronger on the other side of this challenge. No one wants to hear about people losing their jobs, but from afar it appears necessary for one of the crypto industry’s giants to survive. If you know someone there, reach out and let them know that we’re all cheering for them. If you don’t know somewhere there, go use one of their products or services. We are all in this battle for change together and at some point in the future it will be necessary for us to all band together against outside threats.

Consensys will be back. At least we should all be hoping so.

-Pomp

Today’s newsletter is sponsored by BlockFi, which provides the wealth management products cryptoinvestors need, all powered by blockchain technology. They offer USD loans, interest-bearing deposit accounts, and a cryptocurrency exchange.

THE RUNDOWN:

Pantera, Square Join $14m Series-A Round for Real-Time Payments Startup Transparent: Transparent Financial Systems, a Seattle-based startup developing a real-time "cryptographic settlement" network, has closed a Series-A funding round that raised over $14 million. Led by Pantera Capital and with participation from Jack Dorsey’s Square, Future\Perfect Ventures, DCG and more, the funding round is in addition to the $8 million in seed financing Transparent received from Vulcan Capital in July 2018. Read more.

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Galaxy’s Novogratz: XRP Will ‘Underperform Immensely Again This Year:’ XRP, the third-largest cryptocurrency by market cap, will have another lackluster year in 2020, Galaxy Digital CEO Mike Novogratz told a roomful of financial advisers. What's more, he blamed Ripple – one of his firm's largest investments – for what he sees as XRP's underwhelming prospects. The fund manager, whose firm trades and invests in digital assets and startups, chatted onstage with personal finance superstar Ric Edelman at TD Ameritrade’s National LINC 2020 conference in Orlando, Florida last week. Read more.

Ethereum Incubator ConsenSys Slashes Headcount 14% in Latest Strategic Shift: Ethereum venture studio ConsenSys is shifting focus – and downsizing as a result. The Brooklyn, N.Y., company announced at an all-staff meeting Tuesday its latest restructuring would shrink the firm's headcount by approximately 14 percent. When asked, ConsenSys did not explain how many individuals the cuts would affect or state its current headcount. “In the coming months, ConsenSys will finalize the transition from its venture production model and spin out a number of its internally funded projects into the ConsenSys Investments portfolio,” the company said in a statement. Read more.

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Kamal Ravikant is the best selling author of the book Love Yourself Like Your Life Depends On It. He is also an Army veteran and an early stage technology investor. I have had the pleasure to getting to know him over the last few years and don’t think you could find a more kind or genuine human being. This episode was a lot of fun to record, so highly recommend listening!

In this conversation, Kamal and I discuss:

• What his writing process looks like

• What he looks for in early stage investments

• We spend time debating the current media landscape

• How various technology platforms fit in

I really enjoyed this conversation with Kamal. Hopefully you enjoy it too.

LISTEN TO THIS EPISODE OF THE OFF THE CHAIN PODCAST HERE

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