The Pomp Podcast Ep #707 - Matthew Graham

Primer: In this episode of The Pomp Podcast, Anthony Pompliano interviewed Matthew Graham, CEO of Sino Global Capital, as he shared more about what kind of investment strategies he applied in his line of work. He also talked about two of his favourites - Solana and FTX - and the recent FTX partnership.

Who is Matthew Graham

• Was a China-focused tech banker for many years

• Followed Bitcoin as a hobby since 2012 - tried to combine his hobby with his profession

• In 2013, he tried pitching a Bitcoin phone for power users to one of the top 10 Telcom manufacturing companies in the world

• Not well received

"When I started reading about Ethereum, that was my first true love and crypto, probably, I realised at that moment, this was now something that was going to be as big as the internet, you know, in the late 1990s, in the US."

Matthew Graham

• After Ethereum came out, he realised that crypto is going to be as big as the internet

  • Was too young to be involved in the dot com era and was determined not to miss this second chance to participate in this generational technology change

• Started his own boutique investment banking shop and pivoted into crypto

• This is a prop shop and they manage partner capital

• Recently launched their first institutional fund of $200 M, backed by FTX

Sino Global Capital

Investment criteria

• His high-level thesis is that financial markets tend to trend towards increasing complexity and abstraction

  • E.g. if you have spot trading, you should look at platforms that provide futures and options because these are more complex

• They are also bottom-up investors

  • Important to have an agile and nimble approach because the market moves quickly

  • Looking for entrepreneurs with a clearly differentiated vision to support for the long term

• This is their approach in the primary and secondary market

• Looking for exceptional people both in terms of technical expertise but also being amazing humans

  • This will lead to full confidence that they will make ethical decisions

  • In the worst-case scenario, these people will continue to grind away

• His investment idea falls into the Paul Tudor Jones school of not adding to losers but to winners

  • After the first allocation, he will look for a second catalyst beyond the initial thesis to add-in

  • Do not want to FOMO

Geography

• Started as a China-focused tech banker helping international tech companies to navigate the mainland China market

• Hence, a natural progression is to help international blockchain companies do the same

• China market can be quite impenetrable, so they act as a trusted partner to help them access the market

• Working on a huge new industry initiative by adding a second geographical market - India

• Very bullish on India crypto market - still in its early days and growing very very rapidly

Why bet on India?

• Very youthful population

• A good part of the population goes to schools like the Institute of Technology - the Indian equivalent of Cal Berkeley

• These universities are as good as any tech university in the world, including MIT

• India has a group of extremely educated, very talented engineers and a very youthful population that is increasingly interested in crypto - will be a good bet for the next 10 years

Types of investments

• Invests in both traditional illiquid and private companies via VC type investments, and also more liquid kind of protocol / token investments

• The most common ones are long term investments but in the form of tokens

• The second most common one is equity with a token kicker

• The third is equity but is reserved for extremely high conviction situations e.g. Wintermute and FTX

Intern to hire model

• Not a huge believer of huge teams - only have 12 people but still hiring for the Indian market

• Have a distributed team, spread from the US to Europe and other parts of the world

• Everyone is focused on China, Indonesia and India market

• Everyone (except Matthew) starts as a paid intern from day 1 and moved up from there

  • This includes their General Counsel and Head of Investor Relations

  • Joined them full time recently but started off as a 39-year-old intern with a law degree

• Had a very tight-knit, unique corporate culture with this intern to hire model

• Interns begin with a huge responsibility starting from day one because it's a trial by fire for up to 3 months

"It's the opposite of like getting coffee and things like that. You're doing everything as if you were already an Investment Analyst investment associate or whatever.."

Matthew Graham

Solana

• First heard of Solana when the decision was made for Serum to build on it

• Serum was a no brainer to invest - central limit order book in a decentralised world plus the fact that it's under the FTX family

  • High confidence and a quick decision was made to invest

• This lead to a decision to find out everything about Solana

  • Dropped everything for weeks to do a deep dive

"So I said, you know, we will take all the Solana that you have, literally whatever you have, and people were saying what the fuck is Solana? You know, these are crypto OTC desks."

Matthew Graham

• The hardest thing is to actually get their buy order filled

• Had to call OTC desks all around the world

• Took a surprisingly long time to get as much they wanted

• Bought around the range of $0.80 to $30

Why Solana?

• Solana had great triple-A people

• Clearly differentiated vision to build a blockchain that scales in a fundamentally different way

• Solana was like a multi-threaded blockchain at a high-level kind of pattern matching

• People are worried about the big unlock so valuation was very reasonable

• They are early but not too early

• After the initial OTC counter buys from all over the world, he waited for a second catalyst after the unlock to buy a second batch

Investing in multiple chains

• He believes that the whole crypto space will grow by at least 1000 times from now

• Thinks that there is a lot of growth in multiple chains

• They are early buyers of Ethereum and will continue to be so, but they will also look at other chains

• There might be some cannibalization between chains but eventually, the whole space will grow

Bitcoin

• They hold Bitcoin but they also want to be further out on the risk curve

• Bitcoin is not a substantial source of alpha

• Very difficult to predict boom and bust cycles in the crypto space

"That's kind of my thesis that the extent to which you would be successful predicting those cycles will be dwarfed by the gains that you miss out just from the fact that we're in across long time periods in an industry that's growing so fast."

Matthew Graham

FTX partnership

• Coming in as a co GP and a very substantial LP

• A natural progression for their long term and deep relationship with FTX because they had done deals together

• Very Sam-style to have a 5 min conversation about the partnership then it was all done

What kind of investment will this entail?

• This is going to be a continuation of their signup process which is very bottom-up

• They can either help international companies to operate in China and India markets or help China and Indian entrepreneurs to invest

  • Currently working with Delta Exchange - a portfolio company based in Bangalore

• This FTX fund is a stage-agnostic fund with different check size

  • Most of the checks will go in the 500k to 2M range but they can also do higher at 5 or 10 M in very specific high conviction situations

Why did they look for institutions to boost their capital base?

• Naspers was one of the earliest investors in Tencent and they never sold any

• Goldman Sachs screwed up their early seed investment in Alibaba when they sold early and missed out hundreds of millions of valuation

• So Matthew wants to be like Naspers

  • Not going to sell all their tokens or his Solana - will be holding it forever

• Hence they have to take capital outside of their firm for expansion

• Another reason is that they want to have stakeholders all around the world for their network

The secret of Sam's success

• When he met Sam, FTX was like 3 people - cold-called them and visited him in HK

• Could not spend more than 5 mins without realizing that he is one of the smartest people in the world

• Sam is also willing to work to hustle everyone

• Built an FTX culture that is composed of people who are just like him

• 5 engineers built out the FTX model

"You can't talk to the guy for more than five minutes without realising that he's clearly one of the smartest people In the world, and well, I actually don't think that's the secret of his success. I think it's sleeping on that fucking beanbag, you know, working out, hustling everyone else - number one. And number two, the fact that he has successfully built an FTX culture that is composed of people who are also really fucking smart and sleep on fucking beanbags."

Matthew Graham

Moat

• Hard for newcomers to knock them out because they had built the moat and getting more dominant

• FTX is a good example of the institutionalisation of crypto

• A lot of them came from Jane Street - a proprietary trading firm managing their own capital

• Jane Street is not a household name because they don't have to be, but it's even more elite than Goldman Sachs, so people from there are very competent

3 big bets

• There are times in your life where you will have to take the big home run swings. Matthew did 3 of them:

• 1st swing - to bet on China

• 2nd swing - to bet on cryptocurrency

• 3rd swing - to bet on India

Twitter

• Started off as a creative expression and not a calculated marketing strategy

• Works 80 hours a week, so the shit posting is just a way to get a break every hour or so

"I have four younger brothers and in my house, I've five boys. The language is talking shit. When you walk into the room, you have to talk shit. If you don't talk shit, you're gonna get mowed over. So, I have decades of experience in this realm. You didn't know that you were dealing with an expert shit talker."

Anthony Pompliano

• Increasingly thinks that it is important to have a Twitter brand as a VC

  • Matthew is a little eccentric and people loves it

  • Has a great personality and people feel that they can connect with him

  • Great way to connect and know great entrepreneurs this way too

• Matthew respects Anthony because he talks shit and is not afraid of punching back too. Is totally cool about it too.

How to find out more?

• Github: https://github.com/sinoglobalcap

• Twitter: @mattysino

All information presented above is for educational purposes only and should not be taken as investment advice. Summaries are prepared by The Reading Ape. While reasonable efforts are made to provide accurate content, any errors in interpreting and summarizing the source material are ours alone. We disclaim any liability associated with the use of our content.