I interviewed David Sacks last August about his interest in cryptocurrency. His interest was well-founded as the whole asset class took off last fall.
In a recent report by Axios, Sacks said he's raised a new venture fund with partner and well-known Silicon Valley angel investor Bill Lee. It felt like a good time to reconnect with Sacks and get his first on-the-record comments on that fund (including its name), as well as a new start-up he's incubated since last year and which is formally announcing its Series A financing Tuesday (called Harbor), and his continued interest in the cryptoasset space.
Here's an edited version of our discussion from a few days ago:
Eric Jackson: Since we last spoke, you launched a new investment fund. Tell us about it.
David Sacks: For the past two decades, Bill and I have been angel investors as well as entrepreneurs. So we're doing what we've always done, in terms of helping other founders, except now we can write larger checks. The fund is called Craft, which represents our view that company building is a craft that we've learned over the course of founding four companies with successful exits. The same lessons play out time and time again even though the technologies constantly change.
Jackson: Are you focused specifically on crypto investments?
Sacks: blockchain is a major theme, but we have a broad interest in next-wave technologies. We recently invested in Bitgo to fund its acquisition of Kingdom Trust, creating the first full-stack solution for institutional custody of cryptocurrency. But we've also made investments in Cloud9, an esports company, and SpaceX. The common denominator is supporting founders who are creating unique, market-defining products.
Jackson: Let's talk about Harbor — a decentralized compliance protocol designed to standardize the way crypto securities are issued and traded on the blockchain that launched Tuesday with a $10 million Series A round. What problem is Harbor solving?
Sacks: Harbor solves compliance for asset tokenization. The idea first came about when Bill and I were raising the new fund. We asked whether it would be possible to do it through an ICO (initial currency offering). The short answer is that the compliance challenges of issuing a regulated security on the blockchain make it extremely difficult. At the same time, we felt that there is an enormous opportunity for the blockchain to bring more liquidity and transparency to private securities. So we incubated and seed-funded Harbor to solve that compliance problem.
Jackson: Coincidentally, I recently interviewed Stephen McKeon — a University of Oregon finance professor — for CNBC about tokenizing traditional assets.
Sacks: Steve has spoken and written very articulately about the potential for tokenizing traditional assets like real estate. It was very much in line with our thinking, so we reached out and started talking. Steve is now an advisor to Harbor.
Jackson: How does Harbor solve the problem?
Sacks: Today Harbor announced the Regulated Token Standard, or "R-Token", which is a standard ERC20 token, except it contains additional code to check an on-chain whitelist (called a "Regulator Service") before it trades. The Regulator Service can be configured to enforce any number of regulatory requirements — from securities to tax laws, across multiple jurisdictions. In addition to the basics like KYC, AML and accreditation, it can be customized for specific types of assets like real estate, which require tax withholdings on foreign investors under FIRPTA.
When a trade is requested, the R-Token checks with the Regulator Service to make sure that the investor has been verified and meets all the legal requirements; otherwise the token throws off an error message and will not transfer. This ensures that every trade is compliant.
Harbor is making R-Token available to the blockchain community as an open-source standard.
