Hack VC Is a Community-Aligned VC: Why We Launched an Echo Group

By Alex Pack, Co-Founder and Managing Partner of Hack VC

Last week my crypto VC firm launched an Echo group. We are one of the first U.S.-based, regulated, large fund managers to do so. We did it for a simple reason: we believe in democratizing access to crypto investing. Crypto is, at its core, about community. The most successful networks must be community-owned, community-controlled, and, we believe, community-funded. By launching an Echo group, we are doing our small part toward accomplishing that goal and taking concrete steps toward making Hack VC a truly community-aligned VC.

If you'd like to hear our thesis on why Community Lives Matter (CLM) and why we're launching an Echo group, read below.

Community-Alignment: 11 Years in the Making

I've been a crypto VC since 2014 – almost 11 years. That makes me one of the earliest "institutional" investors in this space. Along the way I've seeded 100+ companies and protocols (about 20+ unicorns) and founded two crypto funds, including Hack VC, which manages around $600M.

But what got me down the crypto rabbit hole wasn't Bitcoin – it was Ethereum and smart contracts. The idea that we could rebuild the financial system on digital, decentralized rails. And the first part of that system to be rebuilt was fundraising, by democratizing access to crypto technology investments.

First, crowdsales: Ethereum's 2014 crowdsale was the second-largest ever at the time. Then came ICOs, which took crypto investing mainstream.

I was so excited about the idea of democratizing fundraising that I joined AngelList as its first-ever analyst. AngelList pioneered crowdfunding in the U.S., even helping to pass the CROWDFUND Act in 2012 that made it legal. But AngelList’s big innovation was Syndicates, where investors could follow experienced Syndicate Leads who sourced deals and negotiated terms on behalf of their syndicate of backers. This model incentivized leads to bring the best deals to the platform. Many of Silicon Valley’s top angels and VCs became Syndicate Leads. At AngelList, I worked almost exclusively on this product and led syndicates myself, while making crypto investments on the side.

Despite its potential, AngelList’s Syndicates never quite achieved the level of success I envisioned. Regulatory red tape slowed progress. More importantly, most Web2 founders and VCs didn’t see the value in bringing their community into rounds. So, I left to go full-time into crypto VC.

Crypto: The Ultimate Crowdfunding Technology

Crypto didn’t just make crowdfunding radically easier – it made it necessary.

At AngelList, we built a mountain of infrastructure to digitize a pen-and-paper process: digital stock, digital investment ledgers, payment, and treasury systems. When Ethereum launched, smart contracts abstracted all of this away. Now, anyone could launch a digital asset and fundraise for it seamlessly.

Ethereum’s own launch in 2014 was the second-largest crowdfunding event in history ($18M). Since then, 8 out of the 10 largest crowdfunding events of all time have happened on blockchains.

But crypto is unique in that it doesn’t just enable crowdfunding – it requires it. Crypto protocols must be community-owned to survive. A PoS blockchain with concentrated ownership risks 51% attacks that compromise its security. DAOs, which govern many of crypto’s biggest applications, also need broad-based ownership to maintain their neutrality and credibility.

Web2 startups can succeed without community participation. Crypto projects can’t.  While it's possible to have a diverse tokenholder base without crowdfunding, it is very, very hard. That’s why crowdfunding in Web3 isn’t just a bonus, it’s essential.

Let My People Invest: A Brief History of Community Alignment in Crypto

The history of crypto is, in many ways, the history of trying to achieve better community alignment. Let’s look at the major milestones:

1. Bitcoin’s Proof of Work (PoW). Bitcoin still had perhaps the fairest launch of all coins. Anyone with a computer could mine Bitcoin in the early days, which led to a diverse holder base. But people figured out how to game the SHA-256 consensus algorithm with specialized mining hardware, which has now concentrated mining into the hands of professionals.
2. Ethereum’s Crowdsale (2014). Ethereum was open to anyone, and thousands participated. Ethereum sold 80% of its network for $18M. Still, access was difficult. Perhaps some novel financial technology platform could be used to make crowdfunding itself easier? Hmm, I wonder…
3. ICOs (2017 Boom). Ethereum’s smart contract platform made launching a token and fundraising for it seamless. ICOs became the first breakout use case of Ethereum, kicking off the broader 2018 crypto bull market. This was the golden age of community participation in crypto. Projects like BNB, EOS, Polkadot, Tezos, and Cosmos raised billions.

But there were flaws. Thousands of ICOs launched, and many were outright scams. Regulators cracked down, and ICOs mostly disappeared. Since then, projects have tried various methods to bring back community participation:

4. Centralized Approaches. CoinList and Republic are two companies that spun out of AngelList to launch centralized crypto crowdfunding platforms (Hack VC has invested in both). They’ve hosted some great deals like Solana and Avalanche, but the overall funding numbers are nothing like the ICO era.
5. On-Chain: Airdrops & Yield Farming (2020-Present). Instead of selling tokens, projects now give them away. While effective in some cases, airdrops are easily gamed, awarded subjectively (which means that at least some part of the community is upset), and fail to create the same user commitment as direct investment. Simply put, there is no skin in the game.

The Return of the ICO?

We’re a long way from the fully decentralized, on-chain ICOs of 2017. But things are changing.

A new wave of crypto crowdfunding platforms is emerging, driven by better on-chain infrastructure and improving regulations:

• Echo. The biggest new player, Echo, modernized AngelList’s Syndicate model for crypto. Unlike AngelList, which struggled to launch a crypto-dedicated product because of the operational load of managing tokens, Echo uses on-chain, non-custodial infrastructure to simplify things.
• Legion. A centralized platform similar to CoinList but with an on-chain reputation system for investors, so that projects can select the most value-add investors to join their rounds. Funny enough, I actually spec’d out a similar product at AngelList a decade ago, called the “Value-Add Backers Program.”
• CoinList Syndicates. CoinList is launching its own version of the Echo / Syndicate model. We are eagerly awaiting it.

While we are launching first on Echo, we plan to support and experiment with other platforms too as they arise, as long as they align with our own values around democratized access and putting the community first.

Today, none of these new platforms are as open as 2017-era ICOs – especially for Americans – but they’re a step in the right direction. I predict that a new golden age of community-aligned crypto crowdfunding will come soon. 

What Does It Mean to Be a Community-Aligned VC?

I know that we VCs are not always the most loved in crypto. No project wants to be labeled a “VC coin” with a “low float, high FDV” launch. And some of that criticism is fair – many VCs are extractive. They invest too much, FOMO into whatever is hot or on-narrative, and crowd out the community in the fundraise. But VCs and the community don’t have to be adversaries.

VCs have existed for centuries – literally. The first VCs were 18th century American whaling agents financing their risky whaling voyages. Some say that Queen Isabella I of Spain was the first VC for financing Christopher Columbus in his founding journey to discover America. VCs serve a purpose:

• They raise capital at scale from institutions that individuals can’t match.
• They fund high-risk, futuristic technologies even when there is little public information to go by.
• They can support founders long-term because they are full-time professionals with a 10+ year long fund life.
• They are a signal for the community to follow. Just like how following Warren Buffett in stocks or following Nancy Pelosi's well-timed leveraged options trades tends to pay off. At AngelList, we noticed that the most popular deals were those that raised from famous VCs, so we tried to educate our users about which VCs had the best track records and on exactly what terms they were investing (especially if they were different than the community).

That said, we believe that VCs can do their jobs while also working with the community, not against it. Here’s what we are doing to be community-aligned:

1. Launching an Echo group, and exploring other platforms too.
2. Opening access to our deal flow. While the Echo group is private to prevent spam, we expect to accept many applicants.
3. Charging zero performance fees for at least the first year.
4. Strongly encouraging our portfolio to run community rounds. Ideally with us, but could be with anyone!
5. Pushing for lower community valuations than what we ourselves pay in the same round, if we are investing in them for the first time. Otherwise, we’ll push for a lower valuation than what the latest VC investors paid.

TL;DR: Hack VC is in the arena. We believe community-aligned investing is the future of crypto. Democratizing access to investing, blurring the lines between investors, users, community, and insiders – that is what crypto is all about. That’s why I got into crypto 11 years ago, and that’s why I’m still here.

Disclaimer

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