Prior to starting his San Francisco based crypto-native investment bank, Imperii Partners, Tony Scuderi spent more than a decade at financial sector-focused Keefe, Bruyette & Woods Inc. Within his network of Bay Area venture capitalists, the KBW veteran noticed a trend: VC partners needed dealmaking assistance for blockchain portfolio companies boasting native coins and a whole new world of idiosyncratic needs/risks. “Traditional investment banks were not prepared to take on these types of assignments,” Scuderi said in an interview below.
It was the summer of 2019. Even though the digital asset space was in the middle of the so-called “crypto winter,” with Bitcoin crashing from $20,000 down to $3,000, Scuderi was nevertheless sold – crypto had legs.
It’s a revolution of commerce, he remembers thinking, and figured that maybe, in five or 10 years, becoming the first banker to form a cryptonative firm would have proved a prescient decision. So, he launched Imperii alongside co-founder Alex Pack, a prolific early-stage crypto investor who had been leading deals in Silicon Valley for Bain Capital Ventures before co-founding Dragonfly Capital.
Imperii’s first two deals showcased their range, and ability to execute in what at the time (circa 2020) was still a fairly tepid period for crypto markets. They completed a strategic token placement in Asia for MINA, a layer-1 blockchain token, and represented Blue Fire Capital, a crypto prop trading and market making firm, in their sale to Galaxy Digital.
By March 2021, the firm saw rapid growth that mirrored investment in the crypto space.
“Being crypto-native helps give our firm a level of trust and credibility,” Scuderi said.
The firm in recent months has added eight employees. Scuderi predicts that in the next 12 to 24 months, there will be a major boom in enterprise M&A with respect to crypto. “Organic growth and ‘acqui-hire’ strategies are not going to cut it.”
Looking at the enterprise space, has the prospect of building a crypto capability in-house become viewed as simply too tall of an order? Is recruiting crypto expertise really that difficult?
Well, some are definitely calling us looking for targets, but not as many as I would expect. I read recently that ‘Blockchain’ is the most-searched term by recruiters on LinkedIn, so it seems that enterprise generally still thinks they can build organically. It is extremely challenging to build crypto
capabilities right now and most will fail. These companies lack the core expertise to identify and recruit talent, and most of the talent in our industry has a strong preference to build entrepreneurially with a cryptonative company. The most successful CEOs will recognize these challenges in acquiring crypto companies before prices get really crazy.
Are private equity managers adding blockchain components to their existing portfolio companies and rounding out crypto exposure?
Definitely. Crypto is a revolution of commerce, and although the timing is uncertain, the path to adoption is becoming clear. So, most every institutional investor will need a crypto strategy and the smartest ones are already executing. Technology in the crypto space is advancing by the day, and firms must consider acquiring the crypto capabilities that are core to their business, or else they risk getting left behind.
Can you describe some of the sectors most aggressively looking to expand their crypto offerings?
You could look to financial services two decades ago to find some likely analogs and in that regard, there is an obvious scenario where you will likely see consolidation among crypto exchanges, which right now is a very fragmented marketplace. Although there are some important nuances, and many of these more resemble e-brokers than TradFi exchanges, I still expect to see global consolidation on a similar scale. Remember, it was only two decades ago that we still had tons of regional and smaller exchanges and now it is basically a global oligopoly. The most successful exchanges, as we have seen, have become known for dominating certain product areas, such as the CME and futures.
Who do you see as the most active buyers, and possible takeover targets?
It sounds simple, but the most active buyers are crypto companies with the highest valuations. Basically, every crypto company that has recently raised funds at a valuation of $2 billion or more is going on offense to deepen their moat. As we discussed earlier, enterprises are still trying the organic route. As far as the takeover targets, well, that is our core business, so I’m not at liberty to say.
Which trends will shape the crypto M&A landscape most this year?
Probably gaming, and the ‘gameification’ of everything. The play-to earn model is clearly driving strong economics and changing consumer behavior. The metaverse is certainly attracting attention.
What will be the biggest challenges in the sector? Clean energy issues? Volatility?
Top of mind is global regulation, especially in the U.S, where there is a massive opportunity for regulators and politicians to embrace commerce and help our economy. But the flipside of that is that overly political or uniformed regulation can be stifling. We believe that logical and practical regulation can be very positive for innovation.
How are your relationships with clients different from more traditional financial firms?
We are aligned before we even meet, as we are also entrepreneurs. Our success relies on the combined hard work we both put in, and on the success of the industry as a whole. All of our relationships begin as a ‘friend of a friend’ in that we require that all clients come to us via referral. Then we align ourselves further and invest in our clients by accepting their equity or tokens when we succeed together.