This post outlines the initial framework for Index’s institutional sales strategy: the core objectives, the anticipated challenges, potential target segments, and next steps. I look forward to feedback and ideas on how to make this plan stronger.
Background. The Index business development effort thus far has focused on 1) listing DPI in centralized exchanges and on 2) partnerships with various DeFi protocols. An effort to encourage institutional investment in DPI represents a third sub-strategy. DPI is currently the market leader with retail investors looking to gain smart, passive exposure to DeFi assets. Institutional investors are waking up to the opportunity in DeFi, and we want to position DPI as their entry point for exposure.
Objectives.
- The primary objective is to increase AUM of DPI with patient, un-incentivized capital invested for the long-term.
- As an ancillary benefit, positive press from a well-known entity taking a position in DPI could create a flywheel that brings in more institutional and individual investor interest.
- Another reason for pursuing an institutional sales strategy is that if we don’t, our competitors surely will. For example, last month, Bitwise launched the Bitwise DeFi Crypto Index. While a fund structure and less liquidity is intuitively unattractive to digital nativest, Bitwise’s offering benefits from being directly targeted towards institutional investors. Institutional investors must know DPI exists and why it’s a stronger option.
Challenges. There are some anticipated challenges with engaging with institutional investors:
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Education/Awareness. Many institutional investors - even those investing in crypto - are not sufficiently aware of the opportunity in DeFi. The Index Cooperative has an opportunity to drive education and awareness, but it’s worth calling out that unfamiliarity will be a hurdle to some degree.
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Custody. Given the higher stakes for managing institutional money, portfolio managers will demand a high degree of security that only institutional custody can satisfy, as @fallow8 has rightfully pointed out. Therefore, working to get digital asset custodians to add DPI to their token lists may be a key step to lay the groundwork for eventual adoption. @reganbozman has pointed out that we may face issues getting custodians to adopt DPI without institutional investors first making the case for us and demanding its inclusion on a platform.
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I think we have to start doing both now; sell DPI into the most prominent institutional crypto-focused investors who in turn help us to get DPI onto custodian platforms, which in turn opens the door for us to sell into institutional investors that don’t yet have a custodial relationship.
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This Google Sheet is a place for those in the Index community with custodial contacts to let us know where we might have warm intros. Please fill in if you are able to help.
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Potential Investor Segments.
These are the types of institutional investors we anticipate reaching out to:
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Crypto-focused hedge funds
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understand crypto/DeFi. -
can exert pressure on custodians.
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will not require hand-holding on custody.
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owning DPI is likely in-line with their investment mandate.
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Crypto-focused VCs
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understand crypto/DeFi
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can exert pressure on custodians.
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will not require hand-holding on custody.
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owning DPI less likely to be in-line with investment mandate. They are focused on investing directly into companies / protocols.
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Family Offices
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nimble capital less constrained by a restrictive mandate.
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less familiar with DeFi so will need education.
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less likely to have a custodian relationship.
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will require hand-holding on custody.
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Non-crypto VCs (likely fintech)
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open to investing in innovative technology sectors.
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less familiar with DeFi so will need education.
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less likely to have a custodian relationship.
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will require hand-holding on custody.
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owning DPI less likely to be in-line with investment mandate. They are focused on investing directly in companies.
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Other investor segments (all a lower priority, as many are still in BTC phase)
- Private banks
- University Endowments
- Corporate treasuries
- Insurance companies
- Pension funds
This prioritization reflects helpful feedback from @ansteadm about how investors - regardless of type - ultimately fall into four buckets: 1) No crypto, 2) BTC, 3) BTC/ETH, 4) More than BTC/ETH. The last bucket is the lowest-hanging fruit, so it makes sense to start there.
Next Steps.
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Revamp DPI sales material @fallow8 @BigSky7 @codemathics and I have been working to update the DPI presentation.
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Identify initial contacts for preliminary discussions. The intent of these early conversations is to validate assumptions and identify gaps in our thinking with folks that are friendly to our efforts.
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Incorporate feedback into improving the institutional sales framework. Early conversations will inform how to improve this initial framework. (including possible INDEX sweeteners for custodians or institutional investors).
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Launch sales effort.
Roadmap:
- March 23, 2021
- Finish DPI presentation revamp
- April 7, 2021
- Conduct 5-10 conversations with friendly entities (funds, VCs, family offices, etc)
- April 15, 2021
- Provide Index Cooperative with a revised sales strategy framework.
- May 1, 2021
- Incorporate community feedback and launch full-blown sales efforts.
Many thanks to those in the community who have already contributed to this effort: @BigSky7 @reganbozman @codemathics @fallow8
Would love to hear what the rest of the community thinks. We will constantly be on the lookout for ways we can improve this process. Thanks!