Venture Unplugged: Muneeb Ali

Blockstack is a new decentralized internet backed by investors Naval Ravikant, YC, SV Angels, and Union Square Ventures. Muneeb Ali and Mayra Ceja discuss…

  • What it was like to advise the HBO show, Silicon Valley

  • How he raised from YCombinator

  • Why he launched a token sale.

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Mayra Ceja
Today we're in New York City interviewing Muneeb Ali, the co-founder of Blockstack. Hi, Muneeb.

Muneeb Ali
Hey, nice to have you here.

Mayra Ceja
Thank you so much for inviting us over. I'm absolutely thrilled to have you on the show for a couple reasons. One, I think you're just such a pioneer when it comes to blockchain technology and also token fundraising. But I've also known you for quite a bit and I know you're such a wise person and have a lot to say. I'm excited to have the audience hear you unplugged the way I usually get to hear you. So, I'm excited.

Muneeb Ali
Well, thanks for the kind words and yes, we go way back, all the way when I was in grad school at Princeton. And never thought I would end up working in crypto or doing the kinds of things I'm doing now because I was on a very, very different track when I was in grad school.

Mayra Ceja
That's great. Why don't we provide the audience with a little bit of your background and then we'll jump into the questions and get started? In terms of your background, most recently you have been in the news for launching the first reggae plus for public token sale.

Muneeb Ali
Yes.

Mayra Ceja
And I'm sure that's kept you super busy.

Muneeb Ali
That was the first time that the SEC qualified a token offering. We were working with the regulators to figure out a legal framework. How can we open up the public markets to token offerings but do it in a way that is more transparent than the traditional checks and balances of the public securities markets? They applied to this new asset class as well. So we were very, very excited that we actually got through the door and we're the first in U.S. History to get qualified.

Mayra Ceja
It's monumentally huge and I want to dive in deep to that. Before that, I just want to give it a little bit of background. So, before that, you've raised venture capital from some of the top VCs in the industry, Union Square Ventures, Harvard's Endowment, Y Combinator. You've also done a private ICO for around 50 million dollars and you migrated from Pakistan to Princeton University. Take us back to the earlier years. This got founded within Princeton, but let's go back a little bit further. So, what was that decision for you to move from Pakistan to Princeton? Can you walk us through that?

Muneeb Ali
Yeah, I think ... I grew up up in a small town, Rawalpindi is right next to the Capitol, Islamabad. Over there, I remember that my computer and the internet connection was really actually a stolen internet connection, I was using hacked passwords and ISPs to go online. It was my only window to information because otherwise, we had single-state-controlled television. So, imagine that it's ... I'm a kid, I go online and I started discovering that the information that I was getting through the state-controlled TV channel is actually not true.

You have this moment of like, "Wait." Like, "That's not what happened in history?" Or, "This is not exactly this way?" And I started realizing the power of information, that if the information is free and anyone can have access to it, it really changes that person. I was the only kid on the block who had access to the internet and I would go and talk to my friends about it and so on.

I also started taking a deeper dive into computers in general. I, instead of using Windows that required a license, I was messing around with Linux, trying to program it, trying to see under the hood, like how do things work? Just fell in love with the technology. I remember as a teenager deciding that I just wanted to study computer science and that's what I did in my undergrad. I started doing research work during undergrad, which was a little bit uncommon back in my university. I remember getting my first peer-reviewed publications out which was very surprising for the university that this kid is now ... I believe Canada was the first conference that I went to. My move out of Pakistan was very logical, at least to me.

It was basically about I wanted to work with people I can learn from, some of the best researchers who would have me or give me the honor of working with them. So, first I moved to Europe. I was working in a research group that was very well regarded in the area I was interested in at that time, and spent a summer at Stanford and eventually moved to Princeton for my grad school. My advisor that I started working with, he was wrapping up his PhD at Stanford.

Mayra Ceja
A lot of people would love to get into Y Combinator and I think a lot of people would also love to be in the room with some of the VCs that you've ... That have backed you. How did Union Square Ventures actually happen? Was it over coffee?

Muneeb Ali
With USV, I think what happened was I started a course with one of my professors, who is actually on the board of a Blockstack now, Professor J.P. Singh, and the course was about startups. So, if you're an engineer, how do you start a company? Or what skills do you need to ... It's almost like how do start a company course at Princeton? It's not called that, it's called something else. In that course, we'd get a lot of guest speakers. Fred Wilson from Union Square Ventures was one of the regulars, so every year Fred Wilson will come in and speak to the students. I think every year I would talk to him about some new thing I'm working on. It was mostly ... Usually technically very heavy, like deep tech stuff. Fred's comment would be, "You should talk to Albert." Albert is a partner at Union Square Ventures. He has a PhD from MIT and usually looks at more deep tech kind of things.

Eventually, I emailed Albert, I think I still have that email. So, it's a cold email to Albert saying that every time I talked to Fred he says, "Talk to Albert." I'm here talking to Albert. He was like, "Just come to my office and we'll take it from there." This was even before Blockstack, so the connection existed. And once with my co-founder Ryan, I was working on Blockstack and we were looking to raise money. I think it was easy to follow up with Albert and say, "Hey, this is what we are working on. Do you want to see it?" The interesting thing is when we were ... Union Square Ventures office is nearby. When we were sitting there, I think we showed him the demo and within five minutes Albert basically had this gesture of excitement and he's like, "I get it. I love it. Let's do this."

I think it's the shortest amount of time in which some investor just truly gets what you're trying to do. Later on we discovered that he had independently written blog posts about such protocols that ... How they need to exist. So, I think it was pretty much like he had his thesis and ideas around that something like blocks actually exist. Once he saw it, it was within five minutes he's pretty much there.

Mayra Ceja
That sounds like exactly product market fit with our investor fit, right?

Muneeb Ali
Yes.

Mayra Ceja
That everybody's kind of searching for. But I think you've talked about it was a journey. It wasn't just one meeting and done.

Muneeb Ali
Yeah, we ... At the same time when this meeting was happening, I think we applied to Y Combinator as well and at Y Combinator, it's a very interesting process. They teach you a lot about startups, what to focus on, what not to focus on and they put this time pressure along where they create almost like a FOMO for investors. They would put like 500 investors in a room and create a lot of demand for your round. I remember that ... So, it's called the demo day, the final day where everyone's presenting. I remember that somehow our round or these terms got done the day before demo day. There's a Silicon Valley large fund that wanted to come in and then we obviously had a strong preference with USV given our interaction with them. So, we pretty much warbly agreed to the term sheet with USV before demo day.

Demo day started and imagine that's the big day, and for some reason I'm awfully relaxed and other people can tell. They're like, "Why aren't you talking to investors?" Like, "Why are you just having your coffee and just smiling and sitting over there?" I think people can just tell from your energy that you're not anxious right now. You're not ... You're actually not fundraising pretty much because the round is done. So, I was very, very grateful about that because even YC companies, they go through a fairly long and hard period trying to fundraise. Not all of them, I think around 10% of them very quickly raise money and then there are some who require a couple of months and there are some who just never raise money. So, even at YC, the rate of companies survive is not that high.

Mayra Ceja
Let's talk about your next round of fundraising. So, the ICO, the private sale.

Muneeb Ali
Mm-hmm (affirmative).

Mayra Ceja
You raised around 50 million, why did you decide to do it that way?

Muneeb Ali
We wanted to distribute the underlying token up at the launch of the blockchain. Once we started looking into the legal frameworks, we realized that the U.S. securities regulations actually would not allow us to distribute to the general public, which was to me a little bit of a bummer. Because our open source community, our developers, people who are already ... They are enthusiasts around the project, that meant that they couldn't participate. Similarly around the same time, if you remember that 2017 was Wild West for crypto.

Mayra Ceja
Absolutely.

Muneeb Ali
Anyone can throw up a white paper and go out and raise millions of dollars and we almost wanted to show the industry how you can do this in a more mature way, in a more sensible way. So, our ... The legal structure that we came up was we were making these Delaware Funds and investors, sophisticated investors were becoming limited partners in the fund. The reason to create the funds was we wanted to self-impose milestones ourselves that the sale ... The way the sale happened was this is what we are going to build, X amount of development has happened, but we still need to build the core blockchain and launch it. If we are unable to launch it within a specific time period, it was like a year or something, and you will get your money back.

So, 80% of the capital was actually sitting in the funds and the money would go back to investors if we don't succeed in delivering on the promise or the technology. Similarly for people who are not accredited investors, we were like, "We can't let you participate." Like, "We're not going to be in violation of your securities regulations, but we can give you this nonbinding voucher." Let us figure out the legal framework around this and we will honor the same price as the accredited investor and as the sophisticated funds who are participating right now. All the work with the SEC actually stems from there.

It stems from us fulfilling that promise to our core community, that we will honor the same price for you. So, the SEC public offering that's going on right now has two parts. One is a general offering, where anyone can participate. And the other is the voucher offering and it's those voucher holders who after I believe a year and a half are coming in with the same price, who when the technology has been de-risked a lot ... And it actually gives me great pleasure, that we were able to kind of fulfill that promise to our core community.

Mayra Ceja
And why is it so important to you to have the community participate?

Muneeb Ali
I think there are two reasons there. One is that these users also become users of the network. So, you can't have a decentralized network that excludes everyone who's not an accredited investor. You would have a very limited user base that way. So, it was very important for us to open up our network to the general public, including the U.S. markets. We could have done it by banning U.S. investors. I think most projects, they just move out of the U.S. because they effectively were like, "We don't know how to deal with the SEC, so we're just going to ban everyone who's in the U.S.." And we were like, "Okay, it sounds like a hard problem. Let's sit down with the regulators and figure out a way forward."

Opening up the U.S. markets was very important to me because it's not just the users here. Imagine that companies in Silicon Valley who want to build on top of your network, any sophisticated party is not going to have an asset on their balance sheet that might be illegal. So, there needs to be a very clear regulated path for what is this asset and how can other sophisticated players keep that asset on their balance sheets while they're building on top of our technology? That was one reason. The other reason is that ... Balaji, he's a friend of the project and pretty well known in the crypto space. He has a saying that startups start on Sand Hill Road and end up on Wall Street. Crypto is changing both ends of that journey.

So, you no longer need to start up on Sand Hill Road or end up at Wall Street, and what that means for us is ... Imagine the first 100,000 users of Facebook. They had no financial stake in the success of Facebook even though they made the network. Same with things like Twitter or media where all the content is being generated by people. But because of certain regulations, they can't actively invest and there're good reasons for those regulations. So, we wanted to enable the early users of our network to actually have a financial stake in the success of the system, but at the same time have the same kind of checks and balances and transparency that you would see in a traditional IPO. So, our filing looks like a "mini IPO filing." It has audited financials, it has all the risk factors, all the disclosures. Basically, the idea is to reduce information asymmetry between the project insiders, like myself, and anyone who wants to invest.

It's 184-page disclosure doc that I hope everyone reads and what that really does is that the project is still relatively early stage but the investment opportunity is now open to a very ... Basically the public markets, which is a very interesting dynamic that does not exist in traditional Silicon Valley startups where they usually go public after 10 years or something like that.

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You've talked about pioneering this entire new category of fundraising. I imagine the road was not easy. I imagine it took a long time. Can you describe the road to this reggae plus and some of the challenges that were involved?

Muneeb Ali
Yeah, I think this was ... I believe the timeframe is at the close of our last offering, so that would be start of 2018 when pretty much we made this call that we are going to go down this route. There was a lot of uncertainty, we had no idea that the SEC would ever qualify something like this. A lot of other people in the industry were pretty much against this idea, they were trying to go for other approaches like putting pressure on Congress for introducing new laws. In my mind, that would take longer or some projects would actually just go ahead and do what they're doing and they were like, "Don't ask for permission, ask for forgiveness later." I'm an entrepreneur, I have a very high threshold for taking risks. Potentially violating securities regulations in the U.S. is not one of them. It's like ... The image I have in mind is there are these cars coming down and taking you to a very unpleasant place and it's very hard to come out of there if you do that.

Mayra Ceja
Well, orange would have a very different meaning for you then.

Muneeb Ali
Yes, yes.

Mayra Ceja
Orange is not the new black in that case.

Muneeb Ali
No, so there was zero chance of me trying to take a riskier approach when it comes to regulations in the U.S.. The other thing was really ... Potentially taking the SEC to court. No, I do not want to do that. I would much rather engage with the regulators. I think for me the real moment was when I realized that the technology can adapt faster to regulations than regulations can adapt to the technology. So, every time we will hit some sort of a roadblock, I would rather go back and tweak the protocol so that that particular corner case is no longer an issue for our technology instead of trying to force a change in the law.

Even though there are ... There is a lot of work and I think the SEC deserves a lot of credit where we were able to successfully present the legal analysis for why a certain regulation basically just doesn't apply to this technology. The SEC effectively ... They agreed in the way that they agree. I think if you look at the official correspondence, the comment would look something like, "We have no further comments on this particular issue. That does not mean that we agree or disagree." And they're like ... It will go on, but I will take this as okay they are not explicitly against our legal analysis here and I think we're good for now unless they come up with new information and revise their stance.

Mayra Ceja
You talked about disrupting the venture capital funding system, whether your project can be fully funded through an ICO or not. Did you face any challenges convincing your investors that this was the right path or did they automatically see the larger vision of how this new way of fundraising can benefit the company?

Muneeb Ali
Yeah. I think over there that's why it's critical to have really good investors. I think early on people shouldn't optimize for evaluations or other things. I think that you should really just optimize for getting the right investors in. Our earliest investors are Union Square Ventures, Naval Ravikant, YC, SV Angel and others. These people are, I think, longterm investors. I think Naval, when he invested, I remember his email, he was sending out an email saying, "This is a research project, might never turn into anything. I'm investing anyway." And I was like, "Naval, are you trying to sell this or scare people away?" But apparently it worked for his syndicate so he used his syndicate to invest money and his syndicate just filled upon seeing that email. But it's true, it was a risky research project with a very long time horizon.

We are building open-source software. We don't have a business model, we don't have any revenue and our investors are effectively saying, "Don't try to even think about how to monetize this right now because your success really depends on creating a large ecosystem around your opensource technology. Unless you do that, it's pointless thinking about trying to monetize right now." So, they already have a 10-year horizon in mind. And once we went back and basically told them that here's this new type of crypto asset, which is very essential to our network and we are going to launch it ..., Union Square Ventures deserved ... They deserve a lot of credit. They almost even saw it coming in the series A. Our series A had this clause in there where if the company ends up creating a digital asset, they can actually participate on a pro-rata basis on the ... To purchase that asset as well.

So, they were watching ... Just like the pro-rata rights on the equity side, they were trying to watch out for those things on the crypto asset side as well, which was I think very forward-looking for them. We did the same thing, we actually offered all of our equity investors to be able to purchase tokens early on when the technology was not that much developed, and 100% of the equity holders actually participated. So, I think they saw the value in the underlying crypto asset and basically came in.

Mayra Ceja
Through this process, what have been the biggest challenges? I feel like every hero has their own challenges whether it's man against machine, whether it's man against man. For you, has it been more the regulatory kind of hurdle and execution or the technology itself? It's ... What you're doing is inventing something completely new. What are the biggest challenges?

Muneeb Ali
I think the biggest challenge is ... A good friend of mine, I took some time off and I was spending time with his family recently and he said that, "You are actually running five to six different startups." This is not just one thing and I think it's true. If you look at all that ... All the work that we are doing, there is the core technology, the R and D piece, which I used to directly work on but then I hired other computer scientists that I really respect and they've kind of taken that over. Over there you're effectively trying to invent new types of internet protocols and systems that are going to effectively replace cloud computing. Just doing that, just doing that R and D is a company in itself. The company would just do that, try to commercialize it or get acquired by a larger company and for us it's like one out of five or six things that we are doing.

We are also building the developer tools. Imagine a Twillio-like, easy-to-use interface or a Stripe-like interface for interacting with this technology and that's hard. When Twilio was trying to do that, the telco infrastructure existed and they are writing the developer tools to interface with the telco infrastructure. We are creating the infrastructure and writing the tools around it and then there's a completely different almost area which is user-facing stuff.

We had to build a new browser, we had to help all ... Now there are 170 startups or applications built on top. All of those startups are using our tools and the interfaces that we have for login, for storage, and other things they're using. Basically our interfaces are being used by their users, so there's a huge user-facing component to do what we're doing and then add all the worker regulations. Even a small thing, for example, let's say there are new employees who are joining and we are trying to figure out how to give them grants and tokens. You would come up with a legal structure that looks similar to like a restricted stock option but for tokens.

So, nothing is simple. Everything has to be ... We will have brainstorm new things and new structures. Even the legal and finance department over here is actually a pretty interesting place to work at.

Mayra Ceja
Do you believe five, 10 years from now people will move away from the traditional Facebook to something like your system or what is your vision there?

Muneeb Ali
Yeah, I think I almost look at this as a new type of a computing platform. The analogy would be when a mobile devices came, it was just something so new that an entire ecosystem around and had to develop. Imagine, developers first had to learn how to make mobile apps and the initial version of mobile apps they look like, okay, this is something that I can also do on the normal desktop, but now it's on my cell phone device with some kind of tweaks. Later on, we started seeing native applications, applications that only make sense on the mobile device. For example, Uber, it makes no sense to run Uber on your desktop. It's a native mobile application. We were seeing similar things with decentralized computing that it's a completely new way of building applications and in the initial versions are here is a Google docs, but decentralized. Here is Instagram-like app, but decentralized. The next step is going to be when we start seeing native applications, potentially with smart contracts where the functionality that is available is something that simply could not exist on the traditional cloud computing or internet.

Mayra Ceja
And what do you think is the biggest barrier to entry in terms of people using crypto on a regular basis?

Muneeb Ali
I think it has to be onboarding and we spend a lot of time onboarding because there's a very fundamental trade off. You have to educate people about their private keys and you have to make sure that the private keys are secure. But people are abused to just signing up with a username and a password. They think that if they lose their password, they can always go back and reset it. So, there's a fine line between how hard the onboarding is and how secure your credentials are. We have done a bunch of iterations of our own onboarding and we're working on that. But I do think that once a lot of the population they have ... They can set up their initial wallet, things actually become easier after that. Because on Blockstack, for example, if you register your username, it's a universal username, you can use the same thing on every single app.

So, it's like a one-click login to every everything, there are no passwords, but the initial set up is something that's a little bit of a hurdle. Interestingly, I was in Asia recently and I noticed that in Korea, more than half of the population actually have crypto wallets. So, there are certain countries in the world where I think it's actually getting mainstream adoption.

Mayra Ceja
I'm curious, do your parents have crypto?

Muneeb Ali
No, they don't, but I think they have crypto by proxy. They would ask my sister to go and buy some.

Mayra Ceja
Oh, that's great. Yeah, they're are probably over exposed with you on some of that crypto.

Muneeb Ali
Yes, I am definitely over exposed. I used to ... There was a time when I had all of my ... Not that I had a lot of savings, but I had all of my savings in crypto. This is when Bitcoin was a hundred something and I would cash out on a weekly basis for my expenses.

Mayra Ceja
Wow.

Muneeb Ali
So, at some point, my wife talked me out.

Mayra Ceja
That's great. Let's switch gears to something fun. A lot of people, or some people, may know that you have also been advisors to the HBO show, Silicon Valley.

Muneeb Ali
Mm-hmm (affirmative).

Mayra Ceja
Give us some funny experiences there.

Muneeb Ali
Okay. This was season five where I was the advisor and they were very thorough. Sometimes I would have a call with them where they would share a diagram and they would be like, "Give us some technical input on this diagram. Does it make sense?" And I would suggest a different architecture or this area doesn't make sense. Maybe we want to design a story system slightly differently. Later on, I would find out that that thing that I gave them feedback on was just something on a whiteboard in the backdrop of a scene. But they were so careful that they even wanted to get that diagram technically correct and they would get feedback. And then I think sometimes you also ... The writers are just writing the new content on the fly as the season is kinda going on. That's what I think happens.

So, I think at some point they had a plan to launch a "ICO" on the show and they asked our team to write the white paper for it and it was going to be the actual white paper. They described kind of the scope of the paper, they were like, "You guys can write whatever you want and just crack jokes in there and you can even have a reference to the Blockstack actual paper in the Silicon Valley show hypothetical white paper." But it was actually going to be a lot of work for our team, we're still a very, very small team. What we did was we just gathered around everyone around our kitchen and everyone was just pitching ideas for what could be funny that can go into the paper. We were just generating material that way. I think in the end the writers decided to go in a slightly different direction and they never launched that ICO paper. We also never wrote it, so I don't know who dropped the ball, but it was a fun experience just collecting all the material around the white paper.

Mayra Ceja
That sounds like so much fun. I think definitely when I was watching I was like, "Wait, the new internet? This is incredible." It definitely reminded me of you and I think that's incredible work, I think, helping spread the word and making it more accessible. So, I'm sure you had a lot of fun doing it.

Muneeb Ali
It was great.

Mayra Ceja
Well, that sounds like a great story, Muneeb, thank you so much for sharing that. Now, why don't we jump into rapid fire?

Muneeb Ali
Sure.

Mayra Ceja
All right, so the first question is how much do you sleep?

Muneeb Ali
I, these days, try to get like six hours. I used to be worse before.

Mayra Ceja
What was the last good book that you read?

Muneeb Ali
Last good book, Hard Things About Hard Things.

Mayra Ceja
What is your biggest life hack?

Muneeb Ali
Waking up super early in the morning.

Mayra Ceja
Do you believe in God?

Muneeb Ali
Yes, I do.

Mayra Ceja
Do you believe you're lucky?

Muneeb Ali
I do think so.

Mayra Ceja
What is the worst advice you've ever received?

Muneeb Ali
I don't know if this was advice, but I think I've stayed in academia for a very, very long time and it was a combination of all the advice I think I got. If I would do it again, I would probably quit school much, much earlier.

Mayra Ceja
Who do you follow on Twitter?

Muneeb Ali
Bunch of people, it's public but if I was going to follow just one person it would probably be Naval.

Mayra Ceja
Do you meditate?

Muneeb Ali
I really try hard to meditate in the morning.

Mayra Ceja
At Blockstack, which round was the hardest?

Muneeb Ali
Every round is unique, so many.

Mayra Ceja
Who are founders that you admire?

Muneeb Ali
Patrick Collison at Stripe is one of them.

Mayra Ceja
What is the best piece of advice you have for founders just getting started?

Muneeb Ali
I think just go and read every essay by Paul Graham.

Mayra Ceja
What do you do when you feel demotivated?

Muneeb Ali
Just reset the clock. Meditate, sleep a little more and and learn and tell yourself that you need to survive to live another day.

Mayra Ceja
What's one word to describe high school Muneeb?

Muneeb Ali
High school Muneeb was already externally focused, look for validation externally. Whereas now mostly I try to focus internally.

Mayra Ceja
And what do you want to be remembered for?

Muneeb Ali
Hopefully Blockstack.

Mayra Ceja
Thank you so much, Muneeb, for coming on the show today. This is fabulous. Thank you.

Muneeb Ali
Absolutely. Thanks. Thanks for coming here.

Mayra Ceja
Thank you.