For many, the term “pseudonymous founder” conjures up an image of a shadowy figure fitted with a Guy Fawkes mask. But, if you look at the recent wave of crypto startups, you’ll notice pseudonymity is becoming an ordinary, run-of-the-mill practice. Crypto’s pseudonymous founders typically don’t curate a daunting, ominous presence – in fact, most have colorful profile pictures (pfps) tethered to their identities in the form of primates, greek gods, anime, and owls with playful names to match: Code Monkey, Zeus, or Owl of Moistness.
Let’s address it from the outset: pseudonymous does not mean anonymous. Anonymity - without a name in latin - might be valuable if you’re making a donation and don’t want the credit, but it’s functionally useless when trying to organize a team and procure financing to build a company or protocol. The distinction seems almost trivial to mention but it’s critical to understanding the inherent value of pseudonymity.
A pseudonymous (false name in latin) identity can hold equal, if not more, weight to “real” identities for the founders who bear them. Pseudonymous reputations in this space are built over a long period of time and are stripped of conventional signals we lean on to establish credibility: elite colleges, top tier companies, and other proxies. Instead, resources are poured into producing work that can be evaluated more objectively for its intrinsic worth.
What to Expect as a Nym*
Investors that want to retain a competitive edge in crypto are rushing to develop frameworks to better evaluate faceless founders. Though this is a relatively new phenomenon and there is no industry-wide playbook, below is an outline of what investors currently look for when diligencing a pseudonymous team**:
This part of the checklist doesn’t materially differ from traditional, identified founders. Whether using a nym or not, proven ability to execute and successfully scale is the holy grail of the due diligence process. Investors tend to over index on this.
Most investors will predictably look at a nym’s Github to evaluate code quality and real shipping velocity. However, scope of Github participation spans beyond code. Even if a founder isn’t technical, submitting PRs, helping address issues, as well as project planning are all ways to build a reputation.
A wallet address is the ultimate source of truth for reputation in the space. A pseudonymous founder’s entire crypto footprint, effectively reduced to a string of letters or numbers. Investors look to on-chain history to evaluate:
Level of sophistication. How does the founder interact with projects? Does the founder interact with a project’s smart contract directly if needed or only via what’s readily available from the project’s UI? Does the team deploy and upgrade smart contracts themselves?
Flight risk. Does this founder have long term faith in the projects they are associated with or are they opportunists?
Level of engagement. How active is the founder in the space? Does the founder go deep when participating in projects?
Taste. What is the quality level of the projects this founder associates with? Is the founder early to breakout projects?
Time horizon. How long has the founder been in the idea maze? (more below)
Most investors will still expect, at minimum, a zoom call with the video off.
References from peers in the same discords/DAOs + social media presence
Instead of asking for work references, investors will ping other users in discords, DAOs, or previous projects the nym’s been involved with to understand how they work with colleagues: are they responsive, ethical, analytical, rational, efficient, etc. Investors will also look to Twitter, Reddit, and other social media platforms to evaluate a nym.
There’s no getting around it. Reputations take time to build. The challenge with going the pseudonymous route is the forfeit of all prior projects, github commits, etc under the founder’s “true identity” and a reputation reset to zero. The longer a reputable history under a nym is, the more de-risked the investment becomes in an investor’s eyes. However, this doesn’t entirely neutralize rug risk – if the prize is big enough, a long history / reputation may not mean much to the nym.
At this point in time, investors are more comfortable investing in blended teams with both identified and pseudonymous founders. This helps with KYC processes and doesn’t depart too much from the traditional DD mold. Though this might be a false sense of assurance given that some of the biggest scams both inside and outside of crypto have actually been projects with people’s real identities tied to them (see: Bitconnect, Theranos).
The rise of pseudonymity amongst founding teams is net positive, contrary to the dark dystopia public figureheads might paint it to be. This is probably the closest we’ve ever come as a society to producing a meritocracy. Let’s not screw it up.
If you have more to add to the framework, tweet to @soona or @volt_cap.
Thank you Matt Huang, Code Monkey, Linda Xie, Elad Gil, Michelle Bailhe, Albert Wenger, Qiao Wang and Sam Hallene for thoughts and feedback.
*Short for pseudonym
**Assumes team is pre-product and does not want to reveal their identities to investors. However, there are teams that choose to only reveal their identities to stakeholders for legal and financial purposes.
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