The Crypto Call Option

I can remember the first time I heard about Bitcoin, I was sitting in a shared office with a co-worker back in 2013 when he described a new digital currency that was gaining some notoriety.  I did some quick research and wrote it off as a passing fad that was fueled by cyber criminals and tech speculators.   I did not think much about it again until the Fall of 2017 when its soaring price garnered headlines across the business world.  I recognized the bubble and, since I did not want to deal with a crypto exchange, I bought some shares of Greyscale Bitcoin Trust (GBTC), whose price is correlated to the price of Bitcoin.  I watched its value soar until it hit its high of $19,783.06 on December 17, 2017, then sold my shares as my shares’ price plummeted.  At that point, I took my profits and dismissed Bitcoin.

 

However, this year I began to take notice of it again.  I watched the price climb from the mid-$3,000s in January to $8,000 in May.  This performance got my attention and led me to do some deeper research on Bitcoin.  What struck me was its resiliency.  Bitcoin has gone through two bubbles, from 2013-2014, when its price rose from $13 to $1,163, before declining to $152 in early 2015.  Then again in the aforementioned 2017 boom and crash.  Although its price is volatile, there is clearly underlying value in this asset because it has been able to rebound following these two crashes.  After doing my research, I concluded that buying Bitcoin is, essentially, a call.  In the coming decade I think one Bitcoin will either be worth well over $100,000, or nothing depending on a number of factors.

In doing my research I found that people fell into two camps: crypto evangelists and crypto skeptics, with few in the middle.  I put myself in the rare third category as a crypto realist.  I recognize both the potential and the risks of Bitcoin and other crypto assets such as Ripple and Litecoin.  The following is a succinct explanation of my line of thinking on both angles:

Why Bitcoin could be worth more than $100,000

I draw from both my personal experience traveling around the world and a study of Bitcoin’s performance over the past decade to see its potential to exceed $100,000.  Although most in the United States do not experience it, paying for goods and services is challenging in many areas in the world.  Typically, people use cash and I was surprised to see that many vendors do not have reliable credit card payment systems.  I remember travelling to Zimbabwe in 2017 when many ATMs had simply run out of money.  It was thus next to impossible to buy anything.  However, I noticed that many of the people I interacted with had smartphones.  A global, digital currency that can be used for direct, peer-to-peer payment would solve the banking issue many experience.  Thus, global adoption could skyrocket, driving up Bitcoin and other crypto asset’s prices.

From a data-driven standpoint, a conversation with Dan Morehead, CEO of Pantera Capital, on the Unchained podcast drew my attention to Bitcoin’s incredible growth potential.  He highlighted the fact that, looking at Bitcoin’s price on a logarithmic scale, it has grown at a 235% CAGR.  Using this growth rate, it will only take a couple of years for one Bitcoin to be worth more than $300,000.  Although this number seems crazy, Morehead highlights the fact that he first thought Bitcoin would be worth more than $5,000 when it was selling for $100, and no one thought this would be possible.  As we have seen Bitcoin cross the $1, $100, $1,000, and $10,000 thresholds, doubters have seen each next level as unattainable.  So, why should Bitcoin not reach the $100,000 mark in a few years?

Why Bitcoin could be worth $0

It seems Bitcoin’s price is largely driven by speculation on its viability as a global payment system.  I personally do not view my cryptocurrency as anything I would spend, but rather as an asset I am holding.  Bitcoin and other cryptocurrency’s volatility makes its adoption as a currency difficult.  Right now, people either keep their cryptocurrency stored on hard drives or in crypto exchanges such as Coinbase.  Unless it becomes widely used as currency, people will rely on exchanges to convert their crypto assets into government backed currency.  My thought is that, should cryptocurrency threaten big banks’ business in financial transactions, the banks will work to maintain their business model.  The easiest way it seems to accomplish this end is to block withdrawal from crypto trading platforms to an individual’s bank account.  If this is the case, the value of crypto will plummet unless it has already become a globally accepted currency that has largely replaced government backed currency, which is a highly speculative proposition.

So, do I think you should invest in cryptocurrency? Yes, absolutely.  It seems that the asset has incredible growth potential, resiliency, and has proven skeptics wrong time and time again.  How much do I recommend you invest?  Only as much as you are ok to lose.

On Respect for Elders

Wharton is an eclectic group of individuals. From investment analysts with two years of work experience on the trading floor to twenty-year military Veterans, we’re all at different stages and points in our careers. However, with the onset of the A.I./Big Data/exponentially fast-changing technological trends (call it whatever you want), I think many of us are prioritizing cutting-edge skill acquisition over tried and true experience-based knowledge.

I recently had a discussion with a professor about how different the classroom is today from years past. The fact that there is now competition between veteran PhD’s who have toiled for years in their subjects and computer screens displaying the latest Bloomberg article or python coding guide is more evidence of this issue. With such a complex modern economy, it almost feels like you’re behind if you can’t explain the latest time management software to your learning team. What this information overload is really doing is deprioritizing the traditional way of asking a professor for advice in search of quicker but not always better learning methods.

My argument is that listening to the humans who have accumulated years of knowledge and are tasked with educating us is a better use of time than spending hours on some website trying to discover how to code the front-page of that wine-tasting startup you had an idea for. My fear is that professor-student interactions will decrease and the classroom will become ever more transactional.

One solution to this issue is to begin by thanking our elders, showing respect toward those that have paved the way before us. Recently, I sent a thank-you to a speaker who came to talk to us. His response shocked me when he said that after years of coming to talk, he never once had a student write him a thank you email. Clapping at the conclusion of a course or taking a professor to lunch isn’t really enough to show appreciation for the time they’ve taken to stand up in front of the room and try to impart some wisdom on us. Don’t get me wrong, there are bad courses and occasionally professors who don’t try their hardest, but a level of gratitude for those who have imparted wisdom should be warranted. As our generation becomes the “break it down to build it up” generation of disruption, one thing that shouldn’t be replaced is our traditional values of gratitude toward those that are older.

 

 

Our Climate Change Opportunity

Wharton is a special place.  It really is.

 

I vividly remember the first few days of Pre-Term. It’s a special feeling to know you’re on the cusp of what promises to be a transformative experience. With each day, I became more and more excited about the opportunities that lay ahead. Though I have to be honest: at times, the choice paralysis and FOMO overwhelmed me. If you’re a 2Y reading this, you know exactly what I mean. To you incoming 1Ys, don’t stress too hard. This too shall pass. I assure you that everything will work itself out.

It did for me. I spent most of the school year experimenting with different paths. I was absolutely certain, however, about wanting to work on something where I could make a big impact on a challenging issue.  After many coffee chats with second years and phone calls with alums, I discovered that my sweet spot blended finance, entrepreneurship, technology, and policy.

It wasn’t until spring break that I found my home in the renewable energy and cleantech space.  I attribute my good fortune to taking several classes in the spring with some of Wharton’s best professors. These included Sarah Light and Arthur van Benthem, who teach Environmental Management and Energy Markets, respectively. They challenged me to think critically about how I could leverage my MBA education to directly address the climate crisis. So at semester’s end, I applied for a student grant from Penn’s Kleinman Center for Energy Policy. In exchange for writing a blog post (well… two, actually), they funded my visit to the National Renewable Energy Lab’s investor forum in Colorado, There, I connected with the industry’s leading investors and entrepreneurs, and got to see breakthrough innovations first-hand.

Climate change is the most important challenge we as MBAs will face over the course of our professional lives. It increasingly strikes at the very heart of business strategy and affects nearly every industry in which we will work: finance, technology, real estate, infrastructure, transportation, healthcare, food and agriculture, consumer packaged goods, and of course, energy. In the U.S. alone, climate change projects to cause $360 billion of economic losses, property damage, and healthcare costs over each of the next 10 years. Yeah, it’s pretty daunting.

There is a silver lining though. A massive one. Climate change also represents one of the greatest economic opportunities of our generation. Bold action between now and 2030 could yield an economic gain of $26 trillion and creation of 65 million new low-carbon jobs, relative to business as usual. I see climate change as the 21st century version of the Apollo program, where the mission to put man on the moon galvanized America towards one of the greatest achievements in human history and inspired a nation to dream.

Wharton gave me the confidence to pursue a moonshot summer internship. It was a journey of persistence, but on May 14th, my patience was rewarded. I received and accepted my offer from Breakthrough Energy Ventures.  Breakthrough is a $1 billion venture capital fund launched by Bill Gates in December 2016. It is backed by many of the world’s top business leaders, including Michael Bloomberg, Jeff Bezos, Ray Dalio, Masayoshi Son, Jack Ma, and Muskesh Ambani. The fund’s mission is to invest in cutting-edge innovations that significantly reduce our carbon footprint across electricity, transportation, buildings, manufacturing, and agriculture. I got to work alongside leading investors and technologists who are dedicating their careers to solving the climate crisis. Breakthrough provided me with an incredible summer experience, and I learned so much over my 12 weeks.

As I reflect on my return to campus, I believe we as Wharton MBAs are uniquely positioned to step up. That starts with me doing my part. As an officer with Wharton’s Sustainable Business Coalition, we are planning a Captain Planet-themed “Planet Week,” set for the week of February 10th (and coinciding with the 50th anniversary of Earth Day, launched 50 years ago in Philadelphia). I also serve on the boards of the Energy Club and Wharton Energy Conference. For the latter, I’m organizing a panel that will feature corporations that are taking bold action on climate change in ways that are strategic for their core businesses.

Wharton explicitly states on its alumni fundraising campaign site that it wants to lead in defining the Future of Finance, Entrepreneurship & Innovation, and Analytics. Indeed, solving climate change will be capital-intensive, call for new ventures scaling revolutionary technologies, and require sound, data-driven decisions. Our school has taken encouraging early steps, such as the recent creation of the Business, Energy, Environment, and Sustainability “BEES” major.  But more is needed. And quickly. Climate change requires urgent action within the next 12 years to avoid catastrophic damage to the natural systems that underpin human civilization, let alone the modern economy.

Outside of the Wharton bubble, I’ve been encouraged by the momentum across Penn. The University has made Driving Energy Solutions a top priority for its $4.1 billion Power of Penn capital campaign. Alumni and major donors have responded, committing record gifts of $30 million to the Kleinman Center for Energy Policy and $50 million to the Vagelos Institute for Energy Science and Technology. As MBAs, we can and should do a better job collaborating with other schools at Penn. After all, isn’t business school about stretch experiences?

Wharton is a school that grows leaders who act decisively to meet tomorrow’s biggest challenges.  The biggest challenge of them all is climate change. Now is ripe for action.

Here are three things you can do to act on climate change:

  1. SIGN OUR PETITION that asks Wharton to step its game on climate change. We’ve already gotten over 200 Wharton MBAs to sign. Your signature will go a long way towards helping us demonstrate widespread student interest. Sign the petition.
  2. JOIN OUR COMMUNITY of students across Penn’s graduate schools where we are building a movement to apply our education towards building climate change solutions. Join our group.
  3. READ UP on this primer for MBA students, “Climate Change and Business: What Every MBA Student Needs to Know.” It does a terrific job breaking down the economic risks and opportunities of climate change. Read the paper.

And if you have more specific ideas or just want to learn more, feel free to drop me a line at sidrad@wharton.upenn.edu.  I’m more than happy to find time to chat.

 

 

 

 

 

 

 

First Year Three Pearls of Wisdom

Dear Wharton MBA Class of 2021,

Firstly, CONGRATULATIONS on being admitted into the best business school in the world!  Acknowledge the privilege that comes with being a part of this institution.  As I reflect on my first year at Wharton, I thought I’d share some advice on what to do to make the most out of your first year.

  1. Be selective and strategic about the clubs (both personally and professionally) that you choose to join.  Consider the clubs that you are genuinely interested in, intend to be an active member of, and perhaps desire to take on a leadership role in.  I watched so many classmates get overzealous when signing up for clubs all to never show up to one boxing class the entire year.  Do yourself a favor and save your coins!
  2. Do not be afraid to ask for help.  Seek out all of the resources available to you so that you can perform at your best academically during your time at Wharton.  As someone who has struggled personally with test taking environments in the past, I found that requesting the additional support that I needed via Wharton’s academic advisors, study groups, and tutorial services was essential to getting me through my first year.
  3. Explore new travel destinations.  I had the opportunity to go on three wonderful student led treks last year: the Israel, Japan, and West Africa treks.  One of my most memorable first year experiences was an intimate gathering with the sixth director of Mossad (equivalent of the CIA) who is the grandfather of one of my learning team members.  He and his wife opened up their home for an informal discussion as a learning opportunity for a few of us who were on the trek.

This is simply a snapshot of my first-year journey.  Don’t hesitate to reach out to me should you want to further discuss my experience.

Good luck!

Talisha

 

 

 

 

MENA’s VCs Should Have Bigger Roles If They Want Better Returns

The VC ecosystem has rapidly evolved. Four years ago, MENA had 15 active VC funds. Today, that number is cited comfortably at over 55 according to MenaBytes. An estimated $900 million dollars was raised in 2018 alone, a figure that is set to be exceeded in 2019 as an unprecedented number of VC funds mark their entry.

Two unicorns have emerged out of the literal sandbox of Dubai—a small market relative to others in the region—proving that ecosystem is more than just a buzzword. The acquisitions of Careem and Souq.com brought much fanfare and credit to the region when it saw two buyouts by FAANG companies. These deals demonstrated that the region can deliver better than Silicon Valley firms can. If you can’t beat them, join them—or buy them.

MENA’s range of exits have also broadened. Startups such as Property Finder are attracting major capital from the world’s leading PE firms and Network International, a Dubai-headquartered payments firm, saw a successful IPO debut. Viewed in the context of a nascent and small market and a difficult economic and political climate, their ability to prove that homegrown models work make them all the more profound.

Still, the region’s ecosystem is wrought with challenges and requires VCs support to fix it. Regulatory reform is still required but VCs will need to step up if they desire a more sophisticated and growing deal-flow.

Capital is not the problem. MENA is blessed with a strong network of wealthy families and ample sovereign funds. This resource, however, remains underpenetrated. Private wealth leaves the region, and is invested in safe assets like real estate. VC is little understood in circles that view it as risky, illiquid and potentially non-shariah compliant. However, the share of private capital allocation in VC and PE in the US and China is on the rise. Startups are staying private longer and once-public companies are being taken private. The role of private capital will continue to grow globally and will impact the region, making it all the more critical that LPs are informed about this asset class.

Indeed, the world’s largest bets in VC are being made in the region. Saudi’s PIF and Abu Dhabi’s Mubadala are showing that VC is a serious asset class—$65 Billion worth in SoftBank’s Vision Fund for example. If risk-averse governments believe in VC, why can’t LPs?

Awareness raising and communication to LPs is needed. To start, firms can make the process more experiential for LPs—they can organize touchpoints between LPs and management teams, a move that can make LPs feel more engaged, committed and informed.

VC firms need to promote transparency through a focus on better governance. The Abraaj scandal has set the PE and VC industry back but the lessons gained make it all the more compulsory to restore trust in the industry. Data collection and fund performance tracking will enhance trust between LPs and fund managers. It will also lead to better decision-making and firms with track-records bring in more capital in the future.

Funds and not just founders need to shift their mindset on failure. Owning and sharing stories of successes and failures will drive better collaboration and lead to more sophisticated investment practices. It is no secret that VC firms in Silicon Valley fail to make the right call in at least 30% of their investment decisions.

Finally, VC firms need to make the case for homegrown talent. Not only have local startups demonstrated the potential to be superior in meeting local needs, but facing an overcrowded VC market like the US means that better deal terms are likely to be struck at home.

VC firms can do more to support entrepreneurs.

VC funds can provide management teams with business advice and act as connectors to business partners, industry leaders and talent. Platforms need to be created that link portfolio companies to one another to promote shared knowledge and resources—an all-hands quarterly in-person workshop is one trick to employ.

Most critically, VC is a boys’ club. The industry should move away from that. VC investors need to do more to promote diversity within their ranks, their LP base and all levels of their portfolio teams. A diverse team that draws on multiple perspectives and experiences leads to better performance. A study by the IFC showed that funds with gender-balanced senior investment teams earn returns that were 10% to 20% higher.

VC firms should support startups that are turned down for investment. Providing open, critical and actionable feedback on failed pitches can over time strengthen the pitch-making process and business acumen of entrepreneurs as lessons get passed on in the wider ecosystem.

VC investors sit at the center of this ecosystem. The time to leverage this powerful role is now.

 

 

Diversity Should Be Added to Wharton’s Core Curriculum

A course on diversity should be added to Wharton’s Core Curriculum. Diversity, or the lack thereof, is a fundamental concern that affects all business industries at every level of an organization. Wharton students are tomorrow’s leaders and all of us should be equipped with a baseline set of skills to identify instances of bias in hiring practices, promotion trends, and retention rates at our future firms.

Some may argue that Professor Stephanie Creary’s Management 624 Class Leading Diversity in Organizations should suffice, but I beg to differ. Management 224 is an elective class. Students self-select into that course, and likely already recognize the need to tackle systemic inequity in the workplace.

Wharton does not require students to learn about diversity. Even though there are numerous training events and workshops on the subject, students must prioritize these sessions over other events in the same time slot.  Theoretically, a student could graduate from The Wharton School without learning the basic building blocks of securing the future of an organization by ensuring that it is diverse.

I recently took Management 801 – Entrepreneurship. In one of his lectures, the professor discussed the inequity around VC funding for women and minority founded startups. The professor highlighted the inherent bias that may underlie this trend, even though it might not be purposeful.  As future business leaders, we at Wharton must be conscious of these biases and should seek to put all entrepreneurs on a level playing field regardless of their gender or ethnic background.  Professors must both acknowledge and make us aware of the inherent inequalities that exist in the business world so that we can reverse these trends.

Last month, I met with Academic Affairs, to discuss adding diversity to the Core Curriculum at Wharton. While I am against making prescriptions to professors for how to tailor their curriculum, I hope that the faculty continues to equip us to face the business world’s indisputable changes with diversity. Students must realize the strength that diverse backgrounds bring to an organization, and must learn to recognize the unconscious biases that exist in the business world.  In doing so, they can become true leaders who exemplify Wharton’s core values.  A Core diversity class would be an important first step in this direction.