Episode 204: Thinking big: starting a multi-million dollar investment fund from the ground up – with Allen Farrington of Axiom

Episode 204: Thinking big: starting a multi-million dollar investment fund from the ground up - with Allen Farrington of Axiom

Jeremy Cline [00:00:00]:
What makes someone want to start a business where they're not just risking their own money, but they're risking potentially millions of dollars of other people's money? And what makes someone want to do that with just a team of two people? That's what we're going to find out in this week's episode. I'm Jeremy Cline, and this is Change Work Life. Hello and welcome to Change Work Life, the podcast where we're all about beating the Sunday evening blues and enjoying Mondays again. I'm a career coach and in each episode, my guests and I bring you tips, strategies and stories to help you enjoy a more satisfying and fulfilling working life. When I think of the sorts of businesses which could be started by two people, I think about relatively small products or services businesses. I don't think about investment funds that handle millions of dollars of other people's money, which I thought would require a big team. It turns out I was wrong, as that's exactly what my guest this week has done. Allen Farrington is a co-founder and general partner at Axiom, a bitcoin native venture capital firm. He's also the co-author of the books Bitcoin is Venice and Only The Strong Survive. Allen, welcome to the show.

Allen Farrington [00:01:21]:
Thanks so much, Jeremy.

Jeremy Cline [00:01:23]:
I'm conscious that not everyone will be familiar with the idea of venture capital. So, can you start by explaining in really simple terms what it means?

Allen Farrington [00:01:32]:
Yeah, absolutely. I mean, it is very simple. As with many things, if not everything in financial services industry, it is layered with jargon to make it seem complicated. Venture capital means investing in very small, very young businesses. It's really not much more than that. Typically, there's an assumption that you are doing it from a fund, so meaning there's a particular investment vehicle which will likely have external clients. So, it's not my money, or it's not all my money. There's a little bit of my money in there to align incentives. But typically, you have your own clients, you're acting as a middle man, and you're investing in companies that, I think really the key, in terms of honing in on the definition, is that these companies are not public. So, they're not listed on stock exchanges, they're necessarily private companies. But that's pretty much it. And even the second part of the definition I gave isn't necessarily the case. You could do, a lot of this is just semantics frankly, but you can make these investments with your own money or of the balance sheet of a company. It just so happens that the most common way is for these fairly standardised kinds of vehicles with similar enough client bases.

Jeremy Cline [00:02:59]:
And something else that people might have heard of is private equity. What distinguishes venture capital from private equity?

Allen Farrington [00:03:06]:
Private equity is a little bit broader in terms of what their mandate can be. I mean, this now really is very much getting into semantics, but you could argue that venture capital is a subsection of private equity. Private equity, I guess more broadly the implication there very much is that it's coming from a fund. I don't think you would describe something as private equity if it was just off the balance sheet of a company, for example, but making investments in companies that either are private, as in, again, just not publicly listed, or potentially which are publicly listed with the intention to take them private for whatever reason, basically, let's see if I can come up with a good kind of high level definition of this, investments that a regular person couldn't make. Right, so you couldn't, in the way that a regular person could invest in the stock market, could just construct their own portfolio, this happens fairly often, it's quite common that people do this, but they couldn't buy a public company and take it private or do some other kind of trade that involved, I don't know, executing a merger or something like that. The assumption, I think, with private equity is typically that there's more corporate finance involved that you need to have some measure of control over the companies that you're nominally investing in, as opposed to just buying the shares, as opposed to just investing.

Jeremy Cline [00:04:42]:
Okay, cool. Thank you for that. I think that'll be helpful to set the scene a little bit. LinkedIn tells me that you went into investment management after graduating. What led you to that as a career?

Allen Farrington [00:04:56]:
Oh, it was a complete accident. I actually haven't told this story in quite a long time. I'm not sure how much detail you'll necessarily want. But I had originally intended to do a PhD. I remember, literally the reason I applied for this was, it'll go into a bit more detail about how I even applied, because that's kind of amusing as well, but I applied as basically the only non-PhD career choice, kind of as an insurance policy, like a sensible backup, partly to appease my parents, because I think my parents are both academics, and I think they were worried that I was just making all the same mistakes as them. Basically, what happened with the PhD, the actual details of this are really, really boring, so I'll skip over this part, but due to an administrative error on the part of my university, I guess, or department, of which I was an undergrad, which had to have some involvement in this application process, every single application was denied or rejected. And so, the job I ended up taking went from something like seventh or eighth on my list of preferences to number one, basically overnight. Not even when I had the rejections yet, but when I discovered this error and that it couldn't be fixed and that they were all going to be rejected, even though it hadn't actually happened yet. And the way I ended up applying for the job wasn't even that deliberate. It fits this whole almost comically disinterested narrative of how I stumbled into it. It was through not exactly a headhunter, I think people will probably be familiar, I don't know if there is a name for this type of company, but a lot of the audience, I think, will know what I mean. Because it was a graduate scheme, the employer outsourced some of it to this company that basically did like a screening of candidates. So, they source candidates, they screened them, and I don't know the exact business model, but I assume they get some kind of kickback for any successful applications. But obviously, this company themselves, as in the recruiting company, they work with many, many graduate employment schemes. So, the relevance of that being that when I first started talking to them, I didn't have literally any job at all in mind. It was like, I'll do that in case I need a job, in case this PhD stuff falls through. And the really funny thing that ties it all together is that that graduate programme that I was accepted to, thankfully, the day I found out that the PhD applications were all going to be rejected, that was the day after my final interview with my then, I didn't know it at the time, but future employer. And there was maybe like a week or two in between. So, you think about the timeline of all of this. A day before that, I had the final interview with them. I didn't really, I don't say I didn't care, but I wasn't that bothered. Which I think actually maybe helped, in the sense that it was a very intensive, gruelling, high pressure process, and I was just going through it like, if I don't get this, I don't get it, what's the big deal? And then, the next day, I find out all my PhD applications are going to be rejected. So, this goes from eighth on the list to first and only on the list. And then, I really, really want it more than anything. But there's nothing I can do about it anymore, because the application process is over. And then, a week or something like that later, I find out I get the job and a massive wave relief. And the course of my life is completely altered in the space of a week. And I think it was a happy ending in the end. It seems to have worked out pretty well.

Jeremy Cline [00:08:36]:
There's something about being able to do job applications with a feeling of a lack of pressure. I mean, I remember when I was going through the process of applying for training contracts with law firms, how once I had got an offer, and I'd got an offer that I was happy with, the interview that I had after that, I just felt so much more relaxed. And in consequence, I think I actually performed a heck of a lot better.

Allen Farrington [00:08:59]:
I am nearly certain I performed better. It's tricky because there's obviously no control here, right? There's no counterfactual I can access, where I discover what would have happened otherwise. But from what I remember of the process, on the one hand, I mentioned already, it was very, very tough. It's obviously designed to be tough in part to see how you react, but it almost feels like I cheated in that respect. It's like they were trying to unsettle me, and I just didn't even care in the first place. So, they failed.

Jeremy Cline [00:09:30]:
So, had you done the PhD, what subject were you going to do it in?

Allen Farrington [00:09:34]:
Math. I studied math and philosophy at undergrad.

Jeremy Cline [00:09:38]:
And when you started out in the work, in this new job, what were the things that you liked, and what were the things that you weren't so keen on?

Allen Farrington [00:09:49]:
I'm not sure there was really anything I wasn't that keen on, to be honest. I came to really, really like this job. I don't mean to jump ahead too much, but just to set the scene for what I'm sure will be some of the later questions, it was the only adult job basically that I had before then leaving to start my own company. And I'm still on very good terms, obviously, with a lot of people who I know there, who are now friends, but even I'd say with the company as a whole. So, I really don't think there's that much that I didn't like at all. I mean, part of that, you have some of the context for this that I didn't really know that, or frankly anything about the industry before applying or even then accepting the job. So, it's not like I even had any expectations that then weren't met. It was almost purely educational the entire time. And then thankfully, I liked the work as well. I'll say who they are, I don't mean to be kind of cryptically avoiding that. It's a pretty well-known company in the UK called Baillie Gifford. So, they're investment managers, they're based in Edinburgh. I live in Edinburgh. I've lived there ever since joining the company, straight out of undergrad. Also very, very nice place to live, thankfully. The thing I like the most about it, part of the reason I want to mention them is because this is, from what I know, there is an important caveat that I've never worked anywhere else, so I may have drunk the Kool Aid a little bit, but from what I am aware, both the work process, but probably more to your question, the educational process when you join is very different to all of their competitors, in the sense that they give you as much space and time basically to think without there being that much pressure. I should say to learn, sorry, not just to think, because they sort of take for granted something I think that a lot of other similar firms unfortunately don't, and in rejecting this core insight create far too much pressure and just burn people out. It really takes a lot of time, not even to become good at that job, but to become threshold competent at the job. And you frankly don't even know if you're good at it until, it depends what time frame you consider yourself to be investing over, but I mean another very interesting thing about Baillie Gifford, I think their distinguishing feature of their investment philosophy is investing over very, very long time frames. Typically, they talk about it being five to 10 years, and it wasn't even 10 years ago that I joined. So, you could argue I still don't know if I'm actually good at it or not. But for at least the first three years, I'd say, they're very careful to give you as much of a variety of experience and opportunity to learn as possible, so that you can develop your own investment philosophy, such that when it's applicable for you to actually be in more of a decision making position, you don't feel pressured, and hopefully, you have a wealth of experience to draw and to try to then do the job well, rather than plucked out of undergrad. This is kind of a character, I don't think anyone does this either, but to paint the other extreme, it would be like day one, millions of pounds, or probably dollars, but millions of dollars, billions of dollars even, go, if you get it wrong, you're fired.

Jeremy Cline [00:13:07]:
Okay, so they weren't trying to mould their new graduate trainees into their own image, but were giving them a bit of more slack.

Allen Farrington [00:13:20]:
They do a little bit. I mean, I joked already about drinking the Kool Aid there, when I was there, and actually probably since, when I'm talking with friends who are still there, I joke about their propaganda. But I don't know, I think it's merited to a large extent, just because they have been so incredibly successful. And it's pretty obvious, it's maybe not worth going into that much detail on this because this isn't a finance podcast, but people can look this up independently if they are interested, not only verifying that they have been very successful over, not just in absolute terms, but relative to their investment philosophy, which, as I mentioned, encourages very long-term thinking, they have been successful over a very long period of time in ways that, I think, are clearly traceable to this philosophy. So, it's not just like it was a fluke or a series of flukes even. It's quite easy to demonstrate that they are successful, or they have been successful because they have stuck to this highly unorthodox, contrarian investing philosophy. And that part of that is, or maybe that's not entirely a helpful way of putting it, that it's obvious to see why, if you claimed to have this investment philosophy, and you wanted to train graduates to adhere to it, this is how you would want to do that, in order to get the best possible investors and investment managers in the longer term. As opposed to, maybe this is coming back to your question, as opposed to just hiring people and then telling them, 'You believe the following, by the way, now go and act on that.' That would probably backfire very quickly, and they very much don't do that.

Jeremy Cline [00:15:11]:
So, when and how were the seeds sown of the idea of you setting up your own business?

Allen Farrington [00:15:17]:
Oh, that's a good question. So, we were joking before we hit record about whether we use the B word or not, right? So, I think I have to introduce that a little bit here for the answer to make sense. So, the reason I'm even on this podcast, the reason that we know each other, is that even aside from Axiom being a venture capital firm, what we're known for, and in particular what I am known for, is as a kind of, if it's not too cringeworthy, personality in the bitcoin space. That's the B word. If you're waiting for me to say something naughtier than that, I was just joking. And for me, again, not a finance podcast, so I won't go into that much detail on this, I'd been involved in Bitcoin for a very long time. So, I first discovered it in 2013. That was before working at Baillie Gifford. I worked at Baillie Gifford for a long time before, I mean, people knew, I talked about it, but it wasn't relevant to what we were doing, as in literally there was no opportunity to take advantage of this knowledge or encourage any particular investment for a very long time. And I think the simplest answer to why even contemplate starting Axiom is that, eventually, this changed. So, in I'd say late 2020, going into early 2021, there finally were opportunities that we could look at and to which my independent knowledge and connections even were fruitful. And over the course of 2021, we made a handful of investments. Probably more importantly though, the fact that I had a kind of a remit internally to look at these companies as an investment analyst, rather than, well, not that it could happen professionally any other way, but I knew of all of them, but more just as a fan from being active in the space, but entirely on the side up until that point, nothing to do with what my job actually was, having the opportunity to look at the companies we were contemplating the investment in gave me the opportunity to also look at the broader ecosystem. And again, where I likely knew the companies, probably knew a lot of the people as well, but crucially also as an investment analyst. So, companies that were far too small for us to invest in, but just to get a sense of the ecosystem, partly to build out relevant investing knowledge, so seeds for the future and so on, but in many cases, skirting around the details here, because understanding the trajectory of these smaller companies was relevant to the larger ones that we were considering investing in. Basically, what I realised at that time was that, after spending enough time on this, speaking to enough people, learning the details of the investment rounds that were happening, which previously I didn't really have any knowledge of or access to, it seemed like there was enough of an opportunity basically to do what then exactly became Axiom, which I don't think would have been possible, maybe it would have been possible one year earlier, two years earlier would have been very difficult, and prior to that, I don't think was possible at all. Simply because there wasn't enough credible opportunities to justify, as opposed to just either making single investments, so this is back to your question of what even is venture capital, there were plenty of companies before then, to be clear, I'm very much not making the case that bitcoin companies became a thing in 2021, a lot of companies even that we've invested in have been around for a lot longer than that. What I am claiming is, I think there was a confluence of factors that where all jointly necessary, and also frankly, which I didn't even know until that point, all of which were jointly necessary to justify having a fund that focused only on this. As opposed to, it could be all other ways of doing venture capital or even just private investing more generally, having a venture capital fund that had a broader remit, maybe crypto, probably more maybe tech, making the odd bitcoin investment. To some extent, that's what Baillie Gifford was. They were just huge, right? They're far, far too big for me to contemplate doing this there. Or individuals making investments, there's lots of other ways that this could have happened, and that's mostly how these companies were incubated in the first place. But what I realised, and that my co-founder independently realised more or less at the same time, because he was working at a different company, actually working in a different country, was that there were enough opportunities to do what then became Axiom, which is a venture firm, but also fund, focused exclusively on the bitcoin space. And I'd say as well, I'm not meaning to pat myself on the back or pat ourselves in the back, because we really don't know this yet, but importantly, at least in terms of what our investment philosophy and approach was to try to have a relatively high bar for investing, so not to just invest in something or anything because it happens to be about bitcoin. My co-founder, Anders Larson, I won't give his entire background, but it's also similar to mine, he was a professional investor, he had been in the bitcoin space for a very long time. He had a similar experience actually, even in terms of how he came to have this realisation, seeing these opportunities and knowing the timeline, I guess knowing how novel the opportunities in the space were. And yeah, and basically, for completely unrelated to this at least reasons, we were jelling on and off about other things that we were working on and comparing notes, and it just seemed fun. I think that was probably the final point that's worth mentioning, I said already I really liked my previous job, it wasn't at all that I was desperate, that is quite a common thing in the bitcoin space, by the way, that if people are coming to it from a lot of their knowledge and connections they potentially got in traditional finance, but they also hated it, and they desperate to quit and join the revolution or whatever, I very much wasn't in that camp at all. I think the final piece to this was, I did allude to this a minute or two ago, Baillie Gifford's absolutely enormous, and it didn't seem plausible that I would be able to focus on this, I mean, maybe never, I don't know, but certainly for five or 10 years or something like that. I mentioned all that work that I was doing, but realistically, that was, I don't know if putting a number on it is all that helpful, but 5% of my time, 10% maybe. On paper, my job was still something completely different, and most of my time was going to something completely different. And it was very similar for Anders. And we sensed that the timing was right, that if we wanted to do this, we probably could, and we could probably do it well. And yeah, I don't know if we're doing it well yet, but we made the jump at least, so we'll see.

Allen Farrington [00:22:24]:
Was there much of a transition period where you and Anders were talking, but you were still working in your respective roles before you made the leap to whatever you had to do?

Allen Farrington [00:22:35]:
A little bit. But it was relatively simple to do once we had, I mean, honestly, making the decision on more personal, emotional terms was considerably more difficult than actually doing it in commercial terms. So, I think we probably spent longer just mulling over whether we wanted to do it. And then, once we made the decision, it was relatively straightforward.

Jeremy Cline [00:23:01]:
Can you talk a bit more about that? I mean, what were the sort of the things that you had to grapple with that made it a tricky decision?

Allen Farrington [00:23:10]:
Oh, sure. I mean, I think this is entirely typical of anybody who wants to find their own business. I don't claim any particular insight here, just that I was in a very, very stable, cushy, quite well-paid, also very interesting job, I think it's worth throwing that in too. I mentioned it in a slightly different context a moment ago, but again, for a lot of people who do start their own businesses, part of the appeal often is like, oh, I'm moving to something that I care a lot about, which is the case for me. We just talked about that. But it's not at all the case that I'm moving away from something mind numbingly boring or offensive even, or whatever. I did find my previous job really, really interesting. And so, the question was just, you know, do I want to, is the trade off of all the uncertainty worth it? Basically. And not just for me, too. I don't maybe dox myself too hard, but I was engaged at the time, so our wedding was coming up, that's quite a big expense, amongst other things. I don't think the details matter so much, as this decision didn't only affect me. It affected my fiancé, it had implications for my family. There was a lot more to think about there, whether I wanted the quite dramatic change to my lifestyle, even though, interestingly, the actual work didn't change that much. That's kind of the weirdest thing about it that's probably quite different to most people who start their own businesses, that I was leaving to do pretty much exactly the same thing, just on a different scale and in a different area. The far, far bigger change is, I used to work at a company with thousands of employees, and now I work at one with either two or zero, depending how you define it.

Jeremy Cline [00:25:08]:
So, I said at the top of the show that having this kind of operation, this kind of venture capital operation where you're dealing with millions of dollars of other people's money, it just feels instinctively to me like that's a big operation job, but you're doing it with between zero and two people.

Allen Farrington [00:25:28]:
Well, you know what's funny about that? So, again, I'm going to be careful with exactly how much information I give away, but a lot of this is understandably confidential, just given the nature of our clients, but millions of dollars is a lot of money to individuals, to be clear, I'm not disputing that. It's a tiny amount of money in this industry. It's really about the smallest that it's feasible to even have these discussions around. So, there is that component, too. I don't want people to be misled. If you said billions, then it would be a different question. But we are, again, skirting around the details a little bit, we are talking about basically the smallest amount of money that you could run this kind of business managing. So, it is small. That's the only point I'm making, it's not to diminish that it is, in absolute terms, quite a large amount of money, it's more just I don't want to give the impression that, for example, this is maybe a slightly different tack on it, that we are such amazing, not only investors, but business people too, that we've managed to set up this outrageously big profitable business, but we're so incredibly competent that we just manage everything ourselves, and it's not a big deal. That's not a helpful image of what we spend our time doing.

Jeremy Cline [00:26:50]:
What have you found have been the most useful skills in setting up the new business and perhaps the most surprising skills that you didn't expect were going to be really important?

Allen Farrington [00:27:03]:
Oh, that's very interesting. I don't know. I maybe need to think about this. Honestly, part of my hesitation is, I'm not sure I want to commend myself on anything that I necessarily don't know if I've done well or not, yet at least.

Jeremy Cline [00:27:21]:
Maybe to reframe the question, what are the things which you were doing with, or what are the things that you weren't doing with Baillie Gifford that you're maybe a bit surprised that you're doing more of it in this role?

Allen Farrington [00:27:38]:
Oh, sure, yeah. No, that's quite easy to answer. None of this was a surprise. It's obvious just knowing how the industry works and what the difference is going to be if you're at a company like Baillie Gifford to then starting one on your own. So, surprise in the sense of the novel experience of actually doing the work, yes, but not that, oh, I had no idea that that was going to have to be done, if that makes sense. So, there's a lot of that kind of thing. I mean, I sort of alluded to this earlier, that's by far the biggest change in day-to-day work, that Baillie Gifford is such a big company that the department in which I worked only did one thing, which was think about and then make investments, and actually even make investments is kind of overselling in a bit, make the decision to make the investment, and then another department actually made it in terms of the mechanics of what that involves. I guess a simpler way of putting this is, there's literally thousands of people in the back office at Baillie Gifford. There's nobody in the back office at Axiom. It's all me and Anders. And so, all of that kind of thing, like dealing with back office functionality, I had never done that before, ever. I was aware that it was happening, I had like a vague idea of what it involved, but actually doing it is very, very different and takes up a lot of time. So, that's probably the biggest. Even there, I'm not sure to what extent it's helpful to describe that as a surprise, because I knew it was going to have to happen, I think we're like okay at doing it. For what it's worth, one of the goals is to grow big enough that eventually we can afford to have a back office as well, and then I won't have to do it anymore. But I mean, that's kind of an obvious, it would rightly sound pretty stupid of me to say, 'Oh, I had no idea that this needed to be done, and now I'm drowning in all this work.' It's a very conscious trade off, that's probably, at least in day-to-day terms, less so in terms of, I mentioned before lifestyle changes, but in terms of the day-to-day work, that's by far the biggest trade off, that, yeah, I now need to do all of this. But what I'm earning as a result of doing it is the ability to make investments and to do the research and to do the part of what essentially used to be all of my old job, but in the area I find a lot more interesting, which I didn't previously have the opportunity of doing.

Jeremy Cline [00:30:13]:
Okay, so the back office stuff, I get that. The bit I feel like I'm missing, and I'm curious to know how this plays out, is finding the investors as well. I mean, Baillie Gifford's presumably got millions of clients, and so you're just there going, 'I think they should put their money in this.' Whereas presumably, as well as doing the thinking, I should put their money in this, you've then got to go out and get the people with the money.

Allen Farrington [00:30:39]:
Yeah, I mean, I'm not sure to what extent it's helpful to call that back office, but it's certainly not an investment function. It's a client facing function. Yeah, that's different, too. That's now my responsibility. Very similar comments. Hopefully, we grow to such an extent we can afford to have that department one day. But yeah, that's a lot of time that I was previously insulated from having to spend and having to think about too much.

Jeremy Cline [00:31:05]:
What have been the challenges that have come up, which you expected, and then what have been the challenges which have come up, which you just really weren't expecting?

Allen Farrington [00:31:16]:
That's interesting. Yeah. I think that the answer to the first question is probably mostly straightforwardly captured by what we already mentioned. Just in terms of the back office functionality, I think it is fair to call it, it's not a surprise, but it is a challenge in the sense that I'd never done it before, I had to learn all of it. Obviously, not to insult anybody who does do this professionally, but I don't find it all that interesting. I see it as kind of a chore in terms of, this just needs to be done to keep the business going kind of thing. So, yeah, it is fair to call that challenging. Challenges we didn't expect. There's a really interesting one. Again, I wary about the B word and to what extent you want to get stuck into this. So, I'll mention it briefly, and then I guess if you want more detail, we can go deeper. I didn't realise the extent to which there was a seemingly institutionalised misunderstanding about what bitcoin is, and in particular the distinction between bitcoin and crypto, which I feel kind of stupid about in hindsight, because it's something I had made fun of before. When I was working at Baillie Gifford and had my totally separate bitcoin Twitter, bitcoin community personality, I had mocked this at length. I mean, you cited having co-authored Only the Strong Survive. That's what Only the Strong Survive is about. So, I feel a little bit silly for not realising. I wouldn't say not realising it, sorry. Not realising the extent to which this was true. I knew it was true, and this is what Only the Strong Survive is about, I knew it was true of investors, to put it very charitably. A lot of people operating in the space who, in my humble opinion, are essentially affinity scamming bitcoin, they're using the brand of bitcoin to scam basically everybody else involved in what they're doing to make money for themselves, and none of it will exist in five to 10 years, and everyone they've scammed will be wondering where their money went. I didn't realise basically the extent to which the scam had worked. And just to be clear, I'm not suggesting that anybody who doesn't invest with us is, like, stupid or has fallen for this scam or whatever. But some people are definitely in that camp. There's a lot of people that we spoke to in marketing capacity, right, pitching, whether it was fund one back in the day, fund two, which we're on to now, who were or are so completely beholden to what I utterly convinced is a scam, that I'm surprised. I'm surprised it could even happen in the first place. I'm surprised people in that position, either, there's actually more than one perspective on this, I suppose, could have fallen for this, that's one, that's very frustrating, have even been reached by it in the first place, I don't see, I certainly don't expect the kind of people I have in mind to be bitcoiners in any relevant sense, but I also wouldn't expect them to believe so much nonsense about bitcoin either. I expect them to just know nothing, and then we can potentially educate them. And if they don't want to invest, that's totally fine. The vast majority of people that we speak to don't. You have to get used to that as well. But I think that probably has been the biggest challenge that we didn't foresee, is the extent to which not only do people not know about bitcoin, which is completely fair enough, it's incredibly niche even now, and we have to constantly remind ourselves of that because we're in, we live it all the time, we forget how little most other people know about it, but we didn't expect them to believe so many wrong things about it, in particular from this source. So, I think that's been challenging.

Jeremy Cline [00:35:08]:
So, I suppose one of the adjuncts that come with the investments that you make is that you end up sitting on the boards of some of the companies in which investments are made. So, what are the additional challenges and responsibilities that come with that sort of role?

Allen Farrington [00:35:27]:
To be honest, I don't think there's that many challenges. And I can certainly imagine if a company is in a very difficult position, and you obviously have some fiduciary responsibility, then that could certainly be challenging, both in terms of figuring out how to resolve whatever's happening, and then just personally the stress of it. I can imagine that. But that hasn't happened to me. From the experiences I have had so far, it's a pretty straightforward trade off of time for, well, time is the cost, the benefits are maybe a bit more intangible and I'd say interesting as well. I mean, there's the educational component of having far closer access to how the business is being run. That's interesting in its own right, potentially useful, potentially relevant to other businesses that we may want to invest in. To some extent, I'm going to be careful saying this, because I don't want it to sound like basically I know better than everybody else, but having the ability to influence management's decisions is interesting, at least having it as an option can be worthwhile. For the most part, that's why investors typically want board seats in the first place. And it's typically why companies are often welcoming of that as well, that they also don't, for the most part, if they're good at their jobs, if they're good founders, they'll know that they don't know everything either, and that having differentiated inputs is helpful to their decision making process. So, to the extent you think you have some value to add, that can be really rewarding as well. I mean, the cost is really just time. It obviously takes quite a bit of time, being adequately prepared for board calls. Just to be clear, it's not so much that like, oh, we have to spend an hour talking about this. That doesn't sound like a lot. It's more just, there's an increased responsibility on actually contributing. There's no point just treating it as like, oh, this is a Zoom call in which I'm going to learn something, and it's an hour, a quarter or something like that. There's certainly an implied increased responsibility to be involved in the management of the business. So, that does rack up time.

Jeremy Cline [00:37:37]:
So, I can understand certainly why investors would like someone on the board, and I can see benefits for the company in having an investor with a place on the board. I can't help feeling that there's the possibility of tensions, particularly between the founder of the company, who this is their baby, and someone else is coming in and saying, in the nicest possible way, you're doing this wrong, I'm not sure you should do it that way.

Allen Farrington [00:38:07]:
Oh, yeah, but if anything, that's exactly why you want it. If there's never tensions, then you may as well not have done it, right? If you have a board that just everyone agrees with each other all the time, you may as well not have a board, to be honest. And so, the reason, this is very straightforward stuff, I'm not meaning to pretend that this is all that insightful, but the reason that you want a board is that at the moment you've taken on external financing, you have a principal agent problem, in the sense that the people whose money, capital, defined in slightly more jargony terms, the people whose capital is at stake, and who what they have bought is ownership of the future cash flows generated by deploying that capital, they do not control how it is deployed. Right? They have effectively appointed an agent, in this context usually in the form of the founder themselves, to manage it for them. And unless they want to do this completely blindly or, I don't know, as charity, I suppose, they will want some protections, they will want some say over this. And that's why you have boards. If a company just has one shareholder who is also the founder and the CEO, I don't think they really need a board. There might be some kind of legal provision for it, but it doesn't really do anything, as far as I can tell. For the most part, the reason that you want a board is precisely to create that tension, so that the founder, majority shareholder, whoever it is, can't just do whatever they want.

Jeremy Cline [00:39:54]:
If you could go back in time and give yourself one piece of advice when you were starting out doing this, what's the thing that you wish you'd known then that you know now?

Allen Farrington [00:40:06]:
Oh, that's really interesting. It might be back to the challenge point, honestly. It might be to be less naive about the uphill struggle of the marketing message, just because learning that was quite an unpleasant experience. I feel like I'm probably at a point now where I don't think there's that much more of it to learn. I should say we as well, because I think it goes, not just for Anders, but we've since taken on other people in the company, too. But we've now internalised this, I think. But to be honest, I'm not sure that we would have really done that much differently had we known this. It would have just been less stressful, it would have been less disappointing knowing the kind of responses we were going to get. And we probably could have adjusted our expectations accordingly.

Jeremy Cline [00:41:01]:
So, is this just like an optimism that you get when you start things out? You just assume that everyone's going to say yes, and it's all going to be plain sailing?

Allen Farrington [00:41:13]:
I think it's a little bit more well founded than that, but not much. So, I think it's something along the following lines. We have ways in which we can, I wouldn't say prove, that's maybe disingenuous, but there are real data points that, in our opinion, ought to convince a certain class of potential investor or client of ours. Obviously, again, it's back to this point of we don't think we're entitled to anybody investing in us. We obviously will always have a challenge of marketing and convincing people that we are a good investment in the first place. So, it's not that we just expect investments to fall into our lap. But I think what we were optimistic about, what we were overly optimistic about, was that the various data points we could use, not to prove, but to at least convince at the margin any potential client that this is a good idea, rather than just, for example, hopefully give a helpful contrast here, rather than just, this is what we plan to do, and isn't that amazing? Doesn't that sound great? Therefore, give us money. We have way more, we do still have that part that is essential, that's necessary but insufficient. What we had hoped would jointly become sufficient was all the data points about how good we are likely to be at this. And I think they're just way less persuasive than we had hoped at the outset. Not entirely, but in large part, because of this meme that I basically hate. And so, that kind of comes full circle.

Jeremy Cline [00:43:01]:
So, Axiom's about three years old now. What's your vision, both for Axiom and for yourself, over the next five years, say 10 years even?

Allen Farrington [00:43:12]:
Oh, sure, it's totally uninspired. It's just to grow. There's a very natural growth path for firms like ours, I'd say probably beyond just venture capital, any asset management business. It sounds a bit cynical, but just if the audience isn't aware, literally 100%, the entirety of our revenues is a function of what's called assets under management, more jargon, it basically means how much money has been given to us by clients to manage. And there's obviously some perverse incentives there in terms of, raising more doesn't necessarily mean you will invest better. And you could almost definitionally argue that you invest marginally worse with every additional investment that you take on, every additional dollar of AUM. Or at least at a certain scale, that probably becomes true. If somebody came along tomorrow and said, 'Oh, I'll give you 100 million dollars, a billion dollars', as nice as that would be, as much of a vote of confidence as that would be, we would probably have to maybe not say no, but talk them down a little bit, because we don't think we can deploy that in a way that would meet the standards we have set for ourselves and would be fair to the rest of the clients who've given orders of magnitude less than that. But that aside, as kind of a caricature that, obviously that's not going to happen anyway, we hope that as the opportunity grows, we are also able to grow, so we're able to take on more investments that we are comfortable we're going to be able to deploy in a way that does meet the standards that we have set. And I think, I mean, even there, there's a lot of jargon and technical finance stuff, but all it really boils down to, certainly over that time frame, over three to five years, I think this is the ultimate driving force of it, is that the companies we've invested in do well. So, obviously, that's relevant in the first place in terms of gauging our success as investors. So, they do well, such that they grow, such that they have a need for significantly larger financing that we can hopefully continue to provide as we try to track their growth. But basically, we continue to grow, we continue to do well ourselves. And I think maybe I can connect it to a few other points, actually, just a final thing I'll mention on this. That will necessarily be contingent on our own success at marketing, whether that means we just potentially meet new people that our message resonates with, the data points I mentioned either become stronger in and of themselves, or they become more convincing for whatever other reason. The main thing I have in mind, though, just because I'm so worked up about it, is right back to the original challenge, or what I suggested originally was a challenge that the much more broadly believed meme, or kind of misinformation, I say that unironically, around equating bitcoin with crypto or even preferencing crypto, I'm very hopeful that that dwindles over time, because that I think is the biggest roadblock that we have. So, that ties together a few different points we've covered.

Jeremy Cline [00:46:32]:
So, over this journey so far, what are the people, tools, resources, whatever you'd like to mention, that have really helped you, inspired you, guided you?

Allen Farrington [00:46:45]:
Just to be clear, do you mean for Axiom, or just more broadly my thinking about this space?

Jeremy Cline [00:46:56]:
Whatever you think people might be interested in looking at themselves if they've listened to your story and think, 'Oh, I'd like to find out more and find out what's helped Allen to get to where he is today.'

Allen Farrington [00:47:11]:
Oh, sure, yeah. Well, the reason I asked, the reason I distinguish the two, is that, unfortunately, I don't think I have all that much that's helpful to say on the more commercial side, like on the story around Axiom as a business, purely because, as we've covered it in different contexts, I had worked in this industry anyway, so it's not like I read a book about this and thought, 'Oh, okay, now I get it, now I'll do it.' It's seven years of learning on the job that I can't really helpfully communicate. There's no resource for that kind of thing. What I think is more interesting, this will probably be the last time that we mentioned the B word, is what has been helpful in even getting to probably the previously necessary point at which I thought what then became Axiom was even a good idea. Which in my case, there's maybe some other components to this, but it's basically just understanding, attempting to understand bitcoin, having an appreciation for it. There's a huge amount of bitcoin content out there. It's basically what I'm known for. Like you mentioned at the start, Only Strong Survive, Bitcoin is Venice, I'm not going to recommend my own stuff, just to be clear, but even there, I hesitate to recommend things that are purely about bitcoin. There are many very, very good resources on this. But in order to more accurately capture my own experience, basically none of the things that I would now recommend existed when I was grappling with it, when I was coming to terms with it. That's one part of why I don't want to give that as the answer. The other part, though, is that, again, because we have been calling it the B word the whole time, we've kind of skirted around it, people maybe get this sense about it, or if they know who I am independently, they'll probably know my enthusiasm for why I think this is a valuable thing to be involved with more generally than just the immediate opportunity to have a company, have a job, make money, and so on, why I think it's much more broadly socially important, to that end, I prefer to give resources that are nominally not about bitcoin at all. They're about something completely different, but they make the case that whatever that thing is important, and then ideally, the audience also makes that connection themselves that this can be interpreted, at least obviously, not that it's like secretly about bitcoin, whatever it is, but that one of the implications is understanding bitcoin marginally better, marginally more deeply, and therefore they too can hopefully start to appreciate why bitcoin itself is more broadly important than just reading one thing, the sole message of which is bitcoin is important. With all that preamble out of the way, there's a handful of resources that I think are great on this. I'll just list a couple of books, I guess, if you think that's an appropriate or helpful way to answer the question. I'd say, definitely have a look at pretty much everything that James C. Scott has ever written, in particular Seeing Like a State, but everything else is helpful too, if slightly more indirectly. I guess I could also shout out the Art of Not Being Governed and Against the Grain. Everything that Hayek has ever written, that's maybe a bit more obvious, I think people probably are aware of who Hayek is and what his contribution was. Jane Jacobs as well, The Life and Death of Great American Cities and the Wealth of Cities. I think she has probably written some things that don't have city in the title, but she has a lot of interesting thoughts about cities. And maybe I'll throw in Wendell Berry as well. He's very, very interesting. That's probably the most optically, superficially removed from bitcoin, or from tech, let's say, but if people are really willing to go down this rabbit hole and really willing to embrace my insistence that there is much broader social importance to bitcoin, then something like The Unsettling of America, I think they will very much enjoy as well.

Jeremy Cline [00:51:29]:
And for someone who wants to find you, where would you like them to go?

Allen Farrington [00:51:33]:
Oh, sure. So, it depends what they want to find me for. If it's just me, my kind of random, mostly tongue in cheek takes on various things, mostly bitcoin, I'd say, but occasionally other things too, Twitter is probably the best place. My handle there is just A-L-L-E-N-F 32 so AllenF32. If it's anything about Axiom, there's a lot of resources on our site, too. So, the URL is axiombtc.capital, so that's axiombtc.capital.

Jeremy Cline [00:52:07]:
Awesome. Links to those who will be in the show notes. Allen, thank you so much for coming on and sharing your story.

Allen Farrington [00:52:13]:
Yeah, thanks Jeremy.

Jeremy Cline [00:52:15]:
Okay. Hope you enjoyed that interview with Allen Farrington. One of the interesting points that came out of this interview was that Allen had wanted to set up the business for quite some time, but before 2021, it hadn't been the right time. We're often told that there's never a good time. In other words, you'll always find a reason not to do something. But in Allen's case, it was the state of the market that wasn't ready for his idea. So, I guess the distinction there is the difference between whether you're ready and whether the world's ready. If the world is ready for you to start something new or to make a change, you're probably 90% of the way there. And then, it takes a bit of soul searching to decide whether or not you need anything more in order to make up that additional 10%. The other thing I picked up on was that Allen just didn't seem particularly phased with the idea of starting this really significant investment fund with just him and one other person. Whilst I'm sure he did have doubts, there was something quite refreshing about the, 'ah, I'll just get on and do it' attitude. Please visit changeworklife.com/204, that's changeworklife.com/204, if you want to find the show notes for this episode. And also, let me know if this is the sort of story that you'd like to hear more of. I've noticed as time has gone on that I tend to interview more of the experts on a particular subject, rather than the individuals who've been through their own particular career change, and so the interview dives into their story. What do you think of that balance? Do you prefer the interviews with experts, or would you like more of these more story-based episodes? You can let me know by visiting changeworklife.com/contact and fill in the form there. In two weeks' time, we're revisiting the subject of health. With so much health information out there, some of it often contradictory, how would you cut through the noise? How do you figure out the best lifestyle changes which are going to help you achieve your goals? That's what we'll be discussing then. So, if you don't want to miss that, make sure you've subscribed to the show, if you haven't already, and I can't wait to see you then. Cheers. Bye.