Top Hat founder and former CEO Mike Silagadze is turning his attention from digital education to crypto investing with the launch of a new asset management firm.
Silagadze, alongside former Top Hat employee and Checkout 51 founder Andrew McGrath, has spent the last few months creating Gadze Finance. At the beginning of October, the firm launched a DeFi (decentralized finance) crypto fund with an initial $25 million USD under management.
A group of 45 Canadian and United States-based high-net-worth individuals invested in the private investment vehicle, with Gadze looking to increase the size to $100 million USD over the next six months and bring on some new investors, both individual and institutional.
“Everybody can do crypto investing, it’s just that the only kind of crypto investing they can do is very risky and speculative.”
Gadze is touted as a “next-generation crypto DeFi fund,” offering intelligent asset management to investors. The company’s ultimate goal is to democratize access to safe crypto investing strategies for the everyday person.
“Boring is what we are going for,” Silagadze told BetaKit.
“Everybody can do crypto investing, it’s just that the only kind of crypto investing they can do is very risky and speculative … you can buy Dogecoin or whatever, and one day you’re doubling your money and the next day half of it is gone and it’s a casino, basically,” he argued.
“What our fund is meant to offer is sort of a safe haven from that where it’s much more boring, but still a great investment vehicle that removes, or attempts to remove, a lot of the risks inherent in crypto,” Silagadze said. “And that’s what we want to democratize, so that boring accountant types that just want a nice RSP savings account can feel comfortable putting some allocation to crypto knowing it’ll be there when they retire.”
Silagadze and McGrath think they have landed on the right strategy to do that. They have a three-pronged approach: yield farming (lending cryptocurrency in return for interest or fees), arbitrage strategies (simultaneously buying and selling assets in different markets to take advantage of a price difference), and liquidity provisioning (continually trading in and out of relatively short-term positions).
The pair argue this strategy minimizes risk to investors and generates predictable returns. And investors seem enthused by the idea. BlueCat co-founder Richard Hyatt, who invested in Gadze as part of an equity round, called the approach a dynamic hedging strategy.
“DeFi is starting to get real traction in the world of finance. Mike is a seasoned entrepreneur who‘s building an exciting investment platform to take advantage of this new opportunity. We are thrilled to partner with him,” added Richard’s brother and fellow BlueCat founder Michael Hyatt.
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The Hyatt brothers invested in Gadze as part of a $1.6 million USD equity round that is expected to close later this month. Gadze is using the financing to help with the launch of its fund.
The equity round was led by Boris Wertz of Version One Ventures, and saw investment from Version One’s fund and Purpose Investments, in addition to the Hyatts.
“We’re backing two people who are proven entrepreneurs,” Purpose Investments’ Som Seif said in an interview, calling Gadze an innovative investment approach that comes from traditional investing and crypto.
Silagadze’s interest in the crypto and DeFi space dates back almost a decade, but over that time he focused on building Top Hat. The former CEO, who stepped down after Georgian Partners committed $130 million ($50 million primary capital) in February, told BetaKit he started to actively participate in the crypto space again around 2019.
Joe Rohrlich took over as Top Hat’s CEO in March, as the startup focused on scaling its go-to-market strategy. Silagadze later joined Ripple Ventures on a part-time basis as a venture partner, a position he will continue to hold.
Having worked towards making education tools more easily accessible, Silagadze now wants to do the same for crypto investing. But democratizing access to stable and lucrative returns in the crypto market is tricky for a number of reasons.
The market itself, while slowly becoming more stable as institutional investors take an interest, can still be volatile. High net worth individuals still lose big when the markets fluctuate.
While trading platforms like Coinbase and Wealthsimple have made it possible for the average person to invest in cryptocurrencies, these platforms do not offer investment advice the way asset management firms do.
Silagadze also argues those returns can be limited and don’t lend to people being able to count on crypto for things like retirement savings.
Other limitations include regulation. Innovations in the crypto and DeFi space have outstripped securities regulations, and as organizations try to catch up, current regulations can limit access to investment funds like Gadze.
While Gadze’s ultimate goal is to make its investment strategy available to the everyday person, its fund is currently only available to qualified purchasers, investors with no less than $5 million in investments.
Regulation has also pushed Silagadze out of Canada. Gadze is based and operated in the Cayman Islands, and Silagadze is relocating to run the business there. Robson Capital Management is representing Gadze in Canada, and the fund is administrated by Sudrania Fund Services and audited by Moore Cayman.
“Canada is truly missing out on an innovation opportunity.”
Securities regulators in Canada, and elsewhere, have worked to keep up with the growing crypto market; just this year, Canadian regulators released guidance for trading platforms and on improving disclosures of crypto assets.
A limited number of crypto asset management funds are able to operate within Canada, with just a handful having been authorized through the Canadian Securities Administrators (CSA) Regulatory Sandbox program. The program allows businesses to test their products, services, and applications in the Canadian market on a time-limited basis.
“Canada is truly missing out on an innovation opportunity,” said McGrath, with Silagadze echoing the sentiment and noting he would not be comfortable operating in the United States yet, either.
“If you believe, as we do, that crypto is going to be this huge transformational force and that it’s going to eventually represent basically the settlement of all value in the world happening on the blockchain, that’s likely the most significant economic force to happen in over the most people’s lifetimes,” said Silagadze, expressing that he’d like to see countries become more open to various types of crypto investments.
For his part, Purpose Investments’ Seif expressed optimism about the Canadian market.
Purpose Investments is a firm that manages over $11 billion in assets through a variety of Canadian investment funds. This week, it launched mutual fund units for its cryptocurrency funds: Purpose Bitcoin ETF and Purpose Ether ETF, what it calls the world’s first ETFs backed by physically settled Bitcoin and Ether. The new units are meant to be an “easy and secure way” for Canadian investors to invest in Bitcoin and Ether.
Highlighting the country’s early involvement in the crypto space, such as the creation of Ethereum, Seif argued Canada has been open-minded and at the forefront of much innovation. He cautioned, however, that regulators need to be mindful of ensuring companies are able to easily innovate without being restricted by the existing regulations.
In regards to Gadze, Seif expressed excitement to see return entrepreneurs from more traditional sectors turning to crypto.
“It’s awesome to see continued evolution in the space and to have people like Mike and Andrew, who come from our more traditional technology background, finding their way into this area more deeply and applying themselves to really conventional ways to make [innovative] outcomes in both investing and in FinTech within this platform,” said Seif.
Image courtesy Gadze Finance