In the winter of 2014, professional poker player Sean Lippel was going through a rough time. After five years at Swiss banking giant Credit Suisse, the 29-year old was halfway through getting a masters degree in business from Columbia University’s prestigious business school when his father, Rick, was diagnosed with pancreatic cancer. A week later, he was dead.
Lippel was crushed, and after competing as frequently as three times a month in tournaments around the United States, he took a three-month hiatus. The top-ranked heads up, no-limit hold’em poker player, who in 2005 was among a group of gamblers first applying data analytics to online gambling, mourned his father and started to wonder the best way to apply his talent for weighing risks and identifying opportunities from limited information.
When he returned to Atlantic City as a professional gambler in 2015, he laid down a pair of pocket kings, a spade and a club, winning $19,278 and taking home his first, and last, World Series of Poker circuit ring. Since then he’s made a name for himself as a partner at New York-based Fintech Collective, a venture firm behind more than $500 million in financial technology investments.
After making a number of early bets on crypto, Lippel, today announced a $50 million fund aimed exclusively at the nascent decentralized finance (DeFi) space, moving services like loans and repo to blockchains first popularized by Bitcoin. The fact that a former poker pro has chosen to invest in DeFi, a high risk niche within crypto offering potentially massive returns, but one in which big players have the opportunity to assert their advantage and gain an edge, is in some ways unsurprising. The token powering Andreessen Horowitz-backed decentralized finance protocol Uniswap, for example, has risen as much as eight-fold this year and now trades 400% higher than it did in January. Lippel’s fund is backed by hedge fund billionaire Alan Howard, who Forbes estimates is worth $2.8 billion, financial services giant, Macquarie Group and the venture capital arm of trading firm DRW Group.
“You don’t know perfectly what your opponent holds,” says Lippel. “But what I see is little indications, the writing on the wall, that we are in a paradigm shift.”
Lippel was born in May 1985 in Manhasset, New York on Long Island. In 2008 he graduated from the University of Michigan with a degree in accounting, just as the economy tanked as a result of the bad loans made by investment bank Lehman Brothers. While much of his graduating class quickly found itself unemployed, his first job, as an analyst at Swiss bank Credit Suisse, across the street from Lehman, gave him a front row seat to the collapse.“That was the nail in the coffin for me,” says Lippel. “Being inside of a global bank is not the most efficient way.”
So, while learning how traditional financial institutions operated from the inside Lippel worked his way from analyst to investment banker, moonlighting as a professional gambler. It was the Wild West of online poker, and even in the notoriously stringent United States players could simply buy digital poker chips with a credit card. He had an edge over less sophisticated gamblers that still hadn’t learned to overlay data about their opponents on-screen, helping him earn more than $1 million in online poker tournament tournaments, according gambling data site Sharkscope.
As regulators clamped down, and gambling sites moved overseas, online casinos including Carbon Poker and Black Chip Poker started letting players cash in and out with bitcoin, then a largely underground asset best known as a way to buy and sell drugs online. Eventually, he got so good at using bitcoin to transfer money he started two companies to serve the need. Stake My Chips, to stake other players and Send My Chips to transfer the funds. He compares it to equity crowdfunding.
“I would reinvest all my earnings into backing my friends and using a ranking system,” he says. “We’d send their money and we were some of the first people to use this wealth of data that existed to then back people online.” He estimates his total revenue from backing other players was nearly $1 million.
In 2014, after a failed endeavor building websites for sports stadiums, Lippel decided to get his MBA. Two months into his studies he met former Microsoft director, Brooks Gibbons, and former Thomson Reuters exec, Gareth Jones, who had just founded New York-based FinTech Collective, a venture capital firm investing in the future of financial infrastructure. “There’s a lot of like parallels between poker and venture capital,” says Lippel. “You’re finding founders and early people to back.”
One of their first investments was institutional Bitcoin data site TradeBlock, based in New York, followed closely thereafter by its sister company, Axoni, which was using blockchain to re-imagine systemically important financial infrastructures. The Collective brought him on as an intern when it was just three people, and he sat “shotgun” while Gibbons and Gareth built out a portfolio of over $500 million, including early investments in New York Digital Investment Group (NYDIG), the bitcoin custody subsidiary of $9 trillion Stone Ridge.
After working his way up to principal in 2019 and partner earlier this year, Lippel was officially given the reins of his first fund—the DeFi Fund— about six months ago. After only five weeks he reached his goal of $50 million, from LPs also including financial services firm JST Capital, crypto fund of funds Digital Bridge and Chris Tuohy, the former portfolio manager for Paul Tudor Jones. Lippel and the Collective co-founders personally contributed an additional $1.2 million.
At launch the fund, formally called the FinTech Collective DeFi Fund I, invested in seven companies. Existing investments in decentralized asset syndication platform Centrifuge (CFG, valued at $128 million) and decentralized platform for financial contracts Dharma were re-upped. New investments include Universal Market Access, which lets anyone create synthetic assets, who’s UMA token market value is now at $827 million and automated market maker Balancer (BAL) valued at $200 million.
“There’s so many challenges in traditional financial services that DeFi could potentially be applied to,” says Kimberly Trautmann, head of DRW Capital, which invested about $10 million into the fund. “There’s such an opportunity. But the space is still early.”
Because decentralized finance protocols on which these services are built tend to be constructed by the same people who use them, the Collective and other DeFi venture firms tend to think about investing differently than traditional outlets. DeFi applications let token holders vote on how the protocol evolves, but participation is historically low. Since the firm receives tokens in exchange for their support, they actively vote on proposals with the hope of swaying the odds of success in their favor. Second, they’re among a number of crypto firms following in the path of Palo Alto-based Electric Capital and Canada-based Paradigm, which have dedicated as much as half their staff to building DeFi services on top of the infrastructures their portfolio companies build.
These governance tokens also represent an investment opportunity. While some investments are traditional equity rounds in teams with little more than a white paper describing their product, others rely on what’s called a simple agreement for future tokens (SAFT) that do not yet exist and others involve buying already minted assets. “We think a lot about the way of monetization and the way in which Web 3.0 and DeFi applications are being built,” says Lippin. “So while we might not enter in a token, it might be an equity, you know, eventually there is a path towards decentralization and tokenization.”
The total capital locked in DeFi smart contracts has grown more than 1,000% over the past year to $80 billion today, in more than 100 decentralized platforms facilitating loans, trades and payments without centralized management, according to…