Investor Talks: A Chat With Felipe Montealegre

Investor Talks is a written interview series that offers deeper insights into some of the most fascinating thinkers and investors in our field.

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Felipe Montealegre is a co-founder of Theia where they invest in companies building the “Internet Financial System” (more on this below). Felipe has attracted considerable attention with his insightful longform writing, which explores the fundamentals-based investing approach championed by Theia.

Can you give us a bit of your backstory, how did you get into crypto and when?

I had a past life in traditional investing before moving into crypto. I had always been interested in the broader financial system and studied economics at Yale intending to become an economist. I even wrote my college dissertation on anti-competitive practices in emerging financial systems.

I didn’t become an economist after college and instead went into Investment Banking. I covered banks and insurance companies as an Investment Banking analyst at Credit Suisse (RIP). Then I spent seven years doing mid-market buyouts for two different private equity firms, where I learned nearly everything I know about investing.

I basically worked eighty hours a week consistently after college and didn’t have time to learn about adjacent fields like crypto until early 2021. Coincidentally, the firm I was working for at the time was considering an investment in Paxos and so I had to learn about the opportunity. I did some basic industry reading over the weekend and was captivated by it. I haven’t really looked back since.

What is your overall thesis on the industry?

Our fund thesis is entirely premised on the Internet Financial System. This is the idea that we are collectively building the Internet Financial System (IFS) — a better financial system on the cloud that can hold the world’s assets and provide financial services to 8 billion people. We really believe Internet Finance is a paradigm shift in global financial activity like Gutenberg’s printing press was a paradigm shift in the production and dissemination of knowledge.

We expect the world to move from <10 bps of global financial activity happening onchain in early 2025 to >50% of global financial activity happening onchain within the next two decades. We run a fully onchain fund and have been lucky enough to see onchain technology improving at an exponential rate over the past ~3 years. You can already see this future beginning to take shape — we are in the early innings of stablecoin growth, remittances and tokenized securities — but we are entering the S-curve of adoption now.

You can read more about our thesis on Internet Finance here.

What’s a belief you held that felt obvious at the time, and was ahead of mainstream thinking in crypto? 

We have been convinced that tokens should be valued on fundamentals since we started Theia. There weren’t many tokens with good fundamentals at the time, and even fewer people believed tokens should be valued on fundamentals. Focusing on fundamentals has allowed us to avoid many of the worst mistakes you could have made over the past few years — we are happy to pass on opportunities that are overvalued on future cash flows even if it means missing out on an attractive narrative investment.

While the market sees fundamental investors as quite negative — you are usually the one saying a name is overvalued — I believe it is the most optimistic investment frame in the industry. Those of us who believe in the underlying vision of an Internet Financial System understand that we are still at the beginning of one of the largest cash flow opportunities in the history of capitalism. All you need to do to benefit is work hard and maintain discipline.

Our hope is that the industry can look more like Silicon Valley after 2001. The broader industry thrived over the coming decades, but only through hard work, product-market fit, and proper underwriting. Voodoo valuation techniques like Price-to-Clicks and Price-to-Eyeballs decayed as the market moved to valuations based on first principles and basic economics. During this period, companies like Amazon, Apple, and Google went on to build the world's most profitable businesses, and nearly everybody who worked hard and focused on fundamentals did well.

Can you recall one of your biggest wins in crypto where you felt like you got in early on something?

We started investing in Solana-focused financial applications toward the end of 2023. Our Internet Finance lens showed us that certain decentralized financial products were indeed “Only Possible on Solana,” thanks to its speed, low fees, and native interoperability within a monolithic chain.

We also liked the feel of many applications that were possible on both EVM and SVM. The instance on Solana offered a better user experience due to the fast, cheap, and integrated nature of Solana’s financial system. It helped that the quality of teams on Solana is exceptionally high and most teams are focused on Internet Finance.

We didn’t see the market taking off so quickly in early 2024, but it was a pleasant surprise.

How would you describe your investment style? Are you more of a longer term buy and hold fundamentals investor or are you more of a trader? Or something in between?

I am a fundamental investor focused on long-term outcomes. I learned this approach to investing during my time in private equity.

We take large positions in small-cap tokens in underexplored parts of the market and work closely with management teams to add value. We value companies based on fundamentals and intrinsic value as defined by a discounted cash flow analysis. We like to hold to see our investment thesis play out over 2 to 4 years. We seek to avoid anything that could jeopardize the long-term success of our firm. We do not put on portfolio leverage; we do not time markets; we do not go short. We look for proprietary deals and manage a relatively concentrated book of ten to twenty positions. These are all widely respected and often cited ideas in the buyout industry.

We consider ourselves capital allocators and attempt to add value to our markets. This means we fund undervalued tokens with exceptional teams building good projects in large markets. You can’t add value by funding mediocre projects or allocating capital to appropriately valued (or overvalued) tokens. We understand the real-world impact capital allocators have on resource markets and have respect for our profession. This is another idea from mid-market buyouts. You learn to see yourself as an active participant in an inefficient market. You can make the capital allocation mechanism a little bit better or worse depending on the quality of your work.

Fundamental investing is the common sense business approach to capital markets. You are buying ownership shares in a business. It’s the same principle you see repeatedly when reading legendary investors like Warren Buffett and Joel Greenblatt. Investing in good companies at attractive valuations is a good way to build wealth for investors over a long career.

What is your time horizon typically for an investment (or trade) and how do you decide that?

We like to focus on two to four-year time horizons. I am biased towards longer time horizons because markets are impatient and I want to reduce my competition as much as possible. You are competing with the entire market on a one-month momentum trade — everybody wants to make money by the end of the month — and you have almost no competition for liquid tokens over a >2-year time horizon.

We are also much better at making predictions over longer periods. It’s hard to know what markets are going to do over any 3-month period. There are so many macro forecasters, market timers, and narrative traders that attempt to predict these periods and most of them are consistently wrong. We are trying to play the easier game of identifying good management teams, products with product-market fit, and understanding competitive positioning. Those factors show up in market prices over years not months so in some way we need to tie our predictions to our time horizons.

There is another side of the coin to investment time horizon - the cost of capital. You can’t make a longer-term investment without determining the return you need to achieve to consider the investment a success. We are definitely not investing in volatile and uncertain liquid tokens to earn the same returns bond investors earn for lending money to Apple. 

So what types of returns should we demand in liquid token investing? It’s a hard question, but we think returns should be above 30%. You can earn 20% returns by investing in private equity — i.e. in prudent shops that buy stable businesses with demonstrable growth in established markets. Why would anybody invest in a liquid token fund to earn the same return? 

Our market is volatile, has precarious legal rights when compared to well established Delaware equity, and product-market fit is still unproven. Investors deserve much higher returns for investing in this asset class. We can debate whether the number is 30% or 50% but we err on the side of a higher cost of capital to give us a wide margin of safety.

How do you source your investments (or trades)? How do you develop a thesis and gain conviction?

I can best answer this question by telling you how we think about competitive strategy as a fund. We believe the four pillars of Theia’s competitive positioning are: Focus + Size + Reputation + Network. 

Focus – we have carved out a precise “circle of competence”: good, cash-flowing businesses building the Internet Financial System. We do not chase narratives, games, AI, or infrastructure; instead, we concentrate on liquid tokens that we believe are genuinely undervalued by the market and are backed by excellent teams innovating on the front lines of Internet Finance. Focus can be difficult – it means ignoring some attractive opportunities – but it also means that within our niche, we know more than high-quality competitors who spread themselves too thin.

Size – our chosen strategy requires a fund size that lets us be nimble and invest meaningfully in small and mid-cap projects. We do not want to be locked out of promising deals simply because we have too large a capital base to deploy. By capping our fund size, we avoid the temptation to chase AUM for its own sake and stay in the sweet spot where genuine alpha is still available.

Reputation – we see ourselves as capital allocators who add real value, not just capital. Over the past few years, we have worked closely with portfolio companies, providing feedback on tokenomics, integrating new analytics tools, and connecting teams with strategic partners. We want to have a reputation for integrity, dedication, and thoughtful research.

Network – our network is our lifeblood for sourcing deals, performing due diligence, and learning about new blockchain developments. Our network is our primary sourcing tool and the best way to test and refine our thematic investments. Our network offers helpful operational tips and provides crucial references during our investment diligence process. We have methodically built our network by persistently seeking new meetings and by attending and speaking at conferences. It helps to be in New York.

Putting all these things together, our hope is that the best companies building the Internet Financial System want to work with us as much as we want to work with them. They understand our thesis, our value add, and our constraints, and seek to partner with us over many years. The sum of all our proactive work is to identity the most interesting fundamental investment opportunities in the space, and then to be able to partner closely with the best companies to realize them.

What have been your thoughts on this cycle? Has it been harder than previous ones for you - this seems to be the prevailing sentiment amongst many on CT

We think this cycle has been a long and often interrupted convergence towards fundamentals. Bitcoin has won the market for money — at least it has won to the point where either BTC wins or nobody does — and every other asset needs to prove it is worth holding. We believe that means tokens must prove they can generate future cash flows in excess of their current valuations. Tokens are increasingly viewed as startup equity, and teams need to prove product-market fit and a road to cash flow just like startup teams across the rest of the economy.

I believe this cycle has been difficult because the entire market was prepared for a period of speculative mania. We described this phenomenon in an essay on fundamentals early last year:

I am optimistic about the future of the market but the only way out of this difficult market is through the hard work of finding product-market fit.

What are 3 (or more) tokens you are holding that you have high conviction in?

Euler - Euler offers a sophisticated modular lending platform to build markets across majors and long tail assets. The Euler team is an excellent, experienced group of academics and industry veterans who have grown from 0 to over $500M in deposits over the past 6 months. Euler enables new borrow/lend financial primitives and the largest design space for other teams building on top of their protocol.

Lending is the backbone of any financial system. As blockchains continue to attract institutional borrowers, Euler’s architecture could become a go-to platform for those seeking diversified, credit solutions on blockchains. Additionally, there is a large valuation gap between the top two players and the rest of the market. We believe that Euler can meet or exceed leading competitors like Aave and Morpho as the market becomes increasingly sophisticated.

You can see our original thesis on Euler below:

Maple - Another lending business, Maple pioneered institutional credit using Internet Finance, bridging onchain transparency with real-world debt markets. Maple serves as a conduit between onchain liquidity providers and institutional borrowers, putting them in a unique position to grow as the market institutionalizes. We think this positioning is attractive in the current regulatory environment.

Regulators are warming to the idea of blockchain-based lending with embedded KYC. Maple’s proven track record in this space may solidify its status as a leading institutional debt marketplace within Internet Finance We expect Maple to be one of the onramps for large institutions looking at blockchain lending solutions.

You can see our active model on Maple here.

Layer (L3) - Layer3 is a distribution platform for onchain applications to access new users, driving user adoption by gamifying the onboarding process for onchain applications and turning quests into an engaging experience. Companies effectively outsource marketing and tutorial flows to L3, allowing Layer3 to build and understand the user experience better than any other company in crypto. Layer3 is leveraging this position to build a platform that captures existing and new users, and becomes one of the dominant frontend applications for Internet Finance.

In an increasingly crowded market of new companies, user acquisition is critical. Layer3 is monetizing its position to help companies onboard new users, and these companies are subsidizing Layer3’s own user growth as a result. We believe strongly in the team, and think they have an excellent opportunity to build one of the dominant front-ends for retail users.

You can see our full thesis on Layer 3 below:

Metaplex (MPLX) - Metaplex serves as critical infrastructure for Solana. Metaplex holds the dominant share of token mints on Solana, while also offering streamlined tooling for creators. Metaplex’s business model enables token owners to directly benefit from Solana’s success.

Solana’s high throughput and low fees make it ideal for tokenization. Metaplex is well-positioned for this as the default infrastructure layer, capturing growth as new projects launch on Solana. As increased activity and experimentation occurs on Solana, Metaplex should capitalize. It is a pure way to bet on Solana KPIs across both fungible and nonfungible tokens.

Kamino (KMNO) - Kamino is the largest lending protocol on Solana, with an excellent market position and strong network effects. Kamino has built integrations with nearly every company and asset on Solana and continues implementing market-leading designs in its protocol. The team is diligent, talented, and risk-focused, which is critical for their business.

We expect lending activity to grow on Solana and Kamino to maintain or grow their

market share. Solana’s performance creates unique possibilities for borrow/lend strategies, creating possibilities for growth and profitability that previously had not existed in finance. Kamino’s risk-focused approach provides a wide range of market participants with a leading solution.

We believe Kamino — and borrow-lend protocols broadly — have some of the strongest moats in onchain markets. You can see us describe this dynamic below:

What is a hobby you have that’s outside of crypto that you like to do in your spare time? 

I like reading and running. I didn’t run before moving to New York ten years ago but I have really picked it up since then. It seems like many people start running when they move to New York. I think it’s because most sports cost $60/hr in New York and running is free.

I really enjoy reading like most investors. I have always loved the nonfiction books that most investors like — Taleb, EO Wilson, Buffett. Undergrad for me was basically four years to read books on economics and philosophy, and I enjoy keeping it up as much as I can. I have recently been delving into fiction. I have been reading a lot of the classics: Hemingway, Kafka, Garcia Marquez, Dumas, etc. My favorite fiction author by far is John Steinbeck and East of Eden is my favorite among his books.

I do believe reading is the superskill for investors. I’ll finish off the interview with a quote from my favorite investor — Charlie Munger:

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