[REPLAY] Ali Hamed - Novel Asset Investing (Capital Allocators, EP.40)

Episode Summary

Executive Summary: Ali Hamed explains how CoVenture builds businesses around newly enabled asset classes at the intersection of technology and finance. He argues that software can create equity value in pre-seed startups, and that many overlooked lending and crypto opportunities are “unpriced” rather than merely mispriced, because technology creates new data, distribution, and risk structures. He also outlines how venture, lending, and crypto reinforce one another inside CoVenture.

Main Topics: Ali Hamed’s path from athlete to entrepreneur-investor (Priority: 5/5): Raised in Southern California and initially on a baseball track, Hamed shifted to startups after a back injury and an early college startup experience. A period of financial stress after a failed venture pushed him toward scrappier entrepreneurship and eventually into investing. CoVenture’s origin: software-for-equity as a venture model (Priority: 5/5): Hamed describes realizing that early companies often needed technical help more than cash. CoVenture began by building software for founders in exchange for equity, aligning incentives and targeting founders best suited to solve the hardest part of the business. Alternative lending as a source of new, unpriced assets (Priority: 5/5): The firm targets lending products created by technology rather than simply digitized bank products. Hamed argues these assets can generate high yields because they finance previously unfinanceable receivables, payroll advances, and other short-duration cash flows. Case study: ProducePay and the finance of produce receivables (Priority: 5/5): ProducePay is presented as an example of a real-world asset created by technology: financing farmers’ harvest-cycle working capital by purchasing produce receivables and tracking inventory. The structure has low loss rates, recourse, and strong recurring demand. Crypto investing and the case for institutionalization (Priority: 4/5): CoVenture’s crypto business began as an index fund providing diversified, lower-cost exposure to major crypto assets. Hamed supports crypto as an emerging asset class but warns against weak fund structures, self-custody risks, and ICOs that mainly benefit issuers. How venture markets and LP expectations should evolve (Priority: 4/5): Hamed argues that venture capital should be priced more like other asset classes, with required returns varying by strategy and manager quality. He also believes pre-seed investing now faces longer illiquidity and more complex capital stacks, so managers should offer liquidity solutions and better underwriting. Cross-pollination across venture, lending, and crypto (Priority: 4/5): CoVenture’s multi-strategy platform creates informational and sourcing advantages: lending surfaces venture deals, crypto surfaces emerging protocol opportunities, and venture helps originate lending products. Each business informs the others and strengthens the overall platform.

Key Arguments: The hardest part of many early-stage businesses is no longer building software, but going to market and scaling; therefore, founders should be chosen for the hardest part of the business, not just coding ability. Providing software for equity creates stronger alignment than simply paying developers cash, because both sides share upside and downside. Many technology-enabled lending products are not just mispriced but unpriced, because they finance assets or cash flows that traditional lenders could not efficiently underwrite. Technology can reduce fraud, improve underwriting, and make very short-duration receivables financeable at attractive yields. ProducePay works because it combines deep domain knowledge in farming with technology, creating a defensible financing and distribution model that Silicon Valley would have overlooked. Crypto will likely mature into a more institutional asset class, but current market structure, custody practices, and ICO documentation are often not ready for large allocators. ICO issuance should only make sense when tokens improve the underlying business model for both issuer and user, not merely as a cheaper way to raise capital. Venture returns, risk, and fees should not be treated as one-size-fits-all; required returns should depend on the strategy, manager quality, and risk profile. Pre-seed investing has become harder because capital stacks are more complex and liquidity is more constrained, so managers should create partial liquidity or restructuring solutions when possible. CoVenture benefits from operating across multiple asset classes because each area creates proprietary deal flow and better underwriting insight in the others.

Data Points: Age: 26 - Ted notes Hamed is only 26 years old at the time of the conversation. Initial capital raised for the software-for-equity venture: $396,000 - Hamed says he scraped together this amount to start the business, including $1,000 from his little brother in his fraternity. ProducePay take rate: 0.25% to 1.25% - Hamed says ProducePay takes a point to a point and a quarter on the produce transaction. Default rate at ProducePay: De minimis - He describes the produce financing product as having extremely low defaults. Yield on certain lending products: Mid-to-high teens to low/mid 20s - Hamed says CoVenture can achieve these returns on asset-backed lending structures. Pay advance APR to employees: 20-something% APR - For payroll advances offered through a portfolio company, workers pay a far lower cost than payday loans. Traditional payday loan APR example: Up to 1,000% APR - Used as a contrast to technology-enabled employee paycheck advances. Title loan APR example: 500% APR - Hamed cites title lending as an example of a too-small, too-short-term loan often made expensive by traditional lending economics. LP base size: Over 180 LPs - He says CoVenture’s investor base includes entrepreneurs, former finance leaders, sports team owners, VCs, and family offices. Venture company count at early stage: 8 deals per year - Hamed uses this as an example when explaining why seed portfolios can look weak early on. SPV liquidity example: 30-40x return - He mentions a portfolio deal whose new mark would be around this level, motivating an SPV liquidity option for LPs. Crypto fund structure: Top 15 crypto assets - CoVenture’s crypto product is described as an index fund basket of the top 15 assets by market cap. Rebalance frequency: Every 2 weeks - The crypto index fund is rebalanced biweekly. Management fee/carry: Flat fee, no carry - The crypto product is described as inexpensive and not performance-fee based. Seed round size historically: $500,000 to $1 million - Hamed references the older seed market as a basis for how the venture market has shifted upstream.

Pivotal Quotes: "We try very hard not just to find mispriced assets, but rather unpriced assets." — Ali Hamed: Explaining CoVenture’s core investing philosophy in lending and new asset classes. "At the end of the day, we sort of felt like a lot of VC firms were built to teach engineers how to become CEOs, but there weren't a lot of VC firms that were built to teach CEOs how to manage their product." — Ali Hamed: Describing the firm’s software-for-equity approach and founder selection logic. "The term valuation is broken." — Ali Hamed: Critiquing how venture assets are marked using the price of the most senior security rather than the whole capital structure.

Implications: Listeners should see that finance opportunities are expanding wherever technology changes data, underwriting, or distribution. For allocators, manager selection should be strategy-specific, and for founders, niche domain expertise plus product help can be more valuable than cash alone.