The In Conversation series is a chance for us to dive deep with the people behind Victory Square Technologies’ over twenty-plus portfolio companies. It’s an opportunity to give you an in-depth look inside what it is they do and who they are.
The latest in the series is a conversation with Ganesh Swami, co-founder of Covalent. The first time we sat down with Ganesh was almost three years ago. Both the Blockchain landscape and Covalent have changed hugely in that time, so we wanted to sit down and find out how things had shifted and where the company is headed. With the launch of their own token, a serious collection of people using their API, and a team well over double digits, we had a lot to talk about.
This is a portion of a Zoom conversation between Ganesh and ex-CBC host James Graham that occurred in April, it has been edited for clarity, space, and Zoom dropouts. The full conversation will be made available soon as part of the VST podcast series.
James: There’s a lot of people out there who are perhaps unfamiliar with Covalent. What’s the elevator pitch and has it changed since last time we sat down in 2018?
Ganesh: What Covalent provides is a unified API to pull out your financial balances, positions, and historical transaction activity across dozens of blocks. That is the core product. The pitch started out with the company, now it’s just substantiated with some major players as customers. There’s actually traction and market proof that this vision that we had three or four years ago is a much-needed product in this space. This API is a unified API. It’s a developer product. It’s not meant to be for retail. It’s not for consumers, it doesn’t have an end user-facing UI. The closest analogy would be something like Twilio, which is a telephony API, you can build something like WhatsApp on top of Twilio. If you look at our customers, you have taxation providers, you have exchanges, you have investor dashboards, you have NFT’s, social tokens, lots of use cases.
The way I like to think about blockchain data is like giving you some pasta and a can of tomato sauce, and it’s up to you whether you make lasagna or something else that suits your appetite. We don’t really prescribe what the use cases are, the customers come to us with the recipe they want and we just give them the highest quality top-shelf ingredients that are available today on the market.
James: What was it that inspired you to start Covalent? I like the line on the website: we’re an index querying middleware solution.
Ganesh: The founders come from an enterprise background, which means we have a lot of expertise in getting these systems up and running. From an enterprise’s context, they’re not going to throw away their investments in existing processes, existing technology, and existing talent. It’s just too expensive to do that, which means that if they want to adopt blockchain technology, they will need connecting connectors. Middleware: bonding technology between databases and blockchains. That was the core idea. We built up the idea at a hackathon. We just showed up one weekend and built a prototype for Covalent. It wasn’t called Covalent back then, because we were not serious about the project. It was just a hackathon weekend idea! We ended up winning that hackathon and started Covalent around that.
For enterprises to adopt blockchain technology, they need a middleware solution, otherwise, it’s just too expensive and it’s just too time-consuming. That was the core idea behind Covalent. What we did not know was the market risk. Yes, this is a need, but the prefix there is that blockchains have adoption and that enterprises actually want blockchains. That was a risk but that was a bet we were willing to make back in 2017. It’s taken us a couple of years for that bet to play out but the bet has played out exactly. I think even the timing was pretty on point.
James: You got through the harsh blockchain winter, and you’ve come out the other side.
Ganesh: We have the battle scars to prove it. For the first two years, 2018 and 2019, there was nothing going on. We had no customers, no revenue, no traction, no market presence. We even got into one of the top incubators in Canada, the Creative Destruction Lab. We were put in front of hundreds of top investors across the globe and nobody really understood Covalent because only customers will. The use cases are so unique in how you can use Covalent. Investors who don’t have operating experience cannot really appreciate the value of a middleware solution, because they have never deployed a system at an enterprise scale. So we got no heat from the market, or customers, or investors. Then in late 2019, early 2020, we started seeing signs of traction. Customers are starting to nip at our heels and figure out what this is all about. They were still unclear on if this would solve a problem for them, it was very, very early.
Then 2020, DeFi Summer. Summer hit and then things started flying off the handle. Suddenly, we found ourselves profitable. Suddenly, I found that we were not able to keep up with customers. Suddenly we found that the opportunity is a lot bigger than what we had imagined back in 2017. There’s this exponential adoption of blockchain technologies by all kinds of companies, not just enterprises, and they all need Covalent. So the addressable market, the size of the opportunity, the timing, everything was just perfect. At that point, we decided to go out and raise a round of institutional financing, to scale and really go and nab this opportunity. That changed in just three months. In February of that year, we went out to raise a round of funding. The timing was probably the worst timing, because what else happened in March of last year? (Covid). Half of our competitors went out of business. But, three months after, we were able to close an oversubscribed round, and then close another round of financing.
James: That’s got to feel pretty good considering it’s a sign of encouragement from institutions out there.
Ganesh: Yes, and no. It’s Yes because we now have the financials on the balance sheet and the security and the safety net to dream big. No, because I think the work isn’t done. It’s too early for these victory laps. Right now, the way we’re positioning Covalent is that this is the third breakout category in crypto. Let me explain why this matters and why Covalent can become much more meaningful in the coming years.
The first breakout category would be the trading venues like Binance and Coinbase. Coinbase just went public last week. That’s an example of a category where you have market-leading, profitable, revenue-generating companies that are breaking out. The second category would be these custodians who need to hold custody of these assets. You have companies like Anchorage and Bitgoal that are market leaders in the space and can expect an IPO in the next couple of years. The third category is this data middleware creating indexing layer. The inherent problem with blockchains is that all of the data is public, but actually, that’s not true. The data is public in theory, but it’s actually very difficult to retrieve that data. You need a solution like Covalent. Our belief is that this is the third breakout category and it’s going to be huge. It’s going to be a giant in terms of companies and the winners, you can already see the proof points. There’s another company not exactly competing with us, but they focus on financial forensics. They’ve raised over $200 million. That’s the size of the opportunity in this space, so Covalent falls into that bucket. Now our mindset has shifted, we’re strapped in for the next couple of years. Now we want to capture and maximize the upside for all of our backers, all the investors, the team, this space, the entire ecosystem. So if you say it feels good, yes, it feels good, but the work isn’t done, right? We’re basically at the start of something that’s going to be huge. We just have to stay focused, not get cocky, and then make sure we’re delivering value every step along the way.
James: Why is now the time for Covalent to offer up its first token?
Ganesh: One of the curses of the space is that it’s so easy to do an unregulated offering. You have a lot of projects that have gone out there and raised tens of millions of dollars with no product, no validation. That’s an extremely risky proposition, no traditional VC will write a check for $10 million on an unproven business model, even despite having a serial proven team behind the idea. At the end of the day, you can change the team, you can change the product, you can change the technology, you cannot change the market. Market risk is something that can never be discounted, or written off. What we have done is we’ve gone out, and we’ve proven out that this market needs Covalent. You can see the evidence of that with 100 plus customers and all the market-leading companies using Covalent. So now is the time to tokenize Covalent and really build a new kind of infrastructure that still has a rock-solid foundation. We have a product that has a product-market fit, it’s revenue-generating. We have a team that’s solid, that’s strong, and committed to seeing this project through. Now’s the time to go out there and scale the company. I would say in some sense, this is almost like scale capital, rather than risk capital for the initial seed of an idea.
James: Talk to us about the expansion of the Covalent team. Last time I shared an office with you, it was only a handful of people and you’re now up to thirty odd folks?
Ganesh: We started with just two founders, and we were two founders for a very long time, two and a half years. Levi is the other co-founder who has been there since day one. He’s been slinging code, I’ve been trying to close customers. We’ve just been building product day in and day out and finding and tweaking and finding and tweaking and polishing the product. Once the market hit, once we were able to raise capital, it was time to go capture the opportunity. I’m grateful for the team that’s joined us on this mission. I’m actually proud of the fact that I have the least amount of experience in the crypto space compared to the rest of the people on the team. I actually joke that if I would apply to Covalent today, I would not get through the initial interview process. It’s such a high bar, the team is exceptional
The way I’ve built Covalent is to think of it as multiple startups with a CEO leading each department. One of the leaders who come to mind is Eric Ashdown. He is a superstar, he has been in the crypto space for six or seven years. He actually used to run an ICO crowdfunding platform a couple of years ago. He’s joined Covalent to grow our ecosystem. Just like how we have enterprise sales, which is top-down, we have bottoms-up adoption, which is giving out the product for free and capturing the hearts in the minds of developers and then capturing their wallets maybe next year or the year after. Take it like a Stripe-like model or a Twilio-style model, where you don’t charge upfront, but then you let them learn the platform. We have Hareesh, who manages that process. We currently have three hackathons running concurrently and 1000s of developers being onboarded onto the Covalent platform, so he manages that entire process.
On the community side, we have Jackie, who I’m sure a lot of your listeners are very familiar with. She was part of the VST family for many years before joining Covalent, and she is leading the charge on the community side of things. Let me explain why community is a tier-one strategic initiative and why Jackie fills a very important role at Covalent. What is different about blockchain and crypto networks is the participatory nature of these networks, which means the token holders own the network. Imagine if you’re an Airbnb host, and you own Airbnb, rather than a for-profit corporation strip-mining the assets. That’s how this is different. It means the token holders have to be educated, have to be engaged, have to participate in all of the governance-related features that Covalent has. What Jackie has built is this program called the Covalent Alchemist Ambassador program. It’s a program to recruit hundreds of people, teach them how to crunch numbers, how to write communication documents, how to use the API, and how to help us out. We have structured the program where we’re investing in their growth, making them show leadership, and then scaling out the program. Jackie leads that entire program and she’s done a fab job there. We now have twenty regional communities and every piece of content that we put out gets translated into twelve different languages within half a day.
On the financial side, we have Adrian Jonklaas, Adrian is a serial entrepreneur and angel investor in the Vancouver scene. He was a founder of a company called Finhave which is a crypto collateralized debt company, they did a Series A a couple of years ago. Adrian joins us as the head of research, and the CFO of the company. The advantage that Covalent has, is that these leaders act as CEOs, which means they tell me what needs to be done. I just give them support, I get on calls and check-in. That’s it. But these guys are executing to perfection. Very humbled by the caliber of the talent that has joined us on the rocket ship. The leaders who report to them are also exceptional. We’ve been able to grow pretty rapidly, we’ve gone from two people to thirty people in about eight months. It’s almost like jumping off the cliff and then reading the instruction manual on how to assemble your parachute. That’s literally what it feels like, but I’m not gonna trade this for any other kind of experience.
James: Why is community important? It’s been really awesome to see the explosion of international response, not just across Canada, but literally across the world. People are going to town and really, you have captured the hearts and minds of developers and evangelists around the world.
Ganesh: Competitors can copy our product, they can probably beat us out on the team. They can definitely beat us on the capital that they’ve raised. But one thing they cannot beat us on is the community. Many years ago, I laid out a master plan for growth and one of the pillars of Covalent’s growth is the community around us. If you look at what Covalent provides to the world, it’s actually not much because we’re taking something that’s publicly available, and then just cleansing it and then selling it back to the same people. But if you can build a second vector of growth, where you’re investing in people’s growth, career growth, skills growth, leadership growth, I think that reaches and speaks to a higher ideal. This is how we structured it. Our goal is to hit two thousand people, to essentially have two thousand people on our payroll. I’m putting this in air quotes, but they’re getting airdrops of the Covalent token for performing tasks and being part of our community. They’re not free airdrops, it’s a reward in exchange for activity and the right kind of incentive and the right kind of behaviors. With what we’ve done, there’s no way for a small team of two people to manage two thousand people, that’s not how you build it. What we did is we recruited twenty-five alchemists, and we call them O.G’s. We train these twenty-five people to recruit the next five hundred, and then next five hundred, and then the next thousand.
Now we have this entire process built, it looks for lack of a better word, like a Ponzi scheme with literally a pyramid. But there are no rewards for recruitment or anything of that sort. This is just a top-down kind of structure and then there are rewards and there are ladders. There are tasks that you can do, you can contribute in multiple ways. We have three avenues for contributing to the Covalent network. One is global expansion. This is where you can manage our channels across the globe. We have 20 channels now, so Turkish, Japanese, Chinese, Korean, Vietnamese, Thai, Italian, French, Arabic, Bulgarian, that just opened up today, India, all over the world. These are communities and they’re getting all of our messaging. Every culture in every community is a little bit unique. For example, the Korean community had a KPop meme contest and they made this beautiful video of Jackie.
James: I saw, she’s posted it.
Ganesh: This is why I’m in this space. I watched it and suddenly, all of my concerns and my fears and all the anxiety just melted away. This is how passionate this community is. That’s just one example. So that’s global expansion, where they’re able to take the message and the vision of Covalent to their communities. The second is content generation. Content generation is educating the masses on what the value of Covalent is. This could be video tutorials, this could be code samples. This could be Medium articles, that could be infographics. We have a variety of tasks in the content generation category. Along with creating memes, of course, you can’t have anything without memes. The third category would be developer augmentation. This is purely on the product line where you’re engaging with the product. you’re describing the use cases, you’re helping support the API on Discord. We’ve seen pretty crazy uptake, every time we open up what we call a season. We’re in season three right now and we’re recruiting about four or five hundred people per season. We always get four or five thousand people so it’s always 10x. Then we have a filtering process to an application to let them through. I think this is the right way to build a community that’s super-engaged, rather than people who are just in for the quick buck.
Ganesh Swami has climbed Everest, ask him about it some time.
James Graham is still very tall and has a great radio voice.