The Tooth-to-Tail Ratio in Investing: Attending ETH Denver

By | February 27, 2023
n a software company (crypto project), who creates value?
Answer: the software developer.
This should be obvious. But over the years, I’ve had a large number of startups hit me up for financing that don’t even have a development team (but instead have a really nice Powerpoint file).
In that investor presentation, there are always mouths that need feeding. But none that write code. It’s a bad combination.
By the way, you might be thinking, what is the tooth-to-tail ratio?
That’s the number of people in an organisation that actually do the work, versus the number of people that support the people that do the work.
An example: In World War II, an American infantry division had 24,000 men. But the riflemen (literally the men who held rifles in their hand), only number 7000.
Each rifleman was supplied and supported by more than three people which is not surprising as each rifleman consumed 1.5 tons of supplies a day.
The tooth-to-tail in the above example is greater than one to three.
But back to modern-day software development.
During times of mania in crypto, investment decks get passed around with five to ten management types listed, and if you are lucky, there is one developer in the mix.
That’s a tooth-to-tail ratio of one to five or ten or even one to infinity. Startups with those kinds of ratios inevitably fail.
With a startup, that ratio should be reversed.
That’s why I’m attending BUID week in Denver, Colorado
See all these hard-working young people? These are developers. They create value, as opposed to people like myself, investors who extract value.

I don’t want to go to conferences where there are other investors like myself. Those people are my competitors.

I need to hang with developers even though they have an instinctive distrust of people like me.

That’s why I’m traveling incognito. As I write this, I am wearing my favourite Batman T-shirt and drinking Kombucha).

The ETHDenver conference is the largest conference in the world for Ethereum attracting thousands of participants. It’s divided into three parts.

On March 2nd, the main conference starts, and everybody who is a somebody shows up for three days.

Then, afterward, there is the multi-day “Mountain Retreat,” which as far as I can tell, is for rich people. It’s possible that cannabis may also be involved.

(I saw one pamphlet offering workrooms for developers with all sorts of amenities including up to 68 joints).

But before the mountain retreat, and the main event, we have BUID week.

This is where aspiring software developers are invited to compete in hackathons and complete projects for bounties.

There are dozens of 3 to 8 people informal, ad-hoc software teams here, all coders and UX designers. I have yet to see one investor relations suit.

In the three days, I have been here so far, absolutely nobody has asked for financing or offered me a term sheet.

It’s investor heaven if you are up for some hard work.

It’s mentally exhausting. The business opportunities are very promising if you can parse the technical details.

For example, one vendor is so desperate for Ethereum staking nods providers they are offering a 40% yield.

Another vendor is showing a 36% yield on Ethereum bonds on their website if you know where to look.

How do they do it? They explain how but remember this is a conference for developers.

I’m not looking at dumbed-down Powerpoint slides. I’m trying to sit through a 30 or 60-minute presentation with developers opening up a command shell and picking out strings of codes and saying “See? There it is!”

I had to sleep nine hours last night.

I attended four seminars today. Two seminars of them were titled: “Beyond Ponsizomics — Leveraging Defi for Real Businesses” and “The Impact of Distributed Validators on Staking Resiliency & Decentralization.”

I don’t remember the titles of the other two.

But is It All Real?

There is of course one more reason for leaving the home office and hitting the road.

This crypto thing, is it real? Is real value being created? Or is finally dead this time?

It’s funny that after being in crypto full-time for more than five years, that question keeps coming up.

That’s why you head to this conference, to see the people and feel the energy and watch projects hatch, products launch, announcements made, and careers become established.

Crypto isn’t back. It has always been here.

It’s going to stay a long time.