In this episode of The Heidrick & Struggles Leadership Podcast, Heidrick & Struggles’ Guy Shaul and Tom Clarke are joined by Najam Kidwai and Michael Zhao, cofounders and managing partners at C1, a newly launched fund focused on secondary investments and digital-asset-related companies and infrastructure. Kidwai and Zhao discuss the genesis of C1 advisors and the conditions that led to the timing being right. They also share where they believe think the crypto industry has gone wrong in recent months, what they will be expecting their portfolio of companies to focus on in order to navigate regulation today and as it evolves, and what they think the industry needs to be conscious of when thinking about the right talent for leadership teams. 

Below is a full transcript of the episode, which has been edited for clarity.

Welcome to The Heidrick & Struggles Leadership Podcast. Heidrick is the premier global provider of senior-level executive search and leadership consulting services. Diversity and inclusion, leading through tumultuous times, and building thriving teams and organizations are among the core issues we talk with leaders about every day, including in our podcasts. Thank you for joining the conversation. 

Guy Shaul: Hi, I’m Guy Shaul, a partner in Heidrick & Struggles’ London office and leader of our Crypto & Digital Assets sector in Europe, the Middle East, and Africa. I’m joined by my colleague Tom Clarke from our Dubai office, who co-leads our Technology Practice in the region and also leads our Venture Capital Practice for the Middle East.

In today’s podcast, we are excited to be joined by Najam Kidwai and Michael Zhao, cofounders and managing partners at C1, a newly launched fund focused on secondary investments and digital-asset-related companies and infrastructure. Najam is a Dubai-based UK entrepreneur and investor in disruptive technology companies in Asia, Europe, and the US. He has been investing in fintech and e-commerce since 2010 and is the co-founder and a board member of EQUIAM, a leading private-markets-focused secondary venture capital (VC) manager. Michael is a Dubai-based and Singapore-based fintech entrepreneur. He is also the founder and CEO of Klickl, a virtual-asset service provider and digital payment processing engine, and has been investing in fintech since 2015. Further, he is also the former co-chairman of the Blockchain Association of Hong Kong.

Najam, Michael, welcome and thank you very much for taking the time to speak with us today. To kick off this conversation, could you walk us through your journey into crypto and what drew you to the space? 

Najam Kidwai: It’s quite an unconventional journey. I started off as a tech entrepreneur, and I’ve been fortunate enough to take a number of companies public, including Nuance and Egg, and have also had a number of M&A exits in the tech space. I got exposed to crypto accidentally in 2015–2016. I had an exit in China, and, unfortunately, they couldn’t pay my fee in US dollars or sterling or euros or dirhams, but they offered to pay me in Bitcoin and Ethereum. At that point, I knew very little about it, so I called a couple of friends who were investment bankers in London and said, “Hey, what is this thing called Bitcoin?” And they said, “Naj, this is either going to go to the moon or it will go nowhere, so view it as an option.” And that’s exactly what I did, and I was fortunate to receive a very meaningful amount of Bitcoin and Ethereum. 

And then the market exploded—the initial coin offering (ICO) phase had kicked off, and the boom of 2017 came along. I started to learn about this space, and I was fortunate enough to invest in Quantum (QTUM), Wecan, Robinhood, Coinbase, and a number of other projects in this sort of crypto ecosystem. And that led to me really understanding the fundamentals of the space, the technicals of the space, and it gave me a lot of confidence that this was going to be the future of finance and the digitization of finance and the tokenization of financial services. 

And then, just under three years ago, I had the good fortune of meeting Michael, and we did the world’s first crypto special purpose acquisition company (SPAC), which we listed on NASDAQ and raised $230 million. At that time, we were several times oversubscribed, over about $1.2 billion in demand, and we learned a lot about regulation and the crypto ecosystem. Our thesis was to go and find the Coinbase of emerging markets, and we looked at about 300 companies over a 12-month period.

Michael Zhao: My journey with crypto is a little bit different from Naj’s. I was first attracted by crypto because of the volatility. As an options trader, I worked for an investment bank, and later on, I worked as a regulator for a central bank. Normally, volatility is a very important part for any financial asset class. So I got attracted because, back in the early days, 2014–2015, crypto moved 10–20% on a single day. For the past six, seven, eight years, we pretty much went through all of the ups and downs, and we’re very happy to see the market start to grow into a proper alternative asset class. And while it does cost me a little bit more gray hair, more than ever before, we’re very happy to see more and more institutional players come over to the asset class and more and more regulators start to look at this as a growing emerging technology. 

Tom Clarke: What is the genesis of C1 advisors, and why now?

Najam Kidwai: When we did the SPAC, the goal was to go and find the Coinbase of emerging markets, or a business that was equivalent to that—an exchange, a bank, a wallet, or a custodian. We saw that valuations had sort of gone 360 degrees—companies that were valued at $1 billion a year and a half ago have, in some cases, now gone to zero or, in other cases, $50 million, 80–90% discounts on the last primary funding round. So when we looked at that journey, we saw 300 companies, and we had probably done detailed analysis and due diligence on about 100 of those companies. And, in fact, probably about 10 of those businesses were ready to go public if the markets had been a little bit more stable.

So our thesis was driven by the fact that we’ve seen a number of data points where there was no IPO market—that market continues to be closed at least for the foreseeable future. And the barometer of that is if Stripe cannot go public in the current environment, then it doesn’t bode well for most other companies that want to go public. We also saw that, on the back of FTX, the crypto winter went into full swing. A lot of those valuations when the market was in a bull run were just unsustainable for a lot of these businesses.

So, because we had been doing secondaries for over a decade as early investors in Forge Global, EQUIAM, and many other platforms, we saw that there was an opportunity to build a platform to provide liquidity to existing investors’ management teams in the digital-asset space and that nobody was doing that with a focus on digital assets—and purely on digital assets. So Michael, myself, and our third partner, Michael Lempres—who’s currently the chairman of Silvergate Bank, an ex-partner at Andreessen Horowitz, and chairman of Bitstamp and Revolut, and a number of other things—collectively saw that at a number of these companies that were fundamentally well run that there was an opportunity to go and acquire stakes in these businesses at a very meaningful discount. And the way we think about that is that we’re looking for companies that are Series C and above, so at least a $300 million valuation. So an equity investment, but we’re not investing in tokens or cryptocurrencies; we’re fundamentally investing in companies that are licensed and regulated. And I think the keyword here is regulation, and it’s one of the things that’s been a challenge in the industry of late.

Michael Zhao: I’ll focus a little bit more on the timing. The reason we’re doing this now rather than last year or next year is that the timing is right. When it comes to financial markets, you can have a good wheel, but it’s even more important to have good timing because timing will ultimately determine the return on a risk-adjusted perspective. If two years ago was the starting year for institutional investors to come to the market, then last year was the formal year for institutional players—every single one of them is trying to get out to some star companies so that they’re not left behind again. And we’re seeing the correction on the market, where a lot of companies are either suffering or bleeding out, because they are fueled by the fear of missing out.

From an investing perspective, we feel that there are a lot of good companies now where there’s a decent value, where we can come in and provide investment, market funding, and domain knowledge. While the market goes through the consolidation stage, we’ll easily find the winners. So I think the timing right now is right.

Additionally, in a traditional financial market, there’s always a primary market and then you create a secondary market. In crypto, it’s happening so fast. The market has been lost for ten years, and two years ago institutions and regulators started to look at us in a proper way. So there’s no secondary market. So when we talk about timing, it’s time for C1 to come in. Not only are we trying to find the right company to deliver a sterling return, but we also want to be the first one to dare to try new things, to apply what we have learned on the secondary market from traditional finance and apply it to the new asset class. We’re essentially creating a brand-new secondary market, which could be a very important element for this market to scale. This is why we think it’s a really exciting and attractive opportunity.

Najam Kidwai: Just to mention another point here, one of the biggest advantages we have is that we have spent a year, 18 months in some cases, doing due diligence on these companies. We know them intimately well, everything from accounting to product to strategy to talent, across the board. And that is one strategic advantage that we have against our peers, that that work is relatively current and we’re building relationships. 

And as you know, being in the talent business, communication is very important, and when you’ve got trade finance, traditional finance, and then this sort of decentralized world, how can you bridge that communication between somebody who’s used to wearing a pinstripe suit and working in the city to somebody who’s sitting at a desk in a funky office in Hong Kong? So it’s a different culture, but you need to provide that bridge. We have a team that really understands regulation and understands both of those worlds intimately well, and we have that ability to bridge that communication gap and speak the language of all of the players in the ecosystem.

Guy Shaul: That’s very interesting. And you spoke a bit about the conditions that led to the timing and feeling why right now is the moment. Obviously, it’s been a challenging but quite fascinating 12 months or so for the space, especially with some of the high-profile regulatory interventions of late. In your view, where do you think the industry has gone wrong in recent months?

Najam Kidwai: I think clarity is very important. Regulation, as long as it’s clear and everybody knows where they stand, makes life much easier. And I think in the United States, one of the biggest challenges, particularly with the SEC, has been that lack of clarity, and I think that’s caused problems. Obviously, FTX didn’t help. They had very strong lobbying, spending over $1 billion lobbying Congress. So the reality is that I think FTX took everybody by surprise, to an extent, and made them ask, “What is really going on here? Do we really understand what we’re doing? Are we really thoroughly doing our due diligence?” Look at Sequoia—typically you would be very confident that they would have done their homework, that they would have done their due diligence. But they didn’t do a good job in the case of FTX, and obviously a number of people invested in FTX following on the back of Sequoia’s investment. I think in Europe it’s slightly different, as long as you have rules and then you build. In the US, you have a lot of people that are pushing for innovation and then trying to figure out how this fits. 

When you think about the last several months, obviously they have been challenging, but I’m very optimistic. Recent news has been nothing but stellar, with BlackRock and Fidelity and other institutional capital now coming into this space, hopefully before year end. And if that does happen, you’re going to see tens of billions of dollars, with institutional-grade capital and institutional controls coming into play. And I think we have a lot to be very optimistic about on the back of the last several months. 

Look, bottom line is that there were bad actors, and the good news is that those bad actors have been taken out. The industry is becoming a lot less speculative than it used to be, and regulation is a key driver of that. If you take the stance of China, three years ago it basically had a blanket ban on crypto, and then in the last three months, it has now given Hong Kong the framework to go out and become probably one of the leading crypto hubs in the world. So you are seeing governments take this seriously; you’re seeing things that are being implemented around central bank digital currencies (CBDCs), around stablecoins. Jerome Powell recently said that “crypto appears to have staying power as an asset class.” That’s the chairman of the Federal Reserve. I’m very encouraged and excited, and I think this space is only going to grow from here.

Michael Zhao: I echo what Naj mentioned. I think it’s hard to say what the industry did wrong—we always say crypto is a different animal compared to other asset classes. For other asset classes, it’s more from a risk and return perspective, but crypto is more like a derivative for blockchain technology. And for blockchain technology, there are two use cases: one is for payment and another for financial returns. That’s why the regional and global regulators have been taking a different view. They’re learning how to regulate this as a financial market asset class and then how to come up with supporting rules to leverage the payment functionality.

A very important thing to keep in mind is that everything just moves so fast with crypto. For market participants, whether a retailer or an institutional investor or a regulator, we are learning a lot of things on the go. Whereas in traditional finance you take an experienced-based investment approach—“Based on our previous experience, now we do this”—in crypto, every day there’s a new scene. So I think this is the biggest gap. 

Tom Clarke: You mentioned FTX and where some of the shortcomings were. What will you be expecting your portfolio of companies to focus on in order to navigate regulation today and as it evolves over the next months and years? 

Michael Zhao: I think, given the focus of our fund, focusing more on the infrastructure part. Even though the market overall is in a very early stage, the opportunity on the infrastructure side is focused heavily on how to be compliant or regulated. And that is always the universal standard for any financial service company to compete and scale. Obviously, the product needs to be solid, the marketing strategy needs to be good, but a strong emphasis on being regulated and compliant is what we want our portfolio companies to keep focusing on. 

And, as we said, crypto operates in a borderless way. All the different regulators are also learning themselves, and there’s no universal crypto law or rules regulating the market. So it’s very important to make a decision on which region to enter, which license to acquire, because the market is also getting smarter. You used to just be able to say that you were regulated and from where and whom. Now, how are you going to do that? So I think there’s a lot to figure out. Committing to being compliant and regulated is not an easy decision. And it’s also very costly to be able to set up office within a jurisdiction, make sure your server is compliant, and the team in place, such as an anti–money laundering (AML) officer. So there’s a huge investment, but I think in the long term, it will really pay back.

Najam Kidwai: And I think one of the other key points here is talent, because without talent, you have nothing. So ultimately, there’s still a lot of learning going on. One of the things that we realized with first-time entrepreneurs in this crypto economy is that these were young people who’d never built a company before. Maybe they came from a software engineering background, maybe they had more of an introverted personality, had never raised capital before, had never built a commercial product that’s now being potentially used by tens of millions of people. So there is a challenge of putting the right people around the company, making sure that there’s a good cultural understanding in the companies that we invest in, that they have the right talent. And sometimes this talent also needs to know when to move to the side and bring in more, let’s say, gray hairs who basically bring that experience to bear. 

Thinking about everything that Michael said, which I completely agree with, I believe that one of the biggest challenges is getting the right talent around the table that can actually deliver in this environment, which is incredibly fast-paced, like Michael said—it’s like 25 hours a day, eight days a week. It is full on, and it never sleeps, and it never stops, and it’s global, and it’s in every jurisdiction. It’s important to have the right people in a distributed format, because a centralized office function for crypto doesn’t work as well. You’ll have teams in Latin America, you’ll have people sitting in Europe, you’ll have people sitting in Asia, you’ll have your C-suite traveling all over the world and maybe not in a physical office. So understanding and nurturing that talent and having the right culture also become very important for our portfolio companies.

And another key thing is international expansion. So while the US has sort of shut off crypto for the time being, a lot of these companies are now migrating to different jurisdictions. We see talent moving to London, Dubai, Hong Kong, Sydney, Singapore, Brazil. There are a lot of jurisdictions that are benefiting due to the lack of clarity in the United States.

Guy Shaul: Yes, and these topics are very close to our heart, as you can probably imagine. Naj, in your opinion, what do you think the industry needs to be very conscious of when thinking about the right talent for leadership teams? And what gets you excited as an investor looking at the composition of the talent around a management team? 

Najam Kidwai: It’s quite a difficult question to answer because there’s so many things that you need to look at when you’re hiring great people. I think first is that you’ve got to have great domain expertise and ability to execute. So a lot of time when you come from, say, trade finance, you have your personal assistant, everything is organized for you, life is very structured. When you move into the crypto economy, life is actually quite unstructured, and that’s probably one of its strengths. So you need people who are very comfortable in hypergrowth environments, people who are sort of organized and disorganized at the same time, if that makes sense. You need people, I think, who are young, energetic, and enthusiastic and who have a global view, an international outlook, and an appreciation of different cultures.

And I think one of the key things that makes companies really stand out from average companies is outstanding execution. So, as a leader in a business, you really need to understand what product you are building, what product you are selling, and, ultimately, you’ve got to make money. So you’ve got to have people around you who can actually build something that is useful and people who are prepared to pay for it, that there is a strong use case for it. And don’t build technology for technology’s sake; build technology and products and services that solve a fundamental problem. And keep iterating as well. So when you look for technology talent, you need people who are very comfortable in getting products out the door, optimizing as time goes by, and understanding data and analytics. As we all know, data is the new oil. So at the end of the day, you need talent that is able to understand your B2B customer or your B2C customer.

And, again, this ties in with what Michael was saying earlier about having a good regulatory understanding as well. So you’re going to need people who are doing AML and KYC [know your customer], particularly if you’re dealing with retail in the crypto economy. It’s not like there’s a 30-year talent pool and thousands of people who would fit that criteria. We find in our own portfolios that it’s a bit like looking for a needle in a haystack to find the right person. And also, as you know, there are different evolutions of the company. When you’re 20 people, it’s one skill set; when you’re 50 people, it’s another; when you’re 100, 500, 1,000, it’s a different skill set. We see some people who can go all the way, and some who can’t. And sometimes they recognize that themselves, so they’ll focus on a particular aspect, or sometimes it becomes a little bit more difficult, where a direct conversation is necessary to tell them that this is the ceiling and maybe it’s time for them to think about something else.

Michael Zhao: I have two other things to add. One is curiosity. Imagine if you put a high school kid on a Telegram chat for two days. Pretty much they’ll learn more of what’s going on in the market than even me, because I don’t follow the market. So I think you need to be knowledge hungry. 

The second thing is intensity. We often see that when trade finance people move to crypto, they feel a little lost because they are used to people saying, “Let me check my schedule to see when we can do that,” but when it comes to crypto, if you need to do something, it’s “Let’s talk now.” So you need to have that intensity, though it doesn’t mean you need it 24/7.

Tom Clarke: When it comes to leadership and talent in this sector, where are the hot spots globally, and where do you see talent deriving from?

Najam Kidwai: Today in Dubai and the UAE, we see a lot of talent coming into the market and building a real product. We see that in Hong Kong, in Singapore, and in London, and we’re starting to see pockets of that also spring up in Europe, in Paris, Zurich, and Berlin. It really boils down to having a clear regulatory framework, where you can get licensed, where you can get a good standard of living, where there is a good infrastructure. Depending on where you are in your stage of life, you might have to think about schools. So you need infrastructure around the ecosystem to support your lifestyle. And I think Dubai and Hong Kong, in particular, are doing a really good job on being able to provide great infrastructure, good talent pools, a pretty clear regulatory framework. The one weakness in this whole ecosystem is banking, and Michael and I can talk all day long on how challenging it is to get a bank account for a digital-asset-based business. There’s no real jurisdiction today in the world that can say they make banking painless for digital assets. It will take some time to get there, but I think places like Dubai and Hong Kong are definitely taking the lead in trying to get there, but there’s a lot of work to do. 

Guy Shaul: Yes, that does feel like a really significant bottleneck for the industry. A final question: what do you think the industry needs to do to keep moving forward?

Michael Zhao: I think that every single player who is in the market or is thinking about contributing to this market or moving over to this market needs to actually start doing something that is right and long term, and then collectively we can create a market. Because we don’t have another five or ten years for this market to grow and scale; we really need to do things now. We can slow down our pace, but if we’re taking crypto to the moon, from where we are now, there’s still a long, long way to go. So I think we should be focusing on value creation. We should focus on taking fewer risks; we’re talking about risk-adjusted returns. And everyone’s thinking about how we are supporting each other. It’s getting the regulators comfortable with what we’re trying to do, and only when that happens will we see the market become a lot easier and fewer gray hairs for everyone.

Najam Kidwai: The industry is still very early; we were very nascent in this space. When the dot-com boom started around 1996, I remember my mum asking, “What is this internet thing; is it going to last six weeks?” And now, the internet is fabric, it’s utility, and you can’t live without it. And I think what we’re going to see in the digital-assets/crypto economy space in the next five to ten years is fundamentally how we consume financial services and digital assets. People will not carry cash going forward. If you think about how AI seems to be the flavor of the month right now with ChatGPT, that’s one aspect of information gathering and information recall that is fundamentally changing the way we educate people, the way we learn, the way we consume content. And then think about what’s happening in the crypto economy. Think about how everything is changing, from a geopolitical level to the dominance of the US dollar on the decline, digital currencies and CBDCs, tokenization of all types of assets, and people not carrying cash anymore. So it’s an incredibly exciting time.

Tom Clarke: Naj, Michael, thank you for taking the time to speak with us today.

Thanks for listening to The Heidrick & Struggles Leadership Podcast. To make sure you don’t miss more future-shaping ideas and conversations, please subscribe to our channel on the podcast app. And if you’re listening via LinkedIn, Twitter, or YouTube, why not share this with your connections? Until next time. 

About the interviewers

Tom Clarke (tclarke@heidrick.com) is a partner in Heidrick & Struggles’ Dubai office and a member of the global Technology & Services, Technology Officers, and Digital Officers practices.

Guy Shaul (gshaul@heidrick.com) is a partner in the London office and a member of the global Technology & Services Practice. He leads the Crypto & Digital Assets and Cybersecurity sectors in Europe and Africa.