Building the Goldman Sachs of Web3

This article was published in DACH Insider Issue 02 on 22.09. The DACH Insider is the new insider journal for the German-speaking digital assets industry. Every second Sunday, we provide exclusive analyses and background reports from the DACH region. Check out the full issue here.

The story of Areta is the story of two investment bankers and a management consultant who recognized early on that the crypto market wouldn't remain the Wild West forever—and that even decentralized structures would eventually need to meet the highest institutional standards. And with great success: just three years after its founding, some of the biggest names in the onchain economy count among Areta's clients: Uniswap, Arbitrum, Safe, CoinGecko, Solscan... the list goes on.

Areta was founded by Karl-Martin Ahrend, Jan-Philip Grabs, and Bernard Schmid—three German entrepreneurs who left their careers at Blackstone and McKinsey to create something that didn’t yet exist: a crypto-native investment bank.

Their services are centered around three core areas: (i) Mergers & Acquisitions, (ii) Equity & Token Capital Markets, and (iii) Strategic Governance. In our interview, they provide exclusive insights into each of these areas, shedding light on processes and deals that usually take place behind closed doors.

We discussed the hottest verticals in M&A, what really happens behind the scenes of a token launch, and how crypto exchanges leverage their market power. We also delved into the most exciting trends in the DAO space and learned why Areta sees Strategic Governance as the next big opportunity.

From left to right: Karl-Martin Ahrend, Jan-Philip Grabs, Bernard Schmid

I Mergers & Acquisitions

Let's start with your M&A business. What role does Areta typically play in an M&A process?

Karl: We see ourselves as an extension of the founders throughout the entire M&A process. This means we're not just advisors; we truly integrate into the operational aspects of our clients' businesses. We guide our clients from the initial strategic conversation to the closing of the transaction. The process begins with a deep understanding of the company's goals, followed by intensive due diligence to ensure all information is thoroughly prepared. In the crypto sector, M&A deals are particularly complex, as they often involve not only traditional elements like cash transactions but also tokens, which play a crucial role. This requires not only financial expertise but also a deep understanding of token economics.

The M&A market seems to be gaining momentum from an outsider's perspective. Where do you see the most traction? Are crypto firms mainly acquiring other crypto firms, or is there more interest from traditional companies?

Karl: The M&A market has certainly picked up in recent months, with most deals still occurring within the crypto industry. Many players are looking to expand their market positions—take, for example, Etherscan's acquisition of Solscan—or enhance their technical capabilities. Acqui-hires are also becoming quite common. A new trend we're seeing is Token M&A, as launching tokens has become a significant challenge for many teams.

The fact that most acquisitions are happening within the industry is because crypto companies still understand crypto-native business models and regulatory hurdles better than anyone else.

At the same time, we’re seeing growing interest from traditional companies wanting to enter the crypto market. Robinhood's acquisition of Bitstamp is a prime example. This trend will continue as the market matures and business models become more robust.

Which verticals are you seeing the most activity in?

Karl: Exchanges and staking services are currently in the spotlight. Well-capitalized market leaders in these areas are looking to grow inorganically. There’s also a lot of activity in categories that are highly synergistic with existing business models, such as banks looking to acquire crypto custody companies.

II Equity & Token Capital Markets

Let’s move on to Equity & Token Capital Markets. What does a typical mandate in this area entail?

Jan-Philip: Our mandates closely resemble classic Equity and Debt Capital Markets services (ECM/DCM) from the traditional financial world but with an additional focus on digital assets and token-based funding rounds. Many major VCs are our clients, and we assist them and their portfolio companies in structuring their secondaries or conducting their growth-stage funding rounds.

Operationally, this means we invest a lot of effort into crafting the narrative, determining the company valuation, attracting investors for roadshows, and conducting the entire due diligence process.

Finding the right initial valuation for a token is especially tricky in the early stages. What factors play into this process?

Jan-Philip: The last private valuation of a company often sets a baseline, establishing the minimum price for a token. Many projects also benchmark against comparable projects within the same industry or category, often using metrics like Total Value Locked (TVL) or generated fees. This approach is increasingly important and resembles valuation methods from traditional finance.

Market sentiment is also crucial. Crypto markets, much like traditional ones, are highly sensitive to external influences. Therefore, timing the Token Generation Event (TGE) is vital, as market conditions can either amplify or hinder a token launch's success. Another key factor is the token’s liquidity on exchanges and the support from market makers. Tokens with high liquidity naturally attract more investors.

Speaking of exchanges, it's often said that the big ones negotiate highly favorable deals for themselves. How are these typically structured?

Jan-Philip: That's true. Centralized Exchanges often leverage their market power to negotiate very favorable terms. Typical structures include the exchange demanding a percentage of the total token supply. They also often require marketing fees to promote and spotlight the project on their platform. Another element is volume requirements: exchanges frequently expect projects to demonstrate high trading volumes and market traction before listing a token.

How about the token deals within a TGE? What kind of lockup periods and discounts are common?

Jan-Philip: For most projects we work with, there's usually a one-year lockup period for early-stage investors and the team, followed by a vesting period of two to four years where tokens are released gradually. This approach prevents early sales and provides market stability. As for discounts, it varies greatly depending on demand. While some tokens trade at a premium compared to the last valuation round, most Web3 secondary market transactions see institutional investors demanding significant discounts from the last round.

You mentioned that timing is crucial for a TGE. Apart from poor timing, what are the most common mistakes teams make when launching a token?

Jan-Philip: Many teams launch their tokens too early, without sufficient traction or a mature product. As a result, they end up focusing more on the token price than on product development, which can be damaging in the long run.

Poor token design is another widespread issue. This includes improper token allocations, unclear or unsustainable inflation/deflation mechanisms, or an over-allocation to the team and early investors, all of which can harm long-term value creation.

Short vesting schedules are also problematic, as they flood the market with tokens too quickly, driving down prices.

Another common pitfall is neglecting the business model and monetization. In the Web3 world, fees play a crucial role in long-term sustainability, yet many teams overlook this aspect. We also see a lack of institutional investors, which is why we offer our "Investor Relations as a Service" to ensure teams receive the attention of institutional liquidity providers after their TGE.

III Strategic Governance

Thank you for those insights! Finally, let's talk about Strategic Governance. What do you mean by this, and how do you support DAOs in this area?

Bernard: Strategic Governance is one of the most exciting fields in Web3 because it revolves around the fundamental organization of decentralized structures. We see ourselves as the "McKinsey for DAOs." Our team helps DAOs and foundations develop and scale their governance structures. We work on governance designs, ecosystem growth programs for capital allocation, and strategic initiatives, especially with leading DAOs like Uniswap, Arbitrum, and dYdX.

When you say "McKinsey for DAOs," does your compensation model resemble traditional consulting projects?

Bernard: Exactly, we work on a project basis.

What has surprised you the most in your work with DAOs so far?

Bernard: One of the most surprising insights has been just how early we still are in the development of DAOs. There’s immense potential, but there are also many challenges. What's particularly interesting is that DAOs don't operate with a unified governance model. Some are fully decentralized, while others are heavily controlled by a foundation or a small group of actors. In many ways, DAOs resemble political systems, where it's crucial to understand the different incentives and agendas of the stakeholders. We’ve strengthened our team in this direction and are now working with experts from the fields of political science and law.

The issue is that if governance structures aren’t set up correctly, a DAO can face a total collapse. We’ve already seen cases where DAOs were taken over by powerful actors or had to be dissolved by their communities. Our mission with our Governance Unit is to create effective systems that aren’t just seen as a necessary evil but rather as a strategic tool to advance the organization.

A common criticism of DAOs is the often low participation rate and inefficient decision-making processes. Where do you see the future of DAOs heading? Will they shift more towards elected experts and delegates?

Bernard: That largely depends on the type of DAO, its use case, and its size. However, what we’re definitely observing is a shift towards more centralized decision-making in larger DAOs. Delegates or elected councils are increasingly taking over the decision-making processes because managing multiple daily proposals and decisions in large DAOs simply isn’t feasible without working full-time on them. But this also presents a major challenge: How do you prevent power from becoming too concentrated in a few hands? How do you avoid conflicts of interest? We’re working closely with several foundations to learn from the mistakes of other DAOs and develop better governance models.

One potential solution could be SubDAOs, which we’re seeing more and more of. What’s your take on this development?

Bernard: SubDAOs are definitely a way to make governance more efficient, especially in very large and complex ecosystems. There are now quite a few projects using this structure to pool competencies and delegate decisions to smaller, specialized groups. This reduces complexity at the top level but can also introduce new challenges, such as coordinating between SubDAOs and the parent DAO.

Activist investors are also becoming increasingly prominent, especially in projects where the treasury’s value exceeds the token’s market cap. Is this a trend you’re seeing as well?

Bernard: This was actually quite a prevalent issue last year, especially as some DAOs came into the crosshairs of activist investors (e.g., Aragon). However, with the market upswing and the renewed focus on growth, this issue has lost some relevance. Nonetheless, it remains a risk, and we’re working to protect DAOs against such attacks by establishing more robust governance structures.

What other trends do you see in the DAO space?

Bernard: There are quite a few interesting developments. Firstly, there are more and more programs that support builders beyond the traditional grants. For example, we established the first subsidy fund for security audits for the Arbitrum DAO. Another exciting trend is the standardization of the data layer across different DAOs to make governance processes more efficient and transparent. The area of DAO M&A deals is also evolving, and we're experimenting with a few projects to realize the first major DAO-centered M&A process.

And to mention two more trends: “Redelegation of ghost voting power” to increase voter participation and “Retroactive Public Goods Funding” for collaborations across multiple ecosystems.

Career Advice

Lastly, what advice would you give to consultants looking to transition from the traditional finance sector into the crypto industry? What crucial skills and knowledge do they need to acquire quickly?

JP: We firmly believe that a strong traditional skill set—especially in areas like investment banking and strategic consulting—is more valuable than ever in the crypto world. In no other space are people so heavily focused on technology and product, which offers enormous opportunities on the strategy and transaction side. Anyone with a solid foundation in these areas can truly make an impact in crypto.

Bernard: My advice would be to immerse yourself in the fundamental technologies and protocols in your spare time. For us, it was crucial to work with a DAO to understand how the space operates. Once you develop a passion for the topic, everything else falls into place. However, jumping into crypto just because of the opportunity isn’t a good idea. The market requires a lot of perseverance, and to succeed, you really need to dive deep into the space.

Karl: Exactly. It’s important not just to chase short-term opportunities but to genuinely engage with the technologies, culture, and processes in Web3. Without the necessary passion, it will be tough to achieve long-term success in this dynamic and rapidly changing environment.