Through the Web3 Looking Glass
My double life for the last few months
I hopped on a call in May with a founder to hear about his company. He wasn’t raising any money. He didn’t need it.His product was already worth hundreds of millions of dollars within a few months of part time work.
A few months later, I was invited to a dinner. Walking through the restaurant to the outside patio around the table was the founder of a relatively new gaming company - Axie Infinity. This game is so popular that grandmas, aunties, and uncles are quitting their job in the Phillippines and Vietnam to play this game. Within 4 years, Axie Infinity is valued at nearly $30B.
They were both able to do this because they built products for the Web3 world.
I’ve been spending the last six months working with two types of founders - founders building for Web3 (crypto, blockchain) and founders building for Web2 - everything else. I’ve found three things that founders can no longer ignore: the pace of growth in Web3 is astounding, the introduction of new ways to fundraise is undeniably attractive, and there is so much potential for founders to build.
The Evolution and What That Means
As I went home after the dinner, I kept thinking about this quote by Jeff Bezos:
“I came across this startling statistic, that web usage was growing at 2,300 percent a year. ...Anything growing that fast, even if its baseline usage was tiny, it's going to be big,"
What if Web3 is just like the internet for every entrepreneur, even if it seems so tiny? For every tech entrepreneur, the internet is necessary for their business. And since the pandemic almost every entrepreneur knows that software is eating the world. Even CNBC news had an article about how a 12 yr old made five million dollars of NFTs. This reminds me of the early days of the internet, when businesses would get a high school kid to figure out how to make an HTML site for their business because it was “new technology”.
I realized this was something I could no longer ignore.
Sure, the Internet bubble happened. But the fact remains that the Internet is still here. Web3 has brought, and has the potential to bring, so many good things, would we even go back if we could? Web3 has enabled payments globally in seconds, allowed emerging countries to protect their currency from devaluing and for some, stabilized their own economic outlook. And just like merchants cannot return to pre-Paypal days, I’m not sure we can return to slower and more expensive global payments via Western Union. Faster and cheaper payments are just the beginning.
New fundraising models and economies are being built in and because of Web 3.
Founders need access to capital - either in the form of customers or in the form of investment.
Investment has traditionally come from VCs and/or banks that gave loans. Up until now there really has only been two ways to raise funds. Crowdfunding has been growing, and DAOs take this one step further.
An example of this shift has been the Decentralized Autonomous Organization (DAO) called Friends with Benefits (FWB). FWB began as a social experiment, where if you bought the token you were allowed access to the community. As more community members join , the value of the token would increase. Token holders have voting rights over the community bylaws as well as treasury and budget. Now the community is thriving, with resources to re-invest in its own growth and sustainability. Also, economically, this token has been a success. It started out at about $900, and has gone as high as $15,000 in value.The community became so thriving that VC firms such as A16Z pitched the Discord members on why they should be allowed to buy up 10% of the tokens. As one founder said, “it was wild, I have never seen a VC pitch a community before”. The community, your community, can now have power.
As a founder you can see where this is heading. Another form of capital raise could be from your community in the form of a token. Please talk to your lawyer before doing this as some types of tokens are being considered as securities. However, putting ownership into the hands of people aligned with your longer term vision, and people who can contribute to help you get there, is an innovation you should not overlook.
Founders Must Build
In the Web3 world, you become an expert by building.
Things are changing so quickly that no one is an expert in crypto. Building is exactly what founders are made to do. I tell many people that it feels like 1995 again with the birth of the Internet, where HTML was the hottest thing and people were just coming online. Ideas would start as “projects'' and evolve into “companies”. Founders would moonlight , tinkering at night and on the weekends and then launch to see what happens. I’m seeing the same things happening in the Web3 world. A lot of part time founders and students. I met another founder still in school taking midterms, who launched a stablecoin swap exchange and reached $220M in valuation within two weeks.
Note, much of the value is not realized yet, and yes there are still so many more people that don’t hold any currency in the Web3 world. There are many reasons for this. But the most obvious one is that so much needs to be built - from payment infrastructure (DeFi), to games - NFTs - to commerce. 1 For example, for me to lend out my NFT, I have to give it to another wallet and trust that wallet holder to give it back. Another example is how do you even communicate with one wallet to another as there is no email, IP address or anything associated with it . These are just the tip of the iceberg.
And whenever there are problems to be solved, it is fertile ground for founders to build iconic startups.
Founders in Web2 and Web3 are master builders; however, just choosing a different land to build on. While so many factors are out of the founder’s control, the one thing they do have control is where they choose to build their company. What is happening in the Web3 world is now the New World - full of opportunity and potential. So much is changing greatly that even investors can’t keep up. It feels like how product market fit feels. And when you feel that about an entire industry you can’t help but get pulled into the Rabbit Hole and through the Looking Glass.
If you don’t know where to start, it’s best to start at the beginning. Here is a short explainer of the Web3 world from my perspective.
NFT - Non fungible token. These tokens cannot be interchanged like cash. These are jpegs that are registered on the blockchain. These are not seen as securities.