Investing in Web3: Brilliant or Mad Science?

I love it you guys are keeping it going um yeah how about that for uh for a security panel like uh Zach thanks for bringing the energy and everyone next up what we have is a panel on uh we've got uh Jacqueline Kelly Jeff Amos and Maria talking about uh investing and uh genius or mad science thank you yeah hi everyone I'm Jacqueline Melnick I'm a senior crypto reporter at TechCrunch uh we're gonna have fun today talking about investing as he mentioned uh we have everyone here with us if you want to just give like a quick intro sure uh I'm Jeff Wren uh from okx Ventures I'm Kelly with a Pearl River Adventure capital and Mint gold dust hello everyone my name is Amos I'm from at the web Ventures hi everyone my name is Maria I'm with Electric Capital that was the quickest intros I've ever gotten thank you guys I appreciate it uh to start I guess like what is your like kind of overview right now in the investing space like obviously last year was really crazy with everything that went on but investors aren't really heavily affected by it I feel like you know like their strategies stay the same they hold out to like what they're doing so like for each of you like what are you investing in right now across like What stages and sectors are you really focusing on I I think it depends on what type of investor you are um how much uh you have to invest in the market but also at what stage you invest in and that makes a big difference in how you're affected by the market especially if you're solely funded like myself yeah I think we are a uh like uh call pre-venture arm for okx so we I mean last year is crazy but uh as most people around here would know it's not the craziest time ever for crypto so uh I think we've been seeing some ups and downs from our perspective it's really uh to enable the entrepreneurs and uh uh you know the community in general to have more mass adoption and uh to improve the security for the you know protocols or networks and uh I guess just to try to involve more people into crypto I guess that's our intention uh for us the bearer Market is actually great because um I think we're probably a small smallest phone on the stage right now uh we raised only about like 30 million uh USD for fund one uh from the likes of you know Sequoia uh 7x uh jsr dragonfly Etc uh so almost kind of acting as you know like a fund that work with lots of other phones and our really like Niche is actually on early stage investment and we tend to spend a lot of you know time on helping the project with their post investment across you know anything from you know fundraising marketing uh product engineering Etc and the reason why this you know bear Market benefits a lot is actually that allows you know Builders to spend more time on product uh it's not as like a speculative S1 before and also give us like much more time to do the due diligence so we embrace the the bear Market um so Electric Capital is an early stage crypto-focused VC firm we invest in seed in series a we were started in 2018 um and you know I watched eth go from all-time highs to like 80 dollars so um I think one of the things that's really unique about us is we two-thirds of our team are Engineers everyone on the investment team myself included has an engineering background everyone has either started a company or has been early stage at a company and so you know I think it's for us this like bear Market is is really like a lived experience um and the thing that we really focus on that we've been pushing since 2018 is to focus Less on prices but look at the fundamentals the fundamentals to us um is the number of developers in the space so we put out something called the developer report every single year and it's very clear that by the end of 2022 prices fell 70 percent and developers grew five percent year over year right it's it's very very clear to us that's there's something very important and interesting happening in the crypto space and so for us we are not at all affected by the market conditions and we're still deploying Capital very rapidly that goes into my next question Maria it was basically uh given everything that happened in the past year what do you think will change in regards to Capital deployment in this space for you know funds and investors in general if it's not affecting you guys like what have you been hearing um I I'm curious what you all think but what I've seen is that early stage um early stage is still happening precede is very active seed is very active um series a all these companies are are still able to raise where I've seen a little bit more difficulty is with series B and Beyond so anyone trying to raise 20 to million dollars or more I would say is having a slightly tougher time in this environment and that's um you know and that and that's because a lot of the times it's the crypto native firms that are still in the space yeah I think um I've invested in Block apps in 2017 it was the first blockchain as a service we took it to Market Karen James lubin's company and you know that was at the beginning of like really where a lot of developers coming from the web 2 space really started to dive into the web 3 world and and I think that that first um bear market after 2017 it really hit some of the developers hard a lot of people that came into the space during 2017 2018 by the end of 2018 they were going back to web 2 and they were losing their positions in the web 3 companies and the startups and so I think that um we're going through that slump right now again and but but there's a lot more developers in the space and there's a lot more projects in the space so for me it's really beautiful to see a lot of startups I mean it's so beautiful to have buffer corn Ventures and ethi species just coming here to pitch you know this is my sixth East Denver and we didn't have that to begin with in this space we didn't have like multiple startups web 3 based blockchain based companies uh looking for funding you know in 2017 2016 uh 2015 and so it's really beautiful to see that this bear Market um you know coming full circle around in in this in this cycle four-year cycle yeah so for us I would say a very similar experience you know as electric guys uh we still see lots of you know uh relative like lower evaluation early stage deals uh but definitely some of the later stage deals uh having a bit of trouble uh to raise money um but in general at least uh how are you know seasons and philosophy uh kind of work right now is the uh once again you know the reason why we embrace the bear Market is the because uh they're much less speculation uh compared to maybe a year ago uh valuation actually becomes much more reasonable uh it's almost kind of like automatically filtering a lot of you know the the the entrepreneurs and Builders who know necessary have enough you know persistence to build a good project right so my myself was actually a Serial entrepreneur uh before uh doing medwap at the multiple companies across you know public chain you know payments as um race I think all the companies that participate rates probably maybe like uh more than 300 million dollars at this point but one thing I learned is that it was super difficult to become entrepreneur there are always things that just happened that you just never realized didn't expect and I think you know for those guys who ended up you're really succeeding uh you just need to have the hard and drive to actually you know push through all the challenges right so once again you know I think the market is definitely now super good for entrepreneurs but then again uh I think you know crypto blockchain still has a really good potential and I think in this market we might see some of the the best you know project has the most potential that can actually you know defend the narrative for the next uh bull market yeah I I think people say that uh you know bear Market is for Builders for building um I feel that uh you know for entrepreneurs the bear Market uh would make uh a lot of projects become more focused uh less distracted by the uh you know the noises you know the billion dollar valuation that their competitors that are hit to right running around for fundraising and all that I think uh right now the market is keep everybody honest and rational when it comes to the your buildings and Milestones and execution we as a firm we have a a deep belief that our daughter is not greener that's how we talk about this things like this so we won't be value-add and we want to be able to enable some of the projects when it comes to Unchained data we have uh ok link which is uh you know accumulate it uh you know over billions of address labels and uh you know uh 26 ish public chain data be it transaction or you know smart contracts or nfts so this becomes a very powerful tools for our perspective Partners or or portfolios just name a few we also have started become very popular in the market our web 3 wallets and uh you know so this is for entrepreneurs but also as we all see in the past I would say 18 months or so they're more and more traditional companies coming to this so-called web 2.5 um want to want to feel it but not not dedicated or don't really understand blockchain or crypto and I think we find different solutions working with these players um I think that's uh that's another way that uh that that that uh we want to enable the traditional business uh into the I guess crypto wall and how competitive are deals today from a venture perspective like compared to a year ago or two years ago what are you guys dealing with now uh I guess we go both ways uh yeah uh as a firm we believe we pay you know market for the deals so whatever in the market feels prices you know we we just uh joined effort we uh I guess uh uh we don't feel it's uh it's too competitive I I think if we decide to invest usually you know with our value add the projects would want us to be part of it uh either getting the funding or getting some of the you know the the support that we can provide to them so we actually work with entrepreneurs and Venture capitalists uh of you know all together uh on very very friendly terms so I certainly wish you will can continue that way yeah yeah I think us really interesting to try to find startups right now in the market to invest in because there's a lot of new developers that are moving from one company to the next because we've had to make some shifts the larger startups within web3 the larger companies within web3 have laid off some people so we're we're finding that the startups can get those developers and they can start to build now they're desperate for getting the funds to pay these developers and so I feel like there's a lot more startups in the market that need funding it's just there's only a certain number of skilled facility developers still and that's one of my biggest challenges is when I go through and I evaluate startups I always ask about their developer and their their co-founders and their Founders and their product and last but not least their business model and if they don't have the right business model and the right structure it's really difficult for me to take them to Market or invest them and so from that perspective that's the that's the difficult for me difficult part for me but there's a lot of startups out there in the market if that makes sense yeah so I'll say I have like very similar feedback so just not going to repeat uh but one thing I would like to add and touch upon is the uh I definitely see like more and more entrepreneurs uh I'm definitely much more capable entrepreneurs uh in the past two years uh compared to um before because I started looking crypto all the way back into n13 I would say the quality of entrepreneurs and projects are just you know still growing as the exponential pace so for example we invest into a project called Niche protocol uh so believe it or not uh one of the co-founders was actually the guy who invented the swept function from Tinder so he was a co-founder of Tinder and then co-founder of bumble so they're actually building a new uh social network that essentially bring like a web 2 super easy onboarding a really good user experience but behind the scenes is actually you know Adele Uh the offer lots of the features that you know unlike rules of the current like adult infrastructure really is like uh you know dull you know product built by Engineers for entertaining and for engineers right but what we're trying to say is definitely you know happy to see more entrepreneurs right now actually converting into Webster and starting building a much more powerful especially app layer product maybe compared to before which is probably still focused on you know infrastructure yeah they he the co-founder of Niche protocol he invented the swipe left swipe right I just found that really interesting yeah I'm sure most of us benefit from that at some point I'm sure you guys have seen the memes where it was like oh last year you know funds were investing in crypto and this year it's all about Ai and obviously you are all like cryptocentric so that doesn't apply to you guys but do you think it's a good thing or a bad thing that the people who kind of bought the hype came into the space invested and then kind of left when things became not so sexy left or is it a bad thing that we're losing those people that weren't in this industry but we're investing in it for a brief period of time yeah I mean we like to invest in things that are super weird and so um you know I think for us it's always been about like if if money is programmable it's not something we've ever seen before and so it it kind of follows that the real the the large opportunities or the companies that or protocols or teams that are building on top of it should be building Primitives that we've never seen before and mechanisms we've never seen before and so we really like to fund things that are looks super super weird um and and just kind of like fun experiments um and so you know I think as a result um there's not always a lot of overlap with traditional VCS because it's just we don't look at things the same way that a lot of non-crypto VCS look at things where evaluate things differently um and I think as a Founder you know to your question of like is it bad I think as a Founder it's um it's probably a good lesson to look around and see who are the people who are the investors who are going to be with you the whole way and who do you really want to work with it's such a long-term relationship um to have someone on your cap table and this is not to say that like traditional you know it's like only take crypto native money don't take traditional VC money I think that's absolutely not what is you know what I'm saying here I think it's really about you know who who do you really want and need and who do you think will be with you the whole journey and will understand when when things understandably need to Pivot um yeah and that's that's probably you know the right thing to look for right a mix of things to look for yeah uh sorry yeah yeah I guess just to build upon that I totally agree uh so for instance we have another project called Kino protocol uh so we were actually the only uh crypto native investor uh the other investor was actually uh Sequoia us but more on the consumer fund uh and slow Venture who obviously starts invest in crypto but once again you know the more web 2 team that actually did the investment uh the platform itself is like a utility uh nft type of platform that you know trapped to help you know filmmakers to raise money but behind the scenes also have a really interesting you know low um uh and legal or you know framework uh behind the scene and the reason why uh we probably see help them design the wrong structure is just like you know what Maria says that you know uh it really depends on what you build but if you really want to build like you know a web 2 or web 2.5 project that actually you know take advantage of crypto you probably need help from both direction right so we can help those guys you know with a lot of the crypto style where they're you know webtoon investor uh can help them with a lot of you know the web adoption uh making intro business uh so my advice obviously for entrepreneur is that if you're building such a product uh definitely you know uh try to get a different type of investor to invest uh who also can you know maybe spend time to help you but then again another uh World advice is that obviously for different investors you might need to cater the pitch a little bit uh you know differently uh just because you know uh people have different seasons as investors so like really weird stuff too I like you I always said that um I I was uh one of the First Investors in super rare and at the time when crypto art wasn't nfts that was kind of weird and you know making smart contracts for art was kind of a weird thing and um yeah so I got to be the first investor with John and Charlie crane with super rare and I invested I was the first investor in illus space I kind of like to be the first uh in with the weird ones um and illust space uh illust is uh ls.ar they're a Geo anchoring of media and nfts you know on a on a map and we actually did with um with e Timber LS space and meant Gold Dust partnered to do a culture walk so you can actually walk around uh this event space and try to look for nfts they're actually fundraising right now I think they're pre-series a still but don't quote me on that but anyway they I like the weird and the wonderful and but with web3 and I I really like infrastructure companies like basic block or gilded Finance yeah uh we at okx uh always hold dear to our heart thinking that we're a technology firm and we want to say it's a little bit cocky but we're a firm of blockchain for the blockchain and by the blockchain the first uh step we took was to create a very trustworthy and efficient trading system a marketplace now we are venturing into building the web 3 products as I mentioned the wallets the gateway to different uh you know D5 protocols ft marketplaces and with that we're also learning to contribute to the community and we're learning how to become a trusted member of different dials notably get going down we have our friends in the audience and this is the largest CRM developer community so we deeply believe in blockchain now in the media I think usually there's uh you know uh exaggeration of things right as that's what do you mean so so at one point in time okay blockchain crypto is great evil whatever now ai becomes a big thing but if we all want to refresh our memory a couple of years ago I think different firms have a very similar AI tools but at time if you ask certain Politically Incorrect questions and there are certain answers pop out of it and made that effort become you know very um under a lot of pressure I guess uh socially now I think the society has progressed people become more tolerant for certain errors that the conanco technology can make human beings are incredibly intolerant for so-called defects by the technical development I think that applied to AI we're glad to see that a guy now has more widely I guess acceptance therefore we deeply believe that blockchain one day will be as widely adopted and accepted as AI or big data in general or if we remember in early days the internet right so uh yeah all right my last question for you guys we have about a minute left so one or two sentences there's probably Founders Builders people in this audience who are looking to raise Capital what would be your advice to them oh um I'll take that first um I really want to see a business model I really want to see a strong team I don't want to see a lot of money uh pre-series they put into marketing it's just um you will I haven't seen really great companies that put a lot of money into marketing to begin with a really great infrastructure technology make sure that you are building on a protocol with a consensus algorithm that is strong those are the things that I really want to see and I really want to see a lot more diversity as far as Founders go um I generally like to see something um you know I I think a lot of pitching is narrative and it's storytelling and so a lot of that is understanding your audience right and I think different audience members will want different types of narratives and stories at least the things that I'm looking for um is something new that hasn't been seen before and why that thing hasn't been built yet um generally you know again we invest very very early and so at that stage it's really an experiment and so what I'm looking for is um a Founder who almost thinks of things like a chess game where you can predict you know you can kind of like logically move through the steps to see what things look like five steps ahead of time and if you take things to its logical extremity what does that mean or the implications and that generally means that you have a very very well thought out plan I I understand that you know a month after we talked the plan will probably change because the set of assumptions that you start off with will inevitably fall but I want to you know I think every single time I talk to a Founder I want to understand what that set of assumptions are and how you will go about testing those assumptions um and so to me I think that's that's generally how my conversations go and things that I look for yeah um so we're definitely like to see more Innovation uh really you know weird you know project for that uh as well but I guess one more thing that I'd want to stress a little bit is that uh he's really speaking um most of the blockchain entrepreneurs tend to be really really technical driven guys right but I think we're already at a stage uh that we actually need to build like actual product uh that people want to use uh and that's also kind of align with my previous background which was you know a little bit about that but mostly product and marketing uh so I really want to see a Founder who really thinks through um what they're trying to build uh trying to get like good product microfit before you know spending tons of money you know like build a protocol that looking for Solutions uh instead of like the other way around uh so that would be like my advice yeah yeah I would say in general only only in general by side has some unfair kind of advantage on information and uh probably knows the deals deal flows Market in general so I would highly suggest the founders entrepreneurs focus on the execution ideas and focus on telling the story about the technology about the product about the Milestones execution and to us asking very specifically what do you need or expect from us as a partner not just an investor we love that we don't need more narratives we don't need more you know right that's Chinese basically equals BS so we don't need any more of that we just need more midi concrete stuff that we can build all together well thank you everyone for listening in and thank you guys for sharing your thoughts today thank you thank you thank you thank you guys [Applause] foreign