Funding the Future: Evolving Models for Onchain Startups | Jonathan King | Debra Nita |

[Music] wow solar uh Farms onchain it's nice to see some optimism back in the space uh next up we have funding the future evolving models for onchain startups with Jonathan King from coinbase Ventures and Deborah Nita of Yap Global hey everyone GM how's it going third day doing good good parties last night I I I've heard of some people who went to bed early last night so I think everyone's had a really big big week uh thank you so much for joining us in this conversation um quick introduction I'm Deborah Anita I'm an associate director at Yap Global we help projects gain publicity um through media coverage narrative development thought leadership basically getting them in front of Journal and media and um I'm really excited for our conversation today likewise please introduce yourself John and tell people what you all about yeah hi everyone so Jonathan King most of you probably know me as JK um investor at coinbase ventures so coinbase Ventures is an early stage investor in like all things crypto and web 3 we've been investing since roughly 2018 have just over 500 companies in a portfolio um investing through all Market cycles and we're fairly generalist uh still have decent exposure across a wide variety of different Primitives ranging from infrastructure to applications to Defi and across multiple ecosystems so looking forward to the discussion today about what's changing in the um kind of VC and perhaps like you know retail fundraising environment exactly so I think we've experienced a relatively big shakeup in how fundraising has been done in the past 6 months and you guys are right there in the trenches so um let's Dive Right into one of the most popular platforms that started making the waves at the beginning of last the last quarter the end of last year so let's start with Echo I think most people have heard of echko it's an investment platform that Kobe uh a prominent investor created and essentially it opens up seed round Investments to a broader audience than the traditional VCS and so Echo was actually available starting last April but it really started catching attention with this one particular investment by um mega Labs or Mega E uh I don't know if you guys remember but they basically raised $10 million in 3 minutes on this platform and um I'm curious John like what kind of conversations that stir up in your circles among you know the other VCS or within coinbase Ventures like take us behind the scenes was it expected um do you guys have have concerns so I don't we don't have like concerns I think what was like surprising to us was looking at the demand from retail to get access to a market which traditionally was private and probably only limited to a select few which was like kind of institutional investors right so seeing like the Mega E fundraise like the $10 million in 3 minutes what that proved to us was there's immense demand from retail to have skin in the game and want to participate and actively contribute to some of these projects and so platforms like eeko what they're doing really well is really democratizing access to some of these private fundraisers so eeko as many of you all may know eeko is built on top of Base it's fully on chain um you can raise funding uh for Echo so as a participant let's say if you're a retail investor you actually have to be invited to join one of the groups on Echo so typically these groups are set up by an investment leag that investment lead makes deals available to his community members his or hers community members and then as retail investors you're presented with literally the same terms as other VCS that might be presented in the in the round right that comes with some type of lockup period as relates to the Token event and again it just gives another Avenue for retail to get access to you know what traditionally was like you had to be in the know or you had to have those relationships but it's opening up the aperture for retail investors so does that make things a little bit more difficult on your end just because I guess there's more options available out there in the market I don't necessarily think it makes things more difficult um I do think what it does well is it aligns incentives right and so typically some of these Founders what they'll do they may go ra raise funds from let's say a traditional VC because of some of the value as that they can bring and then they perhaps would go raise a smaller round or a larger round on Echo right because they want to bring the community along with them so we actually think it's actually very compliment cool so I think maybe before we go into like a little bit more detail about the different emerging approaches I think we need to talk a little bit about the past so the the very popular vehicle for raising funds when this whole industry emerg emerged was the Ico initial coin offerings and they were very popular from 2016 to 2018 blockchain projects essentially issued cryptocurrencies to raise funds for their startup now e had of course had its own Ico and it raised around 31,000 Bitcoin which at that time was $18 million worth and of course this led to like speculation scams and then The Regulators got interested and then everything got kind of shut down um it seemed like this is a reemergence of icos this is like Ico 2.0 or like what's your take on that yeah so my personal take is that I think the Ico term is a bit outdated at this point right is really um onchain Capital formation right and so as Founders what's happening is that they're having access to multiple different Avenues to raise funding for their projects right so I'll give you an example like the traditional route is going down you know to venture capital and raising let's say a preed round to build out an MVP a seed round to now scale that mvp and prove Out product Market fit and now like a series a when you're really starting to like pour a little bit more gasoline on the fire there's platforms such as Echo where now you want to go out to let's say a credited investors and raise funding from angels and all of that being transparently available on chain um there are now let's say token launchpads right and so we're seeing like examples of you know if anyone's been following the stuff with Zora and like creators are creating like their tokens and so there's multiple different Avenues in this environment for you know kind of raising Capital right and it doesn't have to be through the traditional like VC route or Angel investment route I do think we're entering this this this um land of like permissionless token creation and it's giving multiple avenues for retail along with in like traditional VCS and institutions to participate in that economy so the question is like why is this happening and why is it happening now yeah that's a that's a really great question so I think like you have to kind of think back to like his history of let's start with like history of crypto VC so 2013 through 2016 I'd say was like the early emergence of Crypt VC and that was like Investments by let's say more generalist funds like an a16z USV that invested into coinbase they invested into the circles the blockchain.com it wasn't until like you know 2013 where we had like the first crypto native VC starting to emerge and you know fast for to 2016 to then 2018 you know there was investment into kind of like Crypt native projects in that 2018 period that's when we did have those iOS and so I don't know if everyone caught the debate yesterday between Josie and and Michael from Legion they were kind of talking about like crypto VC's versus iOS J brought up a good point yesterday when he was saying like icos the reason it was kind of like the boom and bus cycle because a lot of these projects there wasn't a real project right there was offering of a token before there was a white paper before there was an actual project and so that was the boom and bus cycle of iOS and then you started to see 2018 2019 for you started to see the institutionalization of crypto VC so coinbase Ventures was founded in 2018 and our remit was to go see the ecosystem right we believe that coinbase shouldn't be the only company that should be on a path to going public uh within the space so we wanted to see the ecosystem now that the ecosystem has ured you know so has our investment strategy and so we're you know very long a term align we're investing into exceptional talent that you know supports our mission of growing the onchain economy and there's other investors that share that same sentiment and then now we have the available tools the networks being building Echo being built on top of like Bas as an L2 and connecting through you know smart wallet using usdc we have the tools to make this investment class more open more accessible to to retail so it's a natural re Evolution and like I said it all falls within the theme of multiple different Avenues to onchain Capital formation and um I think so one of the key reasons why this has emerged like is this alignment with between the community and the projects themselves and I think that's a that's a big reason why this whole thing has um really you know gained a lot of um traction between the different versions that exist today uh of platforms like so between Echo and Legion and bidle Pad like are there any interesting nuances that make them different and are there any others that are on your radar as well yeah I think like you you captured the the primary three that I've since emerged I think again Echo as a platform on on top of Base what Echo requires accredited investors or qualified investors in order to get access so you actually have to apply to some of those investment groups and be invited to participate um Legion is taking a different path where Legion employs like this merit-based system and so what that accounts for um as users like connect their wallet Legion is applying like you know their back in Tech is looking at okay what is your onchain like kind of History right how have you participated and actively contributed to the ecosystem have you written any code in GitHub for this project um previously and so Legion makes um you know their platform available to retail investors in EU right so if you want to follow like the EU regulatory guidelines you can get access Bill pad is relatively new I believe there's just one project um that has come through come through the bill pad um Launchpad and I'm still trying to you know see how that's going to going to play out but like I said the all of them were very similar where they're just trying to give access to what was traditionally very private closed off proprietary in a sense giving access to curated deal flow giving retail investors an opportunity to participate great thank you so we've talked a little bit about the pull factors which which is why these platforms then have emerged and become popular but I think there's also the other side of the coin which is the push factors which is okay so maybe I'll set some context like um part of uh what I do is help projects gain publicity and some of the things that gain publicity when they fundraise so a fundraise story and recently what I've been hearing from some of these projects is that they're just doing 100% Community back in fact they're saying like I don't want to be associated with the brand of VC I don't want to take VC money and so I think that's there's some kind of push factor behind that so could you maybe respond to like the critique of why these sort of new approaches have emerged and um and is it fair yeah so this is a very very good question um so maybe just set some context right on where that critique originally came from uh I would say 2023 2024 um well 2022 to 2024 we saw a launch of like several big name infrastructure project right everything from l2s to new infrastructure Primitives and the thing that you would see on crypto Twitter which I believe you're referring to is like this idea of VCB projects that are launching with low floats High FDB right and so the lowf flow concept was essentially very limited circulating supply of tokens so if most if most like projects were launch with let's say 1 billion token Supply the low flow would say less than 10% so less than 100 million tokens so as more tokens were introduced so let's say unlocks happened and again the unlocks meaning that the cap table the investors which is typically VCS that would have access that would introduce sell pressure on that token right and so any like little movement Pur of the token could make the the price fluctuate pretty volatile um and so that was that's where a lot of the negative sentiment started coming toward as well Venture investors they were able to get into into these projects at very low ftvs now the project has launched and they're selling on resale which that really that's not the case um so that's why you had like these platforms emerge like Echo so that way other retell participants again can actually invest into these rounds alongside the vcn participants right they would sign up for similar token lockup periods and vesting schedules Etc and they would have more skin in the game um the other thing that I would say is and again this was emphasized yesterday why would some projects you know come to VCS versus perhaps doing like a community launch or or Fair token launch and the thing I always encourage Founders is to really think about the value ads right so when you're thinking about let's say the investment team that you want to surround yourself with um typically Venture investors have access to a broad Network ofes a lot of times for coinbase ventures companies our portfolio companies come to us and they want to speak to our policy team at coinbase right we will get questions on hey what does the regulatory environment look like in this emerging part of the world and so we have the staff available to make that expertise um uh available to them as like a service as a value ad um again that connectivity is something that a more institutional traditional Venture fund can provide compared to just a retail investor right so that's why I think you having like this Blended hybrid model where some Founders will still go down the path of you know inviting VCS to participate because of the value ads that they can bring otherwise yes the some of are absolutely happy to you know kind of just do a fair launch and we think that's fine as well and so have you have you guys you know talked to projects that you're interested in and them just say like actually we're going to skip like has this come up at all or generally does that not happen for you guys in particular it happens right and so you know it's it's the same um um way of you know the the projects that we say that's the hot deal and perhaps we can't get allocation into into that round and so we have some Founders say hey we're not going to go down the traditional VC path we're going to do a fair launch of with the community and we say that's great as well so let us know how we can best support you right and like we'll explore if there's like an open market investment opportunity that we can make down the line if we have that much conviction so a project so again it's it's up to the founder to make that decision and the founder always thinking about what is going to drive the most value what are they optimizing for do I need to bring investors that can help me do X can I just rely on the community and kind of do more of this Grassroots campaign to accomplish why and I think all models are acceptable and it's really up to the founders to kind of choose what's fit for p purpose for their unique needs would you guys use platforms like the new ones that have emerged like or is that not a thing at all yeah so those platforms are mostly reserved for just retail participants right so it's like individual investors that that curate alled an angel Syndicate correct individual invest okay got it and so like with with everything that's changing with the evolution of these models besides you know or including coinbase Ventures R VC's pivoting is there you know a change in investment philosophies in general like and like um an encouragement of doing a mix model like how about like how do you guys approach I don't I don't think the VCS are right like for coinbase ventures we've always been long-term align right so we're investing at the earliest stages into some of these Founders and you know we're investing into Founders that are exceptional that you know are more missionary that support our mission of okay how do we increase economic freedom how do we build the onchain economy right versus being short-term and mercenaries so I don't think like the mission for us or like that long-term thinking has changed I do think what is changing is I think we're going to see more hybrid invest investment models right where you have a cap table that now consists of traditional Venture investors it'll still consist of Angel Investors and then you might have some of these Echo groups or Legion groups participating as well so I think you get the founders will have more Diversified funding options and a more Diversified um cap table as well so we're we're kind of running low on time um so before we wrap up we love to hear do you have any predictions for what's going to happen with either you know fundraising like what kind of projects um are hot right now that you know you're paying attention to and any advice to projects that are fundraising yeah I like I say I think for the founders maybe I'll start with the advice I think for Founders um thinking about what's valuable to you right and where are you in the founder Journey right and there's multiple sources at this stage multiple sources of capital that you can tap into so I know a lot of the teams that are here they may have participated and say let's say the E global aons right and you're kind of getting grant funding to determine okay we're going to build some type of MVP the critical decision after you're kind of evolving from a hackathon project is like do you actually want to build a business right out of like this this particular project at that point then you have multiple different models you can go to um Venture investors coinbase we early stage we invest as early as precc pre-product all the way through series a and Beyond perhaps you're going to go through like a platform like Echo and do just like a community raise like that there's also like let's say like we talked about like the fair launches so I think like my prediction is that I think we're just going to see this convergence of traditional institutional Capital along with retail right to really push this Frontier of of crypto forward um and like I mentioned like coinbase we're just excited we are going to continue to invest across all Market Cycles we're very long-term in our thinking we're missionary align and so if that's the type of future that you want to build as well as relates to onchain economy we would love to connect okay okay and just a quick one what are the top three Trends or top three areas of tech that you you have your eyes on for the year um crypto AI check out our we published our crypto AI thesis um a few months ago so that's the area we spent a lot of time on um stable coins and and payments as well and then I would say um nextg defi that opens up the defi markets to retail and participants as well interesting thank you so much really enjoyed this conversation and thank you so much for joining us thank you [Applause]