The VC Perspective on Web3 in 2023 - Andy Kangpan

[Music] foreign thank you [Music] [Music] foreign right now [Music] um good afternoon everyone really excited to be here um we are hosting a panel this afternoon with a few good friends to share some observations and thoughts about uh the web 3 ecosystem particularly from a venture capital perspective so just a brief intro on myself so my name is Andy kangtan I am part of the investment team at two Sigma Adventures which is an early stage Venture Capital firm based primarily in New York where I lead our crypto practice and I'll pass it off to the panels here shortly to give an intro to themselves so uh Craig do you want to start by giving a quick intro sure yeah hey everyone uh can you hear me yeah perfect um Craig Burrell partner reciprocal Ventures um so we're early stage Venture Capital firm focused on crypto and fintech we're based in New York City we do pre-seed through series a um yeah we've been around the ecosystem since early 2017. um I think this is my third East Denver so it's like to be back uh this is one of my favorites um yeah that's me hey everyone it's great to be here I'm Caitlin I am an investment partner here at Paradigm we are a crypto firm founded in 2018 by Matt Hong and Fred are some we take a pretty different approach to investing in the crypto ecosystem we're quite Hands-On as research collaborators with a bunch of our portfolio companies we co-authored you to swap V3 for example and we also are pretty avid open source contributor to different projects in the ecosystem like Foundry and ref when it comes to investing I personally focus a lot on application layer infrastructure I work with companies like Blowfish as well as on-chain marketplaces I work with companies like blur good afternoon everyone my name is Sean Chang I'm from consensus mesh I've been there for five years and uh we are a builder and investor very broadly started by one of the co-founders of ethereum Joseph Lubin and we run an incubator an accelerator and also do direct deals into investment Dows as well as things up and down the entire web web 3 stack excited to be here and meet many of you all right um so to start um we're obviously in a very different Market environment than we were last East Denver there have been a lot of uh there's been a lot of turbulence in the market and a lot of adverse events that have happened over the past few months so um I think it'd be really interesting to hear from each of you how you uh your respective firms are thinking about the current environment and particularly from a deployment standpoint how you're approaching uh the space uh in in the current environment so Sean why don't we start with you yeah so because we've been here since 2017 or so you know we've been here for bears and bulls and bears and Bulls we don't give a [ __ ] we will be here we're so glad that you're here especially Builders right give yourselves a hand seriously like the people left and right of you are the people you want to know when price go up because you're not here unless you really want it to be here right it's not like you're going to get on a plane or a train or bus to come all the way here and kind of just like putts around you're here because you either really believe in the use case or the product that you're building or you're looking for people that also care right and so if you're deeply curious and you are you have the resolve to really focus on a problem that you're deeply passionate about we want to talk to you and so I think that's one been one of our strengths is that irregardless of What markets are saying that we are deeply committed to the long-term Vision um of an ecosystem that's really built by the people in this convention center it's not really led by investors it's not led by speculators it's really led by people that have a deep resolve to want to move things forward so for us uh because we invest up and down the entire chain we are paying attention to obviously regulatory headwinds um obviously enforcement is not a great way to regulate but we also realize that there are things that are simultaneously being launched so if it's Starbucks Odyssey or if it's reddit's new nfts I find it quite ironic that it's divorced from people that are saying hey this is uh not necessarily supposed to be touching retail and so right now money crypto and Tech crypto kind of are not talking to each other despite being powered by the same decentralized systems and smart contracts and the things that each of you touch uh day in and day out so for us we are always open-minded and opportunistic and are interested in talking to builders that feel the same way so so first of all ditto we're super excited to be here at Denver this year you know there's this uh great Warren Buffett quote where he says be greedy when others are fearful and be fearful when others are greedy and I think the former really applies to all of us in this building and especially certainly here at Paradigm we are probably more excited today to be investing in crypto companies than we were a year ago you know we were started amidst a crypto bear in 2018 and many of the most important crypto companies were also founded during that year take a look at uniswap starkware and many important technological developments were also done during that time so I'd expect no different from this year and next and we're we're here for the long run um can I can I triple ditto is that a thing yeah no I totally agree um we've also been here through multiple you know bear and bull cycles and um you know we're we're we try to focus as much as possible on pre-seed and seed and helping get product Market fit um and to be honest right now like the pre-seed and Seed markets are are pretty open for business um there's a lot of financings happen a lot of a lot of deals getting done um we've been averaging about um deal a month about or even through like the last year uh through the downturn so um you know it's a great time to be in early stage pre-seed seed even series a Founder in the crypto space I think in terms of focus um the two biggest focuses for us right now are improving developer experience improving user experience um just making it easier to onboard more web 2 devs into crypto bring more web 2 people into into crypto as well designing for the people who are out there you know not the people who are in here but um yeah awesome um well uh Craig that you touched on um the activity in the particularly in the pre-seed and Seed stage uh and even touching on the series a stage a bit um I think it would be helpful for folks in the room to better understand how investors today are actually thinking about some of the Milestones that companies actually need to show investors uh to raise the round and you know I think that's changed a lot um in the past year so uh Craig maybe starting with you we can just talk through how your firm thinks about pre-seed seed series a investing and what you guys want to see yeah so so early on right when you're when you're founding company you're making like all these educated guesses right like you know build a financial model put a deck together everyone kind of knows right you're making educated guesses I think um you know the more you can show to validate the assumptions you're making in those guesses the easier it's going to be to get around done and develop conviction so you know for for any product what we like to look for is design Partners at pre-seed I always say like as you're getting your MVP together start talking to design Partners who are the customer profiles that you think you can Target with this app with this protocol whatever it is right have those conversations get their feedback get their input as you're designing right that way when you bring it to Market and you're ready for a beta you can say to them hey why don't you come use it out out give us more feedback and you bring them into the design process the product development process so it's like that you're almost developing it for them specifically and they're super incentivized to give you data and context how to iterate that also gives you logos and concrete data points to share in your deck for why you're building this the way that you're building it right oh XYZ company needs this solution here are the value propositions we're bringing to them just way easier to articulate yeah I think that's a little bit more abstract at Paradigm we're really looking for a very special Founders these are folks who are incredibly in tune and in touch with the crypto Community there are folks that are looking for emergent behaviors and are really able to turn that into an actual product I think that takes a combination of many special things whether it's like some unique core Insight on the market some prior experience working and building in crypto maybe on the research side or at a company and these are all sort of the great ingredients of a very high conviction founder that we'd want to support at their earliest days and then when it comes to series a it's hard to be very prescriptive about it obviously the metrics that we look at are quite different for something like a ZK proving service than it is for a defy lending protocol but at that point there should be some very strong indications of product Market fit whatever that means for your company yeah I think for us I I look for Obsession and also people that have a bias towards action especially for people that want to solve their own problems so the stories of Medifast and infuria and truffle Even in our early days even to the more recent deals around Venture Punk or nft now or some of our investment Dows these Builders were people that were obsessed with the problem and didn't wait for someone else they said we probably should build this because no one else is and we're uniquely positioned because we understand the problem better than almost anyone else so Obsession helps a bias towards action and then I actually also like to talk to Founders with a big chip on their shoulder I like Founders that have failed and can talk about what they've learned from their failures and how those failures uniquely equip them for the road ahead especially if they're proposing to solve a very very big or hard problem I look for someone that really will be there irregardless of an investor giving you know a thumbs up amazing um well uh we talked we touched a little bit on how you are thinking about investing generally as firms um I'd be really curious to hear a bit about thematically um what's a sector or space within the crypto ecosystem that uh you've been following closely and are particularly excited about um so maybe Sean we can start with you on this one uh we'd love to hear your thoughts there yeah I would say two big ones are ZK broadly how many of you went to the ZK day all right nice maybe like five ten percent um room was packed it's great uh for those that are kind of here to learn or are exploring you know we are all suffering from the trilemma right and so zks and the developments that we've seen over the last seven months so ZK VMS and all the amazing developments from polygon and matter and scroll and consensus itself uh I'm very excited for it because I do think that it may replace some of where the tvl is today how we're actually scaling and Building Solutions so that developers today many of the people in this room should not have to take on the cognitive burden of the foundations shifting all the time it's crazy that as Founders and Builders you have to think of monetary policy for your token whether or not you want to launch a dow all these dependencies of whether or not you want to take a grant from this chain to that chain that's not normal like web 2 folks just spin up an AWS server you know plug into stripe and they focus on the value that they can do within an application or website for web 3 all of those dependencies are something that I'm deeply deeply excited to be obfuscated away so that this room can push ahead on actually embracing the rest of the use cases in this world yeah I would say for me my latest interest area has been in labor markets uniquely enabled by crypto if you think about one of the core insights that ethereum brings to the table it's complete transparency and access um anyone from anywhere in the world anyone on the internet can access the same shared state of a smart contract this essentially opens up a lot of new sort of second order effects for the type of work that you can do from anywhere in the world whether it's as a freelance to open source contributor whether it's as an nft Trader as an Meb Searcher or as a solo security auditor the access and readability of smart contract code really enables all of those behaviors to form and folks are making full-time livings off of that folks that are incorporating this into their product or using that as a Tailwind for whatever idea that they're working on are really compelling to me um so for me uh I mentioned the developer experience and the user experience two big focuses of ours right now I'm honestly scouring the world for Consumer apps and consumer apps that like Normie friends of ours yeah we all have Normie friends right that probably aren't here um like my litmus test is like would I go to dinner on like a Tuesday with non-crypto friends tell them about an application and they not only get it but they get excited by it right so trying to use a lot of the infrastructure protocol stack that we've built over the last you know 10 years to develop to develop and deliver really really unique consumer experiences that you can't get in web 2. um I can't tell you exactly what those are right I'm hoping you guys can tell me um but uh we're looking in Social I think there's a lot of design space there we're looking in the sharing economy I think there's a lot of design space there you can kind of take the concept of protocols two-sided Marketplace that we have with service provisioning bootstrapping Demand with token economics right bring that to the sharing economy um you can also distribute ownership via Dows rather than being a contractor for something like uber Airbnb I think that's really cool conceptually a couple companies out there doing that but um but yeah you know I think we need to start thinking for you know next billion users as cliche as that is right everybody says it but we do kind of need to start thinking about 99 I think I saw a slide in the previous presentation it was like we need to build for the 99 I think that's like exactly right yeah um so I think we have time for maybe um two more questions so um one somewhat related question is uh you know there's a lot of headwinds in the space today so uh from the regulatory Dimension to the macroeconomic picture um I'm curious um uh within your all's firms how you all think about catalysts and um what Tailwinds you're keeping an eye out for that may actually Propel the space forward um to help uh move the the market out of uh the current bear Market that we're in so uh Craig maybe we can start with you and um uh be curious to hear any uh Catalyst that you guys are thinking about these days yeah I mean it ties directly to what I was just talking about right I think like the sooner we have breakthrough apps that get tens of millions of users on a daily basis the you know the sooner we're going to reinvigorate new sectors of development and exploration and that brings in more developers which brings in more apps which brings in more users um I call it the smart contract platform flywheel um but yeah I think like that's why I you know I try to still it down in simplest terms possible you know developers users it's like what we care about so you know we have a ton of developer tooling out there like the graphs ceramic a bunch of other things um you know portfolio companies by the way uh all transparency but yeah I think the sooner we hit you know 10 20 30 million Developers sooner we get more apps and more consumers so yeah maybe a little bit of a non-answer I don't know but but yeah that's what we're looking for at Paradigm we're really looking for real world crypto utility um so when you think about where the next big wave of users are going to come in you you know we had a lot of conversations that are pretty U.S Centric um but I think we're all quite focused on growing crypto usage um for folks in APAC regions and in latam um if you think about it in Latin America it's something like 51 have used crypto in their daily transactions but in the US it's something like 16 um so if we think about where is really driving the growth it's going to be from those other geographic regions where there may be some other cultural historical reasons why crypto just intuitively makes a lot more sense to them um than it does to folks in the US so we're quite excited about finding teams that are focused on user bases there yeah I think for us we for the catalysts that might be coming down the pike um are better developers Solutions and experiences so 300 million wallets in the world right now 25 million developers out there you know we're talking about maybe 20 25 000 web 3 Developers I'm really bullish on meeting people where they're at so for developers that maybe are really well versed in JavaScript the most popular language it's not the best language but perhaps you can use things like Agora or risk zero or things that which kind of kind of meet those developers and then possibly translate their stuff into solidity um I think is a really interesting Catalyst I also think looking further ahead for folks like the Shanghai Fork the unlock of various stake teeth and how that actually finances more activity or more users um I like Craig's answer especially around consumer apps like meeting people where they're at like sleep to earn like sleep agaci or you know step in I still think it's kind of cool I still use Foursquare I feel like a dinosaur checking into places but I think location-based data is really awesome it would be a nice supplement on top of the time stamps on your ether scan and the poapps that you might have minted the last few days but um everyday occurrences where I'm generating data I think are very fascinating so demon tokens for the telematic data in my my Tesla or Hive mapper data for just driving around like these are things that I just do on a day-to-day basis but those are all token incentivized data networks that probably should be a part of a bigger conversation and um each of those non-friction points whether it's uh incorporating it to day to day or removing friction or things that I think would be helpful for all of us I I don't think I've heard someone mention Foursquare in a really long time so uh that's amazing that's amazing um well we have um a very short period of time so there are a few more questions that wanted to get through but maybe we can just end on this one um Sean would love to start with you um would love to know um what is one project or company that you're particularly excited about today and uh just share a little bit color on what it is and why you're excited about it yeah so this is a little bit non-traditional but uh I will shill our bags for a company called Venture Punk it's adventure Studio which is kind of unconventional for an early stage investor but Jordan the founder and the in the team is incredible he helped to create don't buy meme pineapple tokens for anyone that's participated in nfts uh consensus D5 protocols and then also nifties um but he's his latest project was uh an nft that was playable so on-chain gaming that you could go to openc buy the nft and actually play like an asteroids like version and so composable games I know it's a cliche thing for a VC to say gaming but gaming like I really do think that being able to break it down and present the benefits without um only focusing on some of the the technical aspects is a way to reach the mass markets yeah well maybe quickly tying into one of my previous responses about Labor markets uniquely enabled by crypto I think code arena is a pretty interesting platform connecting you know solo security otters from anywhere in the world with any crypto project that needs an audit on demand in a competitive manner um it's a really interesting way to re-incentivize and redirect really talented hackers into actual product productive activity for the ecosystem and that's quite special yes I'll be really quick uh ceramic Network portfolio company of ours they just launched compose DB first decentralized graph database in crypto if you want to use mutable data streams they have a booth right back there they're enabling a lot of the really cool apps that I talked about earlier on the consumer front in terms of social gaming ride sharing things like that but yeah Booth back that way if you're hacking in the hackathon go check them out all right well uh that's all the time we have for this afternoon thank you to the panelists for their amazing insights and observations and appreciate you all attending this afternoon enjoy the rest of the conference [Applause] foreign [Music]