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Investment Thesis

Updated: Mar 24, 2021

We don't restrict our own investments to a specific domain as long as blockchain is involved. Top thinkers in the investment world (Paul Graham, Peter Thiel, Chris Dixon, etc.) have repeatedly pointed out that the best startup companies initially don't even look like companies! They look like bad ideas. Often it's not clear what industry you'd even classify them into; many of the most disruptive ventures exist at the intersection of various industries. The better approach is to simply start from first principles with each company: assess what it does now, what value it provides, whom it serves, and whom it could serve. The very best startups create new markets, or even completely new industries.

We look for deep disruption and that's why we invest primarily in companies with traction signals indicating that a deep-disruptor technology is at play. The rise of companies with billions of users has certainly borne out Marc Andreessen's observation that "software is eating the world". However, we believe that many fail to appreciate that technological development isn't merely unfolding; it's actually accelerating. The time it takes startups to reach hundreds of millions of users, and/or billion-dollar valuations, has dropped from a decade to a half-decade to its current level of around twenty months. No industry will be immune to the onslaught of digitisation.

We love traction so our interest is rarely piqued by startups that describe the disruption they "might" create; we’d rather go after the startups that are already disrupting. The two hallmarks of disruptive traction are a 10x improvement on status quo solutions (i.e. not just an incremental improvement); and an exponential growth curve.

We invest in what we understand. Warren Buffett was right; investing in business models that one doesn't really understand is asking for trouble. You won't catch us putting money into yet another startup claiming to "leverage proprietary algorithms to deliver deep Big Data insights that drive better ad spend targeting and customer engagement". It may be a great company - but if we can't wrap our mind around how they're actually doing it, it's not for us.

Here are some of the areas we’re excited about:

  • Next Generation Payments

  • Store of Value

  • Decentralised Finance

  • NFTs and New Monetisation Models for Creators

  • Web3 and Open standards

  • Games with economies powered by blockchain

The last few decades have seen a move towards a cashless society, where every transaction is tracked, reported, and controlled. Blockchain takes powers from the central actors and returns it to merchants and consumers, savers and borrowers. Blockchain brings back some pseudonymity in the transactions, and can be irrevocably traded like cash.

Blockchains can not only replace central banks but usher in a new era of online services that would be impossible to censor. These new-age apps would be more answerable to users and outside the control of internet giants like Google and Facebook (replacing government with corporations is not exactly the revolution that enthusiasts imagined blockchain would bring).

Decentralization and Web3

“The best entrepreneurs, developers, and investors have become wary of building on top of centralized platforms"

During the first era of the internet — from the 1980s through the early 2000s — internet services were built on open protocols that were controlled by the internet community. This meant that people or organizations could grow their internet presence knowing the rules of the game wouldn’t change later on. Huge web properties were started during this era including Yahoo, Google, Amazon, Facebook, LinkedIn, and YouTube. In the process, the importance of centralized platforms like AOL greatly diminished.

During the second era of the internet, from the mid 2000s to the present, for-profit tech companies — most notably Google, Apple, Facebook, and Amazon (GAFA) — built software and services that rapidly outpaced the capabilities of open protocols. The explosive growth of smartphones accelerated this trend as mobile apps became the majority of internet use. Eventually users migrated from open services to these more sophisticated, centralized services. Even when users still accessed open protocols like the web, they would typically do so mediated by GAFA software and services.

The good news is that billions of people got access to amazing technologies, many of which were free to use. The bad news is that it became much harder for startups, creators, and other groups to grow their internet presence without worrying about centralized platforms changing the rules on them, taking away their audiences and profit

“Web 3”: the third era of the internet - One response to this centralization is to impose government regulation on large internet companies. This response assumes that the internet is similar to past communication networks like the phone, radio, and TV networks. Cryptonetworks combine the best features of the first two internet eras: community-governed, decentralized networks with capabilities that will eventually exceed those of the most advanced centralized services.

Overview of how blockchain will change gaming

It’s not just interconnecting people, but changing potentially the business model of games, and creating the potential for a lot better game economies that align developers and players and work much better for both of them.

  • True ownership of in-game assets by gamers: The thing about these assets being stored on blockchains is, no one can take the asset away from the player. The player truly owns it, and they don’t have to trust a third party, including the game developer themselves, that they truly own the asset.

  • Creating new marketplaces in games: The richness of the marketplaces can be not only enabling trading between players and the transfer of assets and value between players, but also pretty complex economic designs around how that value gets split up.

  • Designing incentive structures in games: As a developer, you can write smart contracts that essentially incentivize or reward players through grants of currencies, and assets, and items, when they do things that are helpful for the game and for other players.

  • Aligning incentives between players and developers: As a developer (you) can create a bigger economy without just having to create new content all the time. If you allow players to trade, just as a simple example, you can earn a revenue stream from those trades as they occur over time.

Fundamental technologies:

  • Digital Signatures – these can’t be forged and allow one party to securely verify a transaction with another.

  • Peer-to-Peer networks, like BitTorrent or TCP/IP – difficult to take down and no central trust required.

  • Consensus: PoW and PoS prevents users from spending the same money twice, without needing a central authority to distinguish valid from invalid transactions.

  • Distributed Ledger – For example Bitcoin puts a history of each and every transaction into every wallet. This “block chain” means that anyone can validate that a given transaction was performed.

  • Blockchain is a virtual computer. Built on thousand of physical computers. But you can think of it as one computer when interacting with it. And with blockchain is no longer about hardware controlling or governing the software but software controlling the hardware and software limitations are our human’s mind limitations. A blockchain is not a database. “Centralized systems are a million times easier to build than decentralized ones. They’re a million times faster. If you can centralize, centralize. It’s just when you cannot centralize, that’s when you decentralize.”

Crypto are:

  • scarce (Central Banks can’t inflate them away)

  • durable (they don’t degrade)

  • portable (can be carried and transmitted electronically or as numbers in your head)

  • divisible (into trillionths)

  • verifiable (through everyone’s block chain)

  • easy to store (paper or electronic)

  • fungible (each bitcoin is equal)

  • difficult to counterfeit (cryptographically impossible)

  • and can achieve widespread use – many of the technologists that brought us advances on the Internet are now working overtime to improve Bitcoin.

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