Welcome back, this week Lucas and Anita discuss the continued fallout from the broader market crash and how life is going for crypto giants on the public markets. We chat about FTX’s 30-year-old billionaire CEO buying up a big chunk of Robinhood, which is pumping the gas on crypto even as the market cools. We also discuss trouble at Coinbase and the continued fallout from the collapse of Terra. In their interview this week, Lucas and Anita chat with Mercedes Bent. Bent is a venture capitalist at Lightspeed Venture Partners where she places bets on consumer products in cryptoland. Before joining Lightspeed, Bent spent some time in the VR world, so we picked her brain on where crypto fits into this metaverse future everyone is clamoring about. Subscribe to the Chain Reaction newsletter to dive deeper: https://techcrunch.com/newsletters
Welcome back, this week Lucas and Anita discuss the continued fallout from the broader market crash and how life is going for crypto giants on the public markets. We chat about FTX’s 30-year-old billionaire CEO buying up a big chunk of Robinhood, which is pumping the gas on crypto even as the market cools. We also discuss trouble at Coinbase and the continued fallout from the collapse of Terra.
In their interview this week, Lucas and Anita chat with Mercedes Bent. Bent is a venture capitalist at Lightspeed Venture Partners where she places bets on consumer products in cryptoland. Before joining Lightspeed, Bent spent some time in the VR world, so we picked her brain on where crypto fits into this metaverse future everyone is clamoring about.
Helpful links:
https://techcrunch.com/2022/05/17/robinhood-lets-users-manage-their-own-crypto-wallets-in-push-to-spur-trading/
https://techcrunch.com/2022/05/17/coinbase-backtracks-hiring-plans-crypto-market-turmoil/
https://techcrunch.com/2022/05/17/encode-club-is-minting-new-web3-developers-amid-crypto-talent-war/
Subscribe to the Chain Reaction newsletter to dive deeper: https://techcrunch.com/newsletters
Lucas Matney 0:00
Hey, everyone, it's Lucas and Anita. Welcome to chain reaction where we unpack and explain the latest in crypto news drama and trends breaking things down block by block for the crypto curious.
Anita Ramaswamy 0:17
And during the second half of the episode Each week, we'll chat with a crypto expert. This week, it'll be Mercedes bent an investor at Lightspeed Venture Partners. But before we get to that, let's talk through some of the biggest news of the week. The first item that we have for you is sambangan. Freed co founder of the FTX crypto exchange and a very young crypto billionaire, he's 30 years old, he bought a stake worth 7.6%. In Robin Hood late last week, the stake was worth 650 million, approximately, that's what he paid for it. And that's going to give him around 3% of the voting power in the company. And when he announced that news, it was actually through a 13 D filing. So it was a disclosure that he filed and people noticed that he had taken a stake in the company and Robinhood stock price actually, which had been suffering jumped by 24% when that news came out. Yes. So Robin Hood's been taking a beating lately, their stock is I don't know, it's like a five and a half times lower than its all time high. So they're trading at 8.5 billion now. But that's even better, because they've increased since this news came out about Sam buying into this company. So for context, FTX is a private company, they're worth about 32 billion after their last private round. I'm sure if they tried to raise money Now it might be a little lower, just because the markets taken such a turn. But yeah, it's kind of showing just the influence that the crypto market has over FinTech apps that exist in traditional markets as well. I mean, Robin Hood does both, obviously. But this is a 30 year old guy who's just sauntering in and buying a huge chunk of this company. You know, it's pretty noteworthy. Yeah, it's it's a flex, it's definitely a power move by SBF. As he's no. Well, it's also funny because the Yeah, like this filing, like you talked about, this is just a very common filing. But it's the filing that like Elon Musk used when he bought his big share of Twitter. Typically, there's a box in it that you check if you're like being an activist or non activist, he checked that he was being like a non activist investor in Twitter that turned around with him buying the company eventually. So I think there's like some price market action here of like, is this something that FTX is going to be interested in as an extension of their own brand? That would be a little wild? And it would that's not exactly what's expected right now. But who knows? Yeah, it could totally happen, I think, to your earlier point about the size and how crypto has so much influence if FTX is last valuation is $32 billion. And Robin Hood's entire market cap is 8.5 billion. I mean, it's just a little wild to look into even I personally never imagined the difference in scale between those two companies, especially given the FTX mostly just does crypto stuff. Yeah. So SPF checked the same box on the 13 D forum, saying that he's not planning on being an activist investor, but there's definitely still speculation that he will do that anyway. And he's gonna come in and try to make some big changes at the company. And I think that's interesting, because FTX a lot of their clients are institutional traders. So like financial firms, market makers, those sorts of groups, whereas Robin Hood is obviously more focused on the retail investor. Yeah, I mean, Sam Bateman freed is like not a name. That was like a household name in the tech industry a couple years ago by any means, like year ago, maybe. But he's worth like, I think there's probably changed a little bit in the past couple of weeks. But you know, his previously recorded net worth was 22 billion. So this is a fairly wealthy guy. Yeah. He's 30 years old, sleeps on a beanbag chair in his office. FTX is perky. Yeah, he's a vegan. I found out I thought that was really cool, actually. Yeah, he's, he is very interesting reputation. Yeah. And he is, or at least he said that he wants to pledge to give away most of his wealth, which is also kind of a, I don't know, like a more young billionaire vibe. Well, yeah. It's also funny because I think this is just interesting in crypto at large, but like the reason that people like Vitalik and SPF have such a different reputation than maybe other wealthy figures in the crypto world is because people in crypto strangely, really, really respect people who aren't in it for the money. I mean, I guess it makes sense. But like, these two people definitely seem like they're, you know, could care less about the money like SBF showed up at their Bahamas conference for FTX and was just like wearing his calf length socks and his beat up tennis shoes, like wearing shorts on stage is he's got quite the look. Yeah, no, for real, but um, looping back to Robin Hood's so they've been in some serious trouble lately. They laid off 9% of their staff last month and trading volumes across the board have been down like no one is trading and they make a lot of their money through transaction fees. Crypto trading revenue in q1 for Robinhood specifically was down 39%. And that does comprise a pretty large chunk of their revenue, so they are not doing too well. And in all of this, they have just announced a bunch of new products and they're sort of like, I don't know, flailing in a way and trying to make it work. Yeah. Well, it is funny because you're like the stock markets, huge equity markets. Obviously this company should be making the vast majority of their money through this but crypto markets have just been so flashy. And as a result you have people like CO CEO of last
Lucas Matney 5:00
tweeting out all these like think flew answer Twitter storm threads on how Dogecoin could be a future currency of the internet because he wants people to like be juiced up the sweet, sweet transaction fees on the Robin Hood platform because they make a ton of their revenue from it. It's like, yeah, obviously, they're gonna be more interested in the crypto side of things. But it makes this more interesting with the FTX investment that they're leaning so deeply into it. So what's some of the stuff that they're working on? On the product side?
Anita Ramaswamy 5:26
Yes. So this week, they made a huge announcement. And it was at the permissionless conference in Palm Beach. So Vlad announced to everyone at the conference that they are dropping a noncustodial wallet, I guess, just to circle back. What that means is that last month, they actually launched for the very first time, their custodial wallet. And the difference between a custodial and noncustodial wallet is that with a custodial wallet, it's centralized. And your funds are basically shared with joint custody between you and the exchange. So that's how if you open a Coinbase account, and today, if you were to open just the default Robin Hood wallet, what that means is that Robin Hood or Coinbase, or whatever exchange you're using, also has access to the funds in that account. Whereas with a noncustodial, wallet, those funds are completely yours, you have access to the private key. So if anything, were to go wrong with the exchange, you can always withdraw your funds, and you have ultimate control over that money.
Lucas Matney 6:16
Yeah, and it's like for the average user, there's some interface thing quirks that come about from this. So like, if you have a custodial wallet with Coinbase, and you forget your private key or something, you can go to Coinbase go through the forget your password flow, and you've got access to your account. Again, this is something that people who are used to traditional finance, like the custodial wallet is kind of what you're used to when you're with your bank account or something like that. It's just money. That's kind of it's yours, but it's sitting somewhere else. The difference, of course, is that there's federal regulations in place to protect some of that money versus right, you know, there's a little bit of English on the on the crypto for idle,
Anita Ramaswamy 6:54
right? Well, and it sounds nice to have a noncustodial wallet because you have control over your funds. But then it just makes me think of all of those instances of people like losing their private key password and never being able to access their funds again, like I think there was some guy who like dug up an entire landfill to try and find. So yeah, there are some advantages to having the custodial wallet. But at the same time, the point you brought up about regulation, I mean, that's a really important one.
Lucas Matney 7:18
Well, what's fascinating about this, I think, is that if we're truly entering a crypto winter, or at least like a crypto bear market, these companies know that they really need to sidle up to the hardcore crypto people, because a lot of the consumers who got into this stuff aren't going to stick around and like the people who do stick around are gonna get very deep into this stuff. So they're going to be more curious about noncustodial wallets, they're going to be curious about some of the stuff that was like for the fringe crypto people maybe at the beginning of this bull market, because a lot of the kind of like fairweather friends are going to jet off. So the kind of products geared towards novices might be a little bit less over emphasized by some of these companies going forward,
Anita Ramaswamy 7:59
the noncustodial wallet is a really good example of something that would appeal more to the hardcore crypto community. And that's in part because it'll allow access to things like defy things like NF T's any decentralized apps that are built on the blockchain, rather than just being able to transact and token. So that's why this is really big news coming out of Robin Hood. So they actually are trying to do it a little bit differently from Coinbase, which is, you know, obviously one of their biggest competitors. Coinbase has a noncustodial wallet, it's a separate app that you have to download called Coinbase Wallet. So it's not the default option. But they do offer that the difference is that with Robin Hood's noncustodial wallet, they're saying that they're not going to charge any trading fees or any like gas fees or transaction fees. So Coinbase Robinhood, all of these platforms are clearly competing to attract users as trading volumes are down, which seems like a good time to transition to our next topic, which is about Coinbase.
Lucas Matney 8:48
Yes, so Coinbase has had a hell of a year, they have been growing really quickly. And now all of a sudden, they just have to stop. You know, like we've talked about pretty much every week, their stock keeps going down and down and down and down. So it was trading at like $365 per share at its all time high. Now it's below like 65 bucks. So they're really, really not doing well.
Anita Ramaswamy 9:09
Yeah, it's recovered a little bit in the past week, but not anything significant. If you look at like the one year stock chart or anything, it's pretty much like down into the to the right. Yeah,
Lucas Matney 9:18
yeah, it's had a rough go. And so this week, Coinbase coo made this announcement saying and I'll just read it heading into this year, we plan to triple the size of the company. Given current market conditions, we feel it's prudent to slow hiring and reassess our headcount needs against our highest priority business goals. So kind of a predictable thing when your stock takes a 60 80% dive over like several months, but it's one of those situations where it's clear, like all of these crypto companies, they went from living their highest luxurious lifestyles, and now they really have to like break out the ramen and kind of go to cut costs. Yeah, aggressive. I stopped buying those Starbucks lattes, you know, god dammit Millennials. Exactly.
Anita Ramaswamy 10:01
That's rough. No, but this could totally have some implications for, you know, just crypto startups more broadly, I think,
Lucas Matney 10:06
yes, this is something that we've heard from a lot of venture firms over the past week, especially ones that have like seen their realized assets, just like crater from all these crypto markets crashing. So I think they're going to want their startups to stop hiring get to break even as quickly as they can, which like with these companies might be a challenge given that crypto volumes are probably going to be seeing some major hits. Yeah, yeah, I
Anita Ramaswamy 10:27
think it's interesting. I chatted with a company last week called him Code Club. And they're like a coding bootcamp, basically. But for crypto, and they were founded in 2020. And they're already doing like 2 million in revenue. As of last year, they're profitable. They just raised the seed round. But it got me thinking because they were telling me that they make money mainly through these six and seven figure recruitment deals with web three companies. So basically, what their companies are paying them to train talent. And then the companies have like a talent pipeline that they can hire directly out of. And given that there is this huge downturn, it'll be interesting to see if companies are still going to be willing to pay up for talent, or if it's not going to be as competitive as it was before to hire like a solidity developer, for example,
Lucas Matney 11:05
right? Yeah, I mean, there definitely gonna be some layoffs at some crypto companies here coming soon. I mean, on your point on the funding, we're in a fascinating period right now, because a lot of the deals getting announced the ink was dry on some of these term sheets before any of this stuff happens. So they kind of like they got the money wired, they're in a good spot. But like few weeks from now, we're going to be seeing companies that didn't bulk up on funding needed that emergency money, they're going to take a pretty significant haircut, they're not going to be telling us the valuations of their new deals. Oh, definitely. Exactly. It's a different world.
Anita Ramaswamy 11:36
So it'll definitely be interesting to see how this downturn plays out in the broader crypto hiring market and how it affects trends and valuations. But in the meantime, I did want to circle back to something on Coinbase that everyone's been talking about.
Lucas Matney 11:48
Yeah. So like, this has been a bad few weeks for Coinbase for pretty much every imaginable reason. They've launched a few products, and there's some promise around that stuff. But like users have lost a lot of trust in the company. And it was for what seemed to be a pretty like standard SEC disclosure, which people like us may have assumed was the case, but for users that just got into crypto might feel a little different. So the disclosure was essentially that in bankruptcy proceedings, the funds that Coinbase has custody of that are user funds would essentially be liable in any bankruptcy proceedings to be used as the company gets liquidated. Yeah, so loss. Yeah, exactly. Exactly. So they're not it's not your money, essentially, which is like, again, there's federal legislation, FDIC insurance gonna reimburse users up to I don't know what is 250k or something like that
Anita Ramaswamy 12:33
for for traditional banks. So like, if if like, like Wells Fargo or something went bankrupt, users would still at least get reimbursed on part of that money because of regulation. But with crypto, it's not the same day.
Lucas Matney 12:42
Exactly. That's the nothing there yet. So there was a big exit as for a second where users were like, Wait, what the heck, I'm especially it came this came as the company was like their stock price was doing very, very poorly down half in a week. So it was just bad timing. And Brian Armstrong made some big Twitter thread basically talking about, you know, we should have made these disclosures earlier. There's nothing to worry, we're not in a position where we're going to be going bankrupt anytime soon. But the idea was planted. And I think that was enough to send kind of a jitter down the spines. Yeah, of customers.
Anita Ramaswamy 13:12
I like yeah, Brian Armstrong, like, you guys probably should have made those disclosures sooner. I just I was shocked to even see this come out. Because I was like, why wasn't this in their filings before? But
Lucas Matney 13:22
well, yeah, this is like one of the dangers because you can talk about the differences between your custodial and noncustodial wallet products, but you're not gonna really advertise what's actively bad about the custodial wallet. Yeah, and what the real risks are, right. And so then when consumers see something like this, and they see a negative headline, they're like, Oh, I did something wrong. Like what went bad here? And when it's just like, this is kind of the game that you were playing the whole time.
Anita Ramaswamy 13:45
Yeah. On the product side to Coinbase has made a couple of announcements recently, kind of similarly to Robin Hood.
Lucas Matney 13:51
Yeah. So they've been trying to expand into new verticals. They've got this big audience of people buying crypto through their platform, who are holding it in their custody. But they've been trying to like find new outposts and wings to push users towards in the crypto ecosystem. So they launched their NFT marketplace. They have their own like payments network that they're working on. They're working on some DAP integrations, it's all things that are meant to expand their worldview. But these first products haven't been super duper successful so far. So we'll kind of see where it goes. But for the time being, they're not going to be able to hire as aggressively to build out some of these products. I think we've waxed on Robinhood and Coinbase. A bit. But let's talk about some real mayhem in the markets. You know, we talked about Terra last week, what's going down with that ecosystem this week, Anita?
Anita Ramaswamy 14:32
Yeah, so the tariff fiasco is kind of the root cause of a lot of these issues in crypto, or at least it's one of the root causes that's fueling the downturn. And last week, we talked about Tara's USD Stable coin and the Luna coin that the same lab runs and both of them crashed last week and 10s of billions of dollars in value were lost. And now Tara's leadership, its founder doe Quan and leadership team, they want basically a do over they're trying to save the ecosystem. They're trying to save some of the money that users lost but They don't have a clear plan for that yet. And not everyone is actually sure that saving Tara is going to be possible.
Lucas Matney 15:05
Yeah. There's a lot going on here. And to be honest, there's like something new happening every single day that's seeming to almost contradict what happened the day before, honestly, like every hour, I feel right, exactly. I'm having trouble keeping up with it. So you know, there are a couple of proposals basically, when USD T, the Stable coin crashed, basically, there was this mechanism built in place that they would just MIT more of the other currency. And what happened was that this very expensive Luna token, suddenly, instead of being a few million of them are a billion of them, there became trillions of them. So they're all devalued incredibly quickly, incredibly heavily. Basically, what the taro ecosystem and leadership wants now is to kind of either burn a lot of those tokens and cut down on all of the supply of the token, or they want to just pretend like this last two weeks didn't happen. Go back, see who all the holders of all these different tokens were create a second currency port, everyone over to that based on what things look like before the crash, and then move forward from there. And people people are just like, you can't just pretend like this didn't happen. And you can't just make a currency have the same value as the one before when everyone knows that there's so much suspect stuff going down in this ecosystem.
Anita Ramaswamy 16:19
Yeah, some of the biggest names in crypto have criticized this plan to create a separate coin and one of them is changpeng. Zhao, he's the CEO and founder of by Nance, the crypto exchange. So by Nance actually invested in Luna, they originally invested around $3 million, their investment then grew to around 1.6 billion before all of this shit went down. And now just pretty healthy returns. So yeah, that's not bad. I mean, but now their investment has obviously gone to shit like everyone else's. And it's worth like right around $3,000 Literally, three comma 000. Bad return. Yeah. So now Cheung Pang show he's known as CZ, he's pushing for the company for Terra to sort of reimburse retail investors before reimbursing institutions. So there obviously is a question of like, whether they have the funds to reimburse users at all. But it is really interesting that CZ is sort of saying like don't put our interest first, even though by Nance lost a lot of money, make sure that the people who actually had smaller stakes and the people who are not as well off get reimbursed first, and Vitalik also agreed with this, as well as Justin Sun who created the USD Stable coin. So a lot of people in the crypto community are saying we should care about the retail investors right now.
Lucas Matney 17:29
Yes. And it's, again, not to be too cynical, but it's not purely out of empathy for the little guys that also realize that Yeah, exactly. They realize that their ecosystem has been through a boom period. And there was a lot of money tied up in the 20% a py returns on USD T, and they don't want to have all these people get screwed and then exit the ecosystem forever. Their future earnings are dependent on the retail investors exactly on them continuing to come into the ecosystem, it probably there are some billionaire whales, who are just like, give me my money now, and some of them probably already got it. But it is a positive thing to like, see people thinking about the retail investors first, because that's generally not how crypto works. No,
Anita Ramaswamy 18:11
no, even if they're just doing it for a different long term goal. So there's one other point on regulation that I think is interesting here with Stable coins. You want to tell us a little more about that.
Lucas Matney 18:20
Yeah. So I mean, this has just been such like a bombastic event that I think like everybody has been paying attention to it. Even people who aren't, you know, on crypto Twitter, like Gary Gensler, the SEC chairman. He was on Twitter. I might be on Twitter, but he's not on Twitter like that. He doesn't have a hexagon profile pic. To my knowledge, right. So he was, you know, speaking before the government and was basically talking about how his office didn't have the resources that needed to prosecute some of these cases that they're looking at in the crypto world. And he specifically referenced without saying the name Terra, he was like there was a product that had $50 billion in volume tied up and that disappeared seemingly overnight. I'd say there's some consumer risks happening here that we need to be paying attention to Janet Yellen was talking about Tara you know, Gary Gensler referencing it like this is the talk of the town. Regardless of what happens in the crypto market. We're gonna see some regulation in the next 1218 months, and assuredly some of its going to be tied to Stable coins.
Anita Ramaswamy 19:20
This week, we interviewed Mercedes bent. Ben is a partner at Lightspeed Venture Partners where she sits on the consumer investing team and invests in Web3 companies in the gaming and Ed Tech sectors, as well as traditional consumer and fintech startups. Hi, Mercedes, it's great to have you on and we're super excited to talk to you about a lot of things in crypto, but specifically the metaverse and that's actually a question that I had for you to start us off here. So I want to ask you, why do you think people actually want to spend time in the metaverse especially as companies are returning to work? People are meeting in person again, what's the appeal there?
Mercedes Bent 19:55
I've been interested in the metaverse for a number of years now I used to work in the virtual reality and
Straight back in 2016 2017. And so it's kind of funny. It's become like a punching bag. Or maybe you know, six years later, if you think about the potential of it, why maybe a geek like me gets excited about it, is because there's things you can do that you could not do in the real world. I could go to a concert with 20,000 other attendees of artists that I didn't have to pay $500 A ticket, you know, for maybe I do eventually in the metaverse, hopefully not, but then I could you know, the next second be in a classroom learning about you know, I always think back to Ready Player One. And I think back to how the kids who were in public school were learning in classrooms around the world and able to learn from the best teachers even though maybe the best teacher isn't locally in your your system. Now, of course, I know ready, player one was a dystopian nightmare. But yeah, so so maybe that were the requirements of the physical world that made the online world better. But I do think there are all these possibilities. Like I love sitting at home watching luxury hotel TV shows like I'm kind of a basic like that. And the idea of like being able to just go these places in the metaverse. That's, that's exciting. Yeah, totally. And I guess it kind of raises a bigger question, which is what is the metaverse? I mean, have we already been using the metaverse? Or is this sort of an entirely new Concept and Development? Definitely not a new concept. I wrote a article back in the fall about why this time around the metaverse is a bit different. Historically, I thought the metaverse was really tied to virtual reality. And I was really fixated on the physical apparatus, the head mounted display, that was the entry point. And I think what this era, the 2021 2022 era of the metaverse terminology has shown is that it's not about the headset, it's not about what physical apparatus you use, it's about the sense of collective kind of being together presence. That's the word I'm looking for a sense of presence, a sense of synchronous action that's happening, you have that sense of actually being there with somebody in a digital space, irrespective of how you actually got into it. And so I'm actually seeing a lot of 2d interfaces to really well now, we're investors in Epic Games were investors. So as default kind of fortnight, I think, seeing what they've done is incredible. But I also think it is already here, because it is all of these different entry points and access points. And the thing that we didn't have also before 2021 was a real world currency that could go between the real world and the physical world. So that currency made it all the more alive. That's why it's researching right now. It's fascinating. I covered the virtual reality industry for a number of years with TechCrunch. And I think when you see some of these new Metaverse, platforms emerging here, like it's actually very hard to get people to come into social experiences just to be social. And you know, so many VR companies found that out the hard way, as someone who is in the industry. Yeah, I'm curious if you could kind of explain a little bit more why are the incentives tied to cryptocurrencies and NF T's? Why does that make people want to gather online together, you think I think that before we didn't have there was obviously in game currency, there was obviously virtual goods you could buy before, but the ability to be able to transfer that to Fiat and then go use it real world to pay your rent bill is just something entirely different that we didn't have in such a mass quantity before. So I think when virtual reality, it was a lot more about honestly, six degrees of freedom, which is, you know, the idea that you can go up, down, right, left back forward. And that was the novelty of it. And I still remember playing super hot, or, you know, looking at the whale, the blue experience, and just being like, oh my god, this is amazing. But that was a one time kind of like fascination, it wasn't a reason to stay. And of course, Second Life, and these other companies have been here over time. But I really think what is different is this currency, and then also the pandemic changed. It just gave way more people an opportunity to spend time online and in these virtual worlds. So when you put those two together, I think that's most of it. Everything else is kind of something that's already happened before. Yeah, that TechCrunch covering VR, and then going into covering crypto, I think, you know, some of my colleagues, were a little skeptical in both industries were like, you know, you're the chief hype reporter, or something to that effect. But I guess, you know, as someone who's been investing and working in a couple of very hyped industries of the past decade, has that been challenging to kind of go into a sector that's very hot? Or has that just been a cool opportunity for you? It's kind of like par for the course it's the job as it as venture investor, you're supposed to look at anything that's hot and growing. And therefore that means that you're looking at hype, a lot of the time, the skill of the job is to be able to differentiate sustainable long term advantage, things that are really building consumer habits that are you know, changing behavior, things that are becoming part of pop culture, and that have lasting enduring effects versus don't it is really hard though, I mean, at the beginning, early stages, the seed stages consumer companies
And these hyped areas look really non obvious. I mean, they don't have traction, they're just an idea. They're often from a founder who hasn't necessarily had like the most pedigree. So you have to kind of take a leap of faith. If you're doing the seed round there, we try to keep a little bit more head on the swivel where we're looking for something new category, creating somebody applying the maybe old business model or old idea, but to an entirely new market. And I think really, then the other hard part, so that's if you're doing the seed, if you're waiting until there's some traction, which used to be the A now that sometimes later, but you know, if you're waiting until there's post product market fit, then the really cool part of consumer investing is when it takes off, it takes off, there's virality, you gotta catch it as it's a speeding light bulb. So I think that has been challenging as well. But you know, there's been a couple of companies we've looked at that were very, very hyped that we did our analysis, what name names, but we did our analysis, and it was just, we decided not to invest, because we didn't think it was sustainable.
Anita Ramaswamy 25:58
Yeah, and just talking a little bit more about this being such a hyped industry and so hot, I guess I'm wondering like, a lot of new industries don't necessarily target consumers and mass consumer adoption, right from the start and right from the get go of building their tech. And crypto clearly already has some of these growing pains of user adoption, like we've seen with the Axi infinity hack. And, you know, there's a lot of, I guess, potential for some of these early adopters to maybe get burned because it is such new technology. So I'm curious, from your perspective, why do you think now is the right time for investment in consumer crypto products? Specifically,
Mercedes Bent 26:28
I think about you know, I've been looking back at, okay, what companies were formed when the internet was emerging in the late 90s. What companies were formed when mobile was just coming out in the late 2000s, you know, early 2010s. And although those platforms were not consumer grade, amazing experiences that we're used to today, they're still work great companies that came out of it. I mean, Netflix was started in 1997. And WhatsApp was started well, actually, they were started a little bit later, but I think, oh, yeah, WhatsApp was started in 2009, like Spotify 2006. If you think about Google, 1998, Amazon 1994, these companies were started at a time when the platform was not a great experience for the mass consumer. But yet, they still offered such a better experience than what was available today, or something totally new, that people are willing to give it a try. And so I try and always remind myself, we've barely had scratched the surface and consumer crypto, we've had IP, a big IP partap app club that's gotten big, we've had a marketplace open. See that's gotten big. Beyond that. There's not very many companies that I would say have scaled to what I would call mass audience yet we have Metamask, which is pretty far along. I think all of these companies are up for grabs in terms of somebody else could come along to replace them. And probably the most companies are being founded right now. But one of them may last so why is it not too early to be investing? I think we're gonna see like the next WhatsApp AOL, Google founded in short order. I'm spending a lot of time in crypto native messaging, Dow discovery, tooling, and digital identities. What's the next LinkedIn? What's next, WhatsApp, all of that stuff?
Anita Ramaswamy 28:03
Got it. So I had one follow up question as you were talking about crypto consumer startups and whether it's too early when you look at these startups right now, do you think that consumer focused crypto tech startups are more focused on still building out some of the back end like early technology? Or have you seen sort of a focus and a shift to focusing on the user experience?
Mercedes Bent 28:22
There's definitely a lot more happening I believe, and the tools picks and shovels space will be at lightspeed have invested on a ton of L ones l twos Alchemy arbitrage, you know, Solana, Terra. So there's a lot of ecosystem still being built out in the functionality. I think that the consumer application layer companies I've seen have not been nearly as deep in some of the, you know, consumer experience user experience elements. If you think about some of the really popular tools, you try to onboard a web two, you know, average person into web three, and they're like, Are you kidding me? This is what you're spending all your time in, like, this is the terrible consumer product experience. And they're right, you know, like, I don't hear the words Trust and Safety mentioned very often. And my calls with crypto founders, I don't hear user experience design are a delightful experience all of these phrases that you kind of become used to hearing from web to founders who have perfected mobile experience products over the last decade. So they are focused on different things are focused on making sure that the system is up. You know, like if you think about reliability and downtime, even Solana is down some times and the biggest companies out there all still are working on the infrastructure. I'm not saying this to knock anyone I think it's just it's backed when you're in early development of the technology. So you know, I think that's something where I hope in the next few years is a lot more web two founders and talent are leaving to join web three that this will start to become a focus again, I could tell you if the last 2030 consumer companies in crypto I met in the last like two three weeks, probably two of them, were talking bounce some of those words I mentioned and really making it a big focal point. So it's definitely still not the norm. Is it difficult
Lucas Matney 30:05
when so many of the successful companies are just trying to do everything at a certain point, like they create a popular game. So they're just like, alright, well, we'll create our own blockchain as well, like we're going to make every thing a platform iced opportunity, because that's the only way we're gonna reach the x billion dollar valuation we got from VCs.
Mercedes Bent 30:23
Yeah, it's a really interesting point that you say that I think a lot of crypto founders are an ecosystem mindset, which is we are trying to build the entire ecosystem. So okay, does that mean we need to add on a guild in order to have more gamers be part of our project? Great. Now we have a gaming arm Oh, do we need to start a ventures arm in order to fund you know, different episodes. So they're all running a very complex holding structure, business company, not all of them. But this is very common in crypto. whereas traditionally, in web two, you would have told founders to focus on one thing, do that one thing really well don't even launch additional products until you have amazing product market fit on that first product. So it is a bit strange, I think when you think through the psyche of how they got here, living through the winters of 2017, while post 2017 into 2018 2019. It makes sense. They don't want the industry to die. But I think we have now reached a tipping point that they probably don't need to do that. So I am excited to see a little bit more focused products going forward.
Lucas Matney 31:25
I guess a question. Switching gears on the general venture landscape. Obviously, a lot of crypto native funds have kind of popped up, a lot of firms are starting to build out teams with various focuses and crypto is where you like you're focused on a handful of other things, too. You're working on FinTech stuff, is that difficult not being able to focus all your efforts solely on crypto, and like what are some of the challenges or opportunities, their
Mercedes Bent 31:48
story of my life, you've described like one of the big semi existential crises I have about my profession at any time, which is, it's great to go deep on things. But you also have so many interests, I always say if I didn't have so many interest, I wouldn't be a VC I would just be an operator because I was an operator for seven years before I started this job. I used to work in finance before that. And I love going deep on something and just focusing focusing focusing on it and building it. But I'm not building so therefore, I want to focus on many things that keeps keeps things interesting. And at the same time, you're rewarded for having an expertise in one field. And then at the same time, you also need to constantly jump to what's the next new thing, because that's where the next big hit might come from. So there's a lot of conflicting incentives and interest, I think that make it difficult for you know, nobody feels sad for VCs, we've got the violin out here, but it's both easy and hard job, you know, you're selling money, it's a commodity, you can get it anywhere, but you're selling money. I think it is one of those things where I constantly think about how to balance them how to for myself, to frame them all in the same thesis. For example, I know the reason that I'm passionate about most of the companies I've invested in, which are in career mobility, crater economy, FinTech and crypto is that what ties them all together, they're all around helping individuals build the wealth that they need for it to live their lives, and are very focused on the everyday person, the everyday consumer and having enough money to do what you want to do. I've definitely been in that spot where you're like, eking by, and so you want to just figure out how you can add in some extra income. So for me, I will always maintain that kind of breadth of focus. Otherwise, I should probably go be an operator. But it does make it a little bit tough with the context, which I
Lucas Matney 33:31
yeah, I've been thinking about this a little bit more lately, the people I talked to in the crypto space, it's a lot of investors, it's a lot of founders. But with some of these consumer facing platforms, when you look at the people actually using the product, there's still an awful lot of speculation kind of at the heart of why some early consumers are getting involved with crypto. And some of these platforms are kind of encouraging it in subtle ways. I guess like how do you think the crypto space moves from like very heavy speculation to as you were talking about kind of empowerment of some of these creators and artists getting a piece of the internet? Yeah.
Mercedes Bent 34:05
And I also thought about nothing more thing I want to say on your last question. So I'll come back to this question in a second. The one other thing I wanted to highlight is just like I have also realized that the unifying theme of knowing how to build a consumer product and a consumer experience, there's very unique things about go to market, about behavioral psychology, building consumer habits, changing behaviors, getting people on these transformational journeys, especially for products that have a journey required that I do think are that universal. So that's also how I that managed to cope with all the context switching is just like realizing there is actually a lot of similar lessons to be learned. And then to your question, in terms of how do we move from speculation to enduring value maybe is one way to say it. I think speculation will always be part of the market and it serves a purpose speculation and creates volatility that keeps Markets active that keeps enough liquidity that makes it so you can get in and out of a position anytime that you want. At the same time. What really drives markets is big institutional buyers that are able to move the markets with large blocks. So what I think this means is one, we're going to need to see a lot more corporate institutional enterprise money come into the space. Right now most of the corporations are experimenting with crypto, they're like, oh, we'll do an NFT marketing stunt. I don't really know why we did this, but we're trying it out. Or let's do some like, ticketing NFT ticketing thing, or let's throw something into the metaverse until they really see a great utility and reason to come in, I think the market is not going to have the long term sustainability, it needs to be viable. Some of the things that might get it into the market are, for example, in the crypto native messaging space, you want to be able to reach out to someone based on what's in their wallet, I see you have an NFT, I want to get in touch with you. But I don't have any way to know who owns that wallet. And so there's players popping up that will allow you to contact someone's wallet based on what is in their wallet. And you actually might do that as a marketer by sending them some tokens. And so you're transferring the Catholic customer acquisition costs that would have gone to the intermediaries before the Facebook to Google's advertising players and having to go direct from brands to wallets or individuals. So that can be a huge reason it utility for the marketing arms of it corporate enterprises to get into crypto and blockchain. That's one way to move from speculation to enduring kind of interest on the institutional side. On the consumer side, I think it's going to be interactive, I think it's going to be driven by, okay, the corporations are now you know, paying me for access to my wallet, they are now offering crypto native products and solutions. So that starts to create that flywheel of use cases for not just a speculation or personal hobby, or arts and entertainment interest, which is where most of the consumer applications are now, but to business as well. So I think that's really what's missing.
Anita Ramaswamy 37:02
I do want to just sort of wrap this up by digging into one of the themes. That's a key part of your investment thesis. I know you've talked a lot about the potential of crypto in the Creator economy in particular, and how that can sort of Empower creators. And I know that some artists have already monetized web three. But ultimately, it has been a small slice of creators overall that have leveraged these sorts of platforms. And so beyond like the visual artists that we see kind of getting big in the NFT space, who do you think are going to be the next types of creators that are going to make it big and web three,
Mercedes Bent 37:28
I really hope musicians were investors in a couple of companies autograph royal audience to those are also fan controlled football, to our sports to our music related, I think the musicians have historically had a really bad, you know, career path. Essentially, if you want to make music, you can throw it on SoundCloud, you can throw it on YouTube to get noticed. And then really to break it big, you have to take on an agreement with a record label who takes most of their profits if you become successful. So I think that especially what we're seeing with some of these companies, the ability to kind of circumnavigate the existing financing structures for creative roles is something that crypto allows and value chain allows. And if you can turn your fans into your supporters give them potentially some governance or some input on what song you release next, or what tour you go on, or, you know, give them some type of input on your decision. That's how you turn your community into part of your actual business as well. That's where I think there could be a lot of value accretion for creators and their control football is kind of already doing this. I don't know if you guys know much about them. But they looked into it a little bit before it seems fascinating. It's so cool. I was just at their place in Atlanta, their field on Saturday for their third game of their second season. And they have created a league where there's eight teams, four of them are in a T gated and they allow fans to call what play is going to happen on the field? Should it be a touchdown? Or should it be I don't know, two point conversion or something. Well, I'm not a football person, as you can tell, but you know, should it should it be one of the two post touchdown options? And then you know, what should the jerseys look like? Like? How are the people showing up to practice and to combine it and you call combine the practice things. And so basically, I think if you can involve fans and all of these decisions, you create a very different relationship for creators and fans to have that direct relationship that happens through crypto. Yeah,
Lucas Matney 39:20
there. Certainly it seems like people are just getting very creative about all of the different ways that crypto can be involved in new industries. Some of these will work out some of these won't. We'll see what happens. But we want to thank you for coming on and chatting about some of the stuff with us.
Mercedes Bent 39:32
Yeah, thank you so much for having me.
Lucas Matney 39:38
Thanks for listening. We'll be back every week with the top crypto news and interviews with experts in the space. You can catch us on Spotify, Apple Music or your favorite podcast platform and subscribe to our companion newsletter also called Chain reaction@techcrunch.com. Forward slash newsletters. You can also follow us at chain underscore reaction on Twitter for the occasional Twitter space about breaking crypto News. We'll see you next week chain reaction is hosted by myself. Lucas Matney along with my co host and Anita Ramaswamy. We are produced by Yashad Kulkarni and our associate producer is Maggie Stamets with editing by Cal Keller Bryce Durbin is our Illustrator Alyssa stringer leads audience development and Henry pic of it manages TechCrunch his audio products. Thanks for listening