Protocols, Nations, and Companies
Will Protocols (Web3) or Big Tech (Web2) or Nation States (17th Century) own the future? Quite the debate raging in Foreign Affairs Magazine. We weigh in and explain.
- Protocols, Nations, and Companies
- Apple can get a lot bigger
- Unicorns and Seed Funds
- Poor Creators and Rich Creators
- Metaverse Thinking
- Omicron and the Office
- Democratizing Venture Capital?
- Startup of the Week
- Tweet of the Week
The world doesn’t stand still. A time traveler from 1994 would be amazed by what we did with the Internet. That was the year I and my co-founder David Rowe launched Europe’s first consumer internet provider – EasyNet. Only 27 years later the entire world of smartphones, tablets, streaming TV, podcasts, live audio rooms, and global money flows rests on top of it.
And sitting here in 2021 it seems clear that 27 years from now, in 2048, we too would be similarly amazed. The pace of change is accelerating, not slowing. Foreign Affairs magazine has been debating whether the future might be one in which software-based decentralized protocols might replace legal systems and nations. By Parag Khanna, the founder and managing partner of FutureMap, and Balaji S. Srinivasan, an angel investor and entrepreneur wrote Great Protocol Politics (see below) and stated:
The 21st century belongs not to China or the United States—nor to tech companies as traditionally understood. It belongs to the internet.
This is true for many reasons, of which perhaps the most important is the rise of decentralized protocols like Bitcoin and Ethereum that are controlled by neither states nor companies. …
But technology’s challenge to traditional geopolitics goes beyond crypto protocols, tech companies, and even digital space itself, as it has begun reshaping the physical world.
What is important here is that they are discussing the topic of how the future world will be run. Implied is that it will not be run as it is today. And that is right. Global protocols like HTTPS and SMTP are now joined by stable coins like UST and USDC and USDC on blockchains like ethereum and bitcoin. New protocols are being built on top of them every day. And more and more users are using them. Governments are powerless to control them. And large centralized corporations seem equally powerless. David Marcus leaving Meta last week was simply a reminder of that.
Governance is itself being redefined as a voting system, sitting on a protocol, inside of a DAO. If this sounds like a foreign language you are not alone. But it is real and happening.
Exactly how this evolution plays out – releasing the creative potential of mankind to self-govern – depends on human beings making real decisions. It seems clear that Palag and Balaji are right that Governments and Big Tech will not own the future (clear to me at least). But it is less clear how individual freedom, democracy, legal frameworks, monetary rewards, and flows will evolve in this new world order. The StarTrek utopian future where “Imagine there are no Nations it isn’t hard to do” needs to meet the real-world potential that technology promises to unlock. And no nation does not mean there will be no rules. Indeed, rules may be more under the control of people than ever, if we want that. The possibilities of modern protocols make any imaginable future possible. So, what you want to imagine matters. This is the time to have an opinion. Coinbase published a piece talking about the future (see below in the curated articles) of the metaverse that shines a light on one possible way of seeing this. Andreessen Horowitz did also – about using token incentives to help create new protocols and networks.
More in this week’s video.
Protocols, Nations and, Companies
In a pair of recent essays, political scientist Ian Bremmer contends that Big Tech companies will reshape the global order, while FP columnist Stephen Walt’s friendly rejoinder is that states will remain predominant. We take a third view: Not only has technology already changed the global order, but it is also changing the nature of both companies and states themselves. The 21st century belongs not to China or the United States — nor to tech companies as traditionally understood. It belongs to the internet.
This is true for many reasons, of which perhaps the most important is the rise of decentralized protocols like Bitcoin and Ethereum that are controlled by neither states nor companies. To Bremmer’s credit, he does mention them, but he still underrates their importance. Many of the global technology firms’ weaknesses both he and Walt discuss — that they’re typically domiciled in the United States or China, that they rely on those jurisdictions for contract enforcement, that they don’t have a state’s political legitimacy, and that their exercise of power has already caused a global backlash — are addressed by the introduction of crypto protocols, which can safeguard property and execute contracts beyond the boundaries of traditional nation states.
How digital powers will reshape the global order.
After rioters stormed the U.S. Capitol on January 6, some of the United States’ most powerful institutions sprang into action to punish the leaders of the failed insurrection. But they weren’t the ones you might expect. Facebook and Twitter suspended the accounts of President Donald Trump for posts praising the rioters. Amazon, Apple, and Google effectively banished Parler, an alternative to Twitter that Trump’s supporters had used to encourage and coordinate the attack, by blocking its access to Web-hosting services and app stores. Major financial service apps, such as PayPal and Stripe, stopped processing payments for the Trump
If you had to bet on which will shape the future, the smart money would be on states over technology.
Will Big Tech transform geopolitics and perhaps one day supplant the nation-state? In a recent article in Foreign Affairs, titled “The Technopolar Moment: How Digital Powers Will Reshape the Global Order,” Eurasia Group President Ian Bremmer argues we can’t rule that possibility out. In a provocative analysis of the rapidly evolving digital space, Bremmer writes that the major technology firms — Facebook, Apple, Google, Amazon, and foreign counterparts such as Alibaba, Huawei, and Tencent — have become powerful, autonomous actors that are “increasingly shaping geopolitics.”
Apple can get a lot bigger
We ran the numbers on Apple Car and they look highly achievable at any price. The key to success will be their ability to inspire buyers to upgrade their purchase decision, to stretch a bit. Apple did this in electronics, will the magic transfer to cars?
Unicorns and Seed Funds
Has it felt like not just a unicorn-a-day in 2021, but a bit more? No, you weren’t crazy. We minted 46 Unicorns a Month in 2021. That’s 1.5 a day: Ok
Venture capitalists frequently say that valuing startups is “more art than science.” In fact, seed-stage startups — companies that have not yet released a product, regardless of how many rounds they’ve raised — are probably worth less than zero using any rational valuation methodology. Once a seed-stage company has released a working product, the startup has reduced one of the two major risks facing the business: commercialization. Like seed-stage startups, early-stage companies are still very fragile, with little predictability of revenue or cash flows.
Europe’s seed fund
It’s no secret that pace has been the name of the game this year. With so much talk of inflated rounds, bubbles, and bull markets, we’ve remained firm in our core belief: that exceptional talent can come from anywhere and focused on investing and supporting those founders we believe are building the businesses that will help shape the future we want to be a part of. It’s been no mean feat! This year, we’ve invested in 50 new pre-seed and seed-stage companies building everything from the technology to simplify borderless transactions for commerce across Africa to contextual search tools to help improve workplace knowledge.
With more companies raising series Es, Fs, and even Gs that eclipse half a billion dollars, now may be a good time to look at pro rata rights and how the investing world has changed for early investors.
Poor Creators and Rich Creators
Below, a look at music streaming, Gini coefficients, and platform business models. The creator economy has a high Gini coefficient, as music streaming illustrates.
Distribution vs. Discovery
If the press releases are to be trusted, technology is democratizing everything1. It’s never been easier for someone to start a newsletter (guilty!), podcast, or teach an online class. As they battle for attention, giants like Facebook and Spotify and startups like Circle and Substack are wooing creators and their content. Technology has made global distribution effortless. Whether anybody wants to listen or can find you is another matter.
The creator economy is booming, according to research by Stripe. Companies like Clubhouse, Substack, and Twitter use Stripe Connect to enable ticket sales, tipping, subscriptions, and other small-scale monetization. To get a pulse on the creator economy, Stripe indexed its top fifty creator platforms. In aggregate, they’ve onboarded 670,000 creators and aggregate payouts are approaching $10 billion. In 2020, the number of users grew 48% y/y in while the number of creators earning a living wage in the US increased 41% y/y2. Great headlines, but if BuzzFeed has taught us anything, it’s that headlines can be deceiving.
“God help anyone making their living on Facebook”: Why creators are ditching traditional social platforms
“God help anyone making their living on Facebook.” For influencers in Mexico, the real money is in marketing directly to fans, not monetizing views.
Bárbara de la Rosa is living her best life. The 41-year-old life coach from the Mexican state of Nuevo León has over 170,000 followers on Instagram, where she regularly posts motivational videos, inspirational quotes, and snippets of her personal milestones. The most popular posts on de la Rosa’s Instagram feed have around 7,500 likes.
Across the country, in Mexico City, social media star Sebastián Tapia Marruffo has over 870,000 followers on TikTok — nearly six times more than de la Rosa’s Instagram account. Tapia Marruffo posts clips of himself reading out cringe-worthy reggaeton lyrics or comments written by random Instagram users. His videos sometimes surpass the 2 million view mark on the Chinese short-form video app.
Going by the logic of the follower-obsessed culture of our time, Tapia Marruffo should be earning far more than de la Rosa. But that’s far from the truth.
Tapia Marruffo doesn’t make a penny save for the odd paid campaign, which his manager told Rest of World comes once in a blue moon. Meanwhile, de la Rosa earned 9 million Mexican pesos in 2020, about $430,000, by selling personal development courses on her online coaching school, called Entrenando al Corazón. She charges about 1,883 pesos, almost $90, for a six-class program.
Primitive Metaverse platforms are selling virtual land for millions of dollars. Billions more are being invested in Metaverse startups. And Mark Zuckerberg recently renamed his entire company to…
The killer app of the internet is networks. The web and email are networks. Social apps like Instagram and Twitter are networks. Marketplaces like Uber and Airbnb are networks. Networks get more valuable with more participants, which is great when they are at scale, but cuts the other way when starting out. This is the… Read More
Surging public adoption of cryptocurrencies and investments in crypto-related startups this year has already forced major changes at some of the biggest venture capital firms, which have raced to catch up to VC upstarts specializing in the crypto sector. But the departure Wednesday of …
Omicron and the Office
For nearly two years, tech executives have wrestled with the question of whether and how to reopen their physical workspaces. Some were quick to declare that the age of the office was over, while others have gravitated toward a middle ground.
The biggest tech companies — including Apple, Microsoft and Meta Platforms, Facebook’s parent company — have largely reached a consensus on their view of the future for their workplaces: Most want workers to commute to their offices for at least half, if not more, of their working hours. Exactly when they will require employees to come back, though, is a moving target for some of them, as The Information reported earlier today.
Still, a second category of companies across tech — including Twitter, Shopify and Twilio — has embraced remote work with gusto. While some of them are keeping offices open for those who want to return, they say they won’t force employees who are content with remote work to give it up.
Democratizing Venture Capital?
What comes to mind when we think of venture capital? For most people, the term conjures up images of large companies getting millions in funding rounds from top VC firms and headlines of the millions being pumped into the next Uber (NYSE:UBER) or Facebook (NASDAQ:FB). Most of us, however, think of the VC world as an exclusive one that can only be participated in by the wealthy and elite.
To a great extent, this is true as the average person would need at least a few million dollars to get started as a venture capitalist and this, of course, excludes most of the population. This is the way the VC sector has worked for decades but should this be changed?
Why Venture Capital Has to Change
In the past, virtually the only way that a company could raise funds at its inception stage was through personal funding, angel investors, or venture capital. The world is different now, thanks to the internet and the many ways in which people can connect over it. Sites like Kickstarter have already shown that everyday people can chip in to support budding ideas and get innovative products and services off the ground and this shows no signs of stopping. The 2010s also saw the rise of blockchain and cryptocurrency which have gone on to disrupt the financial sector.
In the case of cryptocurrency, it empowered everyday people to invest in ways that they otherwise could not, buying up cryptocurrencies with pennies and often making a profit during bull runs. Blockchain, the technology that cryptocurrency is based on, has been used to democratize many investment vehicles. Through tokenization (the sale of a single asset as smaller, digital representations), people are now able to invest in real estate, art, and so on at a fraction of the traditional cost. The effect of all of this is that institutions and investment vehicles that had been previously seen as untouchable or out of the reach of the common man are being demystified. Take the Gamestop saga of early 2021 in which Reddit users banded together to drive up the price of a stock in order to get back at hedge funds.
Venture capital will also go through the same evolution as more offerings pop up to democratize it. Take companies like RevenueCoin that are leveraging blockchain technology to allow users to invest in venture capital with more ease and greater accessibility.
20VC: John Doerr on Buying 12% of Google for $12M, His Biggest Investing Lesson from 30 Years in Venture & The Climate Crisis: Why Governments are The Biggest Problem and Where the Biggest Opportunities Are in Climate Investing?
John Doerr is an engineer, venture capitalist, the chairman of Kleiner Perkins, and the author of the #1 New York Times best-seller Measure What Matters. For over 40 years, John has helped build some of the most generational defining companies of our generation. He was an original investor and board member at Google and Amazon, helping to create more than a million jobs. A pioneer of Silicon Valley’s cleantech movement, John has invested in zero emissions technologies since 2006.
Check out his latest book, Speed & Scale: An Action Plan for Solving Our Climate Crisis Now.
In Today’s Episode with John Doerr You Will Learn:
1.) What was John’s entry into climate change investing? Having backed the likes of Amazon and Google, why did John decide then was the right time to do a climate fund, a pandemic fund, an iPhone fund? How does John think about market timing risk today? How does John determine between risks he is vs is not willing to take?
2.) What was one of John’s biggest lessons on risk and upside from working alongside Tom Perkins? How did the Google deal come together? Where did John first meet Larry and Serge? What convinced John to write them a $12M check for 12% of the company? Why was it a contested deal within the partnership? How did the discussion go internally?
3.) Why and how is climate innovating and investing different today than it was in 2008? What are the core OKR’s laid out in the book, that we need to achieve as a society? Why does John believe that governments are the biggest problem to us achieving these objectives? What does John mean when he says, “I am hopeful but not optimistic”?
4.) What does truly great listening mean to John? How would John describe his style of board membership? What do the truly special board members do? What does John do that makes him often cited as one of the best at recruiting? What is John’s biggest investing miss? How did it change his mindset and approach? What investment is John most proud of, that no one knows?
Item’s Mentioned In Today’s Episode with John Doerr
John’s Favourite Book: How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need
Initialized first invested in Coinbase in 2012. At time of the company’s public listing earlier this year, the firm’s $6 million of invested capital in the exchange was worth $680 million.
On Tuesday, Initialized plans to announce it has created a sixth venture fund of $530 million, plus an opportunity fund of $170 million to invest in its portfolio companies once they reach later stages. According to a person familiar with the matter, the firm’s earliest Coinbase investment came from its first fund of $7 million, helping bring that fund a return of almost 60 times committed capital net of fees.
Initialized founder Garry Tan is a veteran of startup accelerator Y Combinator, where he worked as a partner alongside his role at Initialized until 2015.
With the passing of a Brexit deal, is now the time to invest in UK equities? This data-driven infographic helps you decide.
Over the past several years, UK equities have traded at a relative discount compared to other developed markets. This was largely due to ongoing Brexit negotiations, where uncertainty around trade deals and other legislation created significant headwinds.
Fast forward to today, and much of the uncertainty has passed. Does this mean it’s time to invest in the UK?
This infographic from BlackRock covers four reasons for why investors should consider an allocation to UK equities.
Startup of the Week
Infarm, an Amsterdam-headquartered start-up that grows food indoors in racks, has been valued at over $1 billion in a new $200 million funding round.
- Erez Galonska, co-founder and CEO of Infarm, said in a statement that the current food system is broken.
- At the moment the company grows 75 different varieties of herbs, salads and leafy greens.
- It company ultimately wants to grow the entire fruit and vegetable basket and sell premium food at affordable prices to everyone.