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The State Of Web3 & Emerging Tech Capital Markets At The CryptoMondaysLA

The State Of Web3 & Emerging Tech Capital Markets At The CryptoMondaysLA

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Web3 and emerging tech capital markets take center stage in this enlightening episode of Edge of NFT. Recorded live at CryptoMondaysLA, the panel features industry experts Elana Dickman from Red Beard Ventures, Adam Struck of Struck Crypto, and John Nance representing Sustany Capital. The discussion delves into the current landscape of the crypto space. Our panelists share their unique perspectives on the challenges and opportunities within the Web3 sector, touching on topics such as regulatory uncertainties, the impact of valuations, and the evolving intersection of AI and blockchain. This episode offers valuable insights into the dynamic world of Web3 and emerging technologies, exploring how capital markets are shaping the future of this rapidly evolving industry. Don’t miss out on this engaging conversation with key players driving innovation in the crypto space!

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The State Of Web3 & Emerging Tech Capital Markets At The CryptoMondaysLA

This is Adam Struck of Struck Crypto.

This is Elena Dickman of Red Beard Ventures

This is John Nance of Sustany Capital. You’re tuned in to the Edge of NFT. Your choice for the best Web3 news content. Keep tuning in.

This is Josh Kriger, co-host of Edge of NFT. We are live from Expert Dojo in Santa Monica. This is a special live audience event. Thanks to CryptoMondays and Startup Coil. I’ll be moderating this exciting panel regarding the state of Web3 in emerging tech capital markets with an amazing lineup of top-notch investors in the space, including Adam Struck, Elana Dickman, and John Nance. We will get into it. First and foremost, a little background on our panelists. Adam is a Forbes 30 Under 30 honoree and spearheaded Struck Crypto. He’s been one of our featured guests on the show, which we enjoyed so we wanted to have him back again. Now we’re going to go a little bit deeper. How are you doing, Adam?

I’m doing well. How are you?

I’m doing great. We have Elana who’s another Forbes 30 under 30 recipient, two-on-one panel. Check that out. She’s a partner at Red Beard Ventures. She leverages her financial acumen to host The Girls Table Podcast and made a mark as an Angel investor for various projects. She just got off a livestream with Lisa Carmen Wang promoting her new book Bad Bitch Bible. That’s a rocking financial self-help category everywhere. We’re glad to have you with us. Thanks for joining.

Thank you so much for having me.

Last but not least, we have John. He’s the Chief Investment Officer and General Partner at Sustany Capital, a prominent investment firm with a keen focus on sustainable innovation technologies, leveraging the experience at White Lion Capital, Deal Box, and Sterling Global Strategies, among others to dive into sustainable investments in the innovation industry. How about that? Let’s give it up for our great panel. I chose this topic because I thought this was a conversation that has everyone in a debate globally about what’s going on in the Web3 space and the AI space. Is it the end of the world? Are NFTs dead or are we going through some evolution? I’d love each of you to start by sharing your perspective on the current state of Web3. Where are we today?

From our perspective, we have a pretty unique lens because we have a Web2 fund called Struck Capital, a crypto fund called Struck Crypto, and then we have a venture studio where we’re building companies. When I look at the crypto space, we’re cautiously optimistic. We’re a registered investment advisor. We have to be very careful about how we buy and sell or invest in Web3 generally. The regulatory uncertainty and essentially the SEC going AWOL on the entire space is difficult.

When we look at 2024 and we look at the upcoming Bitcoin, the inevitable Bitcoin, ETF, and Ethereum continuing to move to proof of sake and shipping new upgrades, there are many reasons to be optimistic. What we don’t want to do is to be pedal-to-the-metal investors and bull markets slam the brake and bear markets. We want to run our process with blinders on, do a bunch of diligence, and invest because we have dry powder and that’s what we’re doing. For us, it’s cautiously optimistic and making sure if we’re investing in a project, there’s a sustainability aspect to it. There’s a sustainable unit economics, the tokens are there for a reason, and these founders want to build because they’re passionate about the space versus getting rich quickly.

Right now, It’s a builder’s market. Back a few years ago, you would see the deal flow. You’d see a deal and you had 24 hours to decide if you wanted to invest in the deal. If you didn’t invest, somebody else would put in the money and the round would close. A lot of people are building right now. We’re seeing a lot more high-quality projects. People are here not just to go do a money grab but they’re building something that has a lot of value. We also tend to focus on a lot of companies right now specifically in the Web3 space that’s targeting more Web2 companies because first off, Web3 companies right now don’t tend to have a lot of money to go ahead and pay for marketing and loyalty. If they’re taking the Web3 technology and marketing towards Web2 companies, that’s where we’re seeing a ton of value.

NFT | Web3 Capital Market

Web3 Capital Market: It’s definitely a builder’s market now.

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We call ourselves Sustany Capital because we invest in sustainable business models and technologies. From our perspective, we don’t do any investing in tokens and we haven’t owned a lot of crypto in quite some time now, but we work with entrepreneurs in the space and inside of our portfolio that are focused on building the digital infrastructures themselves. The way that we think about this is about forcing functions and not necessarily having to make an argument for why your product or service needs to generate some adoption or product market fit.

From that perspective, it’s taking a firm look at what we consider to be non-optional technology, the things that we feel should exist and are driving societal benefit or economic benefit at a fundamental level. From that perspective, a lot of things that do not fall into those categories are having a tough time with their burn rates, raising additional capital, and being able to prove the business model or the product and service that they’ve been launching.

We’re very much in more of a wait-and-see pattern here, but we do a lot of this VR skunkworks programming division that we run out of the UCI research facility. We have two live apps on the DAP store right now that I’m happy to share with anybody if you want to talk about them afterward. Ultimately, it’s a difficult environment out there and we think it’s important to focus on things that have fundamental forcing functions and not something difficult to explain to a consumer.

I appreciate everyone’s perspective. I got back from two weeks in Asia where there were a lot of different perspectives on what is going to carry us into the next bull market from an investment thesis perspective. Four themes kept coming up over and over again. I want to make this spicy and instead of being able to say, “Those are all interesting,” let’s force rank them as a group. If there’s some contrast, that’s totally fine.

One of those themes was a decentralized social. We all know about the challenges with X. I have trouble even saying the word X. There are plenty of examples where the decentralization of social is interesting. Another topic is gaming. While some people would say we’ve been through the game DeFi heat, I can tell you from talking to all these big gaming companies that are still pivoting to Web3 for their fundamental thesis that there’s a lot of game development happening, a lot of interesting AAA games, and all sorts of different games going on with blockchain components.

The third area that I hear a lot about is using loyalty and rewards to spearhead Web2 companies. We had Adidas on the show. That’s a third major area. The last of course is DeFi. There are comments that DeFi is holding steady relative to the other markets. Let’s play a game of force ranking these areas. If there’s something I’m missing, let me know because maybe I’m interested in investing in that area too. Adam, you’re used to being put on the spot. You’ve been on the show. How would you rank these four categories?

I’ll start with last place first. We all remember the BitClout DeSo debacle. I’m going to go with distributed social.

You’re not a fan of friend.tech.

I’m going to put that last. Loyalty and rewards are important components using crypto economics to incentivize behavior with microtransactions. That makes a lot of sense, but I don’t see that as its own category. There are ways to do that in a Web2 space in a centralized manner as well. That should be an important feature. I’m going to put it a little lower because I don’t think it’s its own category. I’ll go with DeFi as number two because I’m very biased towards gaming because we were the first investor in Mythical Games, which is one of the only companies in the Web3 space with their launch of NFL rivals that has bridged the gap of true Web3 NFT distributed sports gaming.

They’ve hit escape velocity. They’re the number two app in the whole app store for sports. That’s been pretty amazing to see all their users. I want to do gaming and DeFi as a tie. On the DeFi front, we’re very interested in RWAs or Real World Assets. To incentivize a lot of bullish behaviors, people start putting actual assets on chain. There’s a lot of plumbing and infrastructure that you need to figure out. One of the things we’re flirting with at the studio level is essentially being almost like a verticalized oracle to be agnostic with various qualified custodians and put people in a position that when they’re looking at a real-world asset that’s tokenized on chain, they have verification in real-time. There’s a tangible asset that’s authenticated that’s collateralizing in that token in real-time, so that on and off-chain issue. Those are my four.

You are to thank my girlfriend for my latest distraction, which is NFL rivals. Does anyone here a John Madden fan?

I’m a Madden fan.

NFL rivals kick Madden’s butt. It’s all in the blockchain and you don’t know that you’re playing a game with NFTs and a blockchain marketplace. You’re just playing an awesome game. If you’re looking for a new late-night addiction, I highly recommend NFL rivals and I can see where you’re coming from there. Do we have any disagreement among our other illustrious panelists?

I was going to say something similar but Adam said it a lot better than I ever could. Rewarding is more of a feature that I see. You won’t know that it’s using blockchain-based technology. You’re in the Starbucks app and you’re getting your loyalty. You don’t know that they’re using the blockchain now. I was going to put them last and then decentralized social as second to last. I do believe that something is going to come in and disrupt X, I still call it Twitter, and some of the other applications that we use. I don’t think friend.tech where you’re going out trying to get people to buy your token is necessarily what’s going to be the thing that’s going to make an impact. I do believe that something is going to come in that we don’t have yet where you could own your followers and people who are taking the time, and move it across different applications.

Something’s going to come in and disrupt X. Click To Tweet

You could do that with a newsletter right now. You could go on Substack and then you could go on Beehiiv. You could take off your subscribers and put them back on. Why can’t you do that on Twitter? Why can’t you do it on Instagram? I do see one time where you’re going to be able to decentralize social, own your followers, and own everything that you put your time in. In terms of DeFi and gaming, gaming is probably the first for me, especially with interoperability. I believe that when you play a game, you’re spending all this time. There shouldn’t be an abundant amount of the top limited-edition characters or limited-edition weapons. I believe that there should only be a few, and then if you have one, you should be able to own it and then resell it. Most games will have to use infrastructure that will enable interoperability between different gaming assets.

I agree with my fellow panelists. In adding to what they’ve already shared about some of these categories, as an anecdote, something interesting we’ve seen in the gaming space has been in relation to working with very high-quality media assets. Think about some of the brands that I won’t name because I can’t talk about the business, but they’re all household names. You guys have seen these movies and watched these shows on television. They’re designing a set of games around all of these. To Elana’s point about interoperability, the cool part is if you’re playing a specific character and you have a certain asset that you purchase in one of these properties, you can transfer that to any of their upcoming games coming out in the future. These things become assets, not expenses, as you’re playing these games.

They can be resold but the thing that stood out to me is that you can transfer them across the games or the other properties. As you have an affinity for a franchise, let’s say you’re a big Call Of Duty player or something like that, it would be interesting to be able to carry over those assets that you spend a lot of time earning or spending money for in those other environments. On the DeFi front, that’s number one for us. We are some of the earliest investors in Figure Provenance. Provenance is the new blockchain that Figure has developed.

Figure is founded by Mike Cagney. You guys probably all know Mike Cagney especially because we’re in LA. He’s the founder of SoFi. This is his next version of what the future of lending looks like and unlocking the ability to purchase real estate and access home equity lines of credit. If you need a validating function for that, they issued $5 billion worth of HELOCs on the platform in 2022 alone. Those are the kinds of things where if you’re talking to somebody who doesn’t necessarily believe that these things are real, it’s very real.

I appreciate the perspective of everyone on the panel. Something that’s been on my mind a lot lately, if you pay attention to the news and also the energy going on in Asia relative to the US, is whether the US market is falling behind in terms of Web3 with other countries. I’m sure you all look at companies that are not just based in the US and companies that are not just marketing to the US. I’m curious from a regulatory landscape perspective, are we falling behind?

The answer is absolutely in our eyes. It’s not so much on the securities regulation framework, but we look at a lot of the blockchain industry as a major solution for identity management and general human rights around data privacy. If you follow things like GDPR versus the CCPA here in the States, the differences are very clear in how Europe thinks about these types of regulatory environments as opposed to the US. A lot of the time, what we’ll look for is how we can take one of these technologies from a data privacy standpoint and help implement them in a place where their regulation is advanced from a point of privacy. We see that happening a lot in Europe and also in Sub-Saharan Africa of all places.

From a demographic standpoint, it’s very interesting. We use this analogy internally where when the first telecommunications were installed in Africa, they didn’t port a copper cable line to give you a dial-up phone in these locations. They gave you a smartphone. In today’s environment, I’m sure some of the audiences heard these analogies before, but these people are getting leapfrogging in terms of technology when they’re getting exposed to what has happened already technologically in other “developed” countries. From that perspective, it creates a unique opportunity for some of these other environments and geographies to, in some ways, surpass where a lot of the developed nations are in terms of technology. A lot of that has to do with regulation.

You guys have a new accelerator that Red Beard is suing. I’m sure you gave some consideration to this in terms of the criteria for choosing companies and where they’re focused. What’s your perspective on this?

We started an accelerator called Denarii Labs. It’s a tokenomics-based accelerator. We’re dealing with tokens. We’re trying to help them find utility for their tokens. It’s an interesting question. The US is going to fall behind if they don’t get their regulations for crypto-based currency, for being able to invest in tokens, and especially for companies who are dropping tokens and the utility behind them. We are focused just on the companies because I believe regulation is going to come into the space. It’s a matter of not if but when. Especially in the accelerator, we are still focused more on finding companies that have a token that has utility as opposed to just focusing on location sites that they’re building in.

NFT | Web3 Capital Market

Web3 Capital Market: The US is going to fall behind if they don’t get their regulations for crypto-based currency.

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Are some of those companies based in the US and they have a token, but it’s a utility token in your mind?

It’s like Truth Labs if people know that NFT project. Goblintown is working on creating characters and using their IP. That’s one for instance that’s based in Delawares and it’s an LLC. That’s one that’s based here.

Adam, anything to add?

Regulatory uncertainty hinders our technology innovation. I do think though, on the flip side, there was a lot of crazy stuff that happened. A lot of crazy shit that happened over the last few years. I think we need some regulation to fix a lot of that. At the end of the day, I agree with the rest of the panelists here. There will come a time when there is more regulatory certainty. Up until that point, if other jurisdictions surpassed the US in providing that certainty, it’s going to hinder progress locally.

Regulatory uncertainty definitely hinders core technology innovation. Click To Tweet

For us as a fund, we’re structured with essentially offshore entities because we want to minimize all contexts with the United States. What I think has also happened, and that one of you touched on this a little bit is there are now strong builders in Web3 building in LA or Silicon Valley. They’re petrified of launching a token, even though in theory, that token could have some utility for what they’re trying to do and then they’re trying to play the regular bottoms-up or top-down enterprise SaaS game.

The problem is all the buyer personas in Web3 have no willingness to pay. We’re sitting there and we’re saying, “Gosh, you converted Yuga Labs and it’s $4,000 ACV.” I’m like, “Your unit economics are upside down, this makes absolutely no sense.” It’s difficult right now for builders in the US and there’s no question about it. There will be long-term effects unless we can get some regulatory certainty sooner rather than later.

As an investor with a long-term thesis, how do you navigate these challenges short term?

We keep investing. Even though the market is a bear market, we’re still looking at companies. We’re actively investing. You can’t just hold off investing because it’s a bear market. That’s the best time to invest and to look at companies and projects. We’re keeping busy. We’re honing in on our thesis and continuing to look into diligence companies to keep busy.

Going down that path, valuations are way down for everything from small emerging projects to big players like Yuga, even Mutants and Bored Apes. How does that affect your perspective on the impact of ROI for these companies? Would you say that valuations and value are synonymous or different?

Maybe not.

It’s happening week by week.

John, do you have something to add?

Elena, how are you all looking at AI?

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