This post is based on a conversation between Steve Jang and Aryan Bhasin as part of the show web3 for gen z.
Steve is the managing partner of Kindred Ventures and co-founder of Bitski, an NFT wallet platform. He’s invested in notable web3 companies like Coinbase, dYdX, Messari, and Magic Eden. We talk about world-class web3 founders, investing in early-stage startups, and the landscape for NFT marketplaces.
Just as a reminder, Steve is not giving financial, legal, investment, or tax advice. Please do your own research.
Distinguishing world-class founders
Could you share the profiles of some of the best founders that Kindred has invested in, particularly in web3 (like Brian Armstrong and Ryan Selkis)?
Sure. At the earliest stages of a startup where seed venture capital firms are playing, the quality of the founder and founding team is super important. At a later stage for later stage investors, a lot of them are reviewing not only the founding team and the management team, but they're reviewing the product as well. They're thinking about the market opportunity. There's a lot at play in reviewing an investment at a later stage.
In the early stage, it's actually quite simple: you're really talking about the product vision and the overall market opportunity. And that market opportunity can be a well-understood market that has shaped today or it can be a totally new market that is created by this founding team.
What that means is, that you don't often you don't have a product to review or demo. Often it's pre-product; There certainly isn't any sort of revenue or monetization at that stage. So really a lot of the decisions on whether to invest, revolve around the founding team.
The founder profiles are not singular or even a set of personas; they are all over the map. There are so many different ways and so many different sources and so many different stories from where amazing world-class founders can come from.
You brought up Brian Armstrong and Ryan Selkis earlier. Ryan was a writer and he was anonymous; Brian was an engineer at Airbnb. These are two totally different profiles.
When Brian and I first met, it was when he had just started Coinbase and was working on the application. We met each other on a plane through some friends at an Airbnb. At that time he was very focused on solving a very simple problem in crypto, which was how to buy crypto with US dollars. So he initially started working on a mobile app and then a web app and was hyper-focused on Bitcoin back then. If you talk to Brian today versus 2 years ago and even 10 years ago, you would notice that he's always focused on the quality of the product.
There have been many times where there have been so many different functionalities put in front of the company, to develop API platforms, to take on more coverage of tokens, or to expand internationally. And, I've spent some time speaking with him over the years about international opportunities, especially in not only developed markets but also emerging markets.
All of these things proceed at a certain pace, but he's always been so focused and principled about not only shipping great products but ensuring high quality for investing customers. That's been really impressive.
Ryan, on the other side as the founder of Messari, has been very focused on product too. You're gonna see a theme coming from me: at the earliest stages it's definitely about building an amazing team of engineers, designers, maybe product managers, and operations folks. But more importantly, it’s about focusing on the product.
Without a product, you do not have a company. That's really important to make a firm statement on the survival or the success of a company. It is driven by the quality of the team and building and shipping an amazing product that serves a need of a customer base.
This is really important because a lot of people think that when they build a startup, it’s about building something really big and really vast in terms of vision. Actually, it’s quite the opposite: what we found to be true in early-stage startups is that it’s really important to focus on a very specific customer delight or fulfill their needs or solve their pain.
So going back to Ryan. What's great about him is that he started out as someone who said, “ As a customer, I have data needs. I need data analysis. I want research. I want deep insights, something that's just not available out there on the internet today.”
When I first met Ryan he was talking about his experiences and his prior roles in crypto companies. Ryan was quite compelling. He's quite the personality with a strong voice and a great on-the-spot intellect in terms of being able to really dive into a lot of these topics. He built a personality on social media that was well followed. So Messari is really an extension of Ryan: his ego, knowledge base, and experience. Messari was the product that he wanted to see built for him as a customer in his prior life.
I think that's a really important way to think about building products. Sometimes you are building it for yourself. Sometimes you're building it for others that you have high empathy for. Nevertheless, in all cases, I would say there's never been a successful startup, at least in my portfolio, in my experience directly, where the founder did not either truly understand the pain or really personally wanted to feel the delight of the product that they were building. Oftentimes you are building it for yourself and Ryan certainly did that just as Brian did. Ryan wanted to see a Bloomberg-style market research software interface for web3.
Another set of founders that really show an interesting dichotomy of pure play web3 founders versus web2 founders that are expats into web3 are Zora and Magic Eden in the kindred portfolio. Zora was started by a group of ex-Coinbase employees. They had worked on a side project while at Coinbase which was a decentralized fashion house where people could buy tokens to become a member and pre-order clothing apparel decided by the community and the founders.
The interesting part of that was the token design, which created an auction dynamic that uses a bonding curve. That was the predecessor for what we know now as Zora. We helped them through the side project idea and they ended up leaving Coinbase to start Zora. Today it is a decentralized protocol for NFTs and DAO creation. Their philosophy to bring everything on-chain is really the underpinning of Zora. The team is very much the philosopher-builders in our portfolio and you can see that in the writings of the founders.
An equally fantastic and talented team in our portfolio was Magic Eden. It was co-founded by Zedd, employee #1 at dYdX, and one ex-Uber engineer and an ex-Google product manager. So the team is mostly web2 expats into web3, but what’s incredible there is that they've had the opportunity to build things at true scale at hundreds of millions of users. That's an incredible thing to have. When you’re inside of a team building something that goes from zero to massive amounts of scale quickly, you experience all the problems and the growing pains that rest within. Having that base of experience is super important.
So we have two profiles here, one being a more crypto native web3 founding team building something like Zora, and then one being Magic Eden, which built an amazing amount of scale and community cohesion in a short amount of time. Both are in the NFT space. It's an interesting testament to the diversity of backgrounds and talents that are quite possible in web3.
How web3 investing differs from core investing
It seems like the way you approach web3 for investing feels pretty similar to investing in any general company.
How would you say web3 investing differs from the core principles of investing?
There's a lot of talk about how web3 is distinctly different from web2. There are a lot of structural and idealistic differences between the web3 movement and what we saw in web2. However, in terms of investing in web3 vs web2 companies, there's more that's similar than there is that's different.
Investing in web3 is still investing in a startup for the most part, whether they're building a protocol, an L1, or they're building infrastructure and tooling in the form of APIs, SDKs, and services for developers. They are founders that are building a team. They are writing and programming. They are designing a product and then they're shipping that product. All of this is enabled by software.
So really, whether it's web2, early web, or web3, these are software startups. The manifestation of what they're building or the application of where their technology will go might be different, but at its core, building a startup and then, therefore, investing in a startup are all very similar.
So architecture is the underlying difference between a web2 vs web3 company, but the investing does not really look into the technology in the early stages. Right?
Yeah. Again, a lot of these technologies are different in that the framework by which building a product can be quite different. For instance, in web2 we rely upon cloud hosts to host the network layer and all of the physical servers that you're using. It allows you to focus on what you do best, which is creating customized applications that perform a certain function, whether that's a social network or it's a streaming service, or it's an enterprise SAS tool.
Now in web3, we don't have that today. We don't have the fully mature AWS GCP Microsoft Azure type of situation in terms of hosting. You can certainly use bare metal. You can certainly use AWS for web services and database services, but in terms of the specific blockchain data and even behavioral APIs, we don't have that ability today. There's a huge opportunity and it's an area that we're focused on among many in web3 is building out this infrastructure layer.
A particular example of the differences in infrastructure and tooling side of web3 is that blockchain data in its raw form is generally unusable by most developers. What's required is to organize, parse and filter this data into a usable set of formats. The first step there is RPC: remote procedure calls. That is the basics of being able to read blockchains and put them into a usable form. One of our companies at kindred is Syndica and they're the leader in RPC node validators for the Solana blockchain. They power most of the Solana ecosystem in terms of RPC.
On the EVM side, we have another company by an ex-Coinbase team called Coherent. They're building web APIs for developers, such as specialized indexers around user identities and creating developer-ready web APIs and data APIs. Both of these companies are creating infrastructure that allows developers to focus on what they do best.
In the web2 world, we saw how APIs allowed us to build so many different products on top of things like Google Maps APIs, Facebook APIs, Twitter APIs, and so forth. We're just at the beginning of this development curve of having web3 APIs and web3 node validator services. I think this is going to push forward into data analytics and it’s something we have to build from scratch because of the nature of decentralized data networks on blockchains.
How do you foresee this cycle of data analytics playing out within the web3 ecosystem? Do you think it’s going to be different from how the cycle has played out for web2?
Data analytics so far has been largely focused on creating greater business intelligence for an end customer. I think the one addition to this picture will be that now there will be communities, groups of companies, and groups of end-users that will want real-time, high-performance data analytics as a transparent community.
There are some great companies out there that have built some interesting, including first-generation products like Dune. What we’re excited about are real-time dashboards going to the next level and you being able to see not only your on-chain data but merging that with off-chain data. Gathering business intelligence across different chains to see what your end-customers are doing on other chains with other products is what I see as being different in web3, versus the siloed data warehousing and data lakes of web3.
It’ll be interesting to see the merger of classic data analytics infrastructure with on-chain and off-chain data in this mixed hybrid future of the Internet.
Evolving from an investor to a “venture contributor”
When you're working hands-on with founders, do you help the founders make these infrastructure decisions or technology-based decisions?
Most of the time when we're investing and supporting a founder, they come in with their own opinionated view of what they'd like to build on top of and what they'd like to build. We're there as an investor at this early stage to help ask really good questions, that challenge the thinking that supports the acceleration of the path that they've chosen.
But we're not there to necessarily help them change their mind about certain things. We love meeting founders and that's one of the great pleasures of this business is that we get to meet so many brilliant folks that are mission-driven.
They have really big, often contrary left-field ideas, which is truly a joy in the job, but we don't get to invest in every single one. We are investing in such a small fraction of the amazing talent that we get to meet, So when we do invest, that means that we've really clicked with them. It means that we found their vision really compelling, that it would be such a joy to work with them day to day on helping them build their company. We're not going in there to redirect how they think about their product vision, or to change the fundamental tenants of their belief in crypto or web3. This is not the role of an investor in my mind.
One of the things that I came to learn was that there are very few venture capital funds that know how to add value and really help founders at the seed stage. There's just a handful. Most venture capital funds are really best suited after the product has reached the market.
It’s important to recognize that venture capital evolves with the rest of the industry. Just the way startups have evolved, just the way technology platforms and protocols have evolved. Venture capital is not just about capital, but it's also about contributing to the mission and journey. That's often ideas, questions, introductions, general sort feedback, and coaching advice.
All things are in good measure and balance, with a goal to contribute. Whatever that contribution may look like. Every team is different. Needs are always going to be different. No two founders or no founding teams are identical. The help that they might want over time will be different. This is why it’s really important for venture capitalists to evolve into this contributor role versus just the capital role.
Oftentimes we'll meet with founders who are looking just for capital and often you'll see they kind of manifest in terms of a lot of investors that may not add value. Now there's an argument to be made that most investors don't add any value. I think that's probably true as a founder myself several times. I would say that it's a small percentage of your cap table that actually consistently is helpful.
We often meet founders who are in a situation where they have the privilege of having a big party round put together. Now we quite frankly ask, “Are you looking for capital, or are you looking for investors?” because we are not just capital and we want to contribute as investors for the lifetime of the company.
We really value those direct relationships where we can mentor, coach, and advise and oftentimes just be friends in certain situations where they need a shoulder for support or an ear to listen to. This is really important for us. This is why we named the fund Kindred Ventures, as you can probably imagine, but this is a core philosophy and a core mission of ours.
If you're participating in a party round, as you said, do you still feel that you're willing to act as a contributor and put in a lot of effort? Or would you just decline investment?
We often decline and there's a reason: we're often spending a lot of time working on, helping sort out the details of the product roadmap in support of those founding teams at the 0 to 1 phase. There's a general shape and color to it, but the founding teams themselves are working through that. That's something that's really formative at the 0 to 1 phase. So we like to roll up our sleeves and get involved in that conversation. See if we can be helpful. If we have a gap, then we'd like to introduce them to people in our network, other founders, other engineers, other product managers that have gone through similar experiences or even the same experience.
We like to get deeply engaged and really get involved in a tactical way in that early phase. Oftentimes it's getting involved in not only the product road map, but it's also about hiring the first 5 to 10 employees. We often co-interview. We suggest some people who make introductions and referrals.
Those two things are the most critical things outside of writing good code and shipping products. Putting that type of effort in requires the reality of time. This is not something that you can do easily by firing off a few emails or pinning something in a Telegram group chat. For us and with our model we are only investing where we can be a lead investor and truly partner with our founders. That's how our model works, whether it's web2, web3, AI, hardware, or climate tech. These are all areas where the community within often sees themselves as very different from other tech communities and sectors.
It's my opinion over the last 25 years, I’ve seen that a lot of these sectors and communities are more similar than they think they are. It's really important to take your investors for the help that they bring, the connection, and the communication style that you want, and assume that they will be contributors to you for the long haul. In that model party rounds aren't really possible, so we focus on being able to truly partner with founders as a lead investors.
Just a small side question to this discussion: Are there any other common reasons that a company or a protocol or job doesn't make it through your investing?
There are many different reasons and there are probably too many to enumerate on this podcast, but oftentimes it's a very close decision. It's a very tough decision where we spent real time with teams, because then it will often come down to whether or not the team has the ability to execute on the go-to market strategy and the early part of the product roadmap. You'll find that in any given problem area within web3, there are 5, 10, maybe even 20 startups tackling the same problem, which is not a bad thing. You want that diversity of teams trying to find a solution because that's how we move the future vision of web3 forward.
Where the rubber meets the road is the quality of the team. Oftentimes you'll have a team that is great and has all the right notions and concepts but may not have the skillset to be able to execute on the V1 of that product roadmap. That’s just really important as a seed investor: we can get intoxicated by the vision of a team, but a lot of our final decisions are often made on whether or not they have the skills to be able to execute on the V1.
The 3 types of DAOs and how they’ve changed investing
How do DAOs change how you think about investing?
DAOs are very fascinating as a collective medium for investing or acquisitions. The idea of organizing with people around the world that have common affinities to perform one function that is clearly exciting for every member of that community – these are things that are, from a first principal's perspective, just very exciting. To be able to do that now with collective ownership and participation makes it that much more compelling.
We look at DAOs in a threefold manner. One, there are decentralized organizations out there that function as accelerators. A couple of examples of that in our portfolio are Seed Club and Alliance. Both of those are accelerators with different approaches that are really focused on creators that want to build interesting decentralized projects. They accelerate them very much like YC accelerates its community through a class cohort. It brings a strong creator ethos to web3.
A second area of DAOs that we find really fascinating is the social acquisition area. These are DAOs like PleasrDAO and ConstitutionDAO. They bring together a set of like-minded people that are very excited to perform a group acquisition of a highly valued asset that is emotional to them or has some sort of soul or spirit They not only collectively purchase it, but they also want to collectively govern it to preserve it, amplify it, or help evolve it over time. There’s a lot of idealism and grand intentions around these.
The third type of DAOs that we're really fascinated with is what I call community-as-collective-investment DAOs. Some examples of that are NounsDAO and FWB. For NounsDAO, the purchaser of a daily auction of a Nouns NFT becomes an automatic member of the Nouns community. Within the community, there’s a constant cycle of proposals that the community is making and voting upon for the benefit of its members and the Nouns artwork. It’s the purest play form of a truly decentralized membership.
An equally interesting DAO is FWB. It was originally created by a handful of people in Los Angeles that were not only involved in technology and crypto, but in culture – music, art, fashion, film, etc. The group grew organically and the founders issued a fungible token to encapsulate membership for new members. Now, it’s a grassroots movement in and of itself, built around a global community city-by-city.
The one area to discuss outside of these three types of DAOs that we find very compelling is the DAO tooling space. To me, it’s really a general organizational tooling space. In the future, I think a lot of organizations will either be crypto native or have components of decentralization and crypto involved in their platform.
DAO tooling companies, like Utopia Labs from our portfolio, build the financial OS for a lot of the DAOs you see out there. They handle the nitty-gritty financial OS activity like payroll, budget management, and compliance which are challenging for DAOs when they get started. Within the group of companies in DAO tooling, there are also companies like SyndicateDAO, Tally, etc. building a lot of specific tooling for governance, treasury management, token cap table management, etc.
These are all necessary requirements of crypto-native organizations, whether they're DAOs or protocols or dApps. We’ll be dealing more and more with these technologies and, in general, tokens alongside equity as the industry matures.
The NFT marketplace and wallet landscape
I'm curious to learn if it becomes easier for you to help out NFT marketplaces after helping out more traditional web2 marketplaces (like Uber and Postmates), or is it a completely different beast to tackle?
Kindred in the early days, when it was a small angel fund, didn't have LPs. It was really me functioning as an angel investor and as an advisor, so I was running my own company at that time. web2 was really characterized by a few things: social media, APIs, and feeds. It was mobile platforms and it was marketplaces. So I learned the marketplace model and platforms constructed from a lot of great founders from Uber to Etsy to Postmates. The list goes on.
These double-sided and sometimes three-sided marketplaces have very different supply and demand dynamics. They have a really interesting managed marketplace versus an open bulletin-board style, peer-to-peer marketplace. There are many nuances and models that have worked over time.
Coming into web3 with NFTs, there are exchanges for crypto and there are marketplaces for NFTs. A lot of the dynamics of a marketplace for NFTs are web2 dynamics. They're not that much different: there's a buyer and a seller. You have to decide, how far do you want to go in matching the buyer to the seller?
For instance, when you look at Uber, that's a managed marketplace. When you order a car, you have some selection ability on what type of car, but you are served a driver. You are served the supply side algorithmically.
In an open marketplace like Etsy or Poshmark, buyers and sellers choose each other. They browse, they make decisions and they choose each other. Whatnot is the same thing, which is a more recent web2 marketplace. We have a company called Drip Shop that is in that physical collectible space. That is more of a peer-to-peer marketplace.
So in, in web3, this is very similar. You choose which NFT you want to purchase and collect and the community that you want to eventually buy into and get involved in.
There are two approaches there. There's the centralized approach: Coinbase or Binance in crypto. The centralized approach in NFT marketplaces allows you to ensure a certain level of quality that allows you to create a breadth of inventory and coverage that keeps people engaged. It creates a really interesting user experience for folks. Pricing is embedded within all the monetization tools. You can rely upon the technology stack and the services that the marketplace provides.
There's also an approach, especially in web3, where it's more peer-to-peer. It's more of a decentralized network. That's more of a web3-style marketplace. There are also ways to use DEXes instead of Coinbase. So you can use Uniswap, you can use dYdX, and you can use so many different decentralized exchanges. A similar thing is happening in NFTs. You have centralized marketplaces, then you have decentralized approaches. So on the centralized side, you have Magic Eden, OpenSea, LooksRare and a long list of smaller niche marketplaces.
Then you have a decentralized marketplace approach, which is Zora. Zora is providing a smart contract protocol that dictates how you can run peer-to-peer auctions on-chain. How you can build DAOs using NFTs and offering APIs and an SDK around that. There are two different approaches to try to achieve what is basically a similar outcome.
Bitski on the other hand, which I'm a co-founder of, started out as a crypto wallet during the last crypto winter. What we found out trying to build a crypto wallet SDK was that we built the infrastructure before that there were before there was a lot of demand from developers; We were a little too early. As a result, we had very few customers but two of most interesting customers were The Sandbox and Macho. We learned a lot from those early lean years. And today Bitski is an NFT wallet. It's a consumer wallet with a developer SDK for a very NFT focus, having an iOS app and a web app.
So in terms of looking at marketplaces and wallets, we take an approach at Kindred that there's going to be both a trustworthy, reliable, centralized marketplace opportunity. We also believe that there is a decentralized API and protocol opportunity. And then, the third corner that we feel strongly about is we think that there is a vast amount of improvement that needs to happen in terms of the wallet experience.
We think wallets have been defined as a crypto defi wallet historically. We think that there's a huge opportunity to rethink what is a wallet and to think of wallets not just as financial and transaction signature wallets, but think of them as full applications that serve a variety of needs for end users in the crypto space.
When you get out of the wallet construct and think about it, you realize it’s just a fully featured application that should perform wallet functionality, browsing, searching, notifications etc. And it shouldn't rely upon just the simple sort of utility function in web3.
Creating synergies between Kindred Ventures and Bitski
Did Kindred play a role in Bitski? Were there any synergies between the two?
Actually, we incubated Bitski as part of Kindred. At Kindred, we do several things. We do pre-seed and seed investing. That's where our focus is, but we also do what we call venture formation. It's essentially our venture studio effort where we get an idea in our head about a product that should be built or technology that should be explored.
Bitski was actually the first company that we did that with. It was just the four founders in the very beginning. That's part of the journey together as a team. That is so important to the personality and the vision that ultimately comes out of that sort of early formative planning. And we did that with the idea that we wanted to invest if something came out of it, that was really cool and exciting.
That is part of our model at Kindred. We often meet a bunch of great founders. We're talking with them and then we keep in touch loosely. And then, later on, we have an idea. When we have that idea and we think about who would we wanna recruit to be our co-founders in building the startup, we might remember that one person that we ran into and had an interesting conversation with. And so we'll reach out and we'll put it together. And so that was our origin story with Bitski: it was both part of a Kindred formation effort, but also its own company in that the founders have now taken it to the next level.
Advice for Gen Z
If you had to give an advice to young entrepreneurs or investors in Web3, what would be your final pieces of advise?
The best thing that someone can do today is to work at a startup. A lot of times you are gonna learn so much by working in a small company. There are so many hats that you need to wear. There are so many different problems you need to solve. It is really a, it's a fire hose of experience. I can't tell you how much more I learned when I was working as an employee, a designer, front-end developer, and a product manager at a startup than when I was working at a big company. The rate of learning is faster. And the people that you meet become your core network.
So I think the first few years of a career in web3 are really best at early-stage startups to mid-stage startups in web3. If at that point you feel like you've accumulated enough knowledge and you've built up an understanding of what it takes, then go for it and start a company. But, I think the first step that I would recommend to everyone is to go work with an amazing set of people on a founding team and learn by contributing shoulder to shoulder.
Thanks for the advice. How can listeners get in touch with you?
Twitter DMs (@stevejang) is probably the best way to reach out, otherwise you can find us on our website or email us.