167: Techstars Tag Team | Isaac Kato and Pete Townsend on Web2 vs Web3

This episode of MoneyNeverSleeps is sponsored by Philip Lee, one of Ireland’s fastest-growing corporate law firms and expert advisors at the heart of the Dublin and London start-up, fintech and crypto communities.

HIGHLIGHTS:

Pete Townsend on composability in Web2 vs Web3

“In my kids’ playroom, we’ve got this Lego table and one of the kids will create something, leave it there, and then one of the other kids comes along and builds on top of it and they end up with something even better. 

“That’s how I think about composability in Web3 – if someone else has built something and there's a project or protocol that would be helpful for my users, network and developer base, I can just plug my project into that other protocol and make it available for my network.

“If you wanted to do that 50 years ago, you'd have to do some type of M&A or joint venture.  In Web2, you might have a massive integration project that can take months to get up and running, or at best, something like how Uber uses Google Maps.  In Web3, it’s almost like public Lego blocks.”

Isaac Kato on composability and defensibility in Web3:

“Let's say you build something awesome and there's an initial surge of interest around it, but then someone says, okay, well, I'm going to take that, but I'm going to add another thing to the Swiss army knife that makes it even better. Are you going to lose your community or your relevance?

“I can't figure that one out yet. I've certainly heard people say, well, either defensibility doesn't matter to me cause we’re all about the community or that the defensibility will lie in the community because they'll be so passionate about our project.

“Composability is great in terms of not having to reinvent the wheel, but if nobody has to reinvent the wheel, how do you set yourself apart?”

Pete Townsend on defensibility in Web3:

“I think that defensibility becomes more difficult in Web3. This space moves in dog years, so you need to develop in dog years and ship product fast.  Also, how tightly can you bring your community together? Can you create these superfans and people that get behind everything you do as in ‘I want your product, I need your product, I love it and I want to tell everybody about it.’?”

Isaac Kato on defensibility and community in Web3:

“Your community is definitely one angle for differentiation and that's especially true when you have communities that are content-oriented or metaverse-oriented where there's a ton of benefit from just the human engagement.

“This is not so different than Web2 in the sense that any marketplace that gets to a critical mass where there’s enough node-to-node engagement within the network will have an inherent advantage, and then once the flywheel starts spinning, it just pulls more and more people into it."

Pete Townsend on the link between community, tokens and incentivization in Web3:

“Say you’ve built up your community on Discord, and you’ve got a bunch of people active and behind you on Twitter and everything’s wonderful. Unless you’ve got something for them to do, and you can incentivize their behavior, they’re not really going to stick around.

“Incentivization is massive because this crosses into fundraising.  If your product is not live yet, but you can go out and raise a few million through a token sale to your community, that’s wonderful. But how long is it going to take you to build something so that your community has something to do with the token that they bought?

“Development speed is really important so that your community has something to do with that token and your token value stays afloat.  If you launch a token and you've got a community, but you don't have a product for them to use yet, and all that they can do is just make some decisions around governance, that token is not really all that useful.

“I think there's a strong link between defensibility, your community, and your incentivization mechanism that is generally baked into a token. This makes fundraising very different between Web2 and Web3.”

Isaac Kato on the longer-term impact of the fundraising framework of Web3

“It’s just a foundational earthquake. It has the potential to rock the very foundations of capitalism and the way we have been capitalizing human efforts for the last couple of hundred years.

“Traditionally, rewards accrue to a handful of equity holders which are usually a small group of people – I think that is going to change dramatically. It might not change overnight, but if you look 10 years from now, I think our role as investors is going to radically change.

“I think it’s kind of delightful to have a founder tell me ‘I don't care about the equity – I could care less because the value is going to accrue to the community and the token’. That's incredible, and certainly, you see the most progressive investors in this space willing to just invest in tokens.”

Pete Townsend on Web3 fundraising and DAOs (decentralized autonomous organizations):

“Check out Krause House – instead of WAGMI (‘we’re all gonna make it’) it’s WAGBAT, or ‘we’re all gonna buy a team’.  This is a DAO that formed to buy an NBA team, and they’re so focused on community-building upfront.

“If you take that same DAO approach to raising funds for a Web3 project with a product and an incentivization mechanism, the whole idea of an operating company and equity is gone – it’s just not there.  The founding team is just a foundation that sits behind the DAO.  There’s a lot to get your head around in this space, and it obviously changes how you think about investing in early-stage projects.”

LINKS:

Follow Isaac Kato on Twitter and learn more about the Filecoin Techstars Accelerator 

Follow Pete Townsend on Twitter and learn more about the Launchpool Web3 Techstars Accelerator

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