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Web3 Valuations, Tokenomics & Startup Strategies | Neil Thakur | WT3 013
63 Plays10 months ago
"The value of the token is very low at early stages, but the expectation is going to be high."
Join us for an insightful episode of the What The 3 podcast, where we dive deep into the world of Web3 valuations with Neil Thakur of Teknos Associates. Neil shares his expertise on navigating the complex landscape of valuing blockchain projects, tokens, and startups in the rapidly evolving crypto space.
In this episode, we explore:
- The unique challenges of valuing Web3 companies
- Key metrics and KPIs for blockchain projects
- The importance of community engagement and tokenomics
- Strategies for maximizing startup valuations
- Common pitfalls to avoid when seeking investment
Whether you're a founder, investor, or crypto enthusiast, this episode offers valuable insights into the intricacies of Web3 valuations and the future of decentralized finance.
Recommended
Transcript
Introduction to the Podcast
00:00:01
Speaker
oh Okay, welcome to this episode of the What The Three podcast, the podcast where we tell you emerging technology founders how to build your businesses from zero to one. Today,
Valuing Startups and Products
00:00:13
Speaker
we're walking through the intricacies of valuing your company and products and maximizing your startup's valuation. with Technos's
Guest Introduction: Neil Zachar
00:00:21
Speaker
Neil Zachar. So a little brief buy about Neil. So co-founder and managing director of Technos Associates and head of their cryptocurrency and blockchain practice.
Neil's Background and Career
00:00:33
Speaker
practice As a Yale alumnus with a certified valuation analyst designation, Neil is a pioneer in the valuation of digital assets and has spearheaded numerous high stakes valuations across tech and life sciences sectors.
Neil's Start in Blockchain
00:00:48
Speaker
He's a recognized industry leader, having been named a 40 under 40 honoree by the NACVA. Neil, thank you for being here with us today. Much appreciated. Thanks for having me, and thanks for the kind words. Much appreciated. No more than welcome. So i'm so near Neil, like, you know, it's, it's a super interesting um piece of industry that you're sitting in. I think from the traditional perspective, it's very important for the right perspective is I think, often overlooked. But how how did you get started?
Early Blockchain Valuation Challenges
00:01:25
Speaker
How did you, you know, come to this point where you said, like, what's the needs this, like, how did you set up this whole division at Tecmos?
00:01:33
Speaker
it's ah It's a great question. And like many things and in call it emerging tech, it's almost by accident. um you know we As a firm, we've been around for a while, for about 15 years. um And a little around maybe around 10 years ago, actually even before that, I actually got a call from a very well-known VC that's well-known in the space now, but at the time um was just kind of starting out in the space. They had about 10 to 13 kind of investments.
00:02:04
Speaker
And they reached out to us because we do a lot of valuation portfolio work. And so they said, hey, listen, um we've got these, i we wouldn't call them Web3 startups at the time, but call it, you know, blockchain related types of companies and we need to help valuing them. And, you know, we had a quick conversation about it and I was very intrigued by it. We didn't end up moving forward with them at that time. um
Valuation of Ripple and Blockchain Innovation
00:02:30
Speaker
But then fast forward maybe a couple of years later, when we really got into the space, um and we got a call from some folks over at at Ripple, actually. And um it was weird because they said that, way well, we've got this this XRP. It's locked up with a market maker. We're trying to figure out how to price it. you know ah Do you guys have any interest in trying to take a stab at it? and
00:02:53
Speaker
we literally said, okay, yeah, we'll give it a shot. And we we came out with kind of weird lockup mechanism valuation, you know, concept and And literally from that kind of exposure, we started getting calls from other guys in the space that heard about us doing this. And yeah the use case was a little bit different. um you know They were starting a new project. ah There was a token component to it. They need to understand how to value that for different purposes. A lot of times it it was either maybe compensation or it was part of a transaction. And they said, hey, you know um can you help us out with that?
Establishing a Blockchain Group at Technos
00:03:30
Speaker
um And they are some very well-known projects in this space now. um and ah But at the time, they were kind of four or five guys in a room. And, you know, that's kind of where it took off. And there's a whole kind of cycle of, you know, should we be doing this like full time or, you know, where's this going to go? And we went through that um kind of educational process internally where it was, all right, you know, we've got this like this mass supply of, you know, companies that have come in needed this. And then, you know, like, market tanked, then it kind of went away. And then it came back multiple times. I feel like we've seen cycles in this industry that we see in traditional equities, you know, in the last 10 years that we see in traditional equities that we see in 50 years, right? 100 years.
Blockchain vs Traditional Finance
00:04:16
Speaker
So anyway, that's, that's a little bit of how we got into the space. And then I would say maybe about probably about five years ago, we said, you know, let's devote an entire group to this. And I spent
00:04:27
Speaker
um my time kind of going back and forth between industries. But um at this point, we said, hey, let's we're all in and yeah know let's devote all of our, at least my time and a few folks in our group, we're going to do this long-term and and then here we are. so yeah It's kind of a wild ride, you know it just a random call here and there you know got us into it. But anyway, that's that's a little bit about that. and And the interesting thing I think about this is like, you know, if you look at ripple, you hear all the stories about ripple, right? Like, I think there's a lot of things known about ripple. And, but I think these kinds of things, they' they're being often overlooked because they're not sexy,
Web3 vs Traditional Company Valuation
00:05:06
Speaker
right? They're just like part of the, I think the boring piece of of what blockchain is. um So it it doesn't often also, I don't don't think get the spotlight on it. So hearing this super, super interesting that, you know, you were the guys that actually helped them take the the next level step, right?
00:05:23
Speaker
Yeah, for sure. Yeah, that's exactly right. It was kind of, you know, that that relationship in of itself, you know, validated a lot of what we do when, you know, again, you know, a lot of people were just afraid to touch this stuff, right? It was You know, this was stuff they hear about Bitcoin at the time, and this is mostly kind of utilized in nefarious ways. And so, you know, here we are. go there okay Yeah, for sure. yeah but so What was the price of that pizza? Like now 10 million bucks or something crazy? near that We've had that discussion several times.
00:05:56
Speaker
but
00:05:58
Speaker
Yeah, but this that's the interesting thing. And and I think partially as well with that these these cycles where you see the the business come and go, you're like, should we really do this? Should we? And then there there is that point, I think, where you're just like, OK, now we have an actual shot at the actual opportunity. We can do it right because we've done so many of these cycles already. Yeah. and And here you are. well Absolutely amazing. It's ah it's not often that we hear or that we talk to people that sit like, you know, behind the curtains and you know orchestrate these kind of pieces. So it's, once again, like super, super cool to hear that. then And then
00:06:36
Speaker
but what pops up in my my head is like, what are the
Evolving Web3 Valuation Methodologies
00:06:39
Speaker
challenges? Because like, you know, so you you went back and forth through traditional and Web3, but, you know, I just you took a first step at it. like How different was it? Like, maybe, you know, I don't think we can talk specifically about Ripple, but how different um are the frameworks or where the frameworks back then and now between traditional and Web3? And was there a lot of challenging moments where like, okay, we we don't know how to solve this? Or we just kind of go with this? Yeah, excellent question. And um yeah a lot of different components to that. um yeah There's the valuing of the company and then there's the valuing of potentially ah ah an asset like a token that is different. right And yeah they they can work together right at some level, um but at different stages, they have kind of different values and different interpretations of value. and so
00:07:32
Speaker
you know When we look at ah a Web3 company that maybe has a token project, um and and actually this kind of depends on the stages over the last kind of 10 years, right? There were very different things in the early days where it was just like, it's very similar to like when the companies were going public. in the early 2000s, right? Everyone was, yeah it was just like, you know, we had a dot com address, and we're just gonna go public. And it happened, yeah yeah you know, a couple of months, and then there's like a graveyard of like, all these companies that occurred afterwards. And I think there was a lot of kind of thought that this was, that's what this was, again. um But obviously, you know, things are different um with what you're talking about this specific asset class, which is what has been created, right? um We haven't seen
00:08:18
Speaker
We hadn't seen a new asset class like this ah kind of exist in in a long time. And so, you know, one of the big challenges was trying to understand, you know, how to value the company and then how does that token fit into it.
Forecasting Token Valuation Challenges
00:08:30
Speaker
And a lot of times it kind of started with the token of itself. So a lot of people when they came to us, it was, you know, try to understand the valuation related to the token and what we would have to do. And what we still try to do is, you know, try to, utilize the existing kind of frameworks, but just modify them a bit. um So there's you know the concept of really at the at the end of the kind of market participants, right? um Which we try to start out with everything and then you work your way down the channel, right? Is there a way to develop some sort of income model um candidly?
00:09:06
Speaker
They're you're using like what we call kind of a discounted casual approach, doesn't really apply to a lot of this stuff. It's really hard to kind of forecast you know utilization and adoption and growth in these unique kind of systems, because every one of them is like its own kind of um system inov in and of
Adapting Valuation Frameworks for Web3
00:09:23
Speaker
itself, right? And so you've never seen kind of that, call it type of, I'll use the word currency, but it's not always applicable, but um you've never seen that exist and you don't know how it's you going to um you know be adopted across you know time, right?
00:09:38
Speaker
And so, you know, we had to like think about it um in terms of, you know, what are the right kind of methodologies to put here? And have there been transactions in this space? Can we look at those to kind of, you know, get to a value for the token and of itself? And then, you know, same thing on the equity side, right? A lot of times you could argue that, you know, there are these you capital raises um for the company, right, on on the equity side. and um You can look at that as kind of a ah primer for the value and maybe the the token in of itself is kind of priced in there. So we had to think about you know the relationship between the two um and try to figure out kind of the best ways to apply it. But it's very different than saying, hey, I'm just going to look at you know comps from you know Facebook, right? And yeah companies like that who are already out there and we can draw you know priced earnings, multiples, stuff like that. like
00:10:31
Speaker
doesn't apply here right in the same um kind of ah methodology kind of concepts. right So you have to kind of break that apart a little bit and then figure out how the how the two kind of work together. But yeah, and you know I could bore you guys all day long. The intricacies of that, but you know we can save that for another time.
Impact of DeFi on Token Valuation
00:10:51
Speaker
But yeah, and at the high level, yeah trying to understand how to apply kind of existing methodologies in this new context was the the biggest challenge and continues to be, right? As as these networks kind of evolve. Yeah. I mean, they the variability, the way in which tokens work and how, you know, I was talking to Liam on the After Dark yesterday about what are the most interesting token launches and, you know, the way people are launching with like auction methodologies or just stated at the level of staking that, I mean, the DeFi
00:11:23
Speaker
Stuff that's going on, right?
Neil's Personal Journey in Finance
00:11:25
Speaker
Yeah, they're restaking all of that stuff. Yeah yeahing stuff Your job cut out for you with just catching up with what these guys are doing if if not being ahead of it um ah but I mean enough enough about the The too much professional stuff. I want to hear about yourself Neil. Like how did you How did you get into this? How do you get into valuation? like um I'm i'm the the marketing business guy. I want to know about the people. I like people's stories. yeah you know How did so Neil graduate in Unico? You know what? I'm gonna i'm going to learn what companies are worth. The background is is boring in a sense that yeah once I left college, I kind of joined the crew of folks who you either go into managing consulting,
00:12:10
Speaker
or investment banking, right? And I took the investment banking path. are people what but Hey, look, you know, I've nothing wrong with that. I'm just saying that, like, when we were graduating, um and now I'm dating myself. and people You know, unless you're at like Stanford, or something like that, we're really kind of focused on, you know, the startup community. um Yeah, New York and, you know, it was kind of where you had to be for most of this stuff for a lot of the folks that I went to school with. And so, you know, that was kind of, I started off in the investment banking world. And then from there, like I always had an interest in finance, right? And so that was just naturally what kind of drew me through like a lot of this stuff. And then I moved back to the West Coast, I'm originally from Los Angeles.
Career Impact of the Dot-Com Bust
00:13:00
Speaker
So I moved back to the West Coast, actually,
00:13:03
Speaker
got a job in valuation for a specific type of evaluation. It was actually something focused more on ah litigation for early stage, um small businesses, that kind of thing. um And then from there, I got back into banking briefly. So this is this is actually, i it's it's a tale of, the dot com world. but Give us a juicy. ta yeah are sound on yes it's but a boring meal it's absolutely not that boring not boring at all
00:13:37
Speaker
i from that it yeah it was It's just hysterical when I think about it at the time, but we're frightening. um Why the The world of investment banking is frightening for folks, um you know especially in early stages of career, actually all parts of your career. um terrible well I jumped into um the investment bank, back into the investment making world, ah actually with a a company called ABN Amrow, that's Dutch bank, ah pretty well out there, I think, especially for you guys. um They have a, they had a very strong commercial banking um ah side out here in the US s for yeah a lot of tech related to companies. And they were trying to leverage that concept into the investment making world. And the investment making world is very,
00:14:26
Speaker
Very different than commercial making. im Obviously, the economics are different. It's ah it's a very different type of um i think skill set from you know the the bankers that are involved in that. um and And so they were trying to get into there and trying to leverage their context in the commercial side. And so this is right around the end of 2000 into 2001. So you know if you think about what's going on around that time, yeah everything from politically to kind of the the startup craze kind of kept winding down. You know, that we were, you know, spending time kind of trying to change deals and everything. And then, you know, we move forward into just like the dot com kind of bust. And then, and then then then we had September 11, obviously, that affected a lot of things. And then just you get into October and November of 2001, all of a sudden,
00:15:22
Speaker
ah I start hearing stories from my friends like on the street, um, who were like at, again, dating myself, companies like Merrill and, um, of Goldman and some of the other, you know, well-known investment bank. Yeah. I mean, you know, who knew? Um, so they're like, Oh man, I just got, I just got cammed. And I was like, what? And they're like, yeah, they let our group go. And like, yeah, a lot of analysts and associates. who Um, and then, you know, we're like, Oh, we're fine. It's yeah European vague. There's, you know, they have a long term interest in sticking this out. And then we started to hear a little bit of whispers about things. And then we all got called into a conference room one day. And this is our consultants. And yeah, oh, yeah, it was like, you're like, hmm. So every there's about 25 of us, there's the MDs down to the analysts, and we're all in there.
00:16:18
Speaker
And some guy comes in from London and he hits the speakerphone and there's this guy from I think he's calling in from Amsterdam and he's like, hey, listen, guys, um it's been a it's been a good run. But, you know, we have a and we have some situations that we have to deal with. And you know, the group is going to be dissolved. And you guys are all going to be like, so we were let go via conference call the entire group. wow ah so All over, you know, like at one point, it just one period of time. And so, you know, that that was a, that's my investment banking kind of horror story of, you know, things can be great. But
Forming New Career Paths Post-Bust
00:16:58
Speaker
in tech specifically, um it was just it was a bloodbath.
00:17:03
Speaker
like for everything. And so, um you know, that that was my my kind of foray back into that world. And then, you know, after that, I ah jumped back into evaluation for a bit, and then moved into another actually European based company called Grosvenor that they do investment in real estate. um So and amongst other things. And so I spent some time there. And then after that, um I jumped over to, well, what is now, I think, a part of Duff and Phelps and Kroll, a company called Page Mill Partners. And ah that's a boutique investment bank. And I spent some time there. And then while I was there, one of the partners over there said, hey, listen, and literally, I was there for about six months. And he said, we're thinking about spinning off and start our own thing.
00:17:49
Speaker
I was like, what are we doing here? And he's like, well, let's carve out, there's a valuation kind of sector component, which, you know, combined with some investment banking um ah concepts that we're going to try to spit out and focus in on versus just running traditional deals. And that meant um there's a lot of tax financial reporting, and then evaluations around fairness opinions, um IP, all that, but really focus on the valuation side of things. And but it's focused on emerging growth tech. And so we said, Hey, let's all right, i'm I'm in. And so that was kind of the beginning of that. That was back in 2008. And, eight and um you know, here we are, still doing it um for folks. But yeah, that's a little bit about my journey. um Yeah, going through just like the pitfalls of
00:18:41
Speaker
you know, being young and, you know, just kind of going through that process, but i certainly learned a lot through that. And it certainly helped me try to better understand a lot of the companies that we work with. And, you know, that it's cliche, but that resilience and that hustle certainly matters um when you're doing this um in the context of you know starting a new company, right? Because we've seen a lot of things going back over the last 20 to 25 years. And You know, history does repeat itself in different ways. It just kind of gets modified a bit. But, you know, we can still kind of think about, you know, how this stuff applies ah in the modern day. So anyway.
00:19:22
Speaker
Hopefully, that was somewhat interesting. Actually, it's an art-out journey, right? That's one thing, and it also makes a lot of sense, because I wanted to ask you, how do you, because what is your rabbit hole in Web3? Because everybody has their aha moment. I call it the rabbit hole. You're like, oh. But you seem drawn to these kind of things, right? If you look a little bit at your career, Web3 fits in there almost. It was a missing piece. Yeah. Yeah,
Blockchain's Transformative Potential
00:19:51
Speaker
the Web3 component um is is interesting because you know in the early part of just the ah the kind of the blockchain phase of things, you know it was, let's just get a token out. um There wasn't a lot of use cases. There are a handful of projects. And we we've been lucky enough. um I think because we got in so early, because we we knew a lot of the the players in the space, the people that we were working with,
00:20:20
Speaker
all understanding kind of the the long view towards it. So, you know, we traditionally didn't have a lot of projects and still don't that come to us and say, Hey, you know, we're just getting some kind of, you know, meme coin out there um where we're doing a token sale. Um, and then once it goes, like, you know, it's just gonna pump and dump, right? That kind of stuff that we didn't get exposed to a lot of that in the early days. It was, uh, while that was the case for a lot of, the tokens that were hitting the market, the projects that came to us, were trying to put together really use cases around the traditional web to ideas, but kind of layer on this blockchain technology, right which is very powerful. I think that really was the hook for me around the concept of you know the blockchain in of itself right and what it represents, the decentralization of things, um and how you're moving from
00:21:16
Speaker
you know a controlled environment like yeah the traditional kind of um big companies out there that we all know of. um to kind of a different concept where, yeah hey, listen, I am going to try to actually own and monetize my own data in a certain way where i it's it's managed and like I can you know monetize it in a certain way versus someone else controlling that. And that concept in of itself, I think was incredibly powerful for me to to kind of get my head around. And and so you know it's still something that I find myself um explaining to folks
00:21:52
Speaker
ah who are like, you know, my, my, a lot of my counterparts are, you know, they're in private equity and traditional finance, right? And they're like, dude, what are you doing? Like, what is that? Because we're talking about it in our context, right? We're such a small like sliver still oh of the capitalization of the entire, like, you know, world of finance and just business in general, right? It's a still
Decentralization in Finance and Business
00:22:19
Speaker
very niche, even though there's a lot of drama around it. publicly. um You know, but you know, it's noisy, but it's small. Yeah. Yeah, yeah. For exactly. That's exactly right. And so you're trying to explain that type of concept of, you know, no, this is not just some sort of scam. This is actually you, you don't even know it. But the underlying technology is actually running and financial institutions, right? Like the concept of validation and verification on
00:22:49
Speaker
ah a decentralized network is so powerful, right? If I can validate certain things at, you know, for everything from provenance to other types of transactions at this level, and it is um understood and validated to a certain way where someone can track it forever. You know, that's, that's fairly important. So, you know, that's really that was kind of my moment um a few years back, where once you know, I got my head around what that concept really meant, um where I said, hey, listen, I think this is something that we really should focus in on. And so, you know, that's how I came to be here.
00:23:26
Speaker
that' that's That's a big dip. That's a big decision to make. And and i when you were saying this, like I think all of us have, ah because I come from traditional Web 2 tech, and Charlie Gomes also from from traditional ah Web 2 biz ops.
Addressing Blockchain Misconceptions
00:23:41
Speaker
And then at some point, you realize that you're becoming the deejan in the world, right? I give all the Web 2 people, they're like, what are you doing? Why why are you doing? Because it's great. and it's that And that's that rabbit hole moment, right? Where you're like, oh, this this is why it's so great. And let me explain to you. And they're like, oh, you must be fun at parties.
00:23:58
Speaker
um and no I even had, I think this is like before the last full run, I was talking to my cousin and and she was like, so you don't earn a commission out of this? I was like, no, Mel. No, I'm saying buy some. No, no, no. buy some, you'll make some money. It's like, I don't own the company. No. Love it. That people people do still even today think it's a scam. Yeah. yeah And yeah, I look, we've we've had our moments, right? um Absolutely. You know, there's, there's, I'll use that, um you know, turn lightly. But, you know, there are certain actors in this space. But you could also argue argue that I mean, if I compare that to what happens in traditional finance, I mean, give me a break. There's
00:24:48
Speaker
You know, there is the reason why um there are regulatory bodies that exist and follow that. And the amount of fraud that goes down in that industry, the traditional fight is significantly higher than this. But
Valuation Advice for Web3 Founders
00:25:03
Speaker
um I understand the concern around a new asset class like this, something that ah can grow fairly quickly um and in the right construct. And so, you know, naturally, there are other bodies ah of government ah here and around the world that are always trying to better understand and manage so potential concerns around that. So, I do understand that too. Fair, fair, fair. All right, so I think at this point, we're gonna move on to the the the advice of startup founders. We've we've got your 10 questions here. um Kicking off with valuation fundamentals. This is community driven, community has asked us
00:25:45
Speaker
What do I have to do to ensure that I get to a Series A? And if Technos looks at us, they like us. and I think I draw that kind of comparison with Adam, my editor, sitting in the back here. You don't want to screw the guy that's telling you that's going to like make you look good, both financially and on the video stuff, right? like ah For sure. Don't do it. That's the last person you need to upset. Yeah. ah Neil's got to have a lot of new friends after this podcast.
00:26:19
Speaker
so but yeah no So valuation fundamentals, what yeah when when you're looking at a company, and and and bear in mind, like as practical as we can, what are the primary factors that influence the valuation of a tech startup? Yeah, it's a good question. It's really emerging tech in the web and web three sectors for us here. Yeah, I think this has kind of evolved over time, and it continues to evolve. But um I kind of made reference to it earlier on, but ah the companies that we work with that we find to be successful have a real use case, right? There's a they're very specific um case for the market need around what they're building, right? And now in the Web3 space, it's a little bit different because you know we don't see traditional, call it revenue models, but you still can, right? I mean, you look at a company like,
00:27:13
Speaker
you know, like ah an exchange or like a like a Uniswap or something like that, where there are traditional kind of revenue metrics there at some level, but they also have a token component. Right.
Token Impact on Startup Valuation
00:27:23
Speaker
And so, you know, when we talk to companies, you know, outside of someone just having, you know, a meme coin, what we look at for the most part is first understanding that there's a real kind of market need for this and there's a really use case that you're building around. That's one of the most like important understandings that we need to figure out you know when someone's putting something together. Because if they if you're just kind of you know out there trying to put something random and trying to make money quick, um yeah there's not like a long-term use case to to building a business. right And if you're building a business,
00:28:00
Speaker
You want that strong use case that has been validated at some level through like your research into the market. Right. And so that means from there, you know, diving into, you know, what's the market size and growth potential for what you're putting together. And in many ways, in that sense, it's very similar to any other kind of emerging growth kind of web to kind of concept. Right. But we're kind of marrying that. with the concept of you know putting things in a decentralized kind of capacity, maybe you'll have a token. You don't have to have a token. That's the other thing. If we're talking about Web3, you don't necessarily need a token. and yeah So if you you're putting this together, you're making sure there's a use case for what you're putting together. And then you got to ask yourself, do I actually need a token? what Is that incentivization structure something that's necessary for this? Or am I building something that's more kind of you know infrastructure?
00:28:53
Speaker
right now, i'm like tools like picks yeah and shovels and tools, that kind of thing, um where you're going to support the existing ecosystems. So, you know, when I look at it, like in terms of the things that, you know, I really care about, it's, it's that kind of use case, it's understanding the potential market size and growth potential. um And you can, we're now we're at a point where, as opposed to call it 10 years ago, where, you know, there weren't other tokens out there. There weren't other web three types of companies that I could look to necessarily. I mean, I brought up Ripple, but that's just one kind of, you know, i call it success story at that time. But, you know, if I looked at, you know, the tokens that were trading out there and there are no public companies, right? It was before really a Coinbase, right? So you just, you couldn't get your arms around what that meant. So now though, we have, you know, there's a few public companies out there. There's,
00:29:49
Speaker
There's a ton of token projects right that we can look to as success stories, like like a chain link, right like a salon, like companies like that. um Or we can look at and say, hey, you know how does this fit into these types of ecosystems, um market sizing compared to that? you How do we compare to that? So those are all things that we care about.
Significance of Network Effects in Web3
00:30:11
Speaker
In addition to that, um I would also say the team and expertise. right um This, again, similar to the Web2 space and just traditional stuff. But in addition, right it's it's guys who you want to surround yourself with as many folks in the industry right as possible who have a knowledge base around.
00:30:31
Speaker
right? And so it's one thing to talk to people who have started like an e commerce company, right? Or just a, and there's nothing wrong with that. It's just that if they haven't been in this space yet, and don't understand the particular mechanics that are involved around it, then, you know, I think you're gonna struggle a bit, right? Because how do you marry kind of the product and the technology all with all of this stuff? at the same time without not really doing your diligence and talking to people who have experienced this firsthand. And I think, you know, that that part of it can't go kind of overlooked in this process, right? Exposure to the right people so they can understand the product technology, how traction adoption works. And then,
Transparency and Information Access in Web3
00:31:17
Speaker
you know, biggest ah part of this is really in the Web3, just the concept of like,
00:31:22
Speaker
and and And you guys talked about this, like in in some level, like the the network effect of things, um ah just in general, like no more like yeah industry in, is it this more kind of prevalent than you the web three, but is that concept of community building, right? um And building out a network is incredibly important for what we put together here and if I'm starting a company. So, you know, you just kind of, you know, rehashing some of this, you know understanding market size, growth potential, team and expertise, product and technology, talking to the right people to understand traction and adoption and the potential network effects. um Those are the things that I would really hone in on. And some of it is a little bit esoteric, but it really comes down to you know communicating and talking to is to the right people in the space. and
00:32:16
Speaker
you know I think there's a lot of transparency in this industry more so than, than the typical kind of VC startups kind of world where, you know, that's the other thing, like you're going to raise money and all of that, right? It's, it's always been kind of owned by certain VCs and other folks in the space. And now while you still have VCs very much involved in it, the ability to get out there and actually talk to people, and get information about how this works, I think has never been easier, right?
Market Comparables in Web3 Valuation
00:32:50
Speaker
There's no like, okay, I feel like I'm in the dark about something because you actually do have access to this, right? It is, I mean, I can go to a bunch of user groups, Discord channels, et cetera, to start and just get the right information from people. And then you'll be surprised how many people you might know who understand kind of exactly the thing is that you're trying to put together. So,
00:33:13
Speaker
um Those are a few of the things that I think are really important when I'm, if I'm thinking about starting up a potential love three venture. Is there a ah particular methodology ah around valuation yeah that that you go for? specifically early stage startups and, and how might they practically align to those to ensure that they're, you know, when, when they hit their next round or their big seed or more series a, especially in the web three levels of growth that they, you know, they've done the right things. Yeah. It's a great question. and And some of it has to do with, you know, the, the underlying, you know, concept that we, we talked about before of, you know, understanding your use case.
00:33:57
Speaker
But you know for the most part, now versus where we were again 10 years ago, there are call it market comparables that you can always start with with right and work your way back. right I'm not going to say I'm going to be worth um yeah know the the total value locked of you know what Eigenlayer is today, right right off the bat. um But I could say, okay, look, here's Eigenlayer and here's a bunch of other comps that are in the space, and I can work backwards right in terms of, that could be the value of ah the token project and that there's some sort of component that it's built into,
00:34:40
Speaker
What the value of the total company is, a lot of times at early stages, the the value that took, for one, doesn't exist yet. So you know that sliver of the protocol is very small compared to the overall value of the company, which usually comes into being, like call it the IP, the network know-how, all of that kind of stuff. It's where the value of the company is at a very early stages. And if I think about that and I look at kind of where some of these companies were at early stages of their financing, um that's a way to kind of look at what my company could be worth.
00:35:15
Speaker
And then, I mean, you can look at what the token could be worth in the future, but you know there's a huge discount that gets applied to that, right? um ah yeah It's just naturally like what gets applied, but that's kind of the inner relationship between the two. But for the most part, it is it is still very market driven, right? um But again, I think we all have more access to that type of information than we had before because a lot of these projects are very public. about some of their financing rounds and implied values of things. And so
Aligning Valuation with Market Conditions
00:35:48
Speaker
you can look at it from the market perspective if I'm looking at trying to raise and where I am compared to where other projects were at this stage. And so those are some of the things that I look at. And then in terms of the qualitative factors, we talked about it before, but the strength of the team that you're coming to put together
00:36:11
Speaker
the product and the technology that you have. I think um understanding that if there is a particular use case and you're building a product around something um and the underlying technology, understanding that component of it um and when you're doing evaluation certainly is is a key factor that comes into it. and so you know Again, we look to the market um at some level and then yeah there's there's other ways to kind of price things at early stages in terms of understanding, you know, what does it actually cost to put this together? Right. And you can work your way back there. And that's a very kind of basic way to look at it, but that's like your kind of, you know, your low kind of call it tax valuation, if you will, of how to look at something, right? What's the minimum cost it takes to put something like this together. And then you marry that with some of the market factors out there.
00:37:02
Speaker
And then you can come to a conclusion of where you know maybe a C type of round should make sense for you. right And so that way you understand both sides of the equation when you're negotiating with potential venture investors. right Because they're going to say, ah what what's the use case? What are the market dynamics to this? Why should this make sense? Well, you should have that compelling story right at the end of the day. That narrative actually has not changed in any type of capital raising environment. ah You still have to have a very compelling story um and illustrate that there's there's proper proper growth here. So yeah a couple of things there, I think yeah that and makes sense there from a methodology perspective. It occurred to me that we didn't so we didn't ask you the straight question. Have you ever valued a meme coin?
00:37:51
Speaker
yeah And and that's how cute the dog is. ah lots of the i can I can safely say now we've We've valued close to like worked ah on over a thousand projects and we've worked with wow individual tokens and companies in the space, probably about 400 different
Challenges for Token Projects
00:38:15
Speaker
ones. I don't think any of them have actually been a traditional type of mean coin at all. They are all ah they're all like either some sort of utility token or governance token, something like that, um that are supposed to have
00:38:31
Speaker
you know, a real use case. A majority of them have, I think most of them are around and a lot of them are really successful, you know, that have existed in the market. Other folks have, you know, they've had to reinvent themselves, right? And we can get into this in a bit, but, you know, there are certainly use cases where, you know, and There's trial and error involved, right? Something that made sense at early stages. um But now the token is launched, it exists, but it it doesn't have the same adoption, or they didn't manage the tokenomics properly. um They're trying to figure out you know with yeah the right folks, so either market makers and liquidity providers, how to manage the token in and of itself um amongst the ah the different entities that own it. And there's a whole host of issues that come around there. but
00:39:26
Speaker
um Yeah, we've we've seen a fair amount of tokens and projects that, you know, struggle with that today as well. So, um but now having value to me, as far as I know, we'll have to look back on the list though.
Cost Considerations in Web3 Projects
00:39:39
Speaker
i mean I thought it was worth the fun. It would be a good story. I remember this crazy dog with that.
00:39:52
Speaker
and knew I wanted to really quickly touch upon something that that you said that um we we found from the technology side of things also ah when it comes to valuation. like We had often clients coming to us greenfield projects and they're like, oh, we want to build this. And I'm like, sure. And they're like, OK, do you know what it costs? They're like, no, we don't. But we'll we'll do a workshop. We'll do research, do a workshop. And after that, we'll give you a re report you know with the tech stack and narrative and you know everything involved. And with this, you can go race. And they were like, I don't think we're going to need it. I was like, I think you do. And interestingly, yeah it worked to me this started like three years ago. people get anyway They used the report anyway, but it helped them race for the exact thing that you just said. The minimum evaluation, what does it cost to build this?
00:40:36
Speaker
And then, you know, we spoke about POC MVP and version one, you know, like product, product version. And we often we we got feedback from our clients are like that document you gave us was super helpful in explaining numbers. But okay, that's great. It's just a small part. It's a fact part, but it's it's so valuable that I wanted to like point that out because I think it's Often people like, oh yeah, we'll just raise a bunch of money and then we'll start building. It's like, yeah, but you don't know how much it costs because you're sitting in an industry that is completely skewed when it comes to technology. It's it's not. A serial entrepreneur comes in in web 3. It is, again, a first-time founder, right?
00:41:16
Speaker
so and So I think it's a very, very good point. i Glad to so hear that you guys are are looking at that too. Certainly that comes across a lot on our side. um Yeah, trying to understand, like if I'm an investor, I do want to know where the capital is going, right? I mean, it seems like a logical kind of concept to ask, right? And so understanding someone's thought through that process is particularly important. So I agree. so sort of confirm an orange Lamborghini and a beach party's not good. What? aren Really? Look, if it's a marketing focused company, maybe I don't know. You know, there's there's certain needs. I get it.
Legal and Tax Implications in Valuation
00:41:57
Speaker
Alright, so speaking of question three here, what are the common pitfalls like in your experience,
00:42:03
Speaker
What are the mistakes that startup make startups make that negatively affect their valuation? yeah And how can these be avoided? Yeah, this one is, um and you see a lot of ah pitfalls that can kind of occur, I mean, at different types of levels. One is, I would say kind of organizational kind of structuring and understanding the but legal and tax implications of things. um It's not particularly interesting. And the only reason I bring it up first is it's an area that just considering what we do, it comes up quite often where someone realizes they didn't do something right and going back and you and fixing it can be difficult. But, you know, making sure you're with the right counsel, call it legal on the corporate and tax side ah is probably one of the biggest things that you need because ah ah those guys are
00:42:56
Speaker
um the gatekeepers to so much, right? And and in this space where, you know, now some will argue from the regulatory side that, you know, the rules are there, you know? I don't know what you're talking about. The rules are there. And so, and others yeah might disagree with that concept. And so because of the ambiguity around that, you want to align yourself with the right um advisors is
00:43:27
Speaker
particularly on the legal side and legal and tax side. so that you know and is and And those guys have to be like focused on this industry, right? Because there are a ton of lawyers out there, there's ton of tax guys. um But you need guys who have done this and do this for a living. And so making sure that you have thought through the concepts of, if I'm going to have a token, what type of token is there? Are there securities issues they have to deal with? um If I'm going to issue tokens, are there valuation and implications when I transfer those tokens? Can I transfer stuff if even if it doesn't exist? um If I'm moving stuff over to different jurisdictions, are there IP related issues? um How do I set up the entities? ah If it came in BVI sub, something like that. um Those are all things that you want to think about upfront. You want to make sure that you have
00:44:22
Speaker
conceptualize that and talk to the right people so that you know that if we go down that route or if you want to go down another path, um, you've actually had those conversations. Whereas, you know, you start something and then go down a path and all of a sudden, like I said, you know, you realize that, you know, it's structured incorrectly and there's maybe a tax impact or I have to unwind things.
Avoiding Structural Pitfalls
00:44:45
Speaker
It's going to be far more expensive and to do such things. um you know the Those are pitfalls we see happen quite often ah with folks who are not um as experienced in the space and they're just jumping into this because they heard about it. um so you know That's one thing and yeah that kind of that rolls into a lot of other stuff, I think, um in terms of not kind of having a proper understanding of how the company works or how it's going to work. so Then you get into the concept of you know
00:45:16
Speaker
yeah financial management and ignoring kind of things around you know market demand for for the the project in of itself. like you want to try to be This is a fine line, but um you want to try to be as focused in on the use case um as as you can. right Now, all startups go through this kind of of you know, start and stop. um yeah Oh, wait, we're gonna try to pivot a little bit. yeah I understand that. But to start with one thing and then jump to another thing and then jump to another thing, that kind of um process is something that, you know, I would, to the best that you can, try to avoid, right? um You know, I'm all about trying and failing, right? But you got to go all in on something
00:46:09
Speaker
and really devote your resources to that to make sure that it makes sense. And there's a ton of preliminary work you can do around that. But trying to stay focused, I think, is yeah while somewhat of an esoteric concept around this. But building towards an an objective is is a is a key point here. Whereas you know meandering back and forth to different you know use cases or types of um you know products can be detrimental.
Team Building for Successful Execution
00:46:37
Speaker
and i can And as you guys know, I mean, yeah, when you're building a tech stack, right, you know, and someone says, Hey, well, we want to do this. And then we want to do five other things at the same time. We don't understand how they're going to be utilized. um You know, that that kind of comes into play a fair amount. Yeah. So in that done that end up crying with filers. Yes. yeah I like I'm not, you know, I
00:47:01
Speaker
i I certainly understand that you know there's there's a lot of different directions you can go, but trying to stay as focused as possible on that stuff is certainly very important because, again, if I look at it from the investor's point of view, you know what they try to do is they try to put you in like you know a certain um demographic or ah just a box, if you will. if you what where' is the Where's the return on this, you know candidly? um Exactly. how do i How do I position you in the market? And that's how they go through their valuation kind of concepts. I want to make sure that that my guys are
00:47:36
Speaker
you know, focused in and this use case makes a lot of sense. And that's why we're we're putting our money behind them. This team has got the experience and they are locked into this. So, you know, making sure that and you have that focus and you try to stay true to you know the initial kind of product concept, at least the theme around it is certainly very um important very important. So, you know, just in general to recap there, I think tax and regulatory, because it happens to be our area of focus seems to be something that's incredibly important, and then really kind of focus in on yeah your particular um use case and and market. and And from that, there's a lot of good things that can happen, right? When you just put your head down, just conceptually and focus in on it. So, um and I guess a third related to that, building in the right
00:48:30
Speaker
um really the right team around you. right In addition to your external folks, your internal folks. right um you know it's It's one thing to just get a bunch of buddies together and start a company, but it's another thing to make sure that you all have your defined rules, so to speak. right so You've got the right tech guys, particularly in this space, right understanding the underlying concepts around the blockchain technology, are I mean, I guess it's so obvious, but I think it's worth pointing out that you have someone that understands, you know, how this is going to integrate into the overall ah theme of what you're putting together um can't be understated as well.
Key Metrics for Startup Valuation
00:49:14
Speaker
um So yeah, those are a few of the things that I think in terms of
00:49:18
Speaker
potential pitfalls that you know we see a lot of times where people are just trying to just jump into the space because you know there's that FOMO effect, right? ah tell Yeah, just a few thoughts there. So what are the key metrics that you think startup founders should be thinking about with respect to financial metrics, milestones? What are the most important things for assessing a startup's valuation? Yeah, I think it kind of There's a few different ways to look at it, but let's just take the example of having a token, um understanding what we call kind of TVL, right total value locked within the protocol. That's a very important metric, hard to kind of pinpoint, but certainly something that you want to think about. um If it's like a staking mechanism, call it protocol revenue or staking revenue, right trying to model that out. Again, that's kind of correlated to the next metric, which is called kind of user growth and and retention. right
00:50:16
Speaker
around the token, they're like trying to figure that out, at least trying to model it out. um Those are all things that we particularly try to to understand. um And then then that equates to you know volume and velocity of the token. all These are kind of factors um that, you know while ah somewhat difficult to ah understand, ah but looking at the market and seeing similar types of protocols, and how they perform, trying to derive some sort of ah bands, if you will, of metrics around some of those things, certainly important. um So that's you know ah if i'm if I'm putting a protocol together, ah those are all things that you know we really want to try to hone in on.
00:51:04
Speaker
um as opposed to, again, comparing to what to where you might look at a company and say, hey, and what's yeah ah total price to to revenue, right enterprise value to revenue, stuff like that. So those are some of the differences when you're looking at something at the protocol level and how it fits into the overall company. Brilliant. Okay, number five, low valuation strategies. how should a I mean, this is this is one of those questions that you have to know a little bit to to really engage with. Mindful, we're talking start startup founders from zero to one here. how How should a startup approach the valuation process? And I think this is specifically towards how much you want the company to be worth versus how much you're raising. I think um when someone comes in and puts kind of a mark on you, which is on the lower side than what you were expecting,
00:51:54
Speaker
um I think going back and reassessing the value proposition, right? And the market positioning, right? Did you tell that story correctly? Did you pull the right metrics that I just mentioned, right? Properly, is your is your data right on that, right? And then you did you describe that use case properly? um I think that reassessment process is something that is fairly critical in understanding. And then yeah you take a look around and you do i have the right team that I've put together. Am I focused in on the right, um and not only metrics, but the right market? right um ah Because again, if I'm an investor, you know if I'm looking at you know either yeah a traditional exit strategy from the company level or what the interest is on the liquidity associated with the token um in the specific ecosystem, I want to make sure that um yeah you've thought through those types of concepts um
00:52:52
Speaker
fairly detailed right at at the end of the day. So you know I would say that you know those are kind of the the key areas. if i If someone came to me and said, hey, um yeah you're worth $5 million, dollars but I think, you know like you to your point, you know I feel like I should be worth 10 to 20. Well, you got to make the use case for that. And the use case is usually data driven, if you can, married with some qualitative factors around yeah the the strength of your team and your overall concept. Nice. Okay. Number six, market impact. um and like like This is super variable with Web3 and we know it is, but out how you know we're talking your TAM, SOM, and SAM, the standard. like How do you calculate your market size, especially in a sector like Web3? What's your growth potential?
00:53:46
Speaker
How should startup founders go about trying to answer this question? Because
Calculating Market Size and Growth
00:53:51
Speaker
I know Thomas and I have seen some decks that have been pretty fantastical. Yeah. Can you offer some clarity here? i Yeah. i At some level, I wish I could. um you got i ah But ah yeah, I think ah related to my last point, it's trying to understand um certain metrics, right? And probably, and while I don't love the the argument around total value locked, it's still something that people point to. um And you look at similar tokens in the space. Again, this is for something that's really more token driven. um And you look at similar use cases and how companies have ah progressed over time.
00:54:39
Speaker
um yeah I think that market sizing of understanding how the utilization and the growth has worked with some of these companies and the value that's locked on chain um is a good starting point because that's where the venture investors are going to come in at and look at and say, okay, you know is this something where you know we're going to try to grab market share from this or is this something that's similar um So it can be something like this, but it's its own particular kind of area of focus. Um, so yeah, those are areas that I look at and it's very industry specific, right? So, you know, right now we're really focusing in on, uh, I've brought up a lot of use cases around, call it, you know, decentralized finance or DeFi.
00:55:23
Speaker
um But you can look at like the gaming world right and you know how that is evolving over time. And talk about an industry which is not gravitated towards the the the the concept of the blockchain. right And it's a very, very finicky space. I think it's coming back now. And I think um educating the space is certainly important. but you know When I look at you know the comps in the gaming industry, right you know that's a that's a ah way to kind of market and understand market size and market fit there, particularly because you can look at traditional gaming companies and see what some of the you web three types of gaming companies, what they're doing and how they've kind of raised and what their market values look like. So you know it is industry specific um and there are some you know web two kind of metrics that you can pull from.
00:56:16
Speaker
um But, you know, again, you know, once it gets down to the token understanding, you know, the value that's locked in a lot of a lot of these tokens and the potential growth and you user retention around it is are certainly factors that we would kind of try to hone in on. So, so in essence, TVL, like velocity of user growth, and, and just really being au fait with the market and and what they're looking at in terms of potential growth and and getting some comparisons. Yeah, ah precisely, right? um Things that seem fairly obvious, but once you try to dive in and actually you spend time with some of these concepts, um you can go down a lot of different rabbit holes, but you kind of need to go down that process, right? um ah Just for an informational purpose and just know that you can say, hey, this doesn't make sense here because we tried this or we
Strategic Decisions Impacting Valuation
00:57:09
Speaker
looked at this market. um
00:57:11
Speaker
concept and it it doesn't really apply, but you want to be able to say that you've gone through that process at the end of the day. And then of course, defend your assumptions. Yes. That minor detail, yeah right? Like be able be able to defend the assumptions that you're making when you're pitching for capital. um Yeah. All right. Number seven, strategic decisions. And this is this is, I think it's one of the most nuanced questions that we've got here, but it's really about
00:57:40
Speaker
how strategic choices, such as selecting business models or scaling plans, impact the valuation from an investor's perspective? Because and we've we've got a lot more flexibility than Web2 here. Yeah. um So yeah, strategic decisions um certainly are an important part of this. um Is there a particular area around strategic kind of decisions that you want to focus on? Because there's everything from Yeah, the the technology that you're going to apply, right? um Which chain that you're going to build on off on of um to, you know, call it, you know, corporate and structuring planning. Those are all kind of strategic decision hiring. Right. Yeah. um Those are all areas of focus which um need ah a lot of attention. Right. And, you know, just drawing back to of some things I said earlier, I think
00:58:38
Speaker
you know, this the strategy around how you're going to organize the company companies, right? Are you going to have a foundation, right? um Are you going to have like a governance token? um Those type of strategic decisions on where you're going to take the overall ah business, it can't be underestimated in terms of you know, the importance, right? Because that that strategy is certainly important. And that fits into the industry that you're focusing in on, right? um So if I'm going to build some sort of restaking, call it a network, right? And, you know, what am I going to build that on? Do I have the relate relationships in place, right? Strategic partnerships, all of that is because this is so community driven yeah at the end of the day.
00:59:31
Speaker
that if I don't have that in place and I don't focus in on that, um ah the the success rate is is fairly low, right? um It already is low just ah for anything, right? Just any startup. um But if I'm not positioned properly, um with the right partners um in place, which I think is really important. and I probably haven't talked enough about that, but having the right partners in place um to help with some of those strategic decisions and um yeah not just on the legal and yeah the tax side, but actually on the overall network,
Intangible Assets in Valuation
01:00:07
Speaker
right? Who are the partners that are gonna help build this out um yeah know depending on what industry you're in is certainly a very important factor.
01:00:15
Speaker
Intangible assets. I think this is, so in like traditional accounting, we call this Goodwill. I think in world three, you can pretty much call it a lot of things, but your your IP, your brand reputation, size of your community, these are all intangible, but are factored into a startup's valuation. Yeah, 100%. In fact, on that, like, how yeah how much is that worth versus, you know, like, we might have a great community, a brand that's really well recognized, but how do you attribute a number of to that? This is an interesting question, because there's, there's different ways to look at it. Yeah, to your point, like in the tax in the accounting world, there's a very um specific way of trying to value this stuff. um
01:01:03
Speaker
But in this kind of environment, um I would say there's a ton of value in that. like When you are putting together a web3 company and you see companies that you know raise at a $5 million dollar raise on a $50 million dollar you know post, something like that, um all the value really is in the intangible side of it. It's all there. right and then The token in and of itself, in theory, at that point, because it doesn't exist yet, right but it's just the right ah to this token, the idea around it, is a very small portion of that because you know you don't know where that's headed. So what someone is really investing in is yeah the concept that maybe this token will be worth something, but the overall infrastructure and the network and the intangible, of the brand, or reputation, IP, um even if it's open source, all of that stuff
01:01:57
Speaker
is is where actually a lot of the value is. And so you can make the argument that when we are looking at you know total value locked or market comps in general, ah that value at the early, early, early stages of things is all spread out through the intangible asset, call it concept of goodwill, really. It's all there. And then as the project matures, and maybe it launches, right? The network launches, maybe you have a token, then the value kind of shifts, right? um A lot of it goes in that pie grows and then the value associated with maybe that token all of a sudden it becomes a huge piece of that pie. ah But until that that point, right? All the value is in this concept, right? Which is the intangible. So when you see those pre and post monies,
01:02:50
Speaker
out there I mean, that's really what they're investing in, right? The idea and the concept that this is going to be something in the future, but at very early stages, it's really more and intangible than anything else. um And you see that in the traditional world as as well, you know without you the token concept, but yeah when people are putting in money on something that has no revenue, right? And we see it all the time, right? they like The vast majority of startups, they are a couple of years out from actually having revenue. um And so they have to be investing in something and it's usually that intangible concept where the value kind of exists. Team influence, you did mention earlier team is really important towards valuation. and I mean, some of these founders are first time founders. Like, yeah how does
01:03:38
Speaker
a team's background or experience like coming to play here. and And if you haven't got, you know, five years at McKinsey, what do you, what do you put on like, how how do you demonstrate that value? Yeah, you know, this is a very interesting concept because, and it's a depressing concept for someone who's my age. um is because ah now not Now we're invested. this
01:04:10
Speaker
I mean, I say that because and this has been happening in the startup world for hours, right? yeah A couple of kids come out of college or in college, they come up with this concept because they have an understanding of trying to put the existing, you know, um industry on its head, right? And say, Hey, why does it have to be done? Because they haven't gone through the trials and tribulations of failure of, you know, understanding how traditional business works. And so, you know, that's why the a lot of those fail, but there's, you know, we hear about, we have the success bias, right? Because the companies that we end up working with tend tend to be um things that are going in the right direction. um But yeah, like on on the one hand, I say,
01:04:54
Speaker
you know, it would be great to have, you know, founders who have, you know, five to 10 years of experience have gone through this and struggled and and figured it out. But in this industry, it just doesn't exist, right? um So you have guys who have very strong technical backgrounds um and things because they are coming out of university and They know other people who have been through this process. And so they've learned about it in somewhat an academic fashion, and then just through hearsay of things. And they've developed a concept around it. And because of that technical background, they're able to be successful. And so that team, albeit very young, can still do very well in this space. We see it quite often.
01:05:42
Speaker
This
Team Dynamics and Experience
01:05:43
Speaker
industry is very much focused on the younger guys um and understanding kind of, Hey, look, we but understand traditional finance. Um, again, I bring up, you know, gaming is a perfect example. Those kids have been playing games forever. Right. And so they understand that, um, very well. And so they know, Hey, this stuff, and this is why I'm pissed every time someone like there's a blockchain game. that I mean, I can talk to my son. all all day long about he's like, dad, you know, no one wants to do this, you know, I was talking to someone on the discord channel that blah, blah, blah, I don't like we'll get there. All right, you will once you realize there's actual value here, you're gonna say how did this exist without it, right? um But yeah, like, I think this is certainly skewed towards the younger demographic, what ends up happening, right, as we all kind of see, especially even older traditional startups is that
01:06:38
Speaker
You, you have these, these projects, they start up and then I, I don't want to use this terminology, but I'm going to anyway, but you you get the adults in the room that come in later who understand the more corporate stuff yeah that, you know, everyone hates that to have to deal with, but you need it. Um, to the point of like the things that we're talking about, like setting up the right entities and the right tax stuff and all that kind of stuff. Um, traditional finance, like, you know, you get a CFO or real COO stuff like that. guys who know how to take the business to the next level. um Yeah, you get guys like that to come in, but um certainly the team influence or the team focus at the early stages is still incredibly and important and having guys who at least to have the ability to have that vision at that that point in time, no matter what age they are, is certainly one of the most important things.
01:07:33
Speaker
it's It's interesting, we always ah said like you have builders, sustainers and evolvers and for every face there is someone and and with you know, i one of the things that we always did and also ask our clients very often is like, what are you? And then sometimes they come to that perspective, they're like, yeah, well, actually, see I'm very good at evolving. i Like, okay, well, that's great. But you're doing a greenfield project right now you need to build that means flexibility. That means craziness. Like, are you ready for this? That's right. stuff but
01:08:04
Speaker
And that's where the cracks sometimes start. But it is a really good question i think to ask yourself as a founder as well. like and you know coming If you come from corporate, you may be really good at sustaining or evolving, but not necessarily good at the flexibility of a builder. And please, of course, right? you Series A, do you really need that builder startup mindset? maybe you need somebody who is better at sustaining and a piece of evolving and the builder piece gets a lot less percentage in making the right decisions because it's less relevant. That's exactly right. Yeah, ah being able to transition to the next phase is is is a key point there. So I i agree with you 100%. Nice. So if if you don't have that kind of history, what do you suggest they do on the deck?
01:08:54
Speaker
if you don't have that type of history, I think this is where it kind of partners come into play, right? And saying that you have the right network and relationships um that you can lean on for a lot of this stuff is important, right? ah It's not expected that you would have though the necessary like years of experience, but you want to make sure that whatever you're focusing in on, right? From, um yeah an industry perspective and a use case perspective, you have the knowledge of, right otherwise you wouldn't be building this. um and Then that you are positioned with the right partners or advisors, right which are very key, ah that you can lean on to help with some of the other aspects that where you're not like you may understand the use case, but there's other things that need to be considered that you have the ability to lean on anytime you can. so
01:09:50
Speaker
yeah If I'm putting that together and i you know I'm straight out of college um or I'm just young in general in the space and I'm investing in you, i I want to know that you have the right network of folks that you can lean on. i'm Obviously, obviously like if I'm a seasoned investor and I know the space, then I'm going to bring my network to you as well to the extent that I can. But candidly, at very early stages, some of these you know you're maybe you're going for angel investors, you know smaller investors. you're not Not everyone's going to get that A16Z investment right up front. And so if you're getting some of the smaller guys, they're going to care about yeah know your ability to have the right knowledge base.
01:10:33
Speaker
upfront. So if you don't have it, making sure that you surround yourself with the right folks that do are certainly something that I would care about if I'm looking at that deck. Brilliant.
Exit Strategies in Web3
01:10:43
Speaker
All right. So question 10, exit preparations. So for startups looking to eventually sell or go public, are there any strategies you would recommend to ensure their valuation reflects their true potential? Any guardianship moves that they should make? Yeah. So the web three space is is a little bit different, right? We don't have traditional exits for the most part, right? Not everyone is going to be like, I'll just use Coinbase as an example where you're going to try to go public and you know, that's kind of the success story. And then, you know, there's other things that relate to that. But, um, for the most part, most of these web three companies, the exit is, it's, it's still a little bit different. Usually it's centered around a token.
01:11:26
Speaker
and the token in of itself represents kind of the liquidity around the exit strategy. And so um if that's the case and you're building something around that, then making sure that the tokenomics associated with your specific asset that you'll be distributing, um you want to make sure you've thought through that process, right? Because there are a but ton of tokens that go out there and just, there's no liquidity at the end of the day, like if I move my 100,000 tokens, it would just effectively destroy the market, right? So um in planning for stuff like that, um you want to make sure that you understand how the market kind of would adopt and understand and move with this specific token at the end of the day. And that's incredibly hard to do that. um but
01:12:20
Speaker
understanding that type of concept to the best that you can um by looking at you know other market know comps again is probably a good point to to start with. like If you want to be the next Solana at the end of the day, let's follow their journey and let's see how they've moved through that process. you know How did they issue their tokens? how What would did their allocation look like at the end of the day? How was that structure built? right you know It was now that company's you know You've got a whole network of people who are building on top of that. Is that something that I would like to do? right Do I see like other partners coming in and building on my use case um and utilizing that? and so then there's
01:13:05
Speaker
there's a revenue model associated with that relationship. Um, making sure you thought through that process, right? Is incredibly important when you start thinking about an exit strategy, because it is, it is rare to see, you know, an IPO, we are starting to see kind of acquisitions out there a little bit. Um, but it's still, you know, in its infancy for, you know, companies with tokens, right? We'll see stuff like, you know, infrastructure projects are like, you maybe some exchanges out there or something that's almost like more traditional to Web2 companies that have Web3 kind of focused. But um for the most part, a lot of these companies, you know the really the the value expectation is really sitting around how like the the token will operate outside in the network.
Maximizing Valuation in Web3
01:13:52
Speaker
So you know those are things that you probably want to think about at the end of the day.
01:13:56
Speaker
So now we get to the next section, Brainstorm Component. And here we've picked some really interesting topics, specifically centered around strategies for maximizing your startup valuation. Conversation, I honestly wish I had to access to yourself, Neil, when I was running my first AI application and, again, working in the core teams of the startups I have. um How important would you say is is timing and and effectively building a strong narrative? Yeah. um that That might be the most important um kind of aspect to this. I mean, timing understanding that the market is moving in a certain direction and there's a market need for something, right? um That is probably one of the most you know important factors, right? Like if I'm an investor and I'm looking at something, you know what's the demand?
01:14:50
Speaker
for this, right? yeah there' there's If there's already a ton of companies in a specific space, you better have some differentiation um at the end of the day, right? um Especially in in the token world where there's there's a ton of tokens out there, there's a ton of noise. um you know how What's my hook right ah to why this makes a lot of sense? And so
Crafting a Compelling Startup Narrative
01:15:15
Speaker
that narrative that that you are crafting, if you will, um is particularly important, like understanding this real like vision around something like this, where, you know, if I'm going to be the next, you know, a chain link out there, right? Which, you know, I love ah that, that particular company, what they put together around oracles and so so forth. Like they've built an entire network and ecosystem around that. You know, if I want to be the next ah version of that, just in a different capacity for maybe another industry,
01:15:47
Speaker
you know, what's the story there, right? How do I get there? What are like the potential kind of you know milestones that I need to meet like technically, operationally, financially, all of those things that and still come from the traditional world, but just spun a little bit differently in terms of how I have to look at it. Right. Um, and some of the things we talked about today, right. And absolutely if there's stuff like that, I can't be, um, again, um, uh, talked about enough in terms of making sure you pitched the right story. I mean, when, when you look at chain link story, I mean, their followers were practically militant, right? Like, reallytaining marine the yeah and and it was, so
01:16:34
Speaker
and like, I mean, mean I'm part of like, I'm tangential to that game of narrative and, and more mainly positioning is where I'm i'm coming from. on The marketing end is the way that they position that business and then got people involved in that community was art, as far as I'm concerned. ah hundred And the motion motivational factors around like, who are we? What are we trying to do and how clearly and well that was communicated? It's excellent. Absolutely excellent. Yeah. they They did a fantastic and still do do a fantastic job of like educating the community on the particular use cases when they have different products that they're coming out there. They inform the community to the nth degree about you know why this makes sense, how you would utilize it, you know what partners that it makes sense to collaborate with. Those guys do a phenomenal job. and
01:17:28
Speaker
yeah yeah Just full disclosure, they are a client of ours and I've known them for you know several years now. and I still remember when we started with them, it's like, ah what is what is this again? like what Really? Okay. You're going to do this. We can do this and they're like yeah we're talking about the value of the link token at that time and you know their tokenomics and you know how that works. and you know hey This could be something worth something that's huge, but you know they have they thought that through in terms of their allocation at a very early stage, you know in terms of what went to different folks in the community, investors and you know the founders, all those guys, because they wanted to make sure that you know this thing is something that people are going to hold and utilize ah throughout the network.
01:18:20
Speaker
Right. Not just something that people are going to take and just exit immediately off of. So they built their lockup strategy knowing that. And, yeah, here they are today. And I love what they put together. So, yeah, i'm I'm right there with you on that one. That's a big chance. Do you feel that their strategic appeal, obviously product timing, they nailed that. But but it was an idea at the inception, right? It was like when what what What do you think was the, I guess the inflection point or the lever that was like, okay, I get this, we're we're going to run with it? Yeah, I think for them, well, those guys, I mean, and you got some crazy like intelligence that's sitting in that brain tower that's there.
01:19:10
Speaker
Incredible. um you know and so Not to say that you know you have to have a PhD to do this, but I think those guys um ah with that combined with some of the more strategic guys within the organization, they saw the long game here. right They believed that um yeah the or the concept around the Oracle's and where the current market was um with the blockchain technology at that time, you know and was in its infancy, they had the ability to say, OK, well, here's where it's headed. right But the concept are, again, around and building an ecosystem. right And once they figure out that they're going to build an an ecosystem, we've and we've seen this in the past, like they're like the the SaaS concept, right building a platform, the sales forces of the world, if you will, like where I'm going to build a platform and people are going to come to this, and like once they've
01:20:07
Speaker
They centered around that idea that, you know, the light kind of comes on. Right. And it's understanding that inflection point of where you realize that there is this isn't like a couple million dollar project. This is a billion dollar, you know, multi billion dollar concept where people can come in and build and develop on that platform. And I think that that that was like a ah key point for them, like understanding that the end game here, it's not even really an end game, it's just the long-term strategy of building out an ecosystem that everyone can be a part of is something that I think has got a defining moment ah for those guys at the end of the day. Excellent. So in in general, I mean, at Chaining's side, how do you feel like crafting compelling story works from the valuation side? Is is that something which
01:21:07
Speaker
you know, motivates you. Yeah, ah I would, I would agree with that kind of concept, like the the crafting of the story and the narrative. um You know, just kind of the the former, you know, banker in me would suggest like that is almost the most important thing, right? Like when you put together and, you know, coming from, especially on your side, Charlie, with the the marketing kind of concept and positioning, Like that focus needs to be crystal clear, I think, for folks when they're investing in something or, you know, you're looking to sell your product out to the folks. um They need to understand exactly what it is that they're signing up for.
Positioning and Marketing in Web3
01:21:49
Speaker
Uh, at the end of the day. And so if that messaging isn't clear ah from the get go, if it's something that's too esoteric to understand, which in the web three candy, right? It's there's such, there's so much noise, right? That, you know, like, well, I'm building this and it's going to do this and it's going to, it's decentralized. And I throw out a bunch of buzzwords. It's like, you know, you just like your head just knocks back and you're like, what the, that that's really like the traditional folks in the industry are just like, ah no, No, thank you, because you're trying to scam me. Right. So you have to make sure that for I think it's just more important for web three companies to make sure that they do their best to clearly position and market the exact need for what they're trying to you know solve. Right. The question that they're trying to solve. right I think that is so important. Right. So as we're trying to build a very nascent
01:22:43
Speaker
kind of We're at a very nascent space right right now, and we're trying to build that into something that is more, um I think, and better understood by the traditional world. right as we As much as we want to be you know counter to that, right because you know ah traditional stuff doesn't make any sense. But we still need certain you know components of that. And yeah if you're going to develop market share, you have to convince you know, the non-believers at the end of the day that there it makes it makes sense for them to kind of come on over and utilize this technology. And I think, you know, you'll see that like in and the decentralized finance we talked about, I think gaming will come around. You know, I think yeah you're seeing the the social network part of it come into play, um which seems like a very logical thing. Like, you know, why should LinkedIn and Facebook own all of my information, right? um Why can't I do it?
01:23:39
Speaker
the creator space, all of that stuff where there's a use case for me to yeah develop a whole kind of business around myself. right If I can you know sign up for the right companies who understand that are building those ecosystems, I'm far more compelled to be interested in them than if it's just a bunch of buzzwords. so But this is interesting, actually, because if we're looking at, you know, looking over the decks and the and the compelling narratives that we've seen coming by, I often feel to see, I mean, they're good compelling narratives for Web3 investors or digger Web2 VCs that ah yeah have, have ah you know, at least a crypto division that understand it.
01:24:24
Speaker
Um, but very often it is, it is the buzzwords and everything that I was like, why are there's not the focus on the mass adoption web tool piece, which I think is very important, right? Like I always make that, that example is like, you know, my mom, you know, everybody's mom. They need to use it. These are the people that you wanted to use, right? Let's let's let's say decentralized. whereas in a hi you' a pitch deck and but yeah that's No, but but that's the point, right? You throw in AI, you throw in LMs, you throw in blockchain. I'm pretty sure my mom looks at it and she's like, ah
01:24:58
Speaker
What is it? Yeah, I worry yeah, yeah. And why and why and why do I need this? And I think right. ah Very, what is what is so important in in I think compelling story what I sometimes miss is, okay, this is all great. This sounds super great from the crypto community. You probably onboard them one to one. Let's go. What about the rest of web two? What about your ain't used that really gonna make your product bigger? Yeah, yeah. We didn't really think about it. That's not a narrative. And I i um I'm wondering, lately more and more, because we're moving towards, everybody wants to move to the massed up space, why we're not touching that point. Creator economy is the same thing. It's like, oh yeah, we're building like the the next big Tumblr or whatever. It's like, okay, great. How are you going to onboard these users? Yeah, no, we have all these web3 users. Okay, that's great.
01:25:45
Speaker
When I talk about what's the your real technology, like the technology is really going to use and it's going to be used as web to mass adoption, where is that compelling story to those folks, right? um and And I'm always curious, like, are you looking at that from from a valuation standpoint as well? Because I think a lot of these things are by crypto for crypto, right? 100% because that's where like user growth and adoption comes from, right? If I'm going to really grow this, I can't rely on just the sliver of an ecosystem to move the needle for me, right? And especially if it's something like you just talked about, like, you know, the creator space or, you know, other spaces where you actually need to leverage, um you know, the broader community at the end of the day, because they're the ones that are going to drive it, right? I'd rather, you know, get that, that
01:26:33
Speaker
percentage of that network to validate right this concept at the end of the day. And so it is tremendously important. It's part of the assumptions,
Web3 Transparency and Decentralization
01:26:44
Speaker
right? Candidly, when you're looking at some of these things where you know that adoption, that mass adoption is critical. And and that that's the point also with me for gaming that I'm always like, okay, um i I understand the narrative, but I'm there's no such thing as a web free gamer. There's there's games. And that's what everybody gets gets wrong. Oh, no, we got a whole board all the web free gamers. Yeah, there's no web free game. It's already done with micro transaction. So you know, you better make it make sense. Right? That's right. 100%.
01:27:15
Speaker
So um I just wanted to to talk about key performance indicators. Now KPIs, I mean, we've had I have tried to slide this question in into every pod we've had. And VCs are like, well, you know it's web three. So i mean we all know traditional web two. We all know. I don't think that's fair. But and in web two, it's very much how much money you're making and how much money the end. right like it is Is the machine you've built generating capital? Has it got future potential? Am I willing to take the bets on the future potential?
01:27:53
Speaker
and are you and then And then you start to get into the realms of an Amazon play, which is we're not going to make money forever until we make a lot of money. yeah and And at that point, you kind of have to be really, really good. like Right. And how many are less standing after that, right? yeah Exactly. And what's interesting with this space is a lot like, okay, you you have that interim tranche of I can i can form a token and like facilitate a liquidity event early. Yeah. which changes or even flips the timeline on its head. You've also got, shout out to Sebastian Spitzer for for for this phraseology, but you've also, especially at the beginning where something specifically is quite hot, the founders giving terms to the VCs about whether or not they can come in on their token. yeah um and And that kind of stuff is happening. So it's, I feel like it's really changed the game for KPIs. Yeah, for sure, right. um
01:28:52
Speaker
we don't have the traditional KPIs. And we touched on a little bit before, right, in terms of, you know, how the, these networks work, um the concept around the value locked in the token, the TVL. You know, those are all kind of ideas around it. um But ah honestly, it's really centered around, um and we just talked about it now, but that the user growth and retention around yeah the tokens in of itself. right if If again, you know leaving out the companies that are in the space that don't have a token ah for a second, but if you do have a token, right you need to build up that that retention of the token. You need to compel people to want to hold that token
01:29:37
Speaker
um And so yeah that's why the restaking and liquidity kind of world is starting to to take hold because you have this whole kind of um financial sector that is you know sitting alongside the traditional financial sector, of like what hedge funds do and all those guys. Now we we have moved this out into the token world and where people actually can make real returns by you know leveraging and creating you know, more complex, like derivatives on these tokens. Um, so there's, there's access to that and there's rewards associated with that. And so, you know, having, you know, again, if I bring up something like an eigenlayer or Athena, I mean, you look at, you know, they've got billions of dollars kind of locked in there where people have put money in and, you know, they have the ability to pull out and just, and make distributions on that, but they can also make a, a, a good amount or a decent return.
01:30:33
Speaker
if they leverage their positions in there. um and Leverage is scary still at the end of the day. like We know we've seen things happen. and'll political if you knew so I don't want to say that you know buyer beware, but still yeah all we're doing here though is we're taking um just kind of traditional finance ah and moving it out into you know this decentralized concept and earning rewards um or tokens through staking or other types of mechanisms creates a value proposition, right which is something that has really been owned by you know traditional finance folks. right you know The wealth managers and the
01:31:14
Speaker
um the hedge funds of the world right have lived in that world. And and now this is you know something where you know the broader community has access to. And again, it's because it's it's trackable. right um Everything is on the chain right so you can see what's going on and who's moving what. um So you have a little bit more visibility in things. um Those are some of the yeah kind of ideas are around metrics and you thoughts. it's not KPIs are probably not the best way to kind of characterize it, but I think it is there are still metrics that you we look at. so you know Again, TVL, maybe staking revenue, user growth and retention.
01:31:53
Speaker
um which is really the fundamental key here right yeah at the end of the day. Like I mentioned before, just understanding how that works and then um yeah know transaction volume and velocity will follow right on that. I think um you know those are areas that we really try to focus in on when you're trying to understand how a token could potentially kind of work out there in the market. Yeah, definitely.
Engaging Valuation Firms Early
01:32:17
Speaker
um So I think this this this last point is quite interesting because because we we're talking about low valuations. And there's always that trap of like, OK, I'm going to value my business as high as possible so I can get as much of a raise as I can on the first round. Yeah. And then you start a step or really struggle with the second round because you've overvalued your business. And I mean, that advice has been there since Web 2. That's not new. but
01:32:46
Speaker
When you're looking at Web3, the valuations are were large, especially last fall. I mean, big valuations were ideas, right? like i think I think there was a time when you could raise on the back of a napkin kind of thing. yep yeah How do you deal with an overly ambitious valuation? I mean, you hit the nail on the head in the sense that yeah these are things that yeah have been dealt with in the traditional and financial markets for years, right? Startup goes and, you know, on the market's hot. and We saw it with SaaS companies, right? Very early on, right? Everything, what's going to be the next big thing, right? And then, you know, the market kind of tanks a bit and all these guys are ah left kind of, you know, now what do I do? Because, you know, they overhired, right, um and overspent on certain things. And now they're, they're clawing to the next round. They don't want to take a down round, but
01:33:45
Speaker
you know, it's something that they yeah if they can hold out until the next market kind of movement, yeah you know, you know, is that something that happens here um in the web three space, yeah certainly similarities in that where, you know, you hope that what you've raised um is enough to manage your way through. Now, it's a little bit different in terms of, you know, the the rounds themselves, because you know, typically the way they come in is it's either called like a safe with like a token warrant. Um, or, you know, we don't see, but you see, I mean, you see them, but the priced round concept, um, doesn't matter as much, right? Because if, if my liquidity is really focused around the token, um, you know, I mean, you can say the pre the there's valuation caps associated with safe and what do they really mean? I not really sure because
01:34:39
Speaker
um yeah That's just kind of a benchmark that's thrown out there for the most part. It's not a true price around. That's why you put together like convertible notes or safes in general. um And you know the positioning around when I take more money in, you're not as concerned around you know ownership structure there because if the end game for a lot of these folks is centered around token allocation, then you know yeah my end game is something that I really still want to focus in on making sure that you know my market and use case is still on point, right? And that even though the market in of itself may have dipped a bit for this particular you know sector at the moment, at the end of the day, and what we're putting together when you know everything kind of flushes itself out, it's still gonna make a lot of sense. um And so the token is gonna have value because that's what a lot of these guys care about. They they take the equity position
01:35:37
Speaker
because they want their allocation of the token and there's going to be equity around that. So you want to make sure that um you're still building in the right kind of use case where at the end of the day, if if you can build value around the token in of itself, then everybody wins, right? And it's still a long game because there's lockups that these investors will have, right? In the early days didn't have any lockups as we had the pump and dump scheme. But ah now we have lockups associated with where they can't just unload everything at once and it can go out and follow almost traditional kind of vesting for equity, right? Where, you know, it is a one year cliff and then radically after that for a couple of years. So people are compelled to hold their positions and utilize the network and build upon that. So even if, you know, the markets kind of go south a bit and people have to worry about, you know, call it, you know, flat or down rounds,
01:36:35
Speaker
It's not really the end of the world, and in my opinion, at least for the web three space, because if the fundamental goal is around, you know, the token in of itself and building out a network that has real utility and value, then, you know, that is going to work itself out over time. um And that risk hasn't changed. right It's still going to be the same risk that they had early on, because you always have a risk around the token, like user growth and retention. Like we talked about all of that um at the end of the day. people still know the expectation there. And so you even though you may feel like you're taking a flatter down round, um you still have the ability to write the ship there as long as like you stay focused on the ah ultimate use case and make sure that the market still believes that that's the case right for that particular token. I mean, that is the thing that you have to really focus in on, but that's that's the underlying assumption here that if I'm trying to build the chain next chain link or something you know akin to that,
01:37:35
Speaker
um that my market positioning around that is still solid. But you know reassessing that is always something that's it's good to do anyway. Nice. I think that's it for the brainstorming, Thomas. and Yeah. And you can give yourself. No. He just wants to go back to the beach, doesn't he? He's I'm good. Margarita, just five minutes. Five minutes. Yeah, yeah I was just like, no, no, no, don't the adult come in yet. Don't come in yet. You know, like like all these dance. It's like, no, I think I think this is great. And and this is...
01:38:10
Speaker
Charlie said it earlier is like I wish I knew you earlier Neil and then Charlie comes to the finance space. I don't um So these kind of things and and once again clients that we work with in the in the tech space we had similar conversations and they're asking, okay, where What do we need to do with this? I'm like, well, I'm the wrong guy to ask because I'm just doing tech. So, you know, you need, you need Neil as a friend. you need a you sort of like but that That should be probably the answer. So, and finally, engaging effectively evaluation firms. Again, this is, this is the guy that, that rates how, you know, how, how good your painting is, right? Like how much- This should be your best friend. working on Yeah. You don't want to piss this guy off. Add him flowers, you know.
01:38:57
Speaker
Yeah. and an example be An example of how not to do this is ah Grant Cardone on the undercover billionaire. um that effort That episode where he flips off the business evaluator is definitely not the way to do this. um But but you know how how should someone approach technos? What you know how should what you do have ready? like What documents do you need to have? Yeah. So, you know, we help people across different um areas of development, right, in terms of the stage of their project. um But for the most part, if you are going to launch a token, if that's in your kind of purview, um getting in front of us as soon as possible makes a lot of sense for a couple of reasons. One, um a lot of the work that we do is centered around the distribution of tokens and token rights, you know, either
01:39:53
Speaker
before you've raised money or even when you're raising money. We talked to a little bit about safe and token warrants, that kind of thing. um Making sure that you know we get in front of you at that time so that we can talk you through you know potential issues around um you if you wait till later to make distributions and and the valuation around your token and of itself. At early stages, it makes sense. And I talked about it a little bit where yeah The value of the token is is very low at early stages, but you know the expectation is going to be high, but at a very early stage, it's actually okay if it's low because if I'm going to transfer that from a taxable perspective, it certainly makes a lot of sense. um If I'm going to look to raise um as well, that's ah it's a great time to talk to us. We can certainly help out with an understanding around yeah the value of this particular
01:40:46
Speaker
um asset class that you're focusing in on based on the industry. um A lot of times we'll work hand in hand with um other consultants like and maybe more traditional investment banks that but they do have a focus in the space if they want to do the capital raising part of it. ah We work with them around you the valuation side of things um because we have a so very strong network of folks, ah which concludes not only banks and law firms and tax guys, but um ah VCs and angel investors right who are also very keen ah on getting into the right projects. And so you know if we can talk to folks early on, um that certainly helps you know all parties involved ah in terms of what are the things that you would need. um And we talked a little bit and again, it's and making sure you have that story crafted. right um
01:41:44
Speaker
I don't expect the tokenomics to all be worked out, but yeah again, those are folks that we can make introductions to who focus in on that world. um So again, getting in front of us early helps out because yeah know that way we can understand kind of the message and the narrative that you're putting together, the valuation side, the metrics, some of the things that we talked about ah are things that we can talk you through. um And then you can tell you like, hey, listen, you know this is what we're seeing in the market here. um You know, maybe you want to position junior yourself, you know, this way versus another way. Again, so early stages makes a lot of sense. Even at later stages, when you're you've already had a couple of rounds of funding. um That's when it gets a little bit more and we talked about it. You've got adults in the room asking questions. i love You know, that that's where we we help out a lot of folks um could be the tokens already live.
01:42:41
Speaker
ah You have to worry about you know what's going on with the liquidity or am I token? What does that mean for the value of the token if I were to move certain positions? um If I'm going to do a strategic deal with someone um and tokens are a part of it um or I'm spinning out IP to someone or it's something even at a higher level, it's more corporate where you know you might actually need something like a fairness opinion where um you know venture firms may need it ah because they have things that are going across funds. um There are may be things where you're exchanging ah equity and tokens with related parties. There's conflicts of interest. um There's still that fiduciary kind of responsibility that I think people kind of forget about um just because they think, oh, this is what three of these are tokens, whatever. yeah But the ownership of something is certainly important. so
01:43:32
Speaker
yeah those are all ways that we we work with our clients across the spectrum, if you will, of um ah development um and ecosystems in this space. So yeah that's how we would ah engage with folks. Well, I mean, that that's what you do. How do you people get in touch, is it? Neil, please help. They usually just throw a big kind of sign on the front. No, I think. It's that of your lawn. All Yeah, the the most direct way typically um is is my email address or the company's email address, um and which quite simply is just info at technotesassociates.com. um And then you my ah Telegram handle is at nkt underscore technotes.
01:44:25
Speaker
um So those are two of the best ways to get in touch with us. I know it's still a little more traditional on the email side, but again, we're the boring kind of finance guys. So we still work in an ecosystem where the people that we have to deal with on the partner side still have to have that line of communication, if you
Shifting Work Culture in Tech
01:44:46
Speaker
will. But we'll move to something that's more smart contract driven later. Hey, I mean, we wear the shirts. We wear the shirts for a reason. that's right there is the comment here right i' there used to be a tie there's no time now the thing no no it's casual right yeah i yeah guys get yeah get get this space five years and you'll look all like me so you know don't worry about it like
01:45:14
Speaker
When we go to the conferences, it's hysterical. People can spot someone who is not like, a you know, a builder, like right off the bat, you know, as soon as they see the college, they're like, all right, well, that guy's either VC, yeah youre lawyer, or the banker. period. ah looks your fun looking patagonia wifefi yeah That's right. yeah i need the patagonia ah Done. DC. This is my favorite part of of of what one of my favorite parts of the episode, which is always the desert island essentials. So this is if you were to rewind and and let's say if you were a mini-neal starting off at the beginning of your journey and if you're going to give advice to the younger self and you were looking at starting a startup, what would what would be from the financial, from the valuation, from the forward planning side
01:46:08
Speaker
What if like you have no money, no bags, no black book, no connections whatsoever? What are the five things that you would recommend to yourself to accelerate that journey? Well, yeah, I think the first thing is educate myself, right? It's it's read. I mean, there are so many um accesses to information out there, which I wish like if if this the access to knowledge that we have now is so crazy um now to the point where it's fed directly to us, which is a little bit scary. But, um you know, if I had the ability to just go back and say, OK, and let's start this from scratch, um getting access to are the right people in the space and through you know the literature that's out there,
01:46:55
Speaker
um would be one of the those important things. right um So they're and there's some books these days that are are that that that apply to the space that have been written by folks that are fairly knowledgeable. And you know something that's recent is that ah the book by Chris Dixon. And that I think is you know very powerful. ah You've you kind of probably seen the promotion around it. And A16 is a very well-known space, but i read, write, web. um you know Those guys have spent a lot of time focusing in on that. And I think you know that's a good read. There's also some more kind of technical stuff, Mastering the Blockchain by Imran Bashir. It's a great book as well. I think educating yourselves both on the business side and on the technical side um in terms of understanding what, I mean,
01:47:50
Speaker
what is the blockchain? What does decentralized mean, right? Like let's start from scratch here. I know nothing. Um, how do I educate myself to really understand kind of what it is out there that, you know, there could be potential opportunities on. And then there between those two, right? Um, you've armed yourself a lot with kind of the potential here of, you know, now I can start thinking about, you know, where's there a particular demand here in this space? let Let me look at if I could look at, you know, some of the existing technologies and, uh, you know, how would I might be able to fit something into that? And then, you know, it has to combine with like, actually a cliche again, but like my actual interests and passion, right? Like if I am a gamer, right? And I start reading about all of this stuff, like,
01:48:44
Speaker
does this make sense? Like, is this something that I would want to devote my time to and put my passion towards? Because once you turn your passion into like a job, you know, it's like a little bit scared to do that. But you better love what you do in that perspective. And I think that's a concept that, I don't know, yeah again, dating myself, but coming back from more like, and like, we're just almost like programmed, you know, I gotta go into finance, managing something, something like that. um Now it's like people really have the opportunity to kind of apply the things um that they have passions about, right, to their everyday life from a work perspective. And I think that's what this technology kind of allows us to do at some level, right? It's trying to, ah once people get their head around it, right? um You know, especially like from the creator perspective, we talked a little bit about that. But, you know, the creator perspective of, you know, I can
01:49:41
Speaker
be an artist at some level and I can actually make a living doing that and I can utilize this technology to do that ah is is really powerful, right? Whereas it's been like that world has been so closed off and owned by certain types of, you know, commercial folks that, you know, getting access to that has changed. Now, I mean, I own that, right? And if I understand how it works through, you know, education through some of this stuff, then I'm armed with the ability to put together an offering, if you will, around a product suite or a service or my particular passion, if you will. So those are some of the things that I think about if I was really going to take myself back outside of buy Bitcoin in 2010.
01:50:32
Speaker
i bar thing sure would occurre ah yeah i mean yeah i mean If I think about the the companies that we've worked with, the things that I could have known and been a part of at that time, and you know ah you know I may not be having the same conversation with you. You will be sitting on a Caribbean island somewhere. For sure. For sure. OK, number three, I believe. Web3 Community Engagement and Governance? Yes, um that's actually a that's ah that's a really solid one as well. I think, um the yeah like I said before, the community um is particularly important in this ah environment. Web3 is all about and building a strong community and getting them to engage. right it
01:51:32
Speaker
It's one thing to you know have just a network, but you need people actually kind of working off of and believing the network and everything that you're trying to build there. So that community engagement is so important. And that read um particularly, again, can't can be talked about enough um because that's the underlying kind of concept between all of this, right? It's that network effect that we're talking about in terms of building out these types of companies. um if I mean, like we all want in traditional finance and business, right? It's all about you know finding your market segment and all of that. But the Web3 community is meant to be more interactive, right? We're supposed to have a dialogue with yeah the people that we're putting this this this product and service around.
01:52:26
Speaker
And if I can engage in that, you know, there's a lot that I can do. And yeah, I mean, you see that in the traditional world a little bit, right? And that's why kind of social media um and the marketing around that has been far more successful, like in something like TikTok, right? You know, the way that the version um factors work and that far more positive. And then if you, you know, twist that a little bit into really what yeah a decentralized kind of web three a protocol and network is trying to achieve. right It's something a lot very similar. right It's that engagement that we're talking about. and If I can build that engagement in the community, that increases the value of the token and increases like the overall returns for everyone, and then people are compelled to to engage with this particular product and service because I'm going to be rewarded with these types of incentives, then you would ah vastly improve your ability to be successful as an organization. so
01:53:24
Speaker
um Certainly things that ah that that level of engagement and community yeah building and um and then, yeah, obviously the governance side of it too, ah making sure that yeah people are managing that properly can't go, um again, overlooked in
Resilience in Web3 Entrepreneurship
01:53:43
Speaker
this process. um And then you know some other things, this again, cliche, but um You got to be you gotta have thick skin to do this, ah um honestly, because you're going to get hit in the face a lot. but what You can't do this. This doesn't make any sense. um you know We've seen this before. ah i so I said that you know you should stay focused, but there's still trial and error here. right You are going to fail.
01:54:14
Speaker
um multiple times, right? And it's just trying, okay, well, this didn't work, but let's try it this way, right? It's staying, the goal's still there, right? The the defining moment is, you know, it's going to come, but, you know, just like any kind of engineer would, right? um You have to trial and error all the way through it. So that, you have to kind of work through all of that to make sure that, yeah you know, you stay focused on the end goal. So, you know, that, that that resilience and called flexibility without, you know, moving too far off, like the key kind of point of what you're trying to build is certainly important.
Understanding Financial Structures
01:54:55
Speaker
um And then the last side of it is, you know, this is like the, you know, again, boring finance part of me, but, you know, there are there are a ton of resources on cap tables, term sheets, you know, venture investing, um a billion things out there like I would
01:55:14
Speaker
make sure I do my diligence on that part of it. right um So when someone comes to you and says, hey, yeah what is pre post money? what What does that mean for you know some 20X dollars and what percentage of the company, what percentage of in this instance, um how does the allocation work on the token cap table, if you will? and And also knowing that the token cap table doesn't necessarily mean I have ownership in the company. There are plenty of people who have tokens that don't aren't the investors in the organization, understanding that relationship between the two, which are things that are pointed out in Chris's book, I believe, if I remember correctly. um But understanding the financial um aspects of this at that level are certainly important. so yeah you know
01:56:04
Speaker
unless you've got something that is just so compelling that you don't have to worry about any of that stuff. um i I would highly recommend and just the education around just almost like traditional investing. But these days, there's enough in terms of resources i out there to educate yourself on both the traditional venture side as well as you know what you know the the token allocation or the tokenomics, how they fit into ah traditional raise as well. So um yeah if I could just, I guess, summing it all up, it's, you know, looking at, taking a look at Chris's book, ah as well as, you know, Imran's book, Mastering the Blockchain, i Engagement and Community Governance, um certainly very important. ah Not being afraid to fail that that resilient my mindset and then um as ah an education
01:57:04
Speaker
around ah venture term sheets and investing as it relates to the and the web through space. Those are kind of the areas I think I would focus in on. Kind of cool buying Bitcoin, Eddie. Build a time machine first thing. Buy Bitcoin. new I can't thank you enough for spending your time with us here today. um The only thing I could ask is you could tell our audience where they can find you, how they can get in touch with Technos, and where they can learn more. Yeah, no, I appreciate it. This has been a real pleasure, guys. Thank you so much for the time. um ah Yeah, coming directly at us through our website certainly makes a lot of sense. TechnosAssociates.com. um You actually can find all of our emails and ah all of that stuff to contact us directly there.
01:57:55
Speaker
um but yeah yeah for the sake of just providing one info at technosassociates.com and then my telegram is nkt underscore technos. ah Thomas you wanna close us out. Thank you for listening. If you make it this far, it wasn't an amazing podcast Neil Thank you very much for for spending time with us today um We're um we're happy to to post this Like and subscribe and repost because we love to see our our content ah on LinkedIn on tick tock on Twitter because we know it's good. Thank you Thanks guys