Funding and Sustainability: Client Sustainability

Transcript

have a lots of history of how it is to to pay for the client development, how to grow in the tough times, in the better times. Uh the second thing is some of you may expect that I have much more knowledge about the future funding or grants for other clients, but we actually separated that quite clearly at DF. So that's with Shawway and she's not here. So maybe you'll be slightly disappointed that I won't give you that much of an oversight of how other clients are working. Um, I usually even like don't ask them too much. I just had a conversation with Greg, but usually don't do that just not to not to create that impression that the client feels clients feel a bit awkward or like we'll be sharing it with Thomas. Um, so yeah, I'll I'll give you a bit of a story to

show that actually building client for and funding the client is actually a bit tougher unless you you add a few things. Uh, so never mind was founded in 2017. The EF price was around if $300. It matters because it was source of funding for me at the time. Uh I had around $40,000. I don't remember well and around 500 if at that time. Now it's almost zero directly because of developing a client. Uh so I saw 25% of E and I thought okay I'm building a company that will be around Ethereum and this like uh I found it today that it's in 2020. I was remembering the first

days and yeah I just like sat down in the office. I rented an office at Wework. I thought that just to keep myself mentally sane I will rent a nice office for myself at Weiwork and it was like with a nice view and that was my biggest expense for the next one or two years almost uh until I I hired the first person. uh so I was not paying myself any salary from the company uh but I had the money from Salt Eve to just sustain myself living in London right and London wouldn't be the best choice if I didn't have this money then probably the solution would be go somewhere to a very cheap living space like uh and and work from there for a year or two

uh what else here okay and the business plan in 2017 and I think this is an important concept. From the very beginning I was thinking of it as a company to build something they choosing net for building the client was not oh this this this like the client in this language does not exist. It was a bit like this but I chose net because I knew net I thought it will be good enough to learn and I started building it just to very quickly understand uh Ethereum and yellow paper and to start building something related to trading. I wanted to build decentralized exchanges.

I started thinking that there'll be hedge funds and uh and financial financial industry uh system sorry and financial industry companies that will want to pay in the future for the node. So it's thinking well nobody builds enterprise node nobody builds for enterprises because everyone builds just for uh you know for cipher packs. So if I picknet it's a very enterprise language also it will attract people that normally will not go anywhere else to build other clients. uh so I can do it. uh and this is where I could ship the fastest because I knew the language very well and I was thinking at the time well rust would be better but there is paritin rust there was parity in rust and I thought I would have to learn it but I thought no no I want to ship it as

fast as possible I just want to feel very very uh confident in the language that I was building but it's very different from very often people pick almost like the new language to build a client just to learn the language uh for fun uh that may delay you if you think that you're building it But but there are different reasons similar. So you want to build the company around or you want to you want to just experiment and learn as a as developer. I think both both ways are are fine. Maybe they define differently your your path for sustainability. Uh and then at the time I was thinking okay so in the in the future maybe there'll be digital assets custody market making brokerage real estate assets things like that. So I was speaking of this financial market

because I was under the impression of a book uh hedge fund wizards that was talking about how in the 60s or 70s people were building systems for trading and they would trade based on the TV news because everything was so slow and they were talking about the transition the changes in the 80s and the 90s into uh it trading and how the market data started flowing in all the risk um risk management happened with the automated systems electronic systems and how it entirely reshaped the industry. And I said okay they took them 20 years probably in blockchain will take a few just a few years but people will start paying for that. So there is a vision of like make money and um at the same time I was trying to uh to the fund raise for data marketplace. I thought that selling

data will be a solution. Uh it was a bit of a failure but we were building it on the side for three years and I was trying to do the fund raise from VCs but never never managed to. uh so you see 2018 October so almost one year after we started there was the alpha release 0.90 and it was able to uh sync the entire mainet and um and it didn't have fast sync and it didn't have some other very important things I don't remember what was missing at the time exactly uh but it was it was big moment okay releasing something for the first time on Reddit I was not even on Twitter so that was very important for me I I missed all the social media.

I was not connected and and it allowed me to focus a lot like I was building hours a day just just client trying to pass tests and so on. Now I consider this probably on one side as massive set of mistakes. I'm telling you like how to build sustainable clients but it's like three years delay to deliver something. Uh well one year here but then to really start making money on it it was three years. Uh so September 2018 we got the grant from Ethereum Foundation $50,000 made a first hire. 2019 first uh first contact grant from POA XI supporting a never mind. So I was looking for opportunities how to get grants build something on the side building some

consulting projects. So I started helping some uh some other projects that wanted to build EVM into their chains. um getting jobs where I would almost like drop my work on Nethermite client and just get some consulting work that I would be paid directly uh just to survive and and here I see like some some numbers over two years we spent £40,000 and we were calculating runway like $3,000 per month and it was a team of four I think okay so monthly expenses like $6,000 and it was team of four um and in January 2020 like the the eve was at $80 at some point and we almost went bankrupt. Uh I had to sold sell all ETH, right? So remember that 500 E at

the beginning it just disappeared in 2020. Uh funny because everyone was suffering at that time like so all the teams were not spending they the the grants were delayed the uh the payments on invoices were delayed everything hit you at once. uh April 2020 raised from two fantastic angel investors at four million uh and and then things started going parabolic well uh because it was going up people knew that we were fun we were building for two three years when nobody else was building so people started getting in touch saying build for us uh and the one important decision that made at that time and I compare it to other companies that kind of stayed in place like at the same time in 2020

they were the same size of like a few people building and I would meet two three years later and they would ask what did you do differently and the only thing that we did differently was we assumed that the market was going parabolic and we started hiring directors. So we hired like 20 30 people and we said like now we have to take advantage of it. So for 3 four years we were operating like three four months runway just always pushing to invest more and more more into the business getting a lot of risk and and keep building and keep pushing super stressful I mean like generally I don't recommend it to anyone uh I I I still regret that dinos so it was so stressful uh so well if you want to build something sustainable it's so different

from this story the same way but but it can show you that in the end there is a Oh, sorry. Like because you'll see in the moment that later Netaman generates something like 20 to 40 million dollars revenue per year uh from various opportunities but the in the end not spending too much is important and if I got the money from either VCs or bigger grants at the very beginning I would spend it super fast without knowing how to operate the business and how to build something sustainable. But if you have to run for two or three years at the very very low spending levels, uh then it teaches you a lot like how to how to really value the development effort, how you value every dollar, how to how to really think of building and also learn

simply to to build. Now I was already 15 years development experience person from coming from financial services from City Bank and Rockus. So it's not like I I didn't know how to code, right? So I I was building with a flaw like last sure I was learning a lot of cryptography and blockchain systems and P2P but apart from that I was coming very fast and then 2021 you know there's this like Ethereum foundation client incentive program it was 4,000D for the clients some clients got 50% of it and that was massive uh massive support uh and this is like 40 million spending uh plan for for another mine for 2024. So you can see how we like just always think of

what's the future technology and how to how to start growing things. So we use it use it client as expertise and legitimacy for building other things providing the uh providing consulting to companies and also for thinking that people that are at dynamine should always feel this kind of impression of a constant growth and pressure to think that they always building something innovative and go forward. And you thought that this is the way to keep attracting talent that if you tell people that you you're not just maintaining it forever but you'll be always thinking of the new things new things new things and always aspiring for brilliancancy for the best potential code base then it works in attracting talent and keeping the talent in uh and and then you can also use your equity

for for funding. How much time more I have? Three minutes. Three minutes more. Okay. So now there are many different models that you see from existing consensus layer clients and execution clients and possibly like if you see this uh like beam clients ideas and other solutions. So so people will build base clients will build anything like the uh I imagine they the the like some solutions for me. So you always will start it and will be probably very often the same story before you get revenue either you go VC way and and then you might be pressured into token or very very likely you will be

um and then it's really like I think in many cases the token solutions are are not really synchronizing the alignment sorry the the incentives for founders and when the token becomes liquid and the incentives for everyone else. So, so it's it's pretty tough very often. Uh the public goods. So this is funding with uh with funding from grants obviously DM foundation other foundations. You're building the client and you try to think how you can use this expertise to get other grants. Maybe maybe the bits of the clients that you're building you can sell it to other companies. Maybe they want to build something on top of it and then you have to be really open for accepting grants.

Uh legitimous expertise into consulting which can be security audits. It can be operating infrastructure like LIDO practically allowed all the clients to operate within LIDO. So it was practically like a grant giving 10 10 client operators the the space for for being operators on Lido. It's it's pretty nice revenue annually and and all the other things where people think okay those those guys they know what they're doing so we can take advantage of it and we can hire them as consultants. uh and then other options would be I guess a company that is already established think like consensus thinking that they need to enter into this business to be very visible there

and well I'm guessing here a bit uh but this would be probably also behavior of mind thinking like why we would build beam chain like to always keep being um fresh with the latest things and being around the people that continue building some new some new things uh it can be risky In some situations, we tried to build the consensus layer client a few years ago. We started building it but we were not involved in all the um in all the meetings that much because we we didn't have enough funding at the time and and we just dropped it and focused on exhibition client much more. So I guess it might be the same when you when you think oh there's some something novel but then you're spending more money and you start losing the focus and maybe you choose a chrome.

Um and one thing that was very important for me as well was that even as we were building the consulting systems and thinking of enterprises, there was also realization that in many situations the model that I was thinking of was very similar to how the uh how the Linux distributions companies were operating. When I was comparing like the numbers with Canonical, it was very similar. However, Chronicle was starting from the founder that had already like few hundred million dollars made from some other some other solutions and started investing in the company and then the company nowadays after 19 years gener 250 million revenue annually and the the workforce the product the ideas of how you monetize it. I think it's you can learn a lot from from the operators of

open source projects like this. Uh and Red Hat itself was 34 billion acquisition in 2019. So this was my vision of well even if it don't go entire the financial markets then from infrastructure you can still make money if you think that you you're going to make money and it was the the main assumption was never assume that that you just be always taking grants always try to make it a business because it will just encourage you to build better code base because you start delivering codebase that people really care about that is professional will support it well test it and so on.

Okay, thank you so much. [Applause] Any questions? Do we do questions? Maybe I I'll just say so you me I actually have a few questions but first first one first um you mentioned uh receiving money from the VC. Uh I wonder what's like their expectations on your return and whether that affects your your control of the direction of the company.

Yeah. I mean so we we never we never got money from VC except for these two angel investors. Um so angel investors I think they're much more laidback, very supportive and they didn't want any control. They would just ask questions every now and then. uh well one one of them ended up uh joining us as as a COO later uh pretty and then actually nowadays he's running gateway uh so it's it's one of the other infrastructure companies so it is a CEO there I think uh so so they're super supportive they were learning with us there was the other one was George Halam who is one of the early like Ethereum uh builders one of the Ethereum foundation people in 2014 15 and so they're amazing They didn't ask for any control. They

just they just just were there. With VCs, I think it would be totally different. I think it might have been a disaster if we managed to to fundra because I would try to build this data marketplace which would be project that I was probably much less prepared to build. Uh and and then what's no VC wanted to support a company that has like this portfolio of ideas and thought this is so hard. It's so risky because you don't build a single product that you can just accelerate. Uh so this wouldn't be a standard standard investment policies would be hard so I'm afraid I'm taking too much time right so no uh what are the main insights you are going to bring to EF from your mind experience from

what are my main insights after like from the mind time going to the yes um well interesting on one side I think that sure building a client is very very difficult but also So now I don't want to be biased towards just one model of building a client right thinking oh this is how how we build data mind so just put a pressure expect that other clients would build it this way uh it might be very very wrong because look at like ref um solution now like they fundraised tens of millions of dollars to build products from there this is it seems like they're building fantastic products and it's it's totally different model from from how dynamite was operating so there's lots some insight that sure you

can have some builders that are that are so really hard to be recognized that that they may achieve something and I think many PCs will say the same like how how do you recognize the builder's willingness to sacrifice themselves for a very long long period. Uh it's I I think it's pretty random whether the foundation manages to to really locate those people and allocate there you would have to go very very wide very broad or or do a lot of successful scouting. So there's also a risk. Now the question is does it only happen in the time of crypto winter or it happens also in the good markets. I think you can find more of those builders in the crypto winter times because it's like this big filter of who wants to

sacrifice continue building but there's no business and we kind of have a very different market nowadays. So it's it's really hard to take any insights apart from like sure I understand the entire mechanism of like where the funding is what you can build uh what's different companies are there. So lots of insights but not don't want you just overindex for how many operates. Can you mentor us at Z mentor you at Z I'm sure like you can reach out anytime on the telegram or in person we can have a coffee and and tell me like how you approach it might be that I will learn from you more than than hear from me. That's true.

One more question. Yeah, a bit more on on funding sources and finding alternative funding sources. um from your experience building like uh Nethermine and also like maybe your outlook after being exposed to more of the EF uh where do you see the like potential revenue coming from for for clients let's say like whether uh there's more demand from more web 3 Ethereum native companies or do you think there's going to be more demand from like say web two or institutional um clients and and any any suggestion on on on where should we focus I think it'll be both. I mean now now it should be a bit of golden times golden

era of the of those who are integrating institutions to chain. Uh so stable coins they yeah such like banking solutions any real world assets. Uh so things like what Etherealize is doing what many of the others are doing. So I think this is this is where match will be happening and by bringing those systems to blockchain and doing them our way will make sure that maybe that like melting of dissipation happens where the institutions join the blockchain and get like melted into the network that's what you modularize them and slowly they start disappearing because everything is so easily replaceable. That's how the permissionless network should work. It should really decentralize every component of traditional system. If we do it wrong then maybe maybe we'll have

this like very strange collection of independent chains that are very centralized internally and are not very interoperable. So I would encourage everyone to participate since this is traditional work. Greg, yeah I can probably provide some insights because we had a very similar track with mind and chains then went more venture and there's there's big tradeoffs and I think that's something that like as clients we should be aware of. The minute you do go down venture, you have to start making very stark decisions. It depends on who you race from. Sorry.

Sorry. Yeah, Greg from chain safe. Um, burnt out phase zero developer. Um, yeah. So, we had a very similar track to Nethermine from the perspective of like, you know, we did a lot of client develop, a lot of consulting initially, then client developing. So, I guess a little backwards there. Um, and we did end up raising venture. Uh, but the one thing when you get to that point is you have to start you have to like be very aware of like the trade-offs, right? And and be willing willing to like go down that venture wants return like Tomas said. And the big thing you have to think about is like the scale and how you scale like the org internally because you're going to have to make tradeoffs in terms of like where

do you allocate money? How are you protecting the client team moving forward? And fundamentally, you know, you're going to probably have to produce a product of some sort that is returnable unless you get, you know, something a very interesting deal. And so if you do plan to go down that road, you have to remember that if you don't size up the team correctly and you don't plan and are constantly, you know, projecting where you're going, you can very quickly end up in situations that the client actually starts to lag, right? Because you're pulling resources away from it.

So you have to think very carefully like especially if you're the driving the client right as the core developer or the core team it's like where is your time going to get spent because it'll dramatically push and pull and that is what eventually happened to myself as well right and so happy to also talk to anybody as well um if you have questions but I think it's a very big you know push and pull that you have to be cognizant of before getting into it. Thank you, Greg. Um, next up we have a panel discussion. Um, and then we'll break for lunch.