The Art of Investing in Web3 Companies: A Holistic Framework for Finding Real Value

Transcript

all right I think that's it now okay great so welcome everyone thank you for uh the great interest in what we believe is one of the most exciting topic these days uh so we're gonna talk today about the art of investing in web 3 companies so uh we structured the session into two main blocks I'm gonna give you a very short intro about the topic itself and in particular also a framework that we developed in supporting sort of say our clients in navigating the web 3 investment space but then we're gonna go into a panel discussion we're going to spend the majority of our time today with a very

interesting panel with web 3 veterans from all angles from uh from the investment World from the startup world and from the legal and Professional Service world so without further Ado uh let me let me run you through the topic and why we believe this is one of the most important topics nowadays so um one thing is clear no matter if the market is moving up or down that the technology is here to stay um we see a tremendous growth potential in the digital assets and web 3 economy and don't nail us down if it's going to be 2 trillion 5 trillion or 9.6 trillion uh I think at this stage obviously no

one exactly knows but if you look at the market consensus then this is kind of the figure you're ending up with but the main takeaway from this is not so much the figure but it's the takeaway that there's going to be a immense projective growth so um we have three core beliefs that are going hand in hand with that one of them is that by 2030 uh the majority of value transaction is going to happen in the form of digital assets whether it's going to be in tokenized real world assets tokenized Financial assets or classic crypto the second is that the web 3 Revolution will definitely change the the landscape of the internet moving from a platform-based web to a

network based web with a lot of value creation and participation opportunities so more inclusive version of what we have today and then the third core belief is that despite all the hype that the metaverse has seen in 21 and 2022 which from my point of view was way too overhyped um we still think that the metaverse is going to become a de facto experience standard for selected Industries but not for all but it's definitely going to be a big Market so with that projection and this let's say exciting future of the market in general if you look at the VC investments in web 3 companies then they have been also on

a on an absolute tier so the total investment volume uh since 2016 was roughly 94 billion which is a compounded annual growth rate of 64 percent uh obviously 2020 saw a bit of a dip but still there is a lot of uh let's say movement in this space and a lot of Investments that are flowing into into the entire web 3 narrative now the problem with that is that despite all the main Investments flowing into the space and many many seasoned VCS and PE firms going into the space we saw a lot of issues in particular

over the last quarter so and these issues rank from really technology related issues where Bridges were hacked where a value was leaked out of out of applications out of protocols but also straight out shocking developments of missing governance and really fundamental issues so the question we asked ourselves is how could all of this happen if there was so much let's say money behind it and so much interest from from seasoned VCS and and P firms in in this space and um to cut it short I think one of the main key summaries of that is that

if you look at web 3 companies from a DD point of view and roughly 60 is is your bread and butter scheme that you would do to any company when you do a property D but roughly 40 percent is very web 3 specific stuff and this web three specific topics are really hard to master for let's say traditional investors because you really need to be enough and and in the details to really understand uh what you're looking at so there are a couple of key success factors for for investing in web 3 companies these are just a few selected ones one of them for sure is community and

adoption um I think next to having a fancy white paper so to say and a couple of wallet addresses I think it's really important to really deep dive into how big is the community is the community focused on building or is the community focused on pumping right so that is I think something that a lot of Investments fail to differentiate in the past and in particular what is the Real World Adoption of it then there are a couple of web 3 specific metrics that are not you are not very usual for your classic technology DD so you really need to understand what's going on at GitHub you need to understand the different social media channels uh that are used by the community and

really understand how this underpins traction and credibility then it's obviously also about looking at the tech smart contract auditing is one of the key elements uh on-chain activity and trading volume this is something that continuously needs to be monitored the beauty about the space is that it's actually super transparent if you know where to look right so and I think a lot of uh Lessons Learned also center around the point that you continuously need to monitor that for the Investments and then obviously the one of the main key topics is also tokenomics and dependencies so really being able to understand and dissect tokenomics of the token that is

accompanying that web3 project but in particular also understanding the dependencies because I think unfortunately over the past six months we've seen a lot of projects fail or let's say projects got into serious trouble because they had dependencies on other on other l1s and ecosystems that were in tough Waters I mean think about for instance all the projects that were built on Solana they got into trouble by the FTX drama and and everything that happened to the economics there so that's also something to keep in mind so what we have done is um just as a very high level view we've developed a web 3DD framework which basically looks at five main

verticals from market assessment company assessment Tech assessment business plan valuation and the Regulatory and risk assessment part and uses this kind of holistic framework to really have a very dedicated view on the valuation and detraction and and the success factors of that web3 project now if you look at this from uh from a normal DD perspective point of view the main topics that you see there might not be sound too different but I think it's key to understand that all of these white boxes that you have here have a very very specific web3 component in there now having said that

um I'm very happy to be joined by a panel of of really web 3 experts and and Veterans and we're going to use the remaining 50 minutes of the session to have a hopefully a very interesting discussion uh please feel free to post questions in the chat but um for now I would just hand over and introduce my my final panelist and would ask you to just give a quick introduction of yourself and what brought you into the web 3 space and what is your kind of angle to the web3 investment topic uh Tracy would you mind going first welcome to the panel thank you thank you so my name is

truly managing director of CV Labs CV Labs is the daughter company of CBBC crypto Valley venture capital um which is an early stage blockchain investor and Stevie Labs as the daughter company is responsible for one operating the accelerator as well as a couple other activities such as running the physical co-working spaces hosting events Etc so we are essentially the quote-unquote ecosystem part of the business that interacts directly with the investor Network as well as with the startup Network um as for my descent into the world of web 3 was fairly non-traditional so my initial gateway drug if that's what you're going to call it um was actually it came at a time when I was working for a research think tank at eth Zurich with a security focus and we

were dealing with a project in the uh sort of political security realm taking a look at radar tracking using blockchain for the Air Force and so that was sort of my first exposure to the tech I know own a couple of crypto evangelists before then but this was my first exposure to sort of the tech itself and was absolutely fascinated by it and then followed a good friend into the private sector uh fairly shortly after so this was around 2017 late 2017 early 2018 um had the pleasure of them working for a software development firm um that did some like bespoke Consulting on amongst other things also blockchain projects that got to work on some very

exciting things there and have now been with CV labs for going on three years now great fantastic great experience to have you on the panel for the discussion today uh Michael would you give us a quick intro please yes you're happy to go next um hi everyone my name is Michael Coons I'm a legal partner at enemy we are a business law firm in Zurich and soup and we have um you know we have any active in the crypto space since 2014 I think we mainly came to fame because we helped the ethereum establish their foundation in DP serum Ico back in the day and so I wasn't there then but I mean obviously after then we had a lot of work and ever since and so even in the bear Market which we are now apparently still and um the one in 2018 we had a lot of work so

um that's a fascinating field I'm really happy to be in it um I've been here since six years five and a half years and um yeah how do I did I get into crypto I'm actually an IP lawyer and I work in the United States and I wanted to come back to Switzerland and I did actually apply here as a Nike attorney and they have so much work in the crypto space that I you know hit the ground running and I had a few months back to prepare myself for this new Venture and so I spent a lot of time on Reddit and um still do that and you know that in the Discord servers and do all that so I would say I'm kind of like a um at each end in a way but you know I love the face it's fun to really um you

know I also like to follow what's happening in the space you know in private so I'm yeah so much happening and I'm really happy to be here great fantastic and looking forward to to the legal side of uh of things when we talk about the investment part as well casting over to you yeah pleasure to be here as well my name is Kirsten Eismann I'm supporting HP Capital as crypto advisor so we are also a very large early stage in Cross growth fund based in Munich and Iran and Germany I think operating already for 22 years now with more than to be in assets under management so we always found that three to be super interesting and did adjacent Maps reinvestments already in the past for example up West or Solaris

bank and last year yeah I'm so glad for that we expanded our investment thesis into web3 I personally ended up in blockchain and crypto in 2011 shortly after the financial crisis when I was with fighter bank and I got intrigued by Bitcoin and we are the 99 movement and it's like history repeats itself those days then after a few years later um I joined energy in 2017 which was the queen daughter of rwe and this was when things turned really serious and let the machine economy Lighthouse which in essence was a blockchain incubation and investment arm so with the idea in mind that the future customer of a utility

will be a machine trading energy back and forth using a destatilized tech stack we invested back then in companies like ocean polka dot energy web from the ocean um affectionate and other companies back then yeah happy to be here today very excited great thanks Keith looking forward to your insights from all that experience uh actually over to you thank you PM I'm actually running here I'm part of the global digital assets we have three and my River steam at Roland Burger I was first introduced to the web 3 space on a more personal level back in 2018 as most people like try to get into crypto mining but slowly started to understand the real ethos behind the technology and the entire space

and since then I've been involved in the space you know from centralized building centralized Solutions like exchanges towards working with your more traditional government entities and large mncs whether it's on understanding investment cases and setting up Bitcoin mining facilities to metaverse monetization plans to ideating new web 3 Solutions geared towards sustainability so all in all you know very happy to be on this panel and also great to be a part of this movement and I'm sure we're going to have a great discussion today thanks I should uh for that great to have you a quick interview from your end please uh you're still on mute sorry for that I was selling a Pierre

thanks for having me on the panel today bye everyone my name is uh father Zan I'm the CEO and co-founder of visible is uh AI powered Wealth Management uh in principle uh why I ended up being in in web 3 uh this packs to um during my postdoc I studied at MIT 2010 I was working with my professor with an advisor to the company at this at this point in time looking at the so-called knowledge markets so we had the idea of how to tap into the wisdom of crowd within the boundaries of company and how we can actually connect that to

productivity and business metrics of companies of course we were not smart enough to realize the potential of blocks and actually I didn't know about blockchain in 2010 so we were primarily looking at the very short point in the form of kind of all the fashion kind of uh loyalty point and how we can build such a kind of uh Market longer Story shows why uh kind of uh deep journey in web 2 uh I realized that okay blockchain actually provides me the opportunity to do what I was planning to do 10 years back my exposure to uh uh web tree I thought it in 2015 I think casual Trader gradually become a more active Trader in

digital assets and then lately 2021 I left Uber and set up wisdom eyes primarily we're looking at developing AI based Financial solution that helps retail and institutional investors getting exposed to digital asset and by the way we have a plan also to make the bridge and get into other non-crypto asset classes pretty soon so glad to be here thanks for that and then Melanie over to you yes uh thanks so much for having me uh here and so yeah I'm a Founder in this space Melanie Moore founder of one

protocol I'm coming actually out of 20 years of media marketing and mobile tech industry and my entrance to the web 3 world was classic through Bitcoin after I discovered it for myself unfortunately too late or late in 2016 I decided to go down the repertoire and educated myself in 17 and in 18 I thought okay now I have understood the fundamentals and I have seen all the flaws also in my own industry in the marketing and advertising industry and I decided to also build in this space and build a protocol layer around word of mouse marketing the so-known best form of marketing a good replacement for ads

and so we have decided to be build a whole protocol layer that can integrate into all media platforms e-commerce platforms it's basically web 2 and web3 agnostic and can replace the advertising advertisement build revenue model in all of these platforms and deliver better content based around product recommendations that nowadays anyone can do and anyone should be fairly rewarded for the value when someone is falling in love with a product sharing this product loss being a brand Advocate that he or she can also get fairly rewarded for this brand love that he or she is spreading and meanwhile I'm also a

little basically Angel invested in this space and I'm part of some funds and I'm seeing also a lot of field flow so this panel today definitely I can kind of see it from both sides on the one hand from a Founder side how it is to race in this space raising funds in the space and um at the end also how it is to invest in this space and I'm also a very proud senior advisor to Roland Berger since some time and helping a little bit assisting the team in uh web3 and metaverse strategies great so fantastic to have all of you here I would say let's cut right through it to the main topic of the conversation today and okay I would like to start

with you um you've seen a lot of let's say projects over the past years and you've seen the the sector grow so uh what are the things that you look out for when it comes to dding web 3 companies yeah that's a super important question so I think it's at the end it's uh still very simple so for me the team um is super important uh no matter if it's if it's about that that two or that three so I really need to understand if they have the right skill set uh do they have access to the industry they want to disrupt for example if you try to plead if you try to build a cleantech startup let's say a decentralized Marketplace

for come credits without having any access to stakeholders um to the cleantech network or the banking sector that's for me a no-go so I really want to understand if they have some if they have some connection to the industry already and then the next thing is also very uh simple it's a product Market fit do they really uh solve a problem and what is the market size of the problem and then you have mentioned that already it's about the community so one of the first things I usually do I check their Twitter account um Discord or telegram group and if they have below let's say 100 followers for example on Twitter I I get a bad feeling

so chances are pretty low uh that I I take a closer look and then of course it's also about the tokenomics so um for example what I find super interesting if there is a buyer mechanism in place let's say a startup tries to use a portion of its Revenue to buy back tokens from the market and so this is for example for me one pattern that there is a correlation between uh the revenue side of things and also uh the the togonomics part of that so also when it comes to the uh how the token value itself itself accrues in value

over time interesting like very very good point and I saw Melanie nodding and and smiling because I think we had some discussions around that well anyway what's your take on that well I mean I would say it is um you know a little bit difficult when we are talking about the community and I think you mentioned it in the beginning uh we need to divide between what are really the community members that are inclined to really utilize the product and where at the end I would say every web 3 project that is somehow issuing a token and when we are talking these are not security tokens these are utility tokens then yeah the utility should be

in the center of everything and obviously people who are getting early access to these tokens should be ideally the ones who really want to utilize the utility and want to utilize it and for that they need the token and this is currently I would say a kind of an issue because all of these concepts are very yeah early stage and um some of them do not even have a product yet or haven't launched anything yet so we cannot even mine if they are going to find product Market fit so there are in the beginning very often a lot of tokens sometimes too many in the hands of the speculators versus the real potential users of the product in the

future and so I would say when we are for example what was previously mentioned looking at the Twitter account yeah in the Speculator on the Speculator side I'm also seeing yeah it is better if a project already has some you know some Twitter followers but still we know this doesn't mean you know that these will be users yeah of the product and this is where I see the biggest challenge um for all of us to evaluate um how what talking about the go to market strategy um how is this team really effectively bringing a product uh to life and also

to Market and really to the people who will use the utility and the token great thanks for sharing that and then Tracy would also be interested from from your point of view from CV Labs what are the things when it comes to these what you're looking for and maybe what are things as well that you looked for and they turn out to be different than you thought In First Class um I mean happy to Echo the sentiment in and around team at the end of the day um that's sort of the core or the heart of the project um but maybe looking a bit beyond that it's also also worth noting that on our end our Focus traditionally is is on the application layer which means that we're

investing Less in token-based projects um and More in projects are develop that are developing Tech stack uh you know applications of blockchain in a lot of different industries that most often do not involve any sort of token at all so they're building solutions for supply chain they're building solutions for Real Estate they're building solutions for uh Pharma or for online advertising Etc there's no there's often no token involved and on that end I think a lot of the a lot of the DG DD looks similar to what you'd find in sort of classic VC right looking at the business plan looking at um looking at the the technical feasibility looking at is it the the right idea at the right time for the

right Market one of the things that we coming back to sort of the Team Angle I think is very important is do we believe that this team will be able to Pivot with the product if necessary more often than not particularly because we're so early stage um the product that actually then eventually ends up in the market is very different from the one that they initially envisioned for example when they start our accelerator um so there's quite a bit of product tweaking Etc that goes into that initial phase and are they willing or able to do that are they so married to one version of the idea that they won't be able to develop it based on the feedback that they're getting so I think that's a particularly important component and then the other one is is timing you can

have an excellent product but if from a regulatory perspective for example we don't think that this is implementable in the next 12 to 24 to you know four years it really just depends right is is the regulatory for a framework in place to support the solutions actual Market entry is is the the end user ready to receive it right if you're if you're dealing with um like an online advertising platform do we believe that Publishers now are ready and able to um you know use those API plugins and incorporate the solution into the existing platforms so it's it's really sort of the team is the base layer but there's so many different factors that

come after it the timing the the the market Readiness the uh you know the the ability to listen to feedback Etc so it's sort of a multi-faceted approach I guess is how I would put it all right yeah very very interesting points as well and I mean in particular I think we're going to pick on two one is the team part which uh I'm gonna gonna address to for that as well but uh there's another one on the regulatory side which uh I'm gonna address first so so Michael from a legal point of view um what was your experience so far uh with startups or protocols being ready for a regulatory environment and what kind of lessons learned that that you

can share on that um yeah well uh good questions so um you know maybe before we start I think um one thing that is really important for us is to weed out the Bad actors and I think one main advantage in Switzerland does have is that we have a very solid regulatory framework that I think you find nowhere else in the world in in that in that form and uh you know it's funny when you see what's happening in the space you know FDX and other other examples things are breaking down you know stable coins that have issues you know and then you have all these investigations going on you do have to benefit that we actually can you know get in touch with finma we do actually have right now we know how to set up projects in a way that we know we're not

going to run into issues and I think that's really a A plus that we should be very proud and we have that in Switzerland um now when you look about Investments I think um it was mentioned before um I think it was Tracy um but I'm not sure anymore so the deal structure can be very different but I think in most cases we still have token deals right because you started in 2017 in the Ico phrase people found this beautiful way of making money without actually giving away equity and without having to pay back the money that day right right so before it was basically yeah you sell Equity or you have you raise debt right here you have this wonderful way to actually sell a token and just you know tell people I'm going to sell a token and you get a lot of

money for it and so I would like to focus a bit on these token deals because I think there's a lot of things we have to keep in mind from an investor perspective so um I mean first of all um you have to understand what the money is really used for right so most of um these contracts are basically set up as token purchase contracts or token sale contracts I mean if you're actually one of the early ones and you get access to it and I think that's usually not correct right because the token is just it's created within a matter of seconds it has no value whatsoever it only gets value once you actually have the community you have the product and all these things so you should focus more as an early investor to actually really stress the point that I want to

understand where the money goes because in a in a sales agreement you just buy a product and let's say if you have warranties attached to the thing you buy and the token if it's functional I mean there's no warranty issues you have you have a token now later on you can say it wasn't really usable but that's what we buy right you don't buy the right to use the token or the fact that they're actually going to use the money to build a product you just buy a token on their own so we have have therefore very early started on to not actually do token sale agreements early on later on yes you know in the secondary Market short um but instead like have some sort of early contribution agreement where we actually have more commitments from the project that we advise to say look I

mean these are all things you're going to do anyway so you can actually also make promises because we want to set a standard there to be a bit transparent about these things um another thing that is very essential is token functionality and people become more aware of that and they talk about you know payment token utility token I mean these are classifications but um but the key question really is that can you actually use them for anything and so um often they say you know you can use it for governance but you have to think is how why why is that valuable right why is it valuable that if a token allows you to participate in governance let alone you know it doesn't justify 10 billion valuation right necessarily so think about what the token really does and be a bit more skeptic whether a

token is really needed because we still do a lot of projects where we say look sometimes tokens make sense but very often you really don't need a token use use a stable card instead if you want to have payments on the platform you know and then yes you have to sell Equity but I mean it's not too bad right others are funny too so um you know well that's something that I would look forward to maybe you know to to round this up some risk issues that you should also keep in mind I mean first of all you have the irony of the lack of costlessness but everybody talks about trustlessness and trustless systems but here what you do you give money and then you hope to get tokens later on right so it's basically a tip for Pat you first give money and then you really hope that

money comes back so yes do your due diligence figure out that they really want to trust the team and that's not something you can really solve contractually because oftentimes these teams are with outside of reach you know they're in the Caymans or elsewhere so it's going to be tough to go after the money if they don't deliver um but some specific risks to keep in mind on top of that is obviously you can lose all your funds that happens right has happened to many people it can happen because you lose your keys so you put it on FTX or elsewhere and the funds just go away so there's no way to actually recreate those assets once they're gone they're usually gone and another thing is smart contract risks which has been mentioned in the past which I think is essential because I think an investor a diligent investor

should actually really find out smart contract audits have been done how many will be done by whom are they done I think it's an absolute essential part we've seen so many hacks happening over time and it's going to be very difficult to actually go after the money because I mean a hack is still in a criminal act and therefore it does not necessarily like a contraction violation it happens it's really just like an accident in a way right so you have to be prepared for that and the last point I would like to stress is regulatory risks so most people don't really care about that but I think it's absolutely essential ask the team have you engaged a law firm have you done what's needed to actually get your regulatory permits can you share any documents that you have you

know have you do you have any memorandums do you have anything to understand how do you plan on staying in the jurisdiction why do you choose the jurisdiction why are you in the Cayman Islands in BBI while you're not going to Switzerland you know why you're not going to somewhere where you know you actually have a strong regulatory Frameworks um yeah so I mean that could go on I think thanks Michael for sharing these these very valid points uh we have a couple of uh questions in the chat as well so just want to ensure we're going to tackle them but uh bear with us for for a few minutes uh I want to pick on the point that Michael mentioned on the on the tokenomics and and actually we have been looking into a lot of tokenomics analysis in a few of the ddps

where we've done so so what were your main takeaways for that what's important when it comes to tokenomics so I think firstly it's important to kind of highlight that to economics or assessment of tokenomics is not a static one-time review sort of thing but rather a more Dynamic ongoing process right into constantly reassess and review the tokenomics and kind of once you've done that I think the core element I mean of course to economics is such a large part of this space but there are some key questions you need to constantly ask yourself as a startup but also as an investor firstly is that why a token why do we even need a token is there a clear thesis behind it and once you already have that what is the utility that the token actually provides a token for the sake of token as everyone here has

already kind of mentioned doesn't really add a lot of value we want to look at you know how can we kind of ensure that the platform platform participants are kind of incentivized to use these tokens Beyond a simple use of governance or for speculation so it needs to be some genuine value to the platform I think once we look at that we should also really understand you know what is the initial token allocation the vesting period and this also kind of ties back to what Michael said that you know in your initial phases you don't really want to be offering token uh purchase you know contracts because you want to really be able to see what is going on how these tokens are distributed and this also kind of links back to what is the token model and is it sustainable we want to be able to see this model kind

of Thrive and be alive in the ecosystem on its own we have seen a lot of examples for example so at Celsius you know growing significantly on such a short period of time and then the moment we were in a more stressful Market the entire staking reward model collapsed and the platform wasn't able to kind of continue or maintain this reward screen so it's important to understand and also give it time to see if this model can actually thrive in the ecosystem on its own without kind of inter interference from the initial kind of Developers and then also of course I think the most important part that we can always look at and also probably the most generic one is the token supply and demand but not just the total supply and demand I think because you know when we look at the total Supply you have the two

biggest projects that we can look at Bitcoin and ethereum completely different approaches to talking Supply one is capped and one is kind of constantly ongoing so it's not just about the token Supply but also to make sure that the supply and demand is built for purpose for the platform that you're working towards because there's no right or wrong answer it's just about being able to customize it in a way that it makes sense for your platform users and ecosystem members uh I think also beyond that maybe just to quickly add it's also of course important to understand the initial supply of the token there is always this kind of you know approach that when you first come out with the ICU Ito you want to have a limited Supply generally we see something around the range of two to seven percent to kind of create the

scarcity hype Drive the formal but I think this is also something we often see that once the former wears out and the token Supply keeps increasing it's really hard to maintain the price unless it's back back to genuine solid use cases so I think it's important to kind of make sure that video came long term sustainable growth and we don't kind of compromise that for short-term token price appreciation and I think of course we can keep going into this in as much detail as possible but I think those are the kind of key elements I would at least start when I'm looking at a new project thanks action and I think we've we've all seen the classic kind of uh uh price chart curve of uh a classic rock or Rock pool uh kind of movement with after token issuance increased Spike and as soon as people are ready to

divest and they dump on retail for that I want to come to you now because uh you're representing so to say the startup world together with Melanie and you have been obviously in the in the first line of the battlefields uh when it comes to discussions with VCS and so on so um what are things and let me phrase the question a bit differently what are things that VCS haven't asked you that you feel they should have put attention on that [Music] Melanie on the over rating of of community of course blockchain is meant to uh promote decentralization

but to me maybe I'm like too far in that respect but to me the number of uh followers doesn't mean anything right I can I can be you millions of followers tomorrow and they're gonna wipe out the day after we all know about L even L1 protocol that apps that used to have 50k plus followers and then that was uh gone after three to three months right if you look at the interaction on most of these uh community and they are there because of incentive like I've as long as your sub incentive as long as you stop throwing out air drops or free tokens they're gone right the conversion from those followers to actual users what is

what does that means right I would rather having a thousand followers 20 of them are the actual users of my product versus having a million followers well less than 1.1 percent of them all actually yeah users so I think one big conversation with VCS and this is typically the case for web3 crypto specializes I mean you don't see that much with like graphic web 2 this is or even General receipts but uh I think the high public Community I'm not saying Community is not important it's super important but the quality of community is way more important than the side of community in my eyes I think that's one area that I'm not necessarily in line

with with somebody said that I have been in touch with the second thing is the nature of product I still believe and withholding respect I still believe that the the average classic web 2bc looks at product in more details than the average web privacy if we if you are about to actually classify between condom if that's a correct classification but in my again wisdom idea of my nine to start up why so my last eight startups I've been dealing with the web two receives in this one I'm dealing with both depth 2 and web3bc and I can tell you that the Regal and the depth of technical due

diligence and product due diligence that are big that's with web 2 we see is way more uh satisfying again it's more challenging but at the same token it's it's more satisfying from for an entrepreneur compared to web3 conversation on average there have been very deep web activity that well that I've been in touch with but I'm just averaging uh the population uh next topic is about the general perception of uh of web3 when I entered web3 and I started building something it backs you 2021 I was designing the product in a way and

I was typically getting the feedback that oh no that's not the common uaci website what is common uaci in web3 who said this in the common UIC web team because the the old God have done it this way doesn't mean that they didn't work why did the case if something doesn't make sense it doesn't make sense we don't care who did it and when something makes sense we need to promote it I already can see the movements of some best practices from web to web to we're talking over 30 years of experience it's not overnight why of course the experience we have from web2 these days it's completely different from that of 1995 2000 and so on and so forth right so dismissing all that best

practices and opportunity than just trying to reinvent the wheel all across the board I think and I already see something fun then we see trying to mimic that kind of mindset and try to be more eventually like a thing but again I don't necessarily agree with that last but not least is about the team of course they're building something in webg you need to have some deep experienced Victory guide in your team it goes without saying why if you're doing a smart contract you need a strong smart contract developers right you need to have people helping you with Security even if you do it outside or then you still need someone inside your team to

take care of it but in the again and I can already see the ship after all this crashes in the market 2020 2021 uh I was presenting my team and I'm just like an example out of mini the typical topic comment I was like getting was like Hey you like to a small web tree expense I'm like I don't need them why should I need one I'm like two three um blockchain developers if you know why do I need an all of those those guys blocks in development if not rocket science at the end of the day if you look at the size of the code why why do I need like 10 times more and uh the the experience of webtoons folks getting

into web3 was simply uh missed what was simply overlooked I already see the trend changing and and these days talking to VCS they actually appreciate someone having dks the development experience in web tube now doing something maybe relevant adjacent or similar in web tree so I think I see that as a kind of positive movement in thanks for that thanks for sharing that Melanie you've also seen the side of being a uh a startup talking to a lot of VCS what are the questions that you think they should have asked and they haven't um to be very honest I do not have to

add so much because father is a kind of spot on I made also the same experience but at the end uh also what Michael said you know does the project really need a token right I mean this is the this is the core question yeah why do you need a token right where is your economy paper or platform paper or besides the white paper right the white paper is should be something different that should kind of uh outline the core of the product and the roadmap and the team and obviously answer all these core questions but at the end where we should not only look at tokenomics how many tokens are sold to whom and when is the lock going up and

when is the best thing going to start and so on we should really look into why this project needs a token so the tokenomics should have more layers than just you know who is getting tokens first and how are they going to be distributed over the next year a project should have long Liberty longevity and and therefore um if the core question cannot be answered why it needs a token it doesn't make any sense I mean it doesn't mean that blockchain doesn't make sense because there are good projects out there that do not even have a talk right right um however what I'm missing actually now in the investment space and um if the good old Ico to be honest

um it is it was something that failed yeah failed badly in 2017 and 18. and it we have seen obviously too many scams we I would say I wouldn't even say that everything you know was a scam it was just the wrong concept and the one wrong architecture for uh getting basically um early retail Early Access to investment opportunities yeah to opportunities to support a project early on and then too much money went into the hands of two unexperienced Founders probably and uh some obviously also Bad actors but the concept itself wasn't so

bad Distributing power early on to community members giving them the right incentives to hold and ideally to really participate and to believe in the product and in the project and be ideally early uses early alpha beta testers and we then after you know the failure in in 1718 we said oh I see also bad icos are bad well the idea cons the concept wasn't bad the execution was bad and actually we have something that should be used to create icos in the right way which are smart contracts that's what they are made for and I think this is a missed opportunity and I

hope that we are seeing basically uh you know a new era of new form of Ico whatever they are going to be called then uh where smart contracts are making sure that a team that is coming out with a product is delivering that Milestones are kept and that money is distributed in the moment the Milestones are kept and reached and I think um that um sorry call came in should have turned this off um and that's uh what what we really uh should should now revisit besides the BC funding because what we have seen now you know the failure of icos I would say

we have seen also failure of disease and this was the case in the last uh year you know all these meltdowns and and FTX I would say was one of the great use cases of a big failure of VCS and due diligence that was missed because the retail investors believed in FTX also because um these big Venture Capital funds were backing them and that was giving such a you know confidence in the market that they said yes you know FTX is the greatest and the best and uh yes of course we are also buying the token and I think this has shown that yeah what father said you know different due diligence needs to come this is what I

think rollout Burger is also working on to ensure that the this can be done more diligently but at the end I'm also hoping for a revisit of the Ico and an improvement and evolvement of it thanks Melanie for showing that yeah and indeed there was also a question and chat from Samir exactly addressing this if we would ask the investors of FDX sells this and Terra uh if they would have done a proper DD I think the market gave the answer to that already but I think one point is is important to underline that it's it's a lot about continuity in assessing so it's not only a snapshot at the time of investment but really continuing it okay I would like to um to ask you uh about it as well because I mean you have been in the

space for so long you've even been part of the original Dao so to say and you've seen the entire Ico movement so what's your view will we have a comeback of the icos and if if so and what what makes sense uh no I I was uh I I also want to give kudos to Melanie because this was this was the idea because I was so excited about web3 and blockchain back then this was the reason why I thought wow I need to look at this when I also participated in the Dow well I of some money then I got it back the idea was great and also in 2017 when we supported the polka dot Ico um I think I'm what I'm observing is

that a lot of BCS in the VC Community they now have the tendency to say we only do Equity investment we don't do any token Investments uh any longer and this is for me like this like going backwards again yeah you got you cannot drink water without getting wet yeah so you you also need to embrace this new technology uh that it's about um providing access to Capital to involve the community and what I also wanted to mention is this super interesting incentive machine blockchain was made to incentivize people to do good to to um uh for example I came across a

startup where if you donate your health data in an anonymized way you get um you get their tokens or if you recycle plastic then you get also tongues we don't need to discuss in uh in detail now if that's really working on it but but I like this overall idea of the blockchain based or token based incentive machines and this is so back to FTX synthesis I don't think that I would have found those companies to be uh in super interest because what what they have been were just centralized fintech companies um or some even would call them fake

blockchain companies so uh we are at HV cabinet as well we try to focus more on projects that have a true decentralized Vision incorporated into their DNA great thanks for sharing that um there's one question about uh the the team and the ability to Pivot and there was a question about isn't that a bad thing to say that if a if a company is pivoting Tracy you you brought it up what's your what's your take on that no I think it's a question of how to what extent can you take feedback from the market and alter your product in order to reflect that feedback I think it doesn't have to be the extent of

Nintendo for example that initially started manufacturing I believe it was vacuum cleaners and then a long long long long road uh LED them to gaming consoles um that's not that's not the expectation right very few companies can endure a pivot quite that extreme and uh um that that's certainly not that's certainly but not what I'm saying I think a good example is Flickr for example right the initial product that they launched was one um that was very much geared towards like an online game um and what they ended up discovering was that actually the fact that they had this peer-to-peer image sharing platform as part of the game was by far the most popular feature and they ended up adapting the platform to make that their

core business so I think that's the idea right to what extent are you able to take feedback from your users to what extent do you realize you know maybe this isn't quite actually the product or the market that you're developing for um and endure that sort of feedback loop and make the changes and see you know how that alter your Alters your business plan Etc again for most I would say for most entrepreneurs The Way Forward isn't straight um you have a lot of you have a lot of different feedback points that you get and you know the pivot doesn't again have to be extreme but you have to have the ability to incorporate that feedback into into your product absolutely I think that's key

great thanks for sharing it so we have seven more minutes to go and I would like to ask one more thing to Michael knowing that this question would deserve an entire webinar on its own and then we're gonna do a short round of uh of single answers as well so Michael um obviously with the entire discussions around tokens and is it a security is it a utility and so on what are the things that you think BCS and Founders when designing their tokenomics should be careful uh to be at least future proof or if they go down the route of a security how early do they need to make that decision that's a very good question I think you're right I mean you could have a

whole webinar about that and it's also something we talk very often about the clients so you know one thing that is important is to understand that we're in a global space and every regulator has its own views on you know what token podcast and security obviously we all know the SEC and we all know that they don't really know what they want and that they think everything is a security which makes things very difficult so um we always urge clients to talk to U.S Council as well to figure out how they can actually make sure the tokens can be sold without triggering Securities laws and there's exceptions available unfortunately this usually leads to a situation in which you cannot actually sell tokens to retail investors

which really goes against the premise of you know the democratization of Investments for blockchain ETC which is a bit sad right so most of our clients actually say you know what it's not that essential for us we don't want to really want to go down the drugs we just cut them out I think that's the very first uh decision you have to make do you want to include uh U.S persons or not right and very often they just say well it's not an option to exclude them because they have the deepest pockets and we just need to access the VCS because there's so many of them are there sometimes there's ways to actually you know they have you know Affiliates or other companies they can do do the investment instead but it's a slippery stock right so that's something you should keep in mind um if you're in Switzerland so that's

what I can uh say it it really depends on the on individual functionality so we often advise fines to Omit certain functionalities to make sure that the token doesn't trigger Security's laws and the reason why that is is not necessarily from an issuance perspective right in Switzerland you can issue a security token quite easily you can actually also and depending how you set it up you can actually also distribute it quite broadly but you always have to keep in mind that it has implications for the secondary market and that is essential for the project team and also for investors because whenever you want to list the token you will have to go um you will have to sign a very unfavorable document that requires you

to warrant and represent that your token is not a security anywhere in the world right so um if you wanna be listed you have to make sure you're not a security right and otherwise it's just only going to be existing on decentralized exchanges which sometimes works out right sometimes if that's okay but um but it makes it much harder to to get liquidity into these systems so um yeah I uh I think it's essential to talk to U.S Council I think it's important to think about can you actually omit certain token functionalities I mean obviously one of the key ones is uh distribution of Revenue which is something that a lot of cows want to do and for them it's actually a bit an issue because they want to make sure that the revenues by the tower distributed to the Token

holders um but yeah I mean to answer your question do it at the very beginning it's one of the key questions you have to answer when you want an issue a token great thanks we have three minutes left so I would ask all of you one single question which is basically we've seen the narratives in in web 3 VCS being chasing a Hot Topic after Hot Topic from from D5 to metaverse and so on so in your mind not Financial advice what is the next kind of big topics in in the web in the web free space just one topic uh maybe for that if we can uh start I would say uh Pierre let me uh let me uh talk about two of them right I think

one would be a regulation I expect uh you're gonna see more regulation and lightening requirements are gonna come to the space both C5 and D5 that's my uh uh prediction and the second one I think the ownership of data and privacy is also becoming a more kind of important topic within the electric space thanks that would be music to the ear of of Bruce and the ocean team who are not with us today but okay what what's your take what's the number one topic uh so what I personally uh find super interesting is the decentralized science um movement so there are so many inefficiencies in

the scientific industry like missing access to funding missing access to knowledge to peer reviews and to compliant data I believe those challenges can be addressed with step three as well and it might be that in 2023-24 that there's a big momentum for this so-called Desai Desai movement thanks thanks Tracy what's your view um I mean the lovely thing about our industry is that it covers or has touch points with so many other Industries so I think there's like a thousand different things that you could name um that are relevant for each of those um but maybe just what we see in particular sort of in the near term is

that in the aftermath of a lot of the negative headlines that came last year we anticipate that we'll see a lot of let's say more mature service providers that are aiming to link up sort of the traditional Financial space with digital asset space and sort of all of the necessary facets and uh technical capabilities that come with that thanks akshit what's your take I think probably the most obvious one that gave him the collapse of FDX there's obviously a need for new types of exchanges and I'm not going to say we moved from centralized decentralized exchanges but rather the emergence of more hybrid exchanges where you're combining both the existing use cases

combined with you know some of the new elements for example the custodies would be on self on Smart contracts but for audiobook matching you still use a traditional centralized servers but at the same time again for settlements you can use layer ones or for Clearinghouse you could do layer 2 Services where you kind of you know Leverage The zq rollups that are coming up also huge Trend that you're seeing this year with polygon announcing something similar just two few days ago so I think something in between your current centralized and decentralized exchanges that kind of makes this user experience a bit more reliable and also at the same time kind of not a complete pivot from what we're seeing at the moment great thanks Melanie what's the number one thing going to be a very Hot Topic at least

six months and um with some great projects to launch and um yeah obviously again a round of airdrops uh that everyone is chasing um but Additionally the I mean also everything privacy layer um is is just so important now else our promise of getting ownership and getting power back to the people is you know just yeah hot air and obviously I am in the social Phi space so I need to say socialize the next big thing why I truly believe it is

a thing yeah is because it has this power of um a greater mass adoption after the games I think we will see some amazing games coming out by the end of this year and they will probably lead this bigger move into Mass adoption by the end of this year when we can see oh yeah these are really good games and they can attract a lot of users and there we will we will see some some greater adoption coming but social fire is definitely coming next because at the end everyone is you know on social media on social networks and everyone has seen there needs to be a fairer exchange between platforms and also the user basis that basically are the fundament for building

a social network great thanks for sharing that Melanie uh Michael what's your number one Trend you see yeah I gotta keep it short I mean you have to distinguish between what I think will happen what I hope will happen and so what I hope will happen is we gotta finally see some in-game content in nft form it's actually fulfill the promise that you can actually own your um you know your in-game items and actually resell them I think that's a tremendous opportunity for game developers and I think once you actually start doing that uh you know the big players were knocking around to do that as well um and the other thing I really hope is going to happen then we get better wallets for better wallet user experiences because people are still just too afraid to actually have self-custody and I think that's really

the biggest barrier that if we don't solve that you know never gonna have massive option that's why great thanks fantastic then I mean just to conclude on that I think two two topics from from our end that we're definitely going to see uh are the main Trends going forward is is one is digital identity right as a kind of a main adoption scanner and then the second is obviously the intersection between Ai and digital assets we're just going to have massive uh unlock off of use cases um I would like to thank you so much uh for staying with us today I think when you know time flies when you have fun we're already over time um it didn't feel like an hour we were also not able to answer all the questions so we're

trying to coordinate that with the colleagues from crypto Valley to see how we can do that after the webinar thank you so much for for staying I hope the audience enjoyed it and have a great day thank you so much