The Evolution of Venture Capital in Web3

The landscape of venture capital has undergone significant changes with the advent of web3 technologies. Li Jin, co-founder and general partner at Variant, a seed-stage venture capital firm investing primarily in web3, shares her insights on how the industry is evolving. Jin's journey from Web 2 platforms to embracing web3 offers a unique perspective on the transformative potential of blockchain technology in the venture capital space.

Jin's experience at Andreessen Horowitz (a16z) from 2016 to 2020 provided her with a front-row seat to the challenges facing consumer venture investments. During this period, many investors grappled with questions about what remained investable in a world dominated by established social networks and horizontal marketplaces. The search for venture-scale opportunities led to a focus on niche markets and verticalized platforms.

The Passion Economy and Web3 Convergence

One of the key themes explored in the podcast is the convergence of the passion economy and web3. Jin coined the term "passion economy" in 2019, describing a model where specialized web2 marketplaces and platforms would enable individuals to monetize their passions at scale. However, the limitations of web2 platforms in fully realizing this vision became apparent.

As Jin explains, "We were seeing this arise in a bunch of different verticals where people were taking their very specialized expertise or knowledge and turning that into an income through new marketplaces and new platforms. Substack being an example of this as well as countless other marketplaces and platforms."

The introduction of web3 technologies has opened up new possibilities for the passion economy. Crypto founders approached Jin with proposals that aligned with her vision but leveraged blockchain technology to distribute not just income, but ownership to users. This shift in thinking led Jin to reevaluate the potential of web3 in realizing the goals of the passion economy.

Web3's Advantages for Challenging Business Models

One of the most intriguing aspects of web3 is its potential to make previously challenging business models more viable. Jin points out that many businesses that struggled in the web2 venture landscape could find new life in the web3 ecosystem. She explains:

"We could imagine that all of the businesses that were extremely challenging from a venture perspective in Web2 actually become more interesting and compelling in Web3. And why is that? Well, a few reasons. One of the reasons why certain categories were really challenging to fund in Web2 was that customer acquisition was extremely capital intensive."

Examples of such businesses include dating applications and hyper-local social networks, which require a high density of users to provide utility. In web3, tokens offer a new playbook for scaling these networks more efficiently. Additionally, media companies and niche brands that were difficult to invest in due to limited growth potential in web2 could potentially achieve greater scale through user ownership and evangelism in web3.

The New Playbook for Creator Success in Web3

The podcast delves into how the playbook for creator success differs in web3 compared to web2. Jin predicts the emergence of a new cohort of web3-native creators who may not have found success in traditional platforms. She outlines the distinct approach required in web3:

"The web3 playbook looks instead like building a community upfront, maybe bootstrapping capital through a token, whether that's a fungible token or an NFT collection, using that base of community plus capital to then create content while also incorporating your community's feedback, and then subsequently launching that content in collaboration with your audience and elevating them as stakeholders too."

This approach flips the traditional web2 model on its head, requiring a different skill set that emphasizes community leadership, meme creation, and idea propagation rather than solitary artistic genius.

Investing in the Web3 Creator Economy

The podcast explores the investment opportunities presented by the web3 creator economy. Variant, Jin's venture capital firm, takes an active approach to investing across the entire stack of the crypto ecosystem. This includes investments in new marketplaces, creator tools, platforms like Mirror, Foundation, and Zora, and even direct investments in NFTs of promising creators.

Jin notes that the investment landscape in web3 differs significantly from web2:

"I think that's really interesting because in web2, it had been difficult if not impossible to see like a venture scale outcome for one particular creator because there was no community or user ownership that could propel it to like that next level of success. But anyways, we think creators are now also investable."

This shift in thinking opens up new avenues for investment and supports the idea that individual creators can now potentially achieve venture-scale outcomes through the power of community and tokenization.

The Challenges of Ownership in Web3

The podcast addresses the complex nature of ownership in web3, particularly when it comes to investment funds selling tokens. Unlike traditional equity investments, where funds selling shares after an IPO is generally accepted, the sale of tokens by investment funds in web3 often faces public scrutiny and accusations of "dumping on retail" investors.

Jin reflects on this discrepancy:

"I think the reason for that distinction or the reason why it's perceived differently is because when companies IPO, they're usually at a level of maturity and stability to where people sort of acknowledge that this company is valuable and even if they buy in at that point of IPO, there's still a lot of headroom left for normal retail investors to benefit and to participate in its growth."

This highlights the need for greater education and transparency in the web3 space, as well as the importance of aligning incentives between early investors, project teams, and community members.

The Importance of User Education in Web3

Given the complexities and risks associated with web3 investments, Jin emphasizes the critical role of user education. She argues that it is the responsibility of founders, investors, and other stakeholders in the space to provide users with as much information as possible:

"We very much view it as incumbent on us and other players in the industry to help users educate themselves, like publish as much data-driven analysis as possible, challenge users to unpack what are they actually owning, what type of governance does it give them, to understand the tokenomics of the projects that they're investing in."

This focus on education is crucial for the long-term sustainability and growth of the web3 ecosystem, as it helps users make informed decisions and understand the true nature of their investments.

The Future of Web3 and Creator Economies

Looking ahead, Jin identifies several areas of interest in the web3 and creator space that may become investable in the future. One such area is podcast NFTs, which she believes could address the current monetization challenges faced by podcasters:

"I think that there is an opportunity around podcast NFTs. And this is because podcasting for many creators represents a labor of love that they don't monetize or monetize to a very small extent. And if you compare monetization relative to the fandom that exists around a lot of the top podcasts, it's really out of whack."

Jin's experience with her own podcast NFT drop demonstrated the potential for this new form of monetization and community building.

The Role of Solana in the Web3 Ecosystem

While not explicitly discussed in the podcast, it's worth noting the potential role that Solana could play in realizing many of the opportunities mentioned by Jin. Solana's high-speed, low-cost blockchain infrastructure is well-suited to support the types of applications and use cases discussed, particularly in areas requiring efficient scaling and low transaction fees.

For example, the creator economy platforms and NFT marketplaces that Jin invests in could potentially benefit from Solana's technical capabilities. The network's ability to handle high transaction volumes at low costs could be particularly advantageous for micro-transactions and frequent interactions between creators and their communities.

Moreover, Solana's growing ecosystem of decentralized finance (DeFi) protocols could provide additional tools and infrastructure for the new web3 business models Jin describes. This could include mechanisms for token distribution, liquidity provision, and community governance that are essential for the success of web3 projects.

The Importance of Community in Web3 Projects

Throughout the podcast, Jin emphasizes the crucial role of community in web3 projects. This aligns well with Solana's focus on building a strong and engaged community of developers, users, and investors. The network's emphasis on accessibility and user experience could potentially lower the barriers to entry for creators and users looking to participate in the web3 economy.

Solana's ecosystem includes several projects that embody the principles discussed by Jin, such as decentralized social media platforms, creator-focused marketplaces, and tools for community-driven development. These projects could serve as case studies or potential investment opportunities for firms like Variant that are looking to support the growth of the web3 creator economy.

Challenges and Opportunities in Web3 Adoption

While Jin's insights highlight the exciting possibilities of web3, it's important to acknowledge the challenges that still exist in terms of mainstream adoption. Issues such as user experience, regulatory uncertainty, and the need for better education remain significant hurdles.

However, these challenges also present opportunities for innovation and improvement. Solana's focus on scalability and user experience positions it well to address some of these concerns. As the ecosystem continues to evolve, we may see new tools and platforms emerge that make it easier for creators and users to engage with web3 technologies.

The Potential for Decentralized Autonomous Organizations (DAOs)

Although not directly mentioned in the podcast, the concept of DAOs aligns closely with many of the ideas Jin discusses regarding community ownership and governance. Solana's infrastructure could potentially support the development of efficient and scalable DAOs, providing new models for creator collectives, fan communities, and decentralized media organizations.

These DAOs could represent the next evolution of the passion economy, allowing for more direct alignment between creators and their audiences through shared ownership and decision-making processes.

Conclusion: The Transformative Potential of Web3

Li Jin's insights into the evolution of venture capital and the creator economy in the age of web3 highlight the transformative potential of blockchain technology. As the industry continues to mature, we can expect to see new models of ownership, community engagement, and value creation emerge.

While challenges remain, the opportunities presented by web3 are significant. Platforms like Solana, with their focus on scalability, low costs, and user experience, are well-positioned to support the growth of this new ecosystem. As more creators, investors, and users embrace web3 technologies, we may be witnessing the early stages of a fundamental shift in how value is created, distributed, and shared in the digital economy.

The journey from web2 to web3 is still in its early stages, but the vision outlined by Jin and supported by platforms like Solana suggests a future where ownership, community, and creativity converge to create new possibilities for economic empowerment and innovation.

Facts + Figures

• Li Jin joined Andreessen Horowitz (a16z) in fall 2016 as part of the consumer investment team.
• Jin coined the term "passion economy" in 2019, describing a model where specialized web2 marketplaces enable people to monetize their passions at scale.
• In May 2020, Jin left a16z and raised a small fund of about $12 million as a solo GP, focusing on companies supporting the vision of the passion economy.
• Jin's current venture capital firm, Variant, invests across the entire stack of the crypto ecosystem, including marketplaces, creator tools, and platforms like Mirror, Foundation, and Zora.
• Variant also sometimes invests directly in NFTs of promising creators, viewing individual creators as potentially investable in the web3 era.
• The podcast discusses how businesses that were challenging to fund in web2, such as dating applications and hyper-local social networks, could become more compelling in web3 due to new token-based scaling mechanisms.
• Jin predicts the emergence of a new cohort of web3-native creators who may not have found success in traditional web2 platforms.
• The podcast highlights the difference in public perception between investment funds selling equity after an IPO versus selling tokens in web3 projects.
• Jin emphasizes the importance of user education in the web3 space, calling for more data-driven analysis and transparency from industry players.
• The podcast identifies podcast NFTs as a potential future investment opportunity, addressing current monetization challenges faced by podcasters.

Questions Answered

What is the passion economy?

The passion economy, a term coined by Li Jin in 2019, refers to a model where specialized web2 marketplaces and platforms enable individuals to monetize their passions and expertise at scale. It represents a shift from traditional employment models, allowing people to turn their specialized knowledge or skills into income streams through new digital platforms. The concept has evolved with the advent of web3 technologies, which introduce ownership and community aspects to further empower creators and participants in these economies.

How does web3 change the venture capital landscape?

Web3 technologies are transforming the venture capital landscape by making previously challenging business models more viable. According to Li Jin, businesses that were difficult to fund in web2 due to high customer acquisition costs or limited growth potential, such as dating apps or niche media companies, can become more compelling in web3. This is because web3 offers new mechanisms for scaling networks through tokens and enables broader user ownership, potentially leading to greater user evangelism and growth. Additionally, web3 allows for direct investment in creators and their projects through NFTs and tokens, opening up new avenues for venture capital.

What is the new playbook for creator success in web3?

The playbook for creator success in web3 differs significantly from the traditional web2 model. Instead of creating content in isolation and building an audience over time, the web3 approach involves building a community upfront, potentially bootstrapping capital through tokens or NFTs, and then creating content in collaboration with the community. This model emphasizes community leadership, meme creation, and idea propagation skills over solitary artistic genius. It also involves incorporating community feedback throughout the creative process and elevating community members as stakeholders in the project's success.

How does ownership in web3 differ from traditional equity ownership?

Ownership in web3 differs from traditional equity ownership in several key ways. In web3, ownership is often represented by tokens or NFTs, which can provide governance rights, access to certain features or content, or a share in the project's success. Unlike traditional equity, which is typically held by a small number of investors and employees, web3 ownership can be widely distributed among community members and users. This broader distribution of ownership can lead to different dynamics in terms of project governance, community engagement, and value distribution. However, it also presents challenges in terms of regulatory compliance and public perception, particularly when it comes to early investors or funds selling their token holdings.

What role does user education play in the web3 ecosystem?

User education plays a crucial role in the web3 ecosystem, according to Li Jin. Given the complex nature of web3 technologies and investments, it's essential for users to understand what they're investing in, the governance rights associated with their tokens, and the tokenomics of the projects they're participating in. Jin emphasizes that it's the responsibility of founders, investors, and other industry players to provide users with as much information as possible, publish data-driven analysis, and challenge users to critically examine the projects they're involved with. This focus on education is seen as crucial for the long-term sustainability and growth of the web3 ecosystem, helping users make informed decisions and understand the true nature of their investments.