This VC Is Bridging The Web3 Gap Between Passionate Communities And Solid Investments

Rebecca Kaden is a Founding BFF. The Founding BFFs are comprised of more than 100 female and non-binary leaders across crypto, tech, design, business, and more. Just like our community, some are new to crypto, and others are full-on experts.

Who: Union Square Ventures General Partner Rebecca Kaden

Web2 Rebecca: Kaden started her career in journalism before pivoting into venture capital. She has spent the last ten years investing, mostly in consumer technology. 

Web3 Rebecca: Kaden is spending more and more time investing in Web3 and cryptocurrency startups. Today, about 30% of Union Square Ventures' investments are in the space.

Her TLDR: “The interesting thing to me about NFTs, or crypto, is that it may be the easiest, most obvious way right now to get to a top-down vision within a bottom- up Internet.”

Edited excerpts: 

What initially got you interested in Web3?

In 2015, I was at Maveron and I was spending all my time on consumer technology and quite enjoying it. At that time, the USV team was already pretty deep in crypto. My partners had been the earliest investors in Coinbase and we're starting to drink the Kool-Aid around what crypto could mean for technology. What excited them then wasn't the NFTs or speculation. It was actually the idea that the firm had always had a deep interest in: How do you create networks that unlock innovation? The one problem with that is that networks aggregate power over time.

You are seeing the rise of Facebook and Twitter and LinkedIn which are powerful network-effect driven businesses that have a lot of benefits. But they also aggregate power in the middle of these platforms and when they learned about crypto, what they saw was this decentralized technology that had the ability to unlock innovation by decentralizing that power and that things that could counter aggregation of power, which was really interesting to the firm. 

Any early lightbulb moments that showcased to you the power of the technology?

One of the benefits of spending all of your time being pitched and talking to the entrepreneurs in the USV portfolio and ones that we're thinking about is you're painted this picture of what things can be long before they exist. Early on in my time at USV, we made investments in [blockchain infrastructure startup] Algorand. While what is possible on those platforms was still very nascent and the applications were still quite far away, what might be possible is that these could be entire ecosystems with different types of innovation on top of them. That got me really excited. 

From a personal standpoint, like everyone else, I think NFTs are powerful because they're so tangible and they're fun. And I think if things aren't fun, there's a limit to how excited you can get over something, especially as a consumer kind of thinker. As that ecosystem developed, I think it was very fun to watch communities arise around it. 

As an investor, how do you think about the value of a passionate Web3 community to a particular project?

I don't think that the passion in the community should hide the clunkiness of the product. I actually think that's a bad trapdoor. At the end of the day, we're in the midst of lots of volatility and a more difficult market. But the bright spot I've seen with the NFT communities is really just a desire for connection. We all knew it was there, but we've seen it in such full force and with such passion that people really want to connect and it doesn't take that much to make that happen. Ownership of similar JPEGs that may or may not ever have any real value is actually enough. The promise of features built on top of them long before they're built is enough that there's just this real desire, and that is exciting. 

Even more exciting will be when that's fully productized, and when all those visions really can come to life, but that's still quite a ways away and I don't think what we've seen is that passion for community overrides people's willingness to deal with bad products and bad consumer experiences. That drop off is very strong and happens very quickly when that exists. We aren't going to make use of the enthusiasm and the value we're seeing from this first stage of broader consumer excitement until the product visions catch up with that kind of intrigue.

A lot of Web3 natives would cringe at you calling NFTs “ownership of similar JPEGs,” but what do you really mean by that? 

Many functional long-term things start as toys. There's a long history of that being true in technology, and there is a path for that being true here, which is what I’m saying. 

If you think about the Internet, overall it is a crazy beast that was built bottom up, and that's both its feature and its bug. It's feature is that it's this hodgepodge of amazing things and terrible things put together that's constantly growing in this amoeba and it evolves before us all the time. That's kind of insane and we all get so much benefit out of that. The bug is that it lacks uniform features that if you think about what it would look like if it was built top down. One of them is identity.  If you had planned out the Internet and built it today, identity feels obvious. You would be you. You wouldn't have a million sign-ins across platforms. You wouldn't have to load cards through scanners and have different payment mechanisms. It would exist across the Internet. It would be cohesive. Payment would also be obvious. The interesting thing to me about NFTs, or crypto, is that it may be the easiest, most obvious way right now to get to a top-down vision within a bottom- up Internet.

So do you think there is a problem in how we talk about Web3 in general?

One of the most interesting things to me about Web3 is the role of language in it. Sometimes I feel like it's purposefully confusing to people and creates clubbiness so newbies can't join. There's a lot of vernacular in Web3. There's tons of things that are called staking and tokens and all these things that also have very simple English words to explain. I've always believed that it was created originally to create a clubhouse inner circle feel of it that made the people in the know special and also was hard to crack. NFTs now have such a deep association, either as valuable assets or as scams. 

How do you explain NFTs and Web3 to outsiders?

At the heart it's the ability to own things digitally and if we just call it that, it feels a lot more straightforward…  The first use case that caught any passion is around online collectibles. So some combination of playing cards and art. What I like to talk about there is, I do think there's a strong reason why. The application use cases in Web3 that have interested us the most are ones where there is no good Web2 way to do it. There's going to be lots of innovation in Web3 that are going to make existing in Web2 better. But I actually think the earliest ones that really hit are the ones where the Web2 view actually doesn't work. And collectibles, that is a space where the Internet was never good for that. It was good for a lot of things, but it sucked for collectibles because there was no way to really own them. With Web3, you actually can. 

Advice for entrepreneurs looking to raise capital in these market conditions? 

When markets change and become more bearish, it's always scarier to start because the plethora of capital that coincides with very early ideas appears to dry up. That being said, I still think there's quite a lot of capital out there for companies in general, and also particularly in Web3, but I think the bar across the board has been raised. There was an era where Web3 startups in particular were raising capital off of very, very little proof points. The goal posts have now moved and we have to be realistic that if you're building, figure out how to start building first and get some users on board. Then, capital is gonna be a lot easier to come by.

Do you believe harsh market conditions produce better companies? 

The argument here is when you tighten the lens of what you actually need to do and what you really need to prove and how you can do that on limited resources, you get a foundation of a company that thinks through monetization or acquisition or things that they may have been able to punt when capital was easier to come by earlier in the vision. And while that's hard, it can prove very valuable down the road because it helps the entrepreneur think through some of those big important questions by necessity early on and build those muscles with less… It's a harder market, there's no denying it, but there are some silver linings.

Caroline Fairchild is BFF’s Editor in Chief. 

This article and all the information in it does not constitute financial advice. If you don’t want to invest money or time in Web3, you don’t have to. As always: Do your own research.

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