ff3 #1: Web3, a new frontier for founders

Why we're (obviously) excited about Web3

Feb 17, 2022

ff3 is a movement that believes in the power of Web3, and the potential it holds for the next generation of founders, startups, and investors.

Someone once said that, if you want to predict the future, you should follow the engineers. Look where the brightest, highest skilled technologists are putting their money, applying for jobs, or building companies.

Over the past 24 months, we’re starting to see a movement of engineers into the Web3 sector. This started with investments (into cryptocurrencies, tokens, etc), but is gradually shifting careers too. Where once engineers, data scientists, and programmers might have pursued top salaries at Web2 Big Tech firms (and let’s be honest, many still do), their attention is turning to blockchain and the metaverse, and the many opportunities they present.

Web3 is not a new concept. The term was coined back in 2014, and has quickly been adopted to rebrand the once-murky world of crypto, characterised by drug dealers and scammers, into a brighter future, a new vision for what the internet could, should, and will be.

And as the engineers move towards Web3, so has a tidal wave of popular interest. What might have started as speculative interest has quickly transformed into a widespread fascination with the world of cryptocurrency trading, memecoins, digital assets, and pixelated cartoon apes. ‘NFT’ has joined the everyday lexicon; we check our Coinbase wallet more than our bank account balance. The money has also followed: the last month alone has seen a16z announce a $4.5 billion crypto fund, while Animoca raised $360 million at a $6 billion valuation, triple that of just three months prior. The Rubicon, as it were, has been crossed.

At Founders Factory, we build, invest in, and scale the next generation of society changing startups. We have to look five to ten years down the road, making assumptions and predictions about what we think the future will look like, and building companies that we believe will play a major role in 1) taking us there, and 2) defining our lives at that point. And it’s for that reason that we believe that Web3, and the principles that define it, could be one of the biggest themes in venture building in the coming years.

Why are we getting excited?

Some may call it a bubble, some may call it a bandwagon, others would say it's absolutely nothing. Whenever there’s excessive hype over something (especially around technology), there’s bound to be caution and cynicism over its longevity and risks involved. We believe there’s a lot more to be excited about than just the opportunity to make money.

Web3 has come as a backlash to a growing monopoly of power in the internet. Web2 was defined by the FAANGs internet giants, or Big Tech, which have dominated the ecosystem. Any startup that enters the market falls into the ‘kill zone’: the periphery close enough to a Big Tech company that puts you at risk of 1) being acquired or 2) being eliminated by the sheer weight of your competitor. Fear of this stifles entrepreneurial ambition.

The reason behind this is the closed Web2 ecosystem. Companies like Facebook and YouTube house all your content: delete your account, and thus delete all of your content. This has allowed these companies to hoard vast swathes of data, and thus dominate any competitor by their scale.

Web3 offers an exciting greenfield site, a new world in which competition is fair, success is more meritocratic, and anyone is able to enter the game. We’re switching data hoarding for open data, transaction fees for token incentives, and a closed ecosystem for transposability.

The recent OpenSea vs LooksRare example illustrates this perfectly. OpenSea is the dominant NFT marketplace—if you’ve ever bought or sold an NFT, there’s a good chance it’s been through OpenSea. In early January, a competitor called LooksRare emerged. Within days of its launch, LooksRare hit $100 million daily trading volume, almost triple that of OpenSea. Two key decisions influenced this:

LooksRare airdropped 12% of their $LOOKS tokens to OpenSea’s most active users, incentivising them to transact on their marketplace
They gave 100% of trading fees to $LOOKS token holders (compared to OpenSea which takes 2.5% on all transactions).

The very nature of Web3 shows how difficult it is to be an incumbent, dominant player. Offering free tokens encourage users to transact and be a part of this new marketplace. Transposability means that any users who aren’t happy with how OpenSea treats them can simply move their NFTs over to LooksRare.

What does this mean for founders? In plain terms, this creates a much purer form of competition. No one cares who you are, or how well established you are: the best product will win out. Even if you do have those big players who feel like they’re untouchable—they’re not. If you’re not doing things as well as you can, someone more equitable will come along and take your market share. This is why Braintrust can compete with Fiverr, Mirror can compete with Substack, and Audius can compete with Spotify. In venture and innovation, this really is the perfect environment.

More than just pure competition, though, we’re seeing a true democratisation around venture building. Once we might have thought of startup hubs, like Silicon Valley or London, where founders clustered and thrived off access to resources and community. Web3 promises something different. New funding models mean you don’t need to access VC funding to launch your business. Play-to-earn environments, like Axie Infinity, mean creators can forge a living in a way that is far more equitable and profitable, without having to leave their geography. This means that anyone, anywhere, can start a business with just a laptop and an idea.

What is ff3?

Much like many projects in the Web3 space, we don’t really know what ff3 is going to be yet. We’re starting it as a newsletter, as a way of getting our thoughts out there, but we hope to see this grow into a vehicle which can lead on thinking around Web3 venture building. Expect to read more about everything you need to know to build a Web3 startup, from commentary on the latest developments, to advice on venture design, fundraising, and talent and hiring.

Everyone has their two-ETH-worth when it comes to Web3—so why us? Why are we wading into the conversation?

Firstly, we’ve got skin in the game. At Founders Factory, we’re already working on several projects across the Web3/crypto/DeFi space:

Temple - a membership platform allowing musicians to offer tokens to their fans
Eterlast - Europe’s first NFT studio for media and sports rights
Veople - a creator-led, community-driven NFT studio
Project Vault - an NFT portfolio management and securitisation platform
Project Lime - an automated insurance market built on DeFi (we’re currently hiring an Entrepreneur-in-Residence to build this…)

If we’re building and scaling these companies, we want to be at the forefront of thinking around them. That means engaging with the ongoing conversation around Web3 principles, and how it can bring genuine utility to society. We also act as a bridge between founders, investors, and corporates: the latter, in particular, are expressing a clear interest in building in the Web3 space.

We know that these companies are only the start, too. The ecosystem is so nascent, and needs the commitment of venture builders (like us) to solve its problems and create an environment which is accessible, beneficial, and value-generating. As with any nascent environment, there’s no doubt a degree of risk: high volatility, and overall a lack of experience over what constitutes success. If we’re serious about building long term companies here, we need to commit to understanding how to de-risk this environment for startups.

Of the many criticisms or risks we hear, there’s one we hear the most—”It’s so early, why take the risk when there’s so much volatility?” For us, the greatest risk isn’t being too early, but being too late.

📚 Recommend reads

Introductions/reflections

A Simple Guide to the Web3 Stack (Coinbase) - an introduction to different layers of Web3
My first impressions of Web3 - Signal founder and cryptographer Moxie Marlinspike reflects on some of his own challenges around Web3
Unpacking the Web3 sausage - author and economy Dror Poleg responds to Marlinspike’s objections
Scott Galloway’s critique of Web3 - the renowned Prof weighs in on the Web3 debate
The Web3 Debate (Not Boring) - adopting a school debating approach, Packy McCormick responds to both Marlinspike and Galloway

Sector-specific thought leadership

Where Web3 and psychedelics might meet (Under the Palm) - a new newsletter by Woven Science, a psychedelic community & Founders Factory partner

Let us know what you’re reading at the moment

🚀 Web3 projects & opportunities

Project Lime - we’re building a DeFi insurance platform in our Venture Studio, and we’re looking for a founder to lead the project. Find out more and apply here
Copact - we’re looking to solve the problems of the gig economy through Web3, and we’re looking for a founder to lead the project. Find out more and apply here
Vault - an NFT performance and investment dashboard that we’re currently building in our Venture Studio
Operator - buy, sell, and earn rewards for every project on the internet. Is this Amazon for Web3?
Wintermute - global algorithmic market maker in digital assets

Let us know if there are projects, roles, events, or other opportunities you want us to shout about here

ff3