20VC Why DAOs Will Replace Venture Capital, What Existing Incumbent Venture Firms Can Do To Survive, The Biggest Challenges Facing New DAOs Today and Whether Web3 Will Bring More or Less Income Inequality



In this episode of "20vc," host Harry Stebbigs converses with Ian Lee, co-founder of Syndicate, a Web3 startup that has raised over $28 million. Lee shares his journey from being an artist and consultant to leading crypto investments at Citigroup and later venturing into Web3 and blockchain startups. He discusses the evolution of venture capital towards a decentralized model, the potential of DAOs to transform traditional VC structures, and the importance of building native capabilities to thrive in the Web3 space. Lee also touches on the narrative and inclusivity challenges within the industry, emphasizing the need for Web3 to be accessible and beneficial to a broader audience, not just the technologically adept. He predicts that NFT-powered commerce and media could see significant growth in the coming years, and stresses the importance of community and collaboration in building Internet infrastructure and protocols.

Summary Notes

Introduction to 20vc Podcast Episode on DAOs and Crypto

  • The podcast focuses on decentralized autonomous organizations (DAOs) and cryptocurrency.
  • Guest speakers Ian Lee and Ruchi Sanghvi are recommended by Avegael Garg as experts on the topic.
  • Ian Lee, co-founder of Syndicate, is the main guest on the episode.
  • Syndicate is a Web3 startup with significant funding and focuses on crypto and blockchain startups.
  • Ian Lee has a background in crypto at Citigroup and City Ventures.

"Now. Last month we had Avegael Garg at Electric Capital on the show as a primer for all things crypto and Dow investing. And I asked Avegael who are the two best people for me to have on the show around the topic, he said. Ian Lee at Syndicate and Ruchi Sanghvi at South Park Commons."

This quote sets the stage for the episode, indicating the expertise of the guests and the focus on DAOs and crypto.

Venture Investment Tools

  • Tegus aggregates qualitative information on private companies for venture capitalists and corporate strategists.
  • OpenPhone provides dedicated business phone numbers for professional use.
  • Cooley is a global law firm with a focus on startups and venture capital.

"Tigas is the only company in the world that aggregates qualitative information on private companies from seed stage to pre-IPO."

The quote explains the unique service offered by Tegus, demonstrating its value to the venture capital community.

Ian Lee's Background and Entry into Investing

  • Ian Lee initially did not want to be an investor, preferring to be a builder and creator.
  • His early experiences in venture capital felt removed from the process of building.
  • Ian later appreciated the impact of investing after joining Citigroup's venture capital arm.
  • His exposure to emerging technologies and startups led him to become a full-time venture capitalist.

"I always viewed myself as more of a builder... And when I got exposed to investing, for me it was very removed, I guess, from the process of building."

This quote highlights Ian's initial reluctance to enter investing, emphasizing his preference for hands-on creation.

Founding of Syndicate

  • Syndicate was inspired by the desire for a community-based investment model in Web3.
  • The traditional venture capital model was seen as centralizing wealth and control.
  • Ian Lee pondered creating a decentralized version of venture capital since 2017.
  • Syndicate aims to make the investment process more accessible and fair through an Internet protocol.

"We identified an architecture of an Internet protocol that basically turned the core functions, capabilities and processes of what it means to invest into a software primitive that runs on the Internet that anyone can use."

The quote explains the fundamental idea behind Syndicate, which is to democratize the investment process using Internet protocols.

DAOs as the Future of Venture Capital

  • Venture capital has been moving towards decentralization and community-based investing for decades.
  • Angel investors and solo capitalists are banding together to form collectives for competitive advantage.
  • DAOs are seen as the technological extension of this trend, enabling efficient coordination of capital and human resources.
  • Syndicate believes DAOs will be the underlying technology for future investment models.

"Dows are a technology in web three that enable financial capital and human capital to coordinate natively on the Internet together very quickly, very cheaply, and very efficiently."

This quote defines DAOs and their function in the investment landscape, suggesting their potential to revolutionize venture capital.

Challenges and Considerations for DAOs

  • DAOs are still in the early stages of development and experimentation.
  • Questions about optimal DAO size, membership, and governance are being explored.
  • Purposeful DAOs with clear mandates tend to be more successful than generic ones.

"These things are being experimented and tested right now, and a lot of them are not going to work out, but some of them are."

The quote acknowledges the experimental nature of DAOs and the ongoing process of determining best practices.## DAOs with Explicit Strategies and Purposes

  • DAOs formed with specific strategies, such as investing in female founders in the crypto and Web3 space, tend to be successful.
  • These DAOs have staying power and clear intent, which guides implementation details like membership and interaction within the DAO.

"A DAO that is specifically formed to invest in more female founders in the crypto and Web3 space over a long period of time, those ones have a lot of success because they have staying power and they have an explicit, I guess, strategy and purpose."

This quote emphasizes the importance of DAOs having a clear, long-term strategy and purpose, which contributes to their success and sustainability.

Centralized vs. Decentralized Decision Making in DAOs

  • The challenge between centralized and decentralized decision-making is highlighted in the structure of some DAOs.
  • Some DAOs operate with a small group of admins delegated by investors to make decisions, similar to traditional venture funds.

"We have like the biggest founders in the world all invested in our DAO, and then they delegate decision making to four admins."

The quote illustrates a DAO structure where decision-making is centralized among a few admins, despite the DAO having many investors, which is likened to traditional venture fund structures.

Incremental Change and Skeuomorphism in DAO Adoption

  • Change in society happens incrementally, and the adoption of DAOs is expected to follow this pattern.
  • DAOs may transform existing legal structures and entities like venture capital funds and corporations.
  • Skeuomorphism, where new technologies take on attributes of old ones, is likely in the near to medium term for DAOs.

"Change happens sequentially. It happens incrementally in society."

This quote explains that societal change, including the adoption of new technologies like DAOs, is a gradual process.

Web3's Impact on Venture Capital and Investment Dynamics

  • Web3 technology requires native capabilities for successful investment.
  • Traditional VC funds must adapt to support Web3 startups, including crypto custody and network participation.
  • The blurring of lines between investors and users in Web3 means that investors must also actively participate in the networks they invest in.

"VC funds that don't build those capabilities, whether they are dedicated crypto funds or not, are going to not be able to maintain an edge and keep up with the pace of innovation."

The quote indicates that VC funds need to develop Web3-specific capabilities to stay competitive and support the startups they invest in effectively.

The Future of the Internet and Web3

  • Web3 is seen as the next iteration of the Internet, with both new and traditional capabilities required.
  • Investors and founders are moving towards Web3 for future advantages and leadership opportunities.

"Web three is just the next iteration of the Internet, it's not going to be a matter of five to ten years that web three is completely separate from web two."

The quote suggests that Web3 is not a separate entity but rather the evolution of the Internet, necessitating a combination of Web2 and Web3 skills and capabilities.

Crypto as the Future of the Internet

  • Web3 is expected to lead to a different Internet architecture, with decentralized technologies enabling new business models.
  • The shift from centralized value capture to decentralized protocols may address wealth centralization and societal inequality.

"Crypto is the future of the Internet."

This quote encapsulates the belief that cryptocurrency and Web3 technologies will fundamentally shape the future of the Internet and its underlying business models.## User-Owned Platforms

  • Discussing the potential of creating user-owned versions of major platforms like Uber, Airbnb, Instagram, Facebook, TikTok, etc.
  • User ownership could lead to more resilient, sustainable, and equitable platforms for society.
  • The role of capitalists, investors, and founders remains important, but users could share in the value created.
  • User ownership could enable users to achieve higher prosperity within society.

"Is there a way to create a user owned version of Uber, Airbnb, Instagram, Facebook, TikTok, et cetera? Could those platforms, and could those networks, if they were owned by the users, be more resilient, be more sustainable, and be better for society because it's more equitable?"

This quote highlights the idea that if major platforms were owned by the users, it could lead to a more equitable distribution of value and benefits, potentially transforming societal structures in a positive way.

Technological Shifts and Income Inequality

  • Historical context of technological innovations leading to greater income inequality.
  • Web three's potential to decentralize or centralize wealth and ownership.
  • The role of technology builders, investors, and communities in shaping the impact of these innovations.

"All technological innovation to this extent and level has led to greater income inequality, not income equality."

Ian Lee references Mark Carney's observation that past technological shifts have increased income inequality, implying that web three might have similar consequences.

Consumerization of Web Three

  • The current complexity and inaccessibility of web three technologies for the average user.
  • The need for better interfaces and user experiences to reach billions of potential users.
  • The importance of developing infrastructure that can support a wider range of users.

"Yes, you and I may get it, and you obviously a lot more than me, but fuck, this is a small segment of society."

Ian Lee expresses concern that web three technologies are currently only accessible to a small, tech-savvy segment of society, highlighting the need for greater consumerization.

Infrastructure and Storytelling

  • The interconnection between infrastructure and the ability to effectively communicate the value of web three to a mass audience.
  • The challenge of creating compelling narratives that resonate with the broader public.
  • The historical difficulty in sustaining startups focused on banking the unbanked due to premature timing and lack of infrastructure.

"It's both a narrative thing, being able to connect with these people, but also being able to match that with the infrastructure and products that deliver against that promise."

Avegael Garg emphasizes that both infrastructure and storytelling are crucial for the adoption of web three, and that they need to be developed in tandem to fulfill web three's potential.

The Art of Storytelling in Web Three

  • The undervalued role of storytelling in inspiring and attracting a diverse audience to web three.
  • The need for narratives that appeal to those skeptical or unaware of web three's potential.
  • The importance of inclusive storytelling to bring in talent and develop technology that can reach mainstream adoption.

"I think storytelling is one of those things that are undervalued today in web three."

Avegael Garg points out the need for better storytelling in web three to inspire and include a broader audience, which is critical for the technology's success.

Threats to Web Three's Positive Outcomes

  • Short-term threats like regulation, extreme profit-seeking, and centralization of control.
  • The belief that projects designed for societal benefit will ultimately be more resilient.
  • The impact of profit-seeking behavior and security breaches on the industry's progress.

"I believe that in time, those projects or those networks or those systems will be less resilient than the ones that are actually designed for society, that solve a really important need or problem."

Avegael Garg expresses optimism that, despite short-term challenges, web three projects focused on societal needs will prevail due to their inherent resilience and problem-solving capabilities.

Perception of 'Tourists' in Web Three

  • The frustration with individuals who superficially claim expertise in web three.
  • The transient nature of those who jump on the web three bandwagon without long-term commitment.
  • The recognition that some newcomers may become significant contributors to the space.

"I really struggle with it, to be honest. I don't actively engage in a lot of those things."

Avegael Garg shares his discomfort with the influx of opportunistic 'tourists' in web three, preferring to focus on those with genuine, long-term interest in the space.## Cycles of Interest in Tech

  • The tech industry experiences periods of intense interest followed by disfavor, with many participants leaving.
  • A small percentage of people remain engaged for the right reasons, proving to be valuable connections and sources of learning.

"Ten to 15 of these cycles where it's been really hot. And then it went out of favor and all of those people left."

This quote highlights the cyclical nature of interest in the tech industry, where a significant number of people leave after a hype cycle ends, leaving behind a core group who are genuinely interested.

Quick Fire Round

  • The quick-fire round is a rapid segment where Ian Lee responds to short statements with immediate thoughts.

"I want to move into a quick fire round, so I say a short statement. Ian, you give me your immediate thoughts. Does that sound okay?"

This quote introduces the quick-fire round segment, setting the stage for a series of rapid responses from Ian Lee.

Beginner's Mindset in Web Three

  • A beginner's mindset is crucial for understanding web three and its potential impact.
  • First principles thinking is needed to distinguish meaningful innovations in the industry.

"Having a beginner's mindset is what web three needs and has needed for some time."

The quote emphasizes the importance of approaching web three with a fresh perspective to understand its fundamental principles and innovations.

The Innovator's Dilemma

  • "The Innovator's Dilemma" by Clayton Christensen is Ian Lee's favorite book, which he connects to his experience in fintech and VC.
  • The book explores why successful companies fail to adapt to technological innovations with underlying business model changes.
  • Ian Lee relates this concept to web three, where people often miss the significant business model shift behind technological innovations like NFTs and DAOs.

"Incumbents fail to realize that a technological innovation often comes with a business model innovation behind it."

This quote summarizes the key takeaway from "The Innovator's Dilemma," highlighting the oversight that leads to the downfall of established companies when faced with disruptive technologies and business models.

  • Ian Lee suggests reading canonical essays and resources to understand web three's business and impact.
  • Andreessen Horowitz's crypto canon and Jesse Walden's article on the ownership economy are recommended.

"Andrese Nahorowitz has a crypto canon... Jesse Walden wrote this article about the ownership economy."

The quote provides specific resources for those looking to learn about web three, pointing to influential writings in the industry.

Changing Mind on NFTs

  • Ian Lee initially underestimated the timing and impact of NFTs.
  • The technology's application to internet-native assets and communities accelerated its potential.
  • Lee now believes in the near-term possibilities of NFT-powered commerce and digital media.

"I think that NFT powered commerce in web three, NFT powered digital media... are now possible in the next two to three years, even one to three years."

This quote reflects Ian Lee's revised opinion on the timeline for NFTs to influence various sectors, indicating a much faster adoption rate than he previously thought.

Building Syndicate

  • Building syndicate involves collaboration, as web three infrastructure cannot be built alone.
  • Syndicate's funding rounds included a diverse group of investors, highlighting the importance of community support.
  • The challenge is in seeking help and accepting that one is part of a larger movement.

"The hardest part... is getting the help that you need and being able to ask for the help that you need."

Ian Lee describes the difficulties in building web three infrastructure, emphasizing the need for collective effort and the humility required to seek assistance.

DAO Investment Scale

  • Bitdao is an example of a DAO with significant assets under management.
  • VC funds may adopt DAO structures, and the use of DAOs for large-scale investments will likely grow.
  • It may take five to ten years for DAOs to invest billions of dollars.

"I think that there actually is one called Bitdao that has over a billion dollars in assets under management."

Ian Lee confirms the existence of a DAO with substantial assets, suggesting the potential for DAOs to deploy large capital amounts in the future.

Welcoming Newcomers to Web Three

  • Ian Lee encourages individuals with a beginner's mindset to join the web three industry.
  • Newcomers are seen as valuable for challenging assumptions and shaping the future of the technology.

"Web three needs people like you... who come in with an open but beginner's mind."

The quote invites newcomers to the web three space, highlighting the value of fresh perspectives in evolving the industry.

Closing Remarks

  • Harry Stebbings expresses gratitude for Ian Lee's openness and for the discussion on web three.
  • The conversation concludes with an appreciation for the welcoming nature of the web three community.

"I so appreciate you being so welcoming of me into the web three crypto community."

Harry Stebbings thanks Ian Lee for the warm introduction to the web three community, reflecting on the positive engagement during the podcast.

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