Katie Haun on a16z's Crypto Success - Innovation & Future

Katie Haun on the Future of NFTs and a16z’s Crypto Strategy

It’s unsurprising that Katie Haun is a strong advocate for NFTs, or non-fungible tokens. Currently co-leading the prominent crypto practice at Andreessen Horowitz, the former federal prosecutor has been studying this technology since at least 2018, when a16z initially invested in Dapper Labs, a company that has since become highly successful.

Early NFT Adoption and the Rise of NBA Top Shot

Vancouver-based Dapper Labs initially gained attention for CryptoKitties, a digital collectible cat game that perplexed those unfamiliar with the crypto world. This year, Dapper Labs experienced significant growth with NBA Top Shot, a platform enabling sports enthusiasts to buy and sell collectible highlight clips. However, Haun indicated Thursday night at a StrictlyVC event that this use case represents only a small fraction of the technology’s potential.

NFT User Base Expansion and Creator Benefits

During a comprehensive discussion, she articulated her belief that NFTs’ relatively focused user base is poised for substantial expansion. She also refuted the notion that only a limited number of creators leveraging NFTs will reap significant benefits. Furthermore, she detailed an innovative approach introduced by a16z, allowing the firm to secure a 20% discount on tokens comprising 75% of its crypto investments, and addressed whether all venture capital firms should register as investment advisers, as a16z did in 2019.

The Transformative Potential of NFTs

TC: Regarding a16z’s communication with investors about its NFT investments, and the core principle guiding these investments:

Reimagining the Internet’s Business Model

Katie Haun: NFTs are fundamentally poised to revolutionize the internet’s business model for both consumers and content creators. For consumers, consider the scenario of purchasing a “Fortnite” skin, only to lose access if the game ceases operation. Conversely, NFTs empower gamers to transfer their digital assets to other platforms, utilizing them universally. This shift places control directly back into the hands of consumers.

Empowering Content Creators

NFTs also benefit content creators by enabling them to program tokens, creating digitally scarce goods that generate financial returns in all future transactions, effectively bypassing intermediaries who currently take a 30% cut. This has the potential to dramatically reshape the creator economy. While current focus is on digital art, we anticipate discussions surrounding music and the removal of barriers within the music industry next year.

Billie Eilish and the Future of Music NFTs

Haun emphasized her focus on music-related NFTs, citing singer-songwriter Billie Eilish as an example of the possibilities. Eilish gained popularity through internet discovery by fans, yet those early supporters didn’t share in her success. Ticket prices increased, lines lengthened, and venues sold out. Imagine if those initial fans could have held an NFT or utilized a smart contract granting them exclusive access to shows, tours, or even a share of her royalty streams. This would allow fans to participate in the economic gains, rather than solely benefiting record labels and legal representatives.

Addressing Concerns About Economic Inequality

On whether the economic landscape for creators will remain similar to today, with a small elite capturing most of the financial rewards, as seen with platforms like Twitch:

These business models are still in their nascent stages. However, the distributed nature of crypto architecture allows individuals to earn a living, as demonstrated by NFTs. Success doesn’t necessitate becoming a high-profile artist like Beeple. I personally own NFTs created by a female artist who left her job to focus on programming digital art, which I purchased on OpenSea. Her smart contract ensures she receives a percentage of any future sales, unlike traditional physical art.

NFTs Beyond Luxury Goods

Regarding the perception that NFTs are primarily driven by affluent buyers, while many Americans struggle financially:

It’s crucial not to judge the current state of NFT innovation based on its ultimate form. I understand the criticism, but I also observe parallels with status symbols in the physical world, where luxury vehicles and Rolexes coexist with widespread financial hardship. Just as there are luxury goods, there are also essential items people desire digitally, and we’ll likely see more of these accessible options emerge.

a16z’s Deal Flow and Global Expansion

Discussing a16z’s investment process:

Our board seats with Coinbase and OpenSea provide us with a unique vantage point in the crypto ecosystem. Both Chris Dixon and I have served on Coinbase’s board for years, and through Coinbase Ventures, most crypto projects seek their input. Similarly, my position on OpenSea’s board, the largest NFT marketplace, grants us access to a significant deal flow.

A Global Perspective

However, crypto is inherently global, and our investments reflect this. At least 50% of our latest crypto fund’s investments are international. We must remain proactive and avoid complacency, recognizing that many founders worldwide may be unfamiliar with Andreessen Horowitz. This often requires travel and engagement. We’ve also pioneered a delegate program, allocating our stake in proof-of-stake systems to organizations like Kiva, Mercy Corps, Deutsche Telekom, and universities globally, ensuring we don’t rely solely on existing connections.

Token Investments and Discount Strategies

Regarding a16z’s substantial investment in tokens, including direct over-the-counter purchases:

If you know an over-the-counter desk offering preferred rates, please let me know. We typically purchase tokens at spot prices without special treatment. In some cases, protocols may seek our involvement, and we’ve implemented a system where founders offer a discount in exchange for a long-term lockup period – typically 7 to 10 years – demonstrating our commitment as patient investors.

Navigating Potential Conflicts of Interest

Addressing the potential conflict of interest between a16z’s investments in OpenSea and Coinbase, given Coinbase’s plans to enter the NFT marketplace:

This is a pessimistic outlook. Coinbase has only announced plans to explore the NFT space, with no concrete details yet available. Brian Armstrong previously noted that increased competition validates their thesis and expands the market. Similarly, the NFT space is vast enough to accommodate multiple players. I’m fortunate to be involved with two innovative companies poised to shape this space. Should a conflict arise, I, as a former federal prosecutor, would address it accordingly.

The Future of Venture Capital and Regulatory Compliance

Regarding whether venture firms should become registered investment advisers to gain credibility with crypto founders:

All crypto-focused funds are currently registered as RIAs. It appears to be a prudent step, given the regulatory uncertainty, if firms intend to hold tokens.