Be the change you want to see in the world.
It is a simple self-motivational-poster concept that has traction in reality. As I talked about here, inherently applying the contagion concept to our interactions, theoretically any type of social movement is possible. And things do change, progress is made. But what about the type of groundbreaking, everlasting, physics-defying change?
I’ve had a piece queued up for a few months now called “What is a16z Doing?!” that was going to dive into the fact that the infamous VC firm has now plowed $7.6B into crypto and web3 funds. How could they place such an audacious bet? What is the upside they see, when everyone else is running around waving the bear flags on the space? If web3 decentralizes everything, how will they return that fund to their investors, assuming it is not a massive token pump grift?
Those questions are valid, but I want to take a step back here and look at the current (non-web3) news they are making, how I believe that ties into their web3 vision, and how it doesn’t matter what anyone thinks will happen, all that matters is what the people with the money manifest into reality.
As a brief overview:
Why Do Things Get Built?
a16z’s Investment in WeWork’s Adam Neumann
Web3’s Inverted Community-first Monetization
The Return to Atoms from Bits
Why Do Things Get Built?
Or more precisely, why do things get built today? For many thousands of years humans had to build things in rough accordance with Maslow’s Hierarchy of Needs. But somewhere after the industrial revolution we had mastered housing, health, safety, and agriculture. Things started to get built just because. Why did we go to the moon? Sure, maybe to show dominance against the Russians, but mainly because it just sounded like a cool idea. The whole concept of cheap goods and consumerism exploded in the 80s. Did we need all those trinkets from China? Facebook was founded in the oughts so that Zuck could catalog which of his female classmates were single. did the world ask to share all aspects of its daily life? My point is that people don’t build things necessarily because there is a glaring societal gap that must be filled, they are simply reacting to their environment and then trying to re-shape it based the desires that their unique circumstances of life has given them. They build it because they frickin feel like it.
Culture has a huge part to play in this. Movies, TV, music, literature, art, food, politics. It influences how we feel which dictates how we act. Some dude in South Africa read KSR’s The Mars Trilogy when he was a kid and then later on in life sets things in motion because he wants there to be a future that is “fun and exciting”. Life imitates art. Not because it wants to but because it has to. As both Mark Twain and Nas have said, there are no original ideas. All ideas spring from the collective history of your environment. Pile on some quantitative easing, dash a little mimetic theory to taste, and welcome to the 21st Century. A bunch of billionaires have a bunch of billions, to fund businesses carte blanche. What are they going to build? Whatever they want.
We are in an unprecedented time and space where it doesn’t matter what you think the future holds, the only thing that matters is if the people with money are going to build it.
a16z’s Investment in WeWork’s Adam Neumann
Quick history lesson because the readers here have become an assortment of web3, VC, marketing, tech, and normal people, so I don’t want to lose everyone here as I am wont to do.
a16z is the venture firm of which one of the heads, Marc Andreessen, is the also the founder of Netscape, ie the first web browser that really sparked the internet as we know it today. The history of the internet is very fascinating, and one of the unique folds is that it took a lot of lobbying against the government to make web browsers an actual thing. Ironically enough, it was the actual use of cryptography for civilian use that the government was against, and Andreessen was one of the proponents of making TCP/IP (developed by DARPA) the original open protocol of the internet.
These days, after many years of traditional tech investing, reaching $28B in AUM, putting them in the top 10 of largest VCs in the world, they have opened the coffers up for that $7.6B in crypto/web projects I mentioned above. It is important to differentiate crypto (the tokens) from web3 (the protocol), because it hammers home their vision. Whereas most people when they think about crypto they think of it as a new type of currency, or a new way to do finance, a16z sees web3 as a “new way of computing”. Instead of having all of your data in the cloud, technically “owned” by Google, but physically hosted on an AWS server in Oregon, that data would be distributed across ALL computers in the network. No one owns the information, it belongs to the protocol, it is de-centralized. Now, I don’t want to get into all the second-order effects of what that means in this post, but it is very important to know where a16z is coming from, and where they are going.
Everyone should be familiar with the story of WeWork and it's illustrious founder Adam Neumann. The cult-like following he was able to build enabled him to “revolutionize the second largest asset class in the world — commercial real estate — by bringing community and brand to an industry in which neither existed before”. The fact that he pumped the valuation up like a tech stock, despite it being essentially a REIT, before having it crash down to a mere $5B organization, not withstanding. Lots of people are taking offense to the fact that Neumann has been given a second chance, with the news that a16z announced a $350M investment into his new company, Flow. My personal opinion is that the type of person who can generate a $5B company from essentially nothing but his own charisma, is rare. VCs back proven founders with clear visions, and Neumann is exactly that, if nothing else.
His new vision? Finishing what he started with WeLive, which was the short-lived residential version of WeWork, the distributed office co-working space. There are no details yet, but the investment thesis taps into a few of the important themes du jour:
There is a housing crisis in America. Zoning, NIMBYism or other regulatory hurdles make it impossible to build affordable new homes. And what incentive is there to do so? All the people in control are the homeowners, protecting their own property values. If supply goes up, demand goes down, along with prices and with it their net worth. Meanwhile, people are staying single longer, and while most still congregate in dense urban areas because that’s where the jobs or entertainment are, many others are fleeing to remote locations as COVID opened the door to distributed work opportunities. These distributed folks are often the most talented, but are going to be longing for some type of social connection as they don’t get the intimacy of the in-office communication or liveliness of the city.
Enter Flow, which will almost assuredly be a heavily branded social living experience that looks and feels the same all over the world. What if, as a distributed worker, I want to live for a few weeks in NYC, then a few weeks in Miami, then a few weeks in LA? If you were living out of a WeWork office it would be a snap, but (un)fortunately there are no beds there. It’s hard to give a full analysis on the investment thesis when the product details have not been released yet, so we will just have to assume that Neumann will do what he has always done, build a community.
Web3’s Inverted Community-first Monetization
Most successful businesses follow a tried and true path to success: You come up with an idea that you think has product-market fit, you launch said idea into the world, people pay for your product, you make money. If you’re lucky, your brand develops a core set of customers that form into an evangelizing community, pouring gas on the fire of your market cap. But the early phases of web3 are weird, partly due to the fact that crypto is such a natural arena for speculation, but also partly due to the fact that the core tenets of web3 are disintermediation and meritocracy. It’s cool to me that those two things are diametrically opposed on the traditional L/R political axis of wealth distribution, but aligned on the T/B axis of freedom. Let me unpack all of that for a second.
The typical successful crypto project starts like this: you create a token that has no value and means absolutely nothing, and then you get a bunch of people to buy it based on some common cause, then you all sit around and decide what to do with the money you just raised. This is the dichotomic ethos of the web3 community. Some people are bonding over the fact that the velocity of people and money to the token they hold is going up in value (speculation), which promulgates the evangelization. Others truly believe in the common cause of whatever is being disintermediated, distributed, or decentralized, which also promulgates the evangelization. Yeah, its weird, but I am not going to try to psychoanalyze why it is happening that way, other than by saying it is most likely a result of the time and space and socio-economic-political environment that we find ourselves in.
This is why Balaji foretold that startup societies will form around a One Commandment. People will buy in because they will Die for the DAO, but many others will just passively speculate on the communities’ tokens. Imagine someone arbitraging $KETO vs $VEGAN societies, buying and selling as new science is reported on the true healthiness of Beyond Burgers. Sounds ridiculous, but people are collectively speculating upwards of $1T (total crypto market cap) on much sillier things at this very moment.
Now think about this: what if there was a startup society that was formed community-first, centered around the beliefs that work should be distributed, housing should be affordable, and human interaction is paramount. What if Balaji and Marc Andreessen are friends with similar visions (they are)? And what if they gave $350M to the one guy who is obsessed with community, and crazy and charismatic enough to sell real estate rental experiences to hundreds of thousands of Millennials and Gen-Zers (they did)? And what if they tokenized that experience? OK maybe that last part was a stretch, but not by much. I didn’t mention that Neumann is pausing his current project Flowcarbon, a (wait for it..) crypto-based, carbon-offset company, in order to shift full time back into the real estate business. The writing is on the wall. If Flow does not eventually have a token element to it, I would be very surprised.
This is how the world works now. It’s not about what you think will happen, and guessing and hypothesizing about how the major tides will turn and shift humanity. It is about the few humans who have amassed enough capital to change the physics of society. Will there be a Network State? Will web3 be a thing? I believe so (for both), and not just because of the contortions of history that brought us to our current condition, or because the idea has been posited out to the Twitter-verse to percolate in everyone’s minds, or because media and movies and TV and memes will depict it, further engraining it into some sort of orthodoxy, but because the people with the money can will it into existence.
The Return to Atoms from Bits
Let’s assume for a moment however, that there is no token attached to the Flow project. When viewed as a standalone investment it doesn’t appear to have tremendous upside. The margins on real estate are very thin, and there are many mega corporations that already consolidate rental portfolios like this. It is unusual for a VC who is focused on technology and rapid growth to make a play into hard assets. I think this hints to what we might see over the next few years of “whatever you want to call the economic period we are in” (not a recession).
Since 2008 interest rates have been essentially zero and free cash has been available on the market to prop up the economy. Due to the confluence of this and the burgeoning of social media, mega-growth corps emerged and fractured the way everyone thought about business. Suddenly, capital-light, software businesses were the only things that mattered, as they were easier to fund, easier to scale, and had zero marginal cost. Look at the correlation of the Federal Funds Rate, the proliferation of tech-VC exits, the rise of FAANG stocks that absorbed startups like candy, and the rise of the S&P 500. A massive boom cycle that attracted all the investment and talent, and rightfully so, as that is where the money was being made.
As I talked about in Everything is a Valuation, both public and private market valuations got way out over their skis and were essentially being valued on the continuation of growth, further and further out. The recent snap-back to reality has seen all of these assets get a proper valuation, which will cause investors to do extra diligence, which means there will be fewer bets being placed at larger injections, and the money will consolidate around fewer projects. But the underlying thesis of growth hasn’t changed, people are still looking for capital-light businesses that have the ability to scale quickly.
The innovation of the internet affords this type of behavior, and “show me the incentive and I will show you the behavior”. However, I can’t help but think that this will all come to an end someday. Sam Lessin has a great tweet about this here, where he talks about software companies and DTC brands ultimately being “consumable”. He is saying that the incentive in the market is for an enterprise SaaS company, or DTC brand to perpetually replace the incumbent, rather than build and make better what is currently existing. This could go on hypothetically forever, but to the detriment of asset-heavy things that aren’t getting funded, like infrastructure. This includes housing, transportation, agriculture, manufacturing, and otherwise physical technology.
The margins on infrastructure are razor thin, and sometimes not profitable at all, but they are the rails upon which society is built. There is no incentive for private companies to invest in public goods, unless they are being contracted by the government. I am not going to come in here and say “what if web3..” although I do think it is uniquely designed to tackle these types of complicated ownership, governance, and monetization questions. I believe the longer term fundamentals will be a return to slow growth, building things that last for multiple generations, and provide value to society. Maybe that’s a little too optimistic for some of you, but I do think that the era of smash and grab, unlimited upside digital growth is a unique period of time, and not the new normal forever.
Does this bet by a16z have a smidgeon of that prognostication? I like to think so, rather than it being a publicity stunt, a rebuff to critics, or simply the result of having too much cash and nowhere to put it.