While I'm bullish on the modular space as a whole, I see it playing out differently and more conservatively than others building and analyzing it.

Rollup frameworks have been attracting a lot of attention recently and it feels right to start by analyzing them, as they will serve as the foundational layer upon which this new rollup-centric world will be built.

Here’s how I’m envisioning the endgame for rollup frameworks… prepare for some potentially spicy takes.

Thousands (not millions) of chains

We're already seeing the early adoption of modular chains, due to the customizability and control that they offer developers, and it seems inevitable that this trend will continue. However, I disagree with others who predict that there will be "millions" of rollups in the future. It doesn't make sense for every dapp to launch its own chain in the future.

There are certainly use cases where modularity and sovereignty have a lot of potential. For example, gaming and social projects are prime candidates. Liquidity is less of a concern for these consumer verticals than it is for defi. Plus, sovereignty enables projects to offer gasless transactions and customize fee structures, which can be effective customer acquisition tactics for consumer verticals.

However, I would argue that other sectors and use cases do not make as much sense, as modularity can sometimes present more challenges than benefits. This is especially true for sovereign rollups (rather than smart contract rollups on Ethereum), as they come with greater tradeoffs. For example, some defi projects will choose not to sacrifice access to liquidity and atomic composability in exchange for greater sovereignty.

Additionally, a lot of dapps will likely continue to use existing chains / ecosystems as their initial launchpads, and most will never reach the scale where it would make sense to launch their own chains.

Rollup frameworks are having their moment: a mini hype cycle

Despite what I predict will be lesser demand for rollups in the end, hype for the modular narrative has led to a recent explosion of rollup frameworks (rollup SDKs & no-code rollup-as-a-service platforms), which are now experiencing their own mini hype cycle.

With so many rollup frameworks emerging, I recently made these charts to track and compare them:

What started as 2 rollup frameworks – OP Stack for smart contract rollups & Rollkit for sovereign rollups – has quickly expanded into an entire competitive landscape of smart contract and sovereign frameworks to choose from. Existing L2s are launching their own open-source smart contract rollup SDKs, while new players are emerging in the sovereign rollup space, mostly tied to the Celestia ecosystem.

Competition will likely intensify from here. Some rollup SDK projects may launch their own no-code RaaS platforms, rather than outsourcing to RaaS partners, so they can collect hosting fees as revenue, gain direct access to their developer customers, and explore additional revenue opportunities. This follows a model common in web2 open-source software, where an open-source software provider builds a self-service platform on top of its software and charges a SaaS subscription fee for hosting services.

Hype -> Convergence

When hype cycles mellow, they typically converge around a few key players. (Can I use Alt L1s as an example without anyone getting mad?) With so many ‘general purpose’ rollup frameworks competing, it seems logical that this space will converge.

The category leaders will be those that attract robust ecosystems and establish strong network effects.

I predict that smart contract rollup frameworks launched by existing Ethereum L2s will capture most of the market, while sovereign rollups using Celestia will capture a smaller slice of the pie.

Smart Contract vs Sovereign Rollups

A couple reasons why smart contract rollup frameworks tied to existing Eth L2s are likely to dominate:

• Ethereum-based SC frameworks can target a broader developer audience, whereas Celestia-based sovereign frameworks are limited to a subset of this audience because of their inherent design tradeoffs.

  Even within this audience subset, SC frameworks tied to existing Eth L2s still have the upper hand. As later-stage projects leveraging Ethereum, they simply have more to offer developers – more established ecosystems, greater resources, and larger teams to provide customer support – that make it hard to compete.

• Given these limitations, sovereign frameworks must go to market with clear positioning and a strong value prop to persuade developers to forgo Ethereum’s security and ecosystem and choose their solutions instead.

  Yet, these teams still seem to be undecided on the use cases they should target. They continue to assess which use cases make sense with their architecture while factoring in each’s revenue potential. This ‘build it and then look for a problem to solve’ approach feels misguided. While some teams will ultimately figure it out and find product-market fit, the current lack of direction will slow down adoption.

• We can also draw parallels between the Sovereign Rollup and Cosmos ecosystems. They both embrace a ‘sovereign’ ideology that resonates with people, and my guess is that the Sovereign Rollup ecosystem will play out similarly to how the Cosmos ecosystem has.

  Cosmos & Ethereum have been around for about the same amount of time, and while many people are aligned with Cosmos’ ideology, when it comes to actual ecosystem activity and user adoption, Cosmos pales in comparison to Ethereum. This is because Ethereum's strength lies in its vibrant ecosystem and network effects. We’re likely to see the same Ethereum vs Cosmos dichotomy play out with SC Rollups vs Sovereign Rollups.

Overall, these differences underscore the power of network effects and the potential hurdles Sovereign Rollup frameworks are likely to face in their pursuit of distinct identity as they search for the optimal problem(s) to solve.

Verticalization on the horizon

As the space starts to converge and optimal use cases for rollup frameworks become clearer, we will likely see some sovereign rollup frameworks verticalize in an effort to stay competitive and distinguish themselves from their general-purpose competitors. They will narrow in on a specific vertical of the market and build for this vertical’s developer audience with sector-specific product features and ecosystem growth initiatives. By verticalizing, they will ideally be able to capture sustainable market share by establishing network effects within a specific vertical.

Established Eth SC Rollups with greater resources at their disposal may compete by launching verticalized frameworks on top of their existing general purpose frameworks, so they can offer both vertical-specific and general purpose frameworks to their broader developer audience.

Examples of what these verticalized frameworks might look like:

• A gaming rollup framework might optimize for speed (i.e. central sequencer, custom VM), congestion relief via sharding or auto-deployed chains, and low cost (i.e. Celestia for DA), offer gaming-focused dev tools and features, and have gaming distribution partnerships in place.

• A defi rollup framework might optimize for low latency and speed, provide oracle, bridging, and MEV optionality/customizations, and offer defi analytics tools, among other things.

A final thought

I mentioned that the rollup framework space (not rollups broadly) has been experiencing a mini hype cycle, so it seemed right to track where it currently is on the Gartner Hype Cycle so we can anticipate the shifts that lie ahead.

Gauging by the sky-high valuations at which many of these companies have raised over the last ~9 months, as well as the explosion of competitors who have entered the space, it seems we have recently hit the peak of the hype cycle and are just starting to trend downward. Companies are beginning to feel increasing competitive pressure ahead of the space’s convergence.

Additionally, many of these companies are now launching their testnets and gauging initial user interest. As they start gearing up for mainnet, they will shift more of their focus towards driving user growth to their platforms and these competitive pressures will heighten.

When the mini hype cycle for rollup frameworks enters its later stages, the larger hype cycle for modular rollups will begin to take its place. Following the same pattern, an explosion of new rollups will come to market before leveling out to what I expect will be thousands, not millions, of rollups.

DM me on Twitter @kay_phillips_ if you’re analyzing or building in the rollup space and want to chat!

This will be the era of SaaS eating the web3 world.

➡️ Web2 SaaS's golden era has come to an end: the biggest opportunities have      been tackled already

➡️ The same catalysts that Andreessen attributed to web2 SaaS's decade of      growth exist in web3 today: accessibility, dev tools, scalability

➡️ Web3 SaaS offers a massive new white space opportunity: $1T web3 market cap, lack of sufficient web3 tools, extensive learnings and playbooks from web2 SaaS

I posed this question with some answers:

What popular web2 SaaS products need to be rebuilt to deliver on the distinct technical and cultural needs of web3?

📈  Data Analytics

🤝  CRMs

✉️  Communication & Messaging

In this piece, I explore these 3 emerging web3 SaaS categories - data analytics, CRMs, and communication and messaging - in greater detail.

These 3 categories are inherently interrelated – they comprise the sales and marketing tech stack.

Ask any post-launch web3 project today and they will say their biggest challenge is member engagement. Keeping members continually engaged is vital for retention, growth, and overall project health. Without enough of a reason to stay, members churn, unit economics weaken, and projects are unable to scale past a certain size or even ensure their long-term viability. This is because in web3, where everything is open source, community-driven network effects drive competitive moats.

Today, a lot of web3 user activity is short-sighted. Users bounce from one short-term gain to the next, looking to make a quick buck. Without the tools to help projects analyze member data, manage and reach members, and identify leaks in their sales and marketing funnels, web3 projects across the board will struggle to retain members and establish lasting network effects. This will impede overall web3 industry growth.

Why can’t web2 tools solve these issues? Because the decentralized nature of web3 presents new opportunities and challenges – beginning with its technical architecture and trickling down to its incentive mechanisms, organizational structures, and user behaviors. These differences impact everything from how SaaS products are built to how they are used. Because of this, many web2 SaaS products cannot be retrofitted to deliver on web3’s distinct needs. A new era of the web requires a new suite of tools to help it sustain long-term growth.

Below, I dive deeper into each of these 3 web3 SaaS categories. I cover why existing web2 solutions will not suffice, the product features that might satisfy web3’s distinct technical and cultural needs, and some interesting companies building these web3 solutions.

📈  Data Analytics

The need for web3 tools: The shift from private data in web2 to massive amounts of public data in web3

To date, most web3 data analytics solutions have been finance-focused (e.g. Dune Analytics, Nansen), driven by demand from retail traders and financial institutions. But new data analytics opportunities are emerging as more web2 brands establish their web3 presence and as web3 native projects focus on retaining and growing their members. Marketers and growth experts are being tasked with creating engaging web3 communities, which is driving significant demand for a new crop of user-focused data analytics solutions.

In web2, data exists in silos and is privately held by companies, which has enabled data-rich web2 companies like Google, Meta, and Netflix to develop extraordinary competitive moats. In contrast, in web3, all on-chain data is publicly available. This levels the competitive playing field and provides greater opportunity for all web3 companies. However, it also presents new challenges. The sheer volume of on-chain data requires time, cost, and expertise to clean, index, and analyze. Additional layers of complexity stem from the need to unify user data across web2 and web3 for a more comprehensive picture of the user and their activity, while also maintaining the user’s privacy and compensating them for providing their personal data. Essentially, a new data analytics tech stack is needed to properly analyze user data across web2 and web3.

The company Port3 is taking a unique approach to unifying web2/3 data by launching the first social data oracle (see diagram below). Its oracle successfully aggregates user data from numerous on and off-chain sources, anonymizes it, and compensates users for it. Users hold a Port3 SoulBound NFT to protect their privacy, receive incentives, and maintain control over their data.

Once the infrastructure is in place to unify web2/3 data, analytics tools can provide far more granular user insights for gauging web3 community health, such as: customer profiling and segmenting, cohort analysis, high vs low value users, customers at risk of churn, competitor usage, etc. Persona (website coming soon) is one company building out these capabilities and paving the way for web3 customer intelligence. Others include: ZeroDrop, Merlin, and 2.5 Intelligence.

Once a web3 project starts collecting and analyzing user data, it can then act on these user insights to strengthen its community using web3 SaaS tools like CRMs and communication protocols.

🤝  CRMs

The need for web3 tools: (1) Web3 work culture gives individuals the freedom to work across multiple projects, instead of being limited to a single employer

Web3’s fluid work culture adds complexity to managing customer relationships that traditional web2 CRMs are not structured to support:

• In web3, an individual is more likely to work for and participate in multiple projects, and may take on different roles/titles in each.

• Web3’s focus on the ownership economy creates blurred lines between business and customer, since users are also fractional owners of a project.

To be effective, web3 CRMs need to incorporate web2/3 user data (as mentioned above), and organize this data around a user’s wallet, since the wallet is the atomic unit for a user’s web3 identity. We have already seen the emergence of on-chain social graphs like Lens Protocol and CyberConnect structured around wallet-based digital identity, so it seems logical for web3 CRMs to organize user data in the same way. A web3 CRM might even integrate with one of these social graphs to incorporate these wallet-based DIDs into its product.

The need for web3 tools: (2) Web3 projects grow through community-led growth, rather than the web2 customer acquisition funnel

Another key distinction of web3 is that community is central to its culture. Web2 companies generally grow through sales and marketing teams that guide users through the traditional customer acquisition funnel (awareness, interest, evaluation, purchase). They tend to place greater emphasis on purchase than on retention.

In contrast, web3 projects grow through community-led growth – a process that looks quite different. Individuals typically receive tokens representing fractional ownership in a project from the outset. Since this conversion happens early on, greater emphasis is placed on retention.

Projects and their individual contributors benefit from the strength and growth of their community, so each individual is financially incentivized to help in these efforts. Therefore, sales and marketing functions are replaced by community managers and the individual tokenholders themselves. Circling back to my point about individuals working across multiple web3 projects – individuals are incentivized to cross-promote their communities to the other communities in which they are involved. This leads to a greater overall interconnectedness between projects and communities in web3.

With this distinction, CRMs should be organized around web3 community metrics focused on retention and growth, such as:

• Tracking engagement and contributions of existing tokenholders to issue rewards

• Tracking individual project:member and member:member connections to strengthen intra-community relationships

• Collecting data points to understand tokenholders’ interests for various community-driven initiatives

• Tracking the additional projects that existing members are involved in for potential project:project partnership opportunities

Web3 CRM companies:

• project:member focused: Holder, Qwestive

• project:project focused: 3RM 

• customizable focus: EspoCRM

Web3 CRMs are still a fairly nascent category, despite a clear need for them to exist. I’ve only seen a few very early players building in this space, though I have yet to see one that covers all the criteria I’ve outlined above. But it’s still early days, so this could definitely change. This also leaves plenty of room for new entrants to join in on the opportunity.

✉️  Communication & Messaging

The need for web3 tools: Web3 communication is currently fragmented across a number of web2 messaging platforms, resulting in a suboptimal user experience

Today, web3 communication is disorganized, filled with unwanted spam, and scattered across various web2 messaging platforms like Discord, Telegram, and Twitter. The absence of native web3 communication infrastructure results in a poor and overwhelming user experience. Users find it challenging to filter through all the noise in order to stay up to date on important announcements for the projects in which they’re involved.

Like web3 CRMs, web3 messaging should also be tied to a user’s unique wallet address. Streamlining communication through a blockchain-based communication protocol and platform benefits both users and projects. For users, a communication protocol aggregates all of their messages, greatly simplifying and improving the user experience. Users receive messages through an inbox and push notifications. Users can also opt in/out of the types of messages they receive, empowering them to regain control over their ad exposure and time.

For projects, tying messages to a user’s wallet address and digital identity allows for better user targeting, engagement, and customer support. Projects can tailor messaging to specific user segments to improve relevancy of content and reduce noise for the user. Basically, ‘Twilio for web3’.

Looking a step further, users should have the opportunity to be paid for opting in to read messages from new projects. ‘Read-to-earn’ (the opposite of paywalled content) is an effective way for projects to advertise in web3, while fairly compensating users for their ad exposure.

Web3 communication & messaging protocols:

• Chain-agnostic: EPNS, Notifi, XMTP

• Built on Solana: Dialect

Companies building chain-agnostic solutions that can transmit messages across web3 (dapps and wallet-to-wallet) and web2 (via email, SMS, etc) seem most advantaged to succeed because they remove points of friction for the user and meet the user wherever they are. EPNS, Notifi, and XMTP are chain-agnostic, whereas Dialect is limited to Solana. XMTP’s solution is unique because it does not have a platform as part of its offering - it is a secure, decentralized, and open messaging protocol upon which developers can build their own messaging dapps.

This space is just starting to heat up and I think we’ll learn a lot more about the future of web3 communication with the upcoming launch of Solana’s smartphone Saga. Several communication protocols, including Dialect and Notifi, plan to launch their web3 inboxes as dapps on Solana Mobile Stack (SMS) to provide seamless web3 messaging for Solana smartphone users. While it’s uncertain how much demand there will actually be for Saga at launch (personally I think the launch is premature, since we’re still years away from web3 mass adoption), Saga’s launch will teach us a lot about web3 user behavior and how web3 communication might evolve from here.

Final Thought

The categories I’ve outlined above barely scratch the surface in terms of all the opportunity that exists in web3 SaaS and tooling. I’m excited about this massive, evolving space and will continue to explore and unpack other high-potential web3 categories in future posts.

Thanks for reading! I’m an early stage web3 VC & would love to chat if you’re a founder building in any of these areas. @kay_phillips_

Yes, we’ve entered a market downturn and another crypto winter, but the timing has never been better to invest in what will become the biggest web3 companies of the next decade. Looking back at the last decade, I’m confident in this.

Just over a decade ago, Marc Andreessen famously wrote the piece “Why Software is Eating the World,” and we have watched his thesis accurately play out since then. SaaS took off in the 2010s, experiencing 1300% industry growth from 2014 until its peak in Q4 2021.

👯  Comparing the onset of the web2 & web3 SaaS eras:

Andreessen believed the SaaS industry would take off because “all of the technology required to transform industries through software finally work[ed] and [could] be widely delivered at global scale.” This was due to a number of factors that reduced the time and cost to launch a software business, including:

1. Increased accessibility (via broadband and mobile phone)

2. Improved developer tools

3. Greater scalability (cloud-based infrastructure)

We are now seeing these same factors - accessibility, dev tools, scalability - begin to form in web3 as we enter a new decade of software eating the web3 world:

1. Accessibility is improving now that 200M+ crypto wallets are being used around the world (a rough estimate derived from Coinbase, MetaMask, and Blockchain.com’s unique users) and significant funding has poured into web3 user onboarding solutions. Examples of these onboarding solutions and improvements include learn-to-earn platforms (e.g. Rabbithole, Layer3), human readability (e.g. SolFinder, ENS Domains), auth infrastructure (e.g. Web3Auth), and simplified on and off-ramps (e.g. MoonPay, Wyre) that will help usher in the next 200M+ people to web3.

2. Smart contracts’ unique composability makes all software created on the blockchain open source and easy for developers to reuse and build upon. This rapidly reduces the time and cost to launch a new web3 project.

3. Networks of nodes are already established to make scaling of decentralized storage, servers, and computing power possible in web3 (e.g. Arweave, Alchemy). This offers a more scalable, distributed architecture than exists in web2. (Yes, L1 scalability is still a challenge, but companies like our portfolio company Analog are helping to solve for it.)

🚪  Maturation of web2 SaaS is opening the door for massive growth of web3 SaaS:

After a decade of explosive growth in web2 SaaS, SaaS funding slowed to a record 15% low of total global venture funding in 2021, down from a high of ~23% in 2014, signaling market maturation. Over this time, strong SaaS industry performance led to an influx of new entrants, significant advancements in SaaS tooling, and playbooks for launching new SaaS companies. As the industry has matured and grown crowded, it has hit an inflection point where it is now easier than ever to launch a new SaaS company but harder to meaningfully scale it, as Packy McCormick recently pointed out.

Another sign that web2 SaaS has become a crowded and mature market is that its growth is now primarily stemming from the unbundling and rebundling of existing solutions. We’re seeing aggressive verticalization of existing horizontal products, as well as rebundling and centralization of the existing tech stack because too many SaaS tools are being used today. What I’m saying is the biggest opportunities in web2 SaaS have mostly been tackled already. New entrants are limited to solving marginal improvements rather than the industry-defining challenges that will be solved by the next generation of decacorns.

As web2 SaaS’s golden era now comes to an end, web3 SaaS provides a massive new white space opportunity. Web3 has grown to a massive $1T sector, yet is still like the wild west with many challenges yet to be solved. Broadly speaking, web3 lacks sufficient tooling to meet its unique technical and cultural needs (more on this in my next piece).

Founders building web3 SaaS companies right now have an almost unfair advantage. They can develop competitive moats as first-movers in the space, recreate products and business models that have already been proven out in web2 but that will serve a new and different set of needs in web3, and attract funds from both web3 investors and traditional web2 investors in search of new opportunities with higher return potential. For investors, web3 SaaS presents an uncapped opportunity to back the next era of category leaders.

🚀  The golden era of web3 SaaS:

Despite the current economic downturn, if we believe that web3 will continue to exist in the future - which seems extremely likely given the significant amount of capital and talent that it has amassed to date - then right now is an incredible time to be investing in web3 tooling. These foundational web3 tools will:

1. propel the most promising existing projects, dapps, and communities to new levels of growth

2. lay the foundation for the next wave of even stronger and more transformative projects and companies to be built

3. set the stage for mass adoption when the economy improves and a new crypto summer emerges

Some of the tooling needed for web3 to enter its next growth cycle are already becoming clear, such as solutions for L1 scaling and security, cross-chain interoperability, and improved UX/UI and human readability of data. Arguably, however, the most de-risked area of opportunity lies in web3 SaaS, given its resemblance to the massive web2 SaaS market that has generally been lucrative, predictable, and stable over the last decade. With this in mind, I’ll be spending time over this crypto winter analyzing opportunities in web3 SaaS, starting with this question…

🤔  What popular web2 SaaS products need to be rebuilt to deliver on the distinct technical and cultural needs of web3?

Some initial thoughts:

📈  Data Analytics

🤝  CRMs

✉️  Communication & messaging

I’ll be diving into each of these emerging web3 SaaS categories in my next piece, so stay tuned for Pt. 2 soon!

Thanks for reading. I’m a pre-seed & seed stage investor at the Basecamp Fund at Alumni Ventures. If you’re a founder building any of these solutions for web3, let’s chat! @kay_phillips_

I mean, I get it. We’re currently at an inflection point in society, culture, and technology. We’re exhausted for a million different reasons: political polarization, Covid, global warming, job burnout, inflation, and a looming WW3, to name a few. We’re fed up with the status quo and eager to embrace something new, so we’re going all-in on web3 and the autonomous, anti-establishment movement behind it.

However, we are largely doing so under the false pretense that ‘web3 is going to fix everything that’s wrong with web2 and the world around us.’ This is overly optimistic and misguided, since some of the biggest criticisms of web2 may be further propelled in web3… Yet, no one is really talking about this.

As web3 founders and investors, we have a moral responsibility to be critical about the future that we are building and funding. So, below are some of my initial Black Mirror-esque thoughts on the topic, which I hope lead to greater dialogue about how to combat some of the inevitable challenges that lie ahead.

Picture a spectrum of centralization on the societal, political, economic, and technological levels.

At one end of this spectrum is the purest form of centralization: a society governed by authoritarian rule with private markets shaped by web2 technology. Web2 has enabled only a couple big tech companies to thrive, as they have used their data-powered engines to build massive competitive moats, nearly eliminating all other competition. Power is concentrated among only a couple players.

At the other end of this spectrum is the most extreme form of decentralization: a society run on libertarian principles with private markets shaped by web3 technology. Web3 has enabled many companies (structured as DAOs) to co-exist, though the crowded landscape challenges their ability to scale. Power is distributed among many players.

Today, society as a whole skews more centralized. We have central governments and banks, most of us live in democratic countries (rather than authoritarian or libertarian), and web2 technology has enabled some big tech companies to achieve outsized power, ownership, and influence over private markets and our increasingly digital lives. In the future, society as a whole may skew more decentralized, as web3 technology enables new decentralized organizations to form and to operate efficiently. This shift would level the playing field to some extent by limiting big tech’s influence and by creating market opportunities for new entrants.

Now, to illustrate the dystopian side effects that could come with this shift towards decentralization, let's imagine an extreme scenario in which our world becomes completely decentralized, operating entirely in web3:

Media & Communication:

In the last few years, we have watched as the data-driven economies that have allowed big tech to thrive in web2 have also caused significant harm by polarizing our society. According to Princeton researchers, “social networks influence polarization — rather than merely reflect it.” Over time, personalized, targeted content has created self-reinforcing beliefs that have siloed people. This has created echo chambers and extremist groups that have deeply divided our society.

In the extreme web3 world we’re imagining, decentralization would lead to greater polarization. People would splinter off into many different decentralized communities, enabling more divisions and extremist groups to form. The echo chamber effects would be further compounded within these communities, as each community would have its own siloed conversations and rely on its own niche news sources. We might reach a point at which no central media outlets would exist to inform the general public, just niche news outlets reinforcing the beliefs of niche decentralized communities. Rather than a potential civil war between left vs right wing, this might lead to many ideological groups at war with each other.

On a global scale, we would become more close-minded, less receptive to new ideas, and less willing to work together. We would grow ignorant and unempathetic to those outside our niche communities, shutting ourselves off from opportunities that could benefit society as a whole. We would lose the ability to educate and mobilize the masses to take action for critical efforts like saving the planet. We would experience a reversion of idea-sharing, innovation, and globalization. Ultimately, the outcomes would be poorer for everyone.

Government & Social Order:

Considering the damage caused by decentralizing media and communication, society might descend into anarchy. Governments might lose the ability to effectively communicate their policies, goals, and impact to constituents. Mass ignorance, discontent, and shared feelings of helplessness from the perceived inability to control or improve one’s own life might push people to take matters into their own hands – like we saw with the January 6th rioters.

Some findings from a Princeton University study on political polarization:

• “The complex systems perspective demonstrates that the loss of diversity associated with polarization undermines cooperation and the ability of societies to provide the public goods that make for a healthy society [...].”

• “As social interactions and individual decisions isolate people into only a few intractable camps, the political system becomes incapable of addressing the range of issues — or formulating the variety of solutions — necessary for government to function and provide the services critical for society.”

Population-wide discontent coupled with potentially weak or volatile financial markets could be catastrophic. The economy has consistently been the biggest issue for voters in US presidential elections over the last 100 years. While the US government might continue to manage its central bank, if people chose to hold most of their wealth in crypto, our government and its constituents might not only lose economic control, but also political control and social order. A really slippery slope.

Conclusion:

Okay, I know that got pretty dark! To be clear, I do not foresee our world becoming entirely decentralized. This is an extreme example to illustrate my point. Realistically, we will likely be somewhere on the centralization spectrum skewing slightly more decentralized than we are today. Though, I hope that this example inspires new ideas and actions for how we can shape the future to be an improvement from the present we are trying to break from.

One last thought – centralization isn’t all bad. Some degree of centralization and web2 is necessary for society to function and for a universally higher quality of life. Web2 and web3 shouldn’t be at odds with each other; they need to coexist and complement each other.

All in all, I think we’ll be okay as a slightly more decentralized society. I’m going to continue investing in web3, but with a socially-conscious mindset that weighs both its opportunities and threats.

I’m a pre-seed and seed stage investor at the Basecamp Fund at Alumni Ventures and would love to hear any ideas you might have on how to approach this complex challenge. Shoot me an email at kayla.phillips@avgbasecamp.com if you want to chat!

If you're not familiar, talent agents represent a portfolio of talent - i.e. actors, directors, screenwriters, musicians, etc. - and navigate the industry on their clients' behalf to help them acquire new roles, projects, funding, etc. Sounds a lot like VC, right?

Essentially, these industries and the key players within them have played significant roles in shaping our culture to date, with agents and VCs initially sourcing and backing the biggest projects and people that have come to define us.

Recently, the similarities between these two worlds, entertainment and tech, have become undeniable. The lines between them are increasingly blurring, a trend that will become even more pronounced in the future as tech opens doors for new consumer habits and preferences to form. 

To understand this increasing convergence and its impact on culture, let's take a look at the past, present, and future relationship between these two industries:

Past: Over the last 15 years, entertainment execs and VCs have learned from and shared best practices with each other, which has served both well.

• The film industry has increasingly adopted a VC power law mindset.

  Why were 18 of the top 20 most expensive movies ever made created after 2010? Looking beyond inflation, it’s because studios have started betting almost exclusively on global blockbusters rather than low and mid-budget films, in hopes of fewer home-runs delivering outsized returns. Studios have shifted focus primarily to big-budget films (which explains the many recent superhero movies), based on historic performance and franchise upsell opportunities (i.e. Marvel's Cinematic Universe). Similarly to Softbank Vision Fund's strategy, they flood these investments with capital to create a ‘money moat,’ with much of it going towards marketing to crowd out competition and drive up box office revenue.

• VCs have taken learnings from talent agencies to attract top talent and best serve them.

  Marc Andreessen and Ben Horowitz founded a16z with some guidance from their friend Michael Ovitz, the legendary talent agent who grew CAA into one of the top agencies. Ovitz showed them how to build a network-based firm, leveraging the power of a firm's collective skills and network to attract, retain, and support the best founders in the business. This led to a16z’s focus on delivering exceptional portfolio services, which has since been adopted broadly as a VC industry standard.

Present: Recently, we have seen a shift, as the entertainment and tech industries move beyond knowledge sharing to converge on a deeper level in response to the rise of the creator economy.

• VCs and tech companies are becoming talent agents, investing in talent and creators.

  VC firm Slow Ventures launched its $20M Creator Fund last year, because it sees “investing in creators as a natural extension of [its] seed investments over the last 10+ years.” Meanwhile, seemingly all of the big social media companies have launched creator funds to invest in the biggest talent on their platforms over the last year. This includes the TikTok Creator Fund, YouTube Shorts Fund, Facebook’s $1B creator program, and plenty of others.

• Creators and agents are becoming VCs, investing in ideas and tech.

  Over the last couple years, more talent has delved into VC with the launch of their own funds, including Ashton Kutcher's Sound Ventures, Jay-Z's Marcy Venture Partners, Serena Williams' Serena Ventures, Snoop Dogg's Casa Verde Capital, and social media stars Josh Richards, Griffin Johnson and Noah Beck’s Animal Capital, to name a few.

• Traditional talent agencies have grown into media conglomerates, adapting to consumers' changing preferences.

  Talent agencies have grown into media conglomerates, diversifying across a quickly changing entertainment and media landscape, as technology has redefined how and where consumers spend their time and the types of content that they consume. Among other expansion efforts, agencies have built out digital talent departments and brand partnership teams to best serve influencers and creators across new consumer tech platforms. Agencies have also grown their own corporate venture arms to tap into new media platforms and content early on, and to support their clients' increasing interests in launching their own businesses. CAA and NEA partnered to launch Connect Ventures in 2020 to invest in early stage commerce, content, and media, while Talent Ventures at Endeavor (WME's parent company) has helped clients like actress Shay Mitchell launch her Onda Sparkling Tequila brand.

Future: These industries and their business strategies will continue to merge, as tech and pop culture become one in the same for two interrelated reasons:

• The Metaverse: Consumers will increasingly spend more time in the metaverse, which presents a white space opportunity for new technology, entrants, and consumer demands to emerge. Since big entertainment and consumer tech companies are continuously tasked with competing for consumer attention, they will need to create new ways to do so in the uncharted territory of the metaverse in order to remain relevant and competitive.

• The Rise of Citizen Creators: The creator economy has arisen from Gen Z and Millennial sentiment to create nontraditional career paths as a result of financial pressures from student debt, stagnant wages, automation of traditional jobs, and the amount of time spent consuming content, among other reasons. Developers are also meeting creators’ needs with new creator tools that make creating content easier, quicker, and cheaper, and new creator-friendly platforms with innovative business models, like many that are emerging in web3. The result is the emergence of Citizen Creators (a term I'm coining), with the idea being that anyone has the power to create content, and in doing so, individually shape our culture and create a world they want to see.

So, what's the point?

Big entertainment and tech companies (with agencies and VC firms as key movers and shakers) have been highly influential in shaping culture through film, TV, music, and social media until this point. They have served as important and necessary channels for the creation and distribution of content in the absence of technology and infrastructure that would enable the broader population to do so ourselves.

However, we are now reaching an inflection point. With new tools, platforms, and opportunities aiding and empowering creators, power is shifting to Citizen Creators to define and shape future culture. In response, agencies and VC firms are beginning to shift their business strategies (as I’ve noted above) as they aim to establish new footholds to continue influencing consumer behavior, preferences, and culture in a future that looks very different from today. Looking forward, I expect deeper collaboration and potential acquisitions between big entertainment and tech companies as they work even closer together to define what their joint role will be in the creator-led metaverse that we are entering.

While I do believe that agencies, VC firms, and other intermediaries (in addition to big entertainment and tech companies) will continue to exist because funding, connections, and experienced industry perspectives and insights will continue to be important and beneficial, I see the roles that they will play and the value that they will add changing in the future. Power dynamics will shift so that value is product or creation-driven and more power lies in the hands of creators. Those in ancillary roles like agents and VCs will become active participants rather than outside advisors, and they will need to roll up their sleeves and directly contribute to brand and company-building as insiders. We are already starting to see this play out as more VCs join DAOs and invest in communities’ successes with both capital and active participation as contributing members.

As an investor at the intersection of culture and tech, I'm very excited for what the future holds with creators and founders taking more of the reins as we enter this cultural renaissance! I'd love to connect with great founders and investors who are building and investing in this future. Shoot me a note at kayla.phillips@avgbasecamp.com & stay tuned for more from me on this topic soon!