Digital Oak Part 2 -- Me-Commerce: Everyone is a Business
New Era of Investing around Digital Convergence & Shared Ownership
"Crypto is so unique that it's not possible to reason by analogy to history."
Naval Ravikant (founder of AngelList and leading angel investor)
We would go a step further - crypto will even make recent history look like the anomaly.
We first coined Passionware in November 2020 in our blog called The End of the Workforce Era, The Rise of the Passion Economy and the Birth of “Passionware”
The Passion Economy represents the intersection of entrepreneurship and the concept of a “job”, with huge implications for the future skills and capital required. This creates a new mindset for both employment and entrepreneurship, and the need and comfort to be your own “lean start-up”. Moreover, these new entrepreneurs will take a different approach to their users, as they stimulate their fans to turn their own passions into revenue-producing businesses. The new wave of tools enable everyone to be an entrepreneur, run their business to earn a living and at the same time, chase their passions.
Human evolution, taking us from the savannah to creating economic order in every corner of the globe, manifests in all of us an aspiration to control our own lives and be free of dependence on others for economic livelihood.
We want to be capital - not labor. We are all entrepreneurs by our very nature. That was the norm since the Sumerian craftmen counted tokens 5000 years ago.
Only the lack of infrastructure capabilities to start, grow and scale a business has driven the 9-5 job as the (recent) historical norm. We posit the concept of Passionware 2.0 driven by the Digiverse - enabling everyone to be an entrepreneur — is a return to the real "norm" and the workforce era is the anomaly.
Until very recently it was considered a "novelty" to prefer being a solo entrepreneur or (even crazier) a start-up founder. Now with Covid accelerating changes, people want to work at home, earn with their passions and any type of skill, such as play-to-earn environments like Axie rather than be an assistant, waiter or menial worker.
Why? Because we can. The dominance of corporations, fiat money and all middle-men will be seen as a short-term accident of history, swept away by the dual power of technology and human ingenuity creating larger and more efficient economies. And allowing everyone to be a business.
This has major implications for how markets and economies are created and how venture investors can access this new world built on shared ownership.
The VC Opportunity: Macro View
For venture capital, hardware represented the investment basis from first VCs in the 1960s until software became the basis for VC investing in the 1990s.
VC investment in software exceeded $100B in 2000 largely due to the omnipresence of the Internet. Today, software and tech are the basis for almost all VC investments - reaching almost $300B in the first half of 2021 alone.
Benson Oak Ventures posits that Passionware will be the parallel to the hardware and software "uber-categories", represented by the digital revolution, with blockchain and digitally decentralized systems at its core, and NFTs as the operating system of this revolution.
Just as software ate the world, "blockchain will connect the world" unleashing true Passionware at global scale, reach and magnitude, resulting in new definitions of both entrepreneurship and consumerism.
We believe the TAM for online marketplace and e-commerce products and services will increase 10X from $6 trillion today to $60 trillion in the next two decades, much of which will be enabled by the new online world engendered by the Digiverse.
To quote Ram Parameswaran from this amazing Invest Like the Best podcast
"I'm fully convinced that the entirety of human creativity is now available and up for grabs... We always want to find the next new thing. I think the next new thing is staring us in the face right now."
There are immense opportunities for venture capital to invest early and realize outsized returns by investing in the economies, platforms, applications and entrepreneurs of the future. This new world will blur the line between consumer, builder, creator and entrepreneur, creating new economies (of scale) and requiring VC's to adapt to the new frameworks.
For consumerism, this portends an enormous increase in the scope, size and reach of consumer products and services to be sold online.
The concept of “what is a business” will take a on new meeting and this 10x increase will be fulfilled by the new wave of me-commerce entrepreneurs and SMBs, who thanks to passionware products and decentralized economies, can start, grow and scale businesses to reach consumers all over the world. For the first time, anyone can be a business on a global scale.
Finally for investors, there is a new playing field where the value of networks, creativity and support will be the essential differentiators as capital becomes increasingly commoditized by a long-tail of me-commerce financiers.
The Web3 Playing Field
We divide the emerging Web3 landscape into four multi-layered and overlapping investment buckets:
Infrastructure and "Economy-building".
New Market Creation.
Economic Growth and Scale Enablement.
The ownership ‘Lego’ bricks of Web3 will create new "Economies" from the ground-up that will truly democratize the accessibility to a new playing field where products and services can be created, consumed and invested in by all ("Infrastructure").
The result will be an enormous increase in the number of communities which will combine with an increase in ‘me-commerce’ entrepreneurs to form their own nascent economies — with early projects bootstrapped by their early backers with funding and most of all word of mouth (via new social channels such as Discord and Telegram).
In turn, this will expand the sheer number of contributors and their value ("Market Creation"). As digital apps, marketplaces, services and goods proliferate to support these new economies, their market size grows, unleashing network effects as the distinction between buyer, seller, investor and promoter blurs, accruing exponential value to all members of the community ("Growth and Scale").
Within the scale bucket (and eventually become its own engine of growth), consumers and businesses alike transit between the protocols requiring offramps, bridges, onramps, as well as payment and transfer mechanisms to enable access across worlds where everything is a digital asset to move around - by you ("Portability").
The magnitude of this opportunity is represented by the convergence of all actors and the merging of how we think about consumers and businesses, effectively creation a shared ownership framework that, to paraphrase the opening quote from Naval, "has no historical precedence".
This and Part III are intended as a framework for how Benson Oak Ventures evaluates the investment opportunities in Web3, specifically through the prism of Passionware and the inevitable boom. If you have not read Part I background, please look at that first.
Passionware: The Merging of B2C and B2SMB
Passionware in Web3 is the merging of B2C and B2SMB where all stakeholders meld into common ecosystems built from the ground-up, with the active involvement, investment and promotion of all, bonded by a common ownership token.
Through historical prism --
Industrial Era Organization:
Empires and nations formed as "top-down" ways to organize people into tribes and organize economies. Corporations became the embodiment of capitalism and credit its lifeblood as only (certain) corporations could access credit. Labor is employed and managed by corporates (and paid so they can in turn consume from those corporations).
The Internet was an evolution not a revolution to this pattern.
The Internet democratized many industries and brought the world together in a 24/7 loop on a social level. However, from an an economic and investing perspective, everything still looks similar to the old world
We are still building on on countries, their regulatory and governmental regime, local corporations, fiat currencies, local taxes and legal frameworks.
The so-called gig economy masqueraded as entrepreneurship, but it is really labor for a new wave of software-driven corporations (Uber, AirBnB, etc) by a different name.
For start-ups, the market is bigger but they still need to raise funding (first), hire people, ship a product, market and spend money to attract an audience, raise more money, and so on. And most start-ups still must fund, produce and hire people from local communities.
The Internet created the "Digital SMB" as a viable business category
SMBs have of course been around for five thousand years or more. They are the dominant category of business in every part of the world.
From an investment perspective, VCs saw most SMBs as as "lifestyle" businesses and not scalable businesses that can become large companies on their own. This is no longer true.
The Internet created a new class of digital, scalable SMBs by growing the sheer number of consumers they could reach and giving them tools from AWS and other SMB-focused "infrastructure" companies such as Shopify, Wix, Dropbox, GoDaddy, Zendesk, Hubspot and Square (one part of the passionware landscape).
The VC firm GGC created their own SMB Index of 22 public companies (effectively a proxy for SMB focused passionware) in 2018 and the index has manifested outsized returns for investors - with a market cap growing to $6.5B, a 200% increase in 3 years, historically growing 2-3x faster than the NASDAQ and 5x greater than the S&P.
These tools still apply the same approach - business selling to consumers and placing them in distinct buckets, while creating a bigger portion of SMBs among the former. The other circles in this start-up ecosystem - banks, VC investors, public investors social media advertising platforms, marketing agencies - started validating the concept of "SMBs" as viable businesses that could reach the mass market consumer and grew their revenue massively in helping SMBs scale.
However, the overall economic model remained the same - ideate, raise VC capital, spend on Facebook and Google to get customers, raise more VC capital, and so on.
Everyone is a Business: Where Creators and Fans meet
The concept of the passion economy (which Li Jin brilliantly wrote about in Oct 2019) added two elements to the B2C/BSMB dynamic. By enabling anyone to create content, it made the "S" in SMBs even smaller and better matched SMBs directly with their fans. This content went beyond just media to include teaching, coaching, art and gaming, advice and more.
New ‘Passionware’ unicorns such as Patreon, OnlyFans, Outschool, Medium and recent NFT marketplaces like Open Sea and SuperRare connect sellers of content directly with their fans. Passionware infrastructure around payments created platforms where SMBs could "set up shop" and sell to both fans and new customers, as the platform itself did the marketing for them.
Of course, this still a form of B2C - business selling to consumers - with a new kind of middle-man still taking a large cut. However, the concept of 1,000 or even 100 true fans is enough to sustain a business.
As a result, creators and their fans are getting closer to overlap, reducing reliance on capital for product development, time to market and performance marketing to find users. Covid accelerated the trends for people to rely more on themselves than employers and earn living from their passions and skills.
Digital Convergence will blur the lines between consumer, producer, investor, builder where all actors can become their own business contributing to the shared ecosystem, all orchestrated by tokens.
Inversion + Convergence = Me-Commerce
NFTs drive new business models, driven and adapted by the community, not the centralized platforms. Anyone can become an entrepreneur "as a contributor", or as we at Benson Oak like to call it "Me-commerce".
What is ‘Me Commerce’? Where individuals earn directly from their contributions to a decentralized network -- regardless of age, financial status, education or location. These ‘entrepreneurs as contributors’ are paid to follow their passions - play and crush in a game, choose topics for their favorite podcaster, curate art, make cool videos, and so on. Everyone is an owner.
Inversion of the Ownership Model
The Web3 ownership ‘Lego’ bricks engender Inversion of the Ownership Model and Digital Convergence, both powered by the invention of NFTs.
With the power of NFTs, the top-down approach prevalent in "recent history" will become inverted, creating a viable alternative to platform-driven monetization.
Using digital ownership ‘Lego’s’ anyone can:
Start their own business, launch a product using one's own creativity - with zero barriers to entry
Demonstrate product-market fit AND distribution - without huge capital requirement
Deploy the business direct to fans on a global basis
Cultivate a following of customers, promoters investors, lenders at scale
This inverted model allows a community-first product launch. This community-first approach - reduces start-up risk significantly and creates synergies with the creator passion economy. The inverted model transforms the online experience to build a product AND build a community around it.
In turn, this brings huge benefits for distribution, marketing, generating early returns and enabling developers to build apps on top, and more capital to be invested back into production. The craze around Bored Ape Yacht Club and Crypto Punks stem from communities supporting each other and projects.
In this new world, there is no longer neat buckets separating creator, consumer, seller, investor or promoter. The early fans not only validate the product market fit but enable fund-raising through direct participation (investing, staking, lending). All of this done on a global basis without it being seen as such. In the framework of Passionware - as consumers and small entrepreneurs both benefit from scale afforded by digitalization, the lines between them blur to the point of indistinguishable. Consumerism blends in with entrepreneurism where all users act not just as consumers of their favorite products, services and brands but contributors, promoters and investors.
Conclusion to Part II: Me-Commerce is a given for digital-first generation
The nice, neat patterns we know as "history" where every actor has its distinct place in the economic ecosystem will flow together as disparate circles and become not only "ownership Legos" but "converged Legos" merging interests, growing the economic pie -- reflected in shared token ownership -- maintained by governance and shared voting. They will be more bound by the virtual or digital worlds where they share identities instead of national flags or specific professions.
Today's generation - and the next - are digital first. That's the image they cultivate and where they will seek to make the vast majority of their money from. Kids want digital skins in games not lego or physical games. This is what is happening and is a growing trend - which is why GenZ are growing up on Roblox and Fortnite and soon crypto-denominated games and environments.
For the younger generation [the ‘me-commerce’ generation!] - the digital native component of businesses based on blockchain will be the norm, alongside the concept of everyone owning a piece of their participatory ecosystem via the shared token. Shared ownership and ‘me-commerce"‘ will quickly become taken for granted and will be simply obvious for the digital-first generation. No more need for long blogs to explain what has changed.
Where does this leave the world of Venture Capital?
Benson Oak believes that all of this is a sea-change for VC investing. Nothing is going to stay the same. Find out more in Part 3 of the Venture Capital Opportunity in Passionware next week.