Episode #298: Boris Wertz, Version One, “I Really Think About The Next Decade As A Golden Decade For Technology”

Episode #298: Boris Wertz, Version One, “I Really Think About The Next Decade As A Golden Decade For Technology”


Guest: Boris Wertz is founding partner of Version One and one of the top tech early-stage investors in North America. Born in Germany and based in Vancouver, Boris takes a wide-angle view to find great companies all across North America: from New York and Toronto to Seattle and LA. He is a board partner with Andreessen Horowitz and is well-respected for his uncanny ability to find the next generation of leaders. Before becoming an investor, Boris built an online marketplace for used and out-of-print books in 1999, selling the business to AbeBooks.com where he became COO and led a team of 60 people. After AbeBooks.com was sold to Amazon, he moved into investing, first as an angel and now with Version One.

Date Recorded: 3/10/2021     |     Run-Time: 44:54

Summary: In today’s episode, we’re talking all things marketplaces. Boris’ knowledge of marketplaces is unrivaled. He started one of the first marketplaces in the late 1990’s and recently released the third edition of A Guide to Marketplaces, a must-read for anyone interested in the business model. We start by going all the way back to the early days of eBay and then talk about how marketplaces have evolved over time, most recently with crypto and the blockchain.

Then we dive into one of the hot topics of 2021: non-fungible tokens (NFT’s). Boris shares some broad thoughts on NFT’s and touches on one of his portfolio companies, Dapper Labs, which is behind NBA Top-Shot.

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Transcript of Episode 298:

Welcome Message: Welcome to the “Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com

Meb: What’s up, y’all? Great show today. Our guest is the founding partner of Version One, an early stage venture capital firm focused on backing mission-driven founders. On today’s show, we’re talking all things marketplaces. Our guest started one of the original marketplaces and recently released the third edition of the must read, “A Guide to Marketplaces,” one of my favorite reads. We start by going all the way back to the early days of eBay and talk about how marketplaces have evolved since then, most recently with crypto and blockchain. Then we dive into one of the hot topics of 2021, non-fungible tokens otherwise known as NFTs. Our guest shares some broad thoughts on NFTs and touches on one of his portfolio companies, Dapper Labs, which is behind the phenom NBA Top Shot. Please enjoy this episode with Version One’s Boris Wertz.

Boris, welcome to the show.

Boris: Thanks for having me. Excited to be here.

Meb: Where’s here, by the way? Where in the world do we find you?

Boris: Vancouver, BC, beautiful British Columbia up in Canada.

Meb: Fingers crossed, I’m going to make it up there April, May, if the world reopens. I don’t know. It may not. May be stuck to Utah and Colorado. I’m a big skier, I’ve done very, very little skiing in the last year. It’s been a struggle but there’s tons of snow starting to come in now, so I’m hoping spring time to get out there. I miss Vancouver, world-class city.

Boris: It is a beautiful city especially when it’s nice weather. Sometimes have a bit of rain during the winter. The nice season starts now.

Meb: The famous blowtorch type of sushi, Aburi. I don’t even know how to say it. It’s a Vancouver staple. I got to get back up there. But I want to talk today, we got a lot of fun things. We’re going to talk deep on marketplace, maybe even get into some crypto and some basketball, all things. But first we got to start out, your early days in the book world. And I’ll tell you why I want to lead in with this is because when I was a young 20-something, my favorite thing to do as a young broke 20-something was to find finance books that were out of print or ways to get access to them but could sell them on competitor probably, Half.com who was, I think, bought by eBay, for like $500. $500 for a 20-year-old is…may as well be $50,000. But you started out instead of just selling one book, built an entire business. Give us a little quick overview of your background leading into the VC world.

Boris: I started out as an entrepreneur, ’99 was kind of the height of the Internet boom and I felt that I had to part of what was happening there, kind of the new economy as it was forming. So five of us got together and came up with the idea of creating a marketplace for used, for your out of print books, and it really came out, that student experience of what you just described, like, you know, textbooks are way too expensive but there’s used textbooks that are way cheaper but hard to get because there’s just limited local supply. And so the idea was let’s take all of that supply that is in bookstores around the country, around the world and put in a gigantic database that everybody can access and really connect buyers and sellers of these books.

So we started that company in Germany in ’99, sold it to a Canadian company called AbeBooks in 2001. It was like nuclear winter in terms of fundraising ability in the Internet world, the bubble had burst. It was one of the tougher economic situations at that time. We founded that company AbeBooks, put the companies together, I joined them as Chief Operating Officer and did that for another five years until we sold AbeBooks to Amazon. So for me it was just an incredible eight years of the early, early stages of starting a company and kind of setting up Ikea desks and painting the office walls to get ready to in the end running a company of about 140 people, quarter of a billion of platform revenues when we sold it to Amazon. And, you know, to this date AbeBooks is a subsidiary of Amazon. They have been a very good owner and it continues to be one of the leading platforms for used or out of print books.

Meb: Awesome. So you took a look around and said, “All right. I’m not ready just to retire and ski at Whistler Blackcomb every day. It’s a big mountain but even then it would…might get tired quick.” You started investing. Is that right? Is that the on-ramp, started doing a little angel investing on your own?

Boris: I had started angel investing before we even sold to Amazon and had made a few investments. And then after the exit, I had for the first time quite a bit of capital and I started like, do I start a second start up, do I kind of move into the investing world? So I double down on investing, did that for four years on my own capital, did about 35 early stage investments, worked with a few VCs on an informal basis just to learn the trade. And then finally in 2012 decided I want to really make it my full-time profession. Had developed the investment pieces, had developed a track record, learned a few hard lessons of what now to invest in and how not to invest, and then started Version One Ventures in 2012. We’re not on our third fund which is a $45 million early stage fund, two partners in the meantime and really investing at the pre-seed and the seed stage in marketplace, enterprise SaaS, crypto, healthcare, energy, climate.

Meb: Let’s talk about marketplaces for a little bit, because it’s been such an amazing development kind of Cambrian explosion of companies and ideas. You were early, you have a really fun almost book, I hesitate to call it a white paper. I’ve actually read it twice in the past week, I loved it. It’s called “Guide to Marketplaces” and it’s third edition, listeners will link to it on the show notes, that walks through kind of your thinking, your experience and updates. Maybe give us just a broad overview of some of the takeaways from that paper and we can kind of split off into a few different rabbit holes as we go down.

Boris: “Guide to Marketplaces” came up as an idea as we, you know, we started investing quite a bit in marketplaces, and entrepreneurs had a bunch of questions around, you know, what is Path A or Path B, like how do we successfully built this marketplace? So essentially I felt like, you know, it doesn’t make sense. You always want to, one, answer these questions, but let’s just put our combined knowledge that we had acquired both as operators, as investors around marketplace and put it in a guide. The three things that the guide really answers is first of all, what are industries and scenarios where marketplace is especially successful? Because, not every industry, not ever vertical is kind of perfectly suited to build a marketplace for. There are some that are better than others.

The second one is every marketplace has this chicken and egg problem of, you know, kind of building up supply while there’s not yet demand, building up demand when there’s not yet supply and kind of getting this sorted out. Marketplace needs to figure that out and there is different strategies to do that and different ways to compete. And then last but not least, merging a marketplace at scale and what does that mean? What do you need to think about once you have solved the chicken and egg problem? There are many other new challenges coming up. And so that’s kind of the three things we’re thinking about, like what are some of the most promising characteristics of a vertical where you want to go and build a marketplace for? How do you actually start a marketplace? How do you overcome the chicken/egg problem and then how do you scale it?

Meb: As people think about marketplaces, there’s the Oh Geez, the Craigslist or maybe the eBay. Are those some of the most famous? Are there any of the old ones I’m kind of missing as the biggest?

Boris: No. I think the OGs, as you said, I think the OG in most people’s mind was eBay, right? I mean, that’s really where it all started and people suddenly realized the power and the potential scale of Internet marketplace, right? I mean, that’s where we’d started. And the OGs really were built around this initial idea of let’s connect buyers and sellers over the Internet at scale and worked really well. I think the challenges of the OGs over time was that they were a little bit too hands off and probably not always managed best in terms of customer expectations, right? And so while they brought these amazing connections to life of suddenly finding items that were very hard to find in a local limited environment, but it certainly wasn’t like the best customer experience always. I mean, eBay is still an incredible company and like, I think, $40 billion market cap company, but it certainly hasn’t lived up to some of the promises that we originally had in a marketplace like that.

Meb: Yeah. I mean, I remember being an early user, certainly that’s like the original web, and then I tried to… What was I trying to buy there the other day? Oh, kids skis. I was trying to buy kids skis. I have a three-year-old, and oddly enough at that beginning of the season couldn’t buy them anywhere. You can buy them now, but like he’s three. He doesn’t need a pair of new skis, and it’s like the worst experience, I forgot, as 20 years of other companies innovating and it becoming so frictionless and easy and all of a sudden it’s still like, it felt like this 20-year-old totally unusable, and I just kind of gave up and moved on. But REI got my money just out of headache. Are there any cases studies of marketplaces in the early days you’ve invested in? I know you guys, how many companies you invested in across three funds? A couple of dozen, right?

Boris: About 65 across 3 funds plus, yeah, kind of 35 before that. So, you know, close to 100 now.

Meb: Are there any that come to mind as kind of like in the early, they would be good examples or case studies of marketplaces that you guys invested in?

Boris: AbeBooks was one of the OG marketplaces in terms of… Like, we always described it like an eBay for used or out of print books, like a mini eBay for these types of books and it worked exactly in the way eBay worked. When I left, there were 13,000 booksellers from around the world, like from over 50 countries and millions of buyers on the other side. That magic of connecting a buyer from Europe with a bookstore somewhere in North America that had the specific book you were looking for. I mean, that was really the OG marketplace and one that often people had to find a book at the other end of the world on AbeBooks and then getting that shipped in no time.

Meb: One of the cool trends that I think Abe and others have done is essentially they’ve taken a product and…not securitized, it is the wrong word, but kind of made them fungible saying, “Hey, you want to buy ‘Shoe Dog’ by Phil Knight, this is what it is, you can get it anywhere in the world. Maybe it’s new, maybe it’s used, whatever, but it’s replaceable.” And to me that seems like I don’t know if there’s any marketplaces doing this. You can maybe argue Amazon is but I have now enough of my issues with them on this side. It’s doing it just for almost entire categories of products across the board. I mean, is that fairly commonplace today in 2021? Is there someone doing it for just everything or is it almost like a bar stamp? I mean, this is maybe pre-empting our conversation we’re going to get into a minute, but does that question even make any sense, or statement?

Boris: And one of the criticisms we had in the beginning from some collectors and book sellers actually when we started AbeBooks was, “Oh, you bring all of that transparency to the market.” It was so much fun to discover that book that nobody had seen the value for and basically that was the business model because there was just not transparency around it. And I think generally the Internet has obviously brought tons of transparency and fungibility to these previously local markets that were very little data was available. Our oldest son, he is currently into sneaker trading and StockX and GOAT have provided tremendous amount of transparency to what is a sneaker actually worth and kind of what is the demand for that. So I think that has played out in every single vertical. I would say probably in the largest vertical, these are vertical-specific marketplaces, for tickets, for sneakers, for out or print books, and then there’s your horizontal ones like eBay or Amazon that kind of do that more for the let’s say commodity products. And obviously there, the value of price recovered is a little bit less interesting, but for these collectible items where it actually makes, you create a lot of value by providing pricing transparency across a large marketplace.

Meb: The most probably expensive pair of shoes I’ve ever bought, and it’s only like $200, so don’t get too excited listeners, was a pair of Nikes. They were like limited edition, but they were my university right after they won the basketball championship last year, Virginia. And the only place, because all the sneakerheads bought them on the website, I couldn’t buy them, so they immediately put them on StockX so I had to pay double or triple of whatever they were supposed to cost. But, I just wanted to wear them. So I’m not investing in the dunk. You guys have invested in a financial market place, AngelList, right? Do I have that right? That randomly I’ve invested in one of your portfolio companies on AngelList. So it’s getting a little incestuous. DemandStar, I think, that was on AngelList at one point. What kind of attracted to you their concept at the time? It seems obvious now, but maybe not so obvious then and it’s starting, they seem to be one of the early ones and now you see all sorts of stuff going on in the financial world as well.

Boris: I just want to, I mean, AngelList was very, very early and kind of this whole idea of a marketplace for start-up financing and how can we more efficiently connect investors and start-ups? Because, before when you think about when AngelList got started probably about 10 years ago, a lot of the financing was still happening in one place, San Francisco and the Valley in general. It was very limited to a few players. And obviously since then we’ve seen a very large democratization of start-up financing, both by the number of players that are participating, by the number of locations that matter or these days don’t matter at all any more by the number of products and marketplaces that provide better introductions, better connections, more transparency, etc.

The fun thing is that, actually AngelList has started with one market which was connecting start-ups and investors, but since then has expanded in a bunch of other marketplaces, like they have a jobs marketplace where they connect jobseekers and start-ups, they have a fund of funds marketplace where they connect funds with investors, potential investors in these funds. So they have really thought about the start-up ecosystem in a much broader way than just the initial batch and trying to create way more connections and more efficient connections between all the participants. These are talent, the start-ups, investors or investors in these funds. So they certainly have cut out a big piece of that whole market.

Meb: It was interesting timely because I’ve done a lot of investments on AngelList and compared to a lot of the other private start-up marketplaces, I think they have such a, they got the incentives right because a lot of the leads brings the deals to the platform so you end up, I think, with a lot of higher quality leads and a lot of some of other marketplaces where they don’t necessarily have that filter because you attach a brand or a reputation to it. Maybe, we’ll see, TBD, whether and how that plays out but at least it seems like it. And it seems like also there’s been some successful companies on the private brokerage side of just transacting and private shares in general, but it doesn’t seem like any have really broken out, and I could be wrong but I’m thinking EquityZen, SharesPost, on and on, there’s a bunch. Is that something you’ve looked at? Does is seem like is it just too small of a market or is it still developing?

Boris: The challenge is really a little bit of that. As long as there is easy access for the best start-ups to access institutional capital that not only provides money but also hopefully advice, a board member, a long time relationship, etc. You ultimately might just end up only getting the start-ups that don’t have that access to institutional capital on these other marketplaces that provide a connection between start-ups and investors. There’s a bunch of examples where start-ups that had trouble raising in the first place down the road really kind of made it big and did super well. I mean, Uber is one of these examples that had a real tough time raising and raised actually through sort of an AngelList syndicate. There are still a tremendous amount of start-ups that are in a very clear path of doing well that are not going to offer their stock on any of these platforms.

I think we see in crypto actually a little bit of a different story now, and that’s perhaps where we see kind of the next step of democratization. Crypto start-ups often by definition are interested in having a pretty broad distribution of investors because these investors are often users and participants, etc. And so it’s, you know, not about getting the most high profile investor into your round but more a broad distribution of owners and participants in the ecosystem that you’re building. And do that actually suddenly creates a complete different incentive in terms of who do you offer your stock to or your ownership to? I think crypto projects and opens source projects in general are kind of very different than traditional tech companies, and we might see that democratization of access and of ownership really be accelerated by crypto.

Meb: You know, I was doing a tweet the other day based out of frustration and I foolishly still do my own taxes and I was just, as people do, going to Twitter to complain. And so, I said, “What industry or software company is a near monopoly that is still like the worst experience?” And I was of course talking about Intuit’s TurboTax, but one answer they got over and over and over again is the marketplace of sports tickets and Ticketmaster, people who just over and over. Is that an area that you’ve looked at, why hasn’t that been disrupted? Is it getting disrupted? Is there a better alternative, any portfolios companies you got involved in that space or what’s the challenge?

Boris: We haven’t made an investment in there but we obviously looked at the market a few times because it’s one of the largest categories and one of the largest marketplaces. The challenge, I would say, in general is that obviously leaks and teams have a very high amount of control over the experience and the pricing and the secondary markets, etc., and that really limits a little bit the power of the marketplaces that are trying to see these tickets. So mostly I wouldn’t consider a Ticketmaster kind of just thinking about like what’s the best customer experience and then doing it that way but more leagues and teams controlling how the customer experience should look like, right, and that obviously is not ideal. But having said all that, in the long run creating a better customer experience must be on top of mind for leagues and teams to continue to get the loyalty of funds. So I hope we’ll see more progress, but right now it feels like still has a problem of the marketplace is in charge but more the problems of who is ultimately making the decisions.

Meb: One of my favorites unrelated was a company we had on the podcast. It was connecting Little League teams with sponsors across the country and has a wonderful, shout out to league side, social impact there to for the little dudes. I got my son’s first tee ball game this weekend. It’s going to be a doozy for sure. I wanted to save some time for one of the areas that you guys are involved in and been talking about more I guess in the recent addition and it’s on the brain, and that’s sort of the impact on marketplaces thinking about decentralized technology, thinking about blockchain’ potential impact on marketplaces. Let me just hand you the mic, give you the floor and kind of talk about your thesis and what sort of opportunities there are developing there and we’ll move on into some portfolio ideas and everything else.

Boris: We’re super excited about what kind of the decentralization trend will bring for a bunch of categories and, you know, I have been investing in crypto for five years now, great portfolio of some centralized companies like Coinbase or Dapper Labs which is the creator of NBA Top Shot, and then, you know, decentralized finance protocols like Uniswap which is the leading decentralized exchange. But when you take a step backwards, I think what blockchain and crypto enables for a marketplace is a few things.

The first one is, when you think about it and you talked about it a little bit about AbeBooks and eBay and how these original marketplaces, what they really did was taking the middle man out of the equation of their respective areas and they did that by just providing much more liquidity to a marketplace, better pricing and really expanded the market of and the size of marketplace in a big way. But ultimately, the eBays and the AbeBooks of the world are still, you know, kind of a different kind of middleman because they’d take a fee for the service of running the marketplace, right? And now obviously in most cases the fee is justified because the buyers and the sellers get some value created. I think what crypto enables is to say, “Listen, the marketplace is basically an open source protocol that everybody can participate in and that doesn’t need to be a fee. The fee can actually go to the participants of this marketplace.”

I think the perfect example here is our portfolio company Uniswap that we just talked about. Uniswap is a decentralized exchange that enables every participant to participate in a peer-to-peer exchange of tokens and crypto currencies all in the Ethereum ecosystem. There is no fee of participating in the exchange. When they launched, made the protocol, launched a token for the protocol and made it public, they basically gave 400 Unitokens, which is kind of the token of the Uniswap protocol, to every customer that had ever participated in the exchange. That’s today at today prices, it’s worth over $12,000 for everybody who has kept onto these tokens. So the idea is that really the people that have used the service, bootstrapped the service, contributed to its success are now owners of the service or co-owners of the service.

And I think generally that concept of an ownership economy where the participants, contributors, suppliers to a marketplace in crypto can become the co-owners is a very powerful one and kind of takes the whole thing of eliminating the intermediary another step further. It also gives you then tremendous amount of opportunity to actually provide governments, you know, kind of involvement on top of it so everybody can not only own it but also kind of contribute to governments. It certainly gives you tons of abilities to continue to think about how to share the value that is being created in the protocol with the participants. So, for example, for Uniswap at some stage they provided additional incentives in terms of Unitokens to people that provide liquidity for the exchange. And so you can really think about a whole economic layer and a whole little economy you build on top of these protocols.

I think the second thing that is really interesting is terms of what crypto currencies are enabling in terms of marketplaces is the whole notion of, and a lot of people might have heard about that, like NFTs, non-fungible tokens. So the idea of a digital good that was abundant in the age of the Internet suddenly, because it gets recorded as a unique item on a blockchain, becomes not abundant but scarce. And once you have scarcity built into a digital good, it becomes really interesting for tremendous amount of creators to actually create new digital goods. And so we’ve seen a tremendous amount of crypto art marketplaces emerge where the crypto art is uniquely encoded in the blockchain, you can prove that you are the owner of that exact copy of this digital art.

We’ve seen sports collectibles become big, so there’s this product NBA Top Shot, portfolio company, Dapper, they work with the NBA to trade thousands of unique video clips of dunks, great plays, great passes of some of the best basketball stars, encode that, these video clips with a unique identifier on the blockchain which is the blockchain that Dapper Labs builds on, and then offer these unique video clips to fans. And you can, instead of collecting a basketball card of a player, you suddenly have an interactive video clip that is unique that you collect. There’s completely new opportunities around digital goods to create marketplaces around, and we’re going to see a tremendous amount of innovation in that space around NFTs, if that is crypto art, if that is sports collectibles and memorabilia, if that is just engagement with fans in a different way. So, I’m very excited about those opportunities.

Meb: There’s a lot to unpack here. I think the first part is for a lot of investors listening to this, maybe more traditional, institutional investors, and in many cases over the past 10, 20 years, I’ve even presented like many with an investment idea, and first reaction is, “Man, that is really dumb.” And almost, not universally, but often that has been an excuse or reason to actually dig deep, turn around, run towards it, try to understand whatever it may be, because in so many cases, I mean, how often was the media or initial reaction wrong. I mean, think about Uber. “Who’s going to get into an Uber? You’re going to get kidnapped. Who’s going to stay in an Airbnb?” All of these over and over and I have probably three or four companies that I have invested in where my first reaction again was, “That is so stupid. Why would anyone do that?” And then, plenty that I passed on or that I saw and just dismissive.

Let me encourage listeners, if you haven’t, go google Top Shots, sign up for an account, and try to buy a moment like I did. I tried to buy dual kick pass yesterday but the site was so inundated with I think people that I couldn’t buy one yesterday. But listeners’ many of these cases, this isn’t just like a 15-year-old hobby. Many of these types of digital pieces are selling for tens of thousands, hundred thousands, even in millions in some case, and often the reaction is why would anyone want a digital clip or a picture? Talk about some of the common just FAQ, criticisms. I mean, the media, you know, this has been a lot talked about, but many of our listeners haven’t heard this much into it. Just kind of dive in a little bit more on this topic because I think it’s going to be new to a lot of people but super interesting.

Boris: We have a few concepts in my mind when we think about what an interesting idea. The positive take is always things that look like a toy can develop into really interesting things. And so, I think you have a history of things that people looked at and just they looked as a toy. People didn’t really take them seriously, you know, kind of, you mentioned a few examples like who would ever buy something off the Internet from somebody else? eBay. Why would anybody stay in somebody else’s house? Airbnb. Why would anybody kind of go into somebody else’s car? Uber. Why would you buy something that you can just take a copy of and for free basically because it’s on the internet? I think what people in most of these cases underestimate kind of is the underlying new behavior of buyers and why that is interesting, right?

And obviously when you think about NFTs, you can certainly have a reprint of the Mona Lisa in your house, right? But you would never say, it’s like, “Oh my God. Like, doesn’t matter if I have the real Mona Lisa in my house or I have a reprint of the Mona Lisa at your house,” right? It’s like obviously they look the same but there is a different between, one is the original and the other one is a reprint. The same thing is now happening with blockchain technology enabling NFTs. Yes, there’s a bunch of these clips out there and they’re free, but it has only one that is recorded on the blockchain that is unique and you can say, “I actually own that clip. I actually own that scene. I actually collect that player,” right? And so I think it’s a really interesting development that blockchain technology enables.

The more skeptics there are, the bigger is the idea ultimately. It will take a long time to kind of turn people around and the skeptics around and kind of embrace it. It’s actually a very good sign. If there’s people caring about it and they just think like, “Yeah, they are stupid,” as you can see even the most recent numbers of NBA Top Shot, I think they have now transacted over $300 million over the platform. So it’s one of the fastest growing marketplaces. So for every skeptic there’s about 100 people that are participating.

Meb: Well, it’s funny because you have the people that have the cognitive dissonance like I do that will be like, “This is so dumb,” but meanwhile in your basement is a bunch of 1989 Upper Deck Ken Griffey or sports cards or comic books that are worthless from the ’80s, like, my entire childhood that my mom has still kept, God bless you, mom. But even a good example, YouTube watchers can see this podcast, listeners can’t, but randomly the background of my Zoom today is a painting, and this is a famous Western painting, it’s a Bev Doolittle who if you’re not familiar, will hide kind of stuff in the paintings and the example was that it shows bear tracks, you know, going through the snow and you can’t see it but in the bushes is a ginormous grizzly getting ready to jump out and chomp you and I was…

Boris: I can see it now. I looked at the foot track but now I see the grizzly.

Meb: I was trying to use this when I was saying the public stock market is getting a little bubbly and the bear’s just waiting and he doesn’t know how long when he’s going to come out, whether it’s tomorrow, next month, next year, a couple of years. But the point I’m leading to is I have a print off this in my office and the print probably cost, I don’t know, $500, definitely under $1,000 I think, beautiful big painting, but it’s exactly, in many ways, the exact same things so people say, “That’s stupid. Why would you ever want a digital?” Well, they did 1,000 prints. It’s not the original but it still has value because it’s limited supply. It just happens to be in physical form rather than digital. Is that a reasonable example or is it not relevant?

Boris: The way to really think about it, the first phase of the Internet made everything abundant, and that’s what we see, like content creation was actually not very profitable because everything could be copied, replicated and we drove the cost down to almost zero. Most people that were in the publishing business or in the creation business of digital goods had a really tough time. I think now what we’re seeing is a swing back to what are actually unique things, and abundance in many ways will be replaced by scarcity through NFTs and blockchain technology. So really it feels like we’re going into the second wave of what happened with the internet is digital content became almost worthless, and now we have the technology to create unique and very valuable experiences around that again.

Meb: How far are away from almost when I say like bar-coding everything and stamping it? I was thinking the other day we were talking about baseball cards and the company that grades all the cards has a massive backlog because people are interested in collecting again and you got to get them graded, and I went down a rabbit hole of saying, “Why can’t you just build a computer to grade all these? Why do you even need people at all?” But essentially at some point one would think that every card will then have a history, you know, much like a house, here’s who’s lived here, here’s the deal. But I don’t understand why…not every product but a lot of general categories, is that the future where this is going?

Boris: It certainly will be. But the way I think about it is also, is always like what happens first is the things that are native to a new technology and obviously everything that is already digital today is the first ones that will adopt that new technology, and we talked about crypto art and video clips. And then after that it moves from the digital world into the physical world and going to have platforms that will enable physical items to be recorded in a similar way. You’ve seen that in the Internet, in the beginning it was, again, the first marketplaces were digital only marketplaces, right? The Ubers and Airbnbs that moved into the physical world or apartments, accommodation, cars, Instacart, DoorDash, etc., the physical component, it needed some time to have, A, enough people onto the platform, second, we have the infrastructure to do all that. So I always feel like it starts where it’s really native to the new technology and that’s digital, that it will move into the physical world over time.

Meb: As that happens and as you look to, you know, the horizon, you have a certain unique seat as you’re seeing a lot of these companies in early stage, what are just some things you’re optimistic, interested in either that aren’t getting funded or you wish that, you know, someone would be doing them or that, or even examples of companies you have funded that it’s just doing something super cool out on the horizon? Dapper is such a good example, doing such a different innovation in my mind. Anything else come to mind?

Boris: The first one is obviously decentralization and what we just talked about. But I think the important thing is we started with store value, which is Bitcoin, we moved to decentralized finance around Ethereum, and decentralizing financial markets. We now have this whole NFT, crypto collectibles trend. But my thesis would be that every single information market will be decentralized in the next decade, right? And so there’s many other things that we still can decentralize, storage, access, encryption, whatever it is, right? And so I think that feels like pretty clear as a path and an investment opportunity. It will take time because, you know, sometimes the technology is not yet mature, but we’re making a lot of progress. So I think that’s the first theme like, you know, kind of continuous decentralization of every single information market out there is one big theme.

I think the second big theme is, and we’ve seen that a little bit now with, as we’re all living in a remote world and on video, I think better, more immersive virtual experiences around AR and VR. And you know, many people have proclaimed that AR and VR is here and they did it five years ago and three years ago and this year, it’s a super hard technology to make it really immersive and fast and frictionless, etc. But overall, the idea of having even better remote experience, virtual experiences that feel like a real experience, that’s a tremendous potential and I think we’re still at the early stages of that.

And the last one is something I obviously care a lot about is just climate and energy. I feel like obviously it’s a big challenge for all of us to manage climate change. I feel like for the first time we have an opportunity for technology to provide tons of solutions to climate change and clean tech was a big theme 10, 15 years ago and most of the companies failed and it was a big thing of capital. Having said that, like, a lot of the infrastructure is not built out. When you think about the cost of solar, the cost of batteries going down, so there will be way more opportunities to build on that infrastructure, optimize the grids on top of it, optimize electricity usage on top of it, optimize energy sources on top of it. So I feel very bullish on what technology can contribute to climate and energy going forward.

Meb: You guys are pretty early stage, Series A seed. Is that about right? Going to B maybe. What’s that space look like for climate, clean tech right now? And secondarily, what are sort of the big muscle movements? Is most of in it sort of, you mentioned a few different areas, grid optimization, solar?

Boris: It’s still pretty early in terms of the amount of investors who are in that field, the amount of companies that are in that field, but I think it’s rapidly accelerating on both sides, entrepreneurs that want to spend time in climate and building something in climate, secondly, investors that are focused on that space. So we at Version One, we’re very focused on the software data layer, and we made a few investments in that space, actually a bunch of them being marketplaces.

So, I’ll give you two examples. SilviaTerra, they built an incredibly good tool to basically create a map of every single tree in North America based on satellite data, as close as five meters of precision. And so once you have a really great inventory of forestry assets across North America, you can build a carbon-offset marketplace on top of it, right? Because, you go to forest owners and tell them, “Hey listen, if you promise not to cut down your tree and we can measure that you keep your promise based on our satellite data, then you can sell these carbon offsets to companies that need to buy them.”

We have another company called Patch, which is building in…does an API for carbon offsets. So any company that wants to build a carbon offset program, so let’s imagine a bank wants to build a carbon offset credit card, can use the Patch API to build it to measure the required carbon offset and at the same time actually get connected to projects that can enable that carbon offset on the other side. So, kind of an API-driven marketplace in that space. So, and I think we’re going to see way more of these innovative solutions to create carbon offsets, have a better understanding of carbon creation. We’re very excited about kind of continuing to invest in that sector.

Meb: What’s the sort of current status of the carbon offset market? Is it something that is growing rapidly globally? Is it something that is more of a European story? What’s the kind of general summary for us?

Boris: Europe certainly has had a lead in that. We’re now seeing North America and other countries and continents kind of catching up to that. It’s still very early. I think one of the challenges certainly will be in the future to really measure the exact impact, right? I mean, it’s like it’s always very easy to promise carbon offsets and actually not follow through either because you can’t for some reason or you actually like literally have a low quality project, right? And so building out that marketplace of carbon offsets where data and analytics will make sure that there’s no double counting and the people that promise these carbon offsets deliver these carbon offsets actually follow through on it. So that’s going to be the next challenge, right, and companies like Patch and SilviaTerra are working on that.

Meb: As you look to the future for Version One, VC’s are always raising money every few years seems like for a new fund. What’s the target for you guys? Is it institutions, high net worth individuals, family offices, a little bit of both?

Boris: Yeah. Listen, it has changed over the years but we started, like every, in the first fund you’re mostly going for other entrepreneurs, tech founders, high net worth and family offices, and then as you kind of develop a track record and built a franchise, I think you have more and more opportunity to track institutional capital. So these days we’re about 80% institutional capital. But, you know, for us it’s really, we think a lot about what is the right fund size for us. Pre-seed and seed is not highly scalable, right? I mean, it’s not like a late stage fund.

Meb: It is if the valuations keep going up.

Boris: That’s true. But yeah, it’s not like, you know, Andreessen Horowitz that can raise billion dollar funds and put them in some late stage funds and put hundreds of millions to work in just one company. So from that point of view, we always think about like what is the right fund size, how far we can take that. But, you know, overall I would say if there’s one thing that the pandemic has proved nowadays, like digitalization is here to stay, it’s accelerating, and I really think about the next decade as a kind of golden decade for technology. In many areas, and obviously we’ll see bubbles and high valuations in between, we’re going to see busts, but that’s just part of innovation cycles that sometimes people get overly optimistic and then overly pessimistic. I think the reality is there’s never been a phase where there’s more interesting parallel technologies at work, and we just talked about three things before, you know, kind of decentralization, AR/VR and kind of everything that is happening around climate and energy. But, you know, you could go on with genetics and RDNA and so on. So there’s like tremendous amount of progress we’re making on a bunch of core technologies and we’ll see the outputs of all of that over the next decade.

Meb: I share those sentiments. As grumpy and bearish as I sound on the public market side, I mean, I’m a quant after all, the amount of innovation that is going on is just staggering. We did a podcast with Vanguard’s Chief Economist and he talked about a pretty cool study that they did over the years that looked at cross-referencing white papers, and when you saw an explosion in a certain industry, it often preceded the actual serious innovation by, I forget what it was, three, five years, something like that. And they traced it back for a few times over the past few decades where it actually occurred and he laid out three or four sectors where that was actually happening, a couple which were obvious. One was logistics so probably going on with like the autonomous cars and things like that. One was genetics and sort of bioinformatics. Another was materials, which is interesting, and I forget what the fourth was, but listeners, you can go drag it up.

You also correctly described for someone who’s lived through it, the cycles. I lived in San Francisco. I brilliantly moved to San Francisco is like ’01 so I missed all of the fun of the bubble and I just got there during the bust. However, it was also great to be there during the bust because amazing companies would get started and you could go on Craigslist and get all the pets.com, I don’t even know if they were based in San Francisco but all the bust internet companies, Herman Miller chairs, you just go pick them up. They’re just like, “Come get them. They’re not $1,000. Just come pick them up.” So, we’ll see it again at some point but it’s amazing. What’s been your most memorable investment in your career? Good, bad, in between?

Boris: I would say Coinbase for a few reasons. A, it was one of the rare later stage investments we did and that always like in an investor you want to stay in your lane, and whenever you to your investors then say like, “Oh, we’re going to look at the new lane,” the skepticism is always…they’re always big and you don’t want to get that wrong. So you have a lot of pressure when you’re not swimming in your lane. We just had that these crypto currencies really becoming very, very important. We felt like Coinbase could be an iconic company in that space, and so did a very late stage investment. And if things hold up the way they look in secondary market, it’s going to be an amazing IPO in the next few weeks, and actually our first IPO in the fund. So, from that point of view, I think both because it was a little bit of a risky investment when we did it and because it might play out really well given that this is our first IPO, that’s probably my memorable investment.

Meb: Up there around $100 billion, I think, if I hear correctly. So, fingers crossed for you guys. That’ll be fun to see. Good timing. We’ll see. Boris, where do people go? They want to find out what you guys are doing. You guys put out a lot of great content, by the way. So, listeners, where do they find it all?

Boris: Yes, thank you. I mean, first of all our website, versionone.vc, and you can sign up for our newsletter and email list. We usually blog on a weekly basis about insights we have, new portfolio companies and why we invested in them, etc. And then personally, @bwertz on Twitter. Please join there as well.

Meb: Boris, thanks so much for joining us today.

Boris: Hey, that was fun. Thanks for having me, and that was the great discussion around everything from the OGs of marketplaces to the new crypto marketplaces. That was a fun conversation. Thank you.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at feedback@themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.