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Product1This presentation, as well as any discussions at this meeting, and the information contained herein is
confidential, and may include material proprietary non-public information respecting Electric CapitalPartners, LLC and its affiliates (“Electric Capital”), their investment activities and their various investment
funds under management. Any reproduction or distribution of this information, in whole or in part, isprohibited.

I am speaking in my personal capacity, not on behalf of Electric Capital. Nothing in this presentation
should be construed as financial advice.

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Disclaimer

2HelloAvichal Garg

Invested in companies worth $100B

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Started & Sold 2 companies

Co-founder$1.5B AUM (± $1.5B)

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AgendaDeﬁnitions
Observations & Frameworks

Why Web3 Products are Interesting (and different from Web2)

Unique characteristics of great web3 products

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Understanding “Why Now”

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Deﬁnitions
Needs - the fundamental human drivers, aka the seven deadly sins

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Product - a tool or utility that meets (solves) a need
User - the entity for whom you are solving a problem
Market - the group of users that can sustain the builders of the productProduct-Market Fit - a product that the market so demands that thebuilders of the product will succeed despite their best efforts to fail

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Needs - the fundamental human drivers do not change
Product - you should be able to distill a product in market down to thefundamental need it actually addresses (not what it claims to address)
User - a BIG part of being the best product is acquiring users
Market - markets are dynamic; companies use non-product advantages

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A few observations

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Needs - the fundamental human drivers do not change
Product - you should be able to distill a product in market down to thefundamental need it actually addresses (not what it claims to address)
User - a BIG part of being the best product is acquiring users
Market - markets are dynamic; companies use non-product advantages

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A few observations

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●
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Needs - the fundamental human drivers do not change
Product - you should be able to distill a product in market down to thefundamental need it actually addresses (not what it claims to address)
User - a BIG part of being the best product is acquiring users
Market - markets are dynamic; companies use non-product advantages

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A few observations

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●
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Needs - the fundamental human drivers do not change
Product - you should be able to distill a product in market down to thefundamental need it actually addresses (not what it claims to address)
User - a BIG part of being the best product is acquiring users
Market - markets are dynamic; companies use non-product advantages

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A few observations

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●
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Needs - the fundamental human drivers do not change
Product - you should be able to distill a product in market down to thefundamental need it actually addresses (not what it claims to address)
User - a BIG part of being the best product is acquiring users
Market - markets are dynamic; companies use non-product advantages

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A few observations

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●
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Needs - the fundamental human drivers do not change
Product - you should be able to distill a product in market down to thefundamental need it actually addresses (not what it claims to address)
User - a BIG part of being the best product is acquiring users
Market - markets are dynamic; companies use non-product advantages

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A few observations

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Why Now? Is the most important question
1.
2.
3.
4.
5.

New technology allows products that simply weren’t possible before, e.g.
battery tech and electric cars
New user acquisition channels, e.g. search/SEO, tokeneconomics
New business model, e.g. advertising could support free content online
Customer behavior has shifted, e.g. a desire for ephemerality once people
understood the consequences of searchable, permanent identity
New regulation, e.g. Obamacare

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The 5 “Why Now” answers

Reference: https://avichal.com/2017/11/27/why-now/

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Why Now? Is the most important question
1.
2.
3.
4.
5.

New technology
New user acquisition channels
New business model
Customer behavior has shifted
New regulation

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Web3/Crypto hits on at least 4 of the 5!

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1. New technology that enables
entirely new products

14Web3/CRYPTO

Web2

Throughput

Low

High

Ease of Use

Low

High

Developer Ease

Low

High

Distribution / Reach

Low

High

Platform Independence

High

Low

Data Immutability

High

Low

Seizure Resistance

High

Low

PrivacyHigh

Low

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Crypto makes the opposite trade-offs as Web2

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Web3/CRYPTO

Web2

Throughput

Low

High

Ease of Use

Low

High

Developer Ease

Low

High

Distribution / Reach

Low

High

Platform Independence

High

Low

Data Immutability

High

Low

Seizure Resistance

High

Low

PrivacyHigh

Low

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Where do these trade-offs make sense? Money.

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Programmable Money: Software is eating money

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Programmable Money is eating capital markets

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02 KILLER APPS
01 INFRASTRUCTURE

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We have kicked off a ﬂywheel of investment into
infrastructure

03 USER GROWTH
04 CAPITAL & FOUNDERS

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Web3 in 2030

INTERNETThroughput

High

High

Ease of Use

High

High

Developer Ease

High

High

Distribution / Reach

High

High

Platform Independence

High

Low

Data Immutability

High

Low

Seizure Resistance

High

Low

PrivacyHigh

Low

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Crypto is the next phase of the Internet

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Crypto markets will eat the world

Web3/CRYPTO

Web2

Throughput

Low

High

Ease of Use

Low

High

Developer Ease

Low

High

Distribution / Reach

Low

High

Platform Independence

High

Low

Data Immutability

High

Low

Seizure Resistance

High

Low

PrivacyHigh

Low

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Why is this good for startups and entrepreneurs?

22Legacy companies lose to software startups. Why?
RetailAutomotive

Amazon$1.24T

Tesla
$901B

Facebook$560B

Hospitality
Airbnb$107B

Walmart$386B

Source: Market cap as of 12/31/2021. Data from Yahoo Finance.

GM
$32B

FOX

$21B

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$54B

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To compete, legacy companies would have toupend their org charts

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To compete, legacy companies would have toupend their org charts

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Retail
Automotive

Amazon$1.24T

Tesla
$901B

Hospitality

Facebook$560B

Airbnb$107B

Walmart$386B

Source: Market cap as of 12/31/2021. Data from Yahoo Finance.

GM

FOX

Marriott

$32B

$21B

$54B

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Media

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2. New user acquisition channel

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The Internet made things free

Cost
Pre-Internet

Web1

Web2

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What’s better than free? Getting paid

Cost
$0

}
Pre-Internet

Web1

Web2

Pay users to
use yourproduct!

Web330

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Tokens are better than cash at aligning incentives

Reference: https://medium.com/@cdixon/crypto-tokens-a-breakthrough-in-open-network-design-e600975be2ef

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“A well-designed token network carefully manages the
distribution of tokens across all five groups of network
participants (users, core developers, third-party developers,
investors, service providers) to maximize the growth of the
network.”

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Tokens are NOT a business model - they are a marketing tool

Reference: https://medium.com/@cdixon/crypto-tokens-a-breakthrough-in-open-network-design-e600975be2ef

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3. New business model

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1.
2.
3.
4.
5.
6.

Permissionless P2P payments - I don’t have to pay a bank or credit cardcompany a high fee (or risk getting shut off)
Borderless networks - I can transact in any geography with a counterparty
Smart contracts - a smart contract can be a counterparty to a transaction or anintermediary in a transaction
NFTs - people can buy (via p2p) and own digital assets
Zero-knowledge - products with privacy baked in (that perhaps people will payfor?) allow disruption of data-monetized based businesses
DAOs - on-chain collaboration and capital formation to organize human output.

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Permissionless digital assets & networks = new biz models

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4. User behavior has changed

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Caveat: This is old data from a 2017 presentation I made.
It may be obvious to everyone now.
It was obvious 6 years ago if you looked at the data.

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We have lost trust in the institutions that made society work

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Web3 technologies solve trust problems

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Why Now? Is the most important question
1.
2.
3.
4.
5.

New technology
New user acquisition channels
New business model
Customer behavior has shifted
New regulation (maybe green one day soon?)

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Web3/Crypto hits on at least 4 of the 5!

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0. Meet a fundamental human need
1. Use the unique trade-offs of crypto technologies (it’s ok to be slow if you are
seizure resitant)
2. Use tokens for customer acquisition (in a way that maintains unit economics)
3. Enable stakeholder ownership of the product/protocol
4. Operate in a transparent, trust-minimized way
5. Be compliant with key regulations

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What will a great Web3 product do?

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How do you go from this “checklist” to product validation?

Tl;dr:
1. Deeply understand your market.
2. Deeply understand your user / human need.
3. Learn (aka fail) as quickly as possible. Velocity relative to competition
determines who wins.

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There is lots of prior art on this.

Resources:● Avichal’s from -1 to 0 Syllabus● https://designthinking.ideo.com/

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Velocity wins: iterate through this loop as fast as you can47

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Note: It feels terrible48

Thus, you have to believe in something more than success
Founder-Product and Founder-Market Fit is just as important as Product-Market Fit.

Of the millions of people who could build this, why are you the one who will win?
Of the millions of products you could build, what is the one you were put on Earth to create?

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The best products are created by people who are obsessed with the problem, with the solution,with the market - not by the outcome.

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Some concrete ideas for products

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Merit-based systems to onboard new members — DAOs will become organizations that attract
talent on par with the best companies. Many people join DAOs through a token purchase, but thiscannot ensure that the most talented or most proliﬁc contributors join. Mechanisms that allow
more people to onboard onto DAOs based on merit will be strategically valuable.
Governance aggregators — People have trouble tracking and prioritizing new proposals, especiallyacross multiple DAOs. Platforms that aggregate and surface proposals in a way that allows
members to participate more easily will be used by all DAOs (of which there may be millions).
Mechanisms to improve distributed decision-making — Today many decisions are made by thosewith the greatest number of tokens. We need mechanisms to not only increase the number ofparticipants, the level of engagement, but the ability to solicit engagement from the right people.
Compensation mechanisms — DAO contributors need fair and transparent compensation. One
effective way to compensate contributors for their work today is through DAO-issued bounties on
platforms like Layer3. Contribution to DAOs can be on-chain, off-chain, one time, or recurring. As
DAOs grow in complexity, these contribution types will also grow and evolve. We want to fundprojects that allow DAOs to distribute compensation fairly and openly for all types of contributors.

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DAOs

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Some concrete ideas for products

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DAO discovery platforms — The rate of DAO creation is growing exponentially. The largest DAOs
control a treasury of billions in value, give out grants, and employ large teams. In contrast, thesmallest DAOs can be a small group who have pooled resources to purchase an NFT. We needplatforms that allow more users to discover and explore DAOs that ﬁt their needs and interests.
Recruiting platforms — DAOs need the ability to tap into talent networks and expertise. Platforms
like Rabbithole enable users to start earning credentials that DAOs can use to verify talent, just as
we use diplomas and certiﬁcations to ascertain expertise and experience.
Treasury management — Today, DAOs can have complex treasuries that include a mix of different
types of tokens and stablecoins. DAOs have the challenge of effectively managing their treasuries
with distributed decision-making. Organizations like LlamaDAO are experts in creating proposals
and helping DAOs walk through treasury decisions. There will be many more tools that empower
DAOs to effectively grow and leverage their treasuries.

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DAOs

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Some concrete ideas for products

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Pricing mechanisms for NFTs — Accurately pricing NFTs is a challenge. The lack of pricing
creates two problems: (1) most NFTs do not have liquidity, and (2) ﬁnancial derivatives cannot
form on top of NFTs. Projects that enable us to accurately price NFTs will unlock new use casesand greater adoption.
Infrastructure to support NFTs as productive assets — Currently there are two mechanisms ofcapital generation through NFTs: (1) generating yield through rental, lending, etc., or (2) revenue
sharing through royalties and splits. Both these mechanisms are in their infancy. As this spacematures, we expect to see music NFTs that split royalties with fans, Hollywood movies that sharerevenue back to NFT-based characters, and the ability to lend or rent the cash ﬂow on these NFTs.
We believe verticalized infrastructure to support these types of productive NFTs will be some of
the most important platforms in Web3.
Discovery platforms — It is diﬃcult to discover NFT collections or ﬁnd out about new mints.
Effective discovery platforms will increase the adoption of NFTs and allow more people to ﬁnd
their niche. How these platforms operate may be very different than centralized web2 companies.

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NFTs

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Some concrete ideas for products

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NFT ﬁnancial derivatives — Like assets in the real world, we believe NFTs will have futures
markets, options for hedging, insurance, and other types of ﬁnancial derivatives. Financial
products built on top of NFTs will make NFTs more useful.
Creator guilds — We believe creators will leverage NFTs for monetization and use them tomobilize their fans. Today, however, there is a lack of best practices and infrastructure for creators
to use NFTs. Creator guilds may allow creators to share resources like community managers,
playbooks, and fan bases.
Verticalized secondary marketplaces — When NFTs can represent anything from music tometaverse land to credentials, new marketplaces will emerge to support the speciﬁc needs ofeach type of NFT.
Physical to digital bridges — NFTs can be digital representations of the physical world. We believe
we will see more generalized mechanisms to get a physical asset by burning a digital one, event
ticketing systems that leverage NFTs, NFTs as immutable storage of medical records, course
attendance, identiﬁcation, and more.

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NFTs

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Some concrete ideas for products

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Growing DeFi on non-Ethereum chains — Ethereum presents a unique set of tradeoffs between
security, speed, and decentralization. Non-Ethereum chains may be a more affordable onramp forthe next wave of users into DeFi.
Bridging yield opportunities across chains — As more users onboard onto alternative chains, they
will want to access potential yield opportunities on other chains. Similarly, Ethereum users will
want to access yield opportunities by providing capital onto new chains.
Simple exposure to complex strategies — Platforms like Ribbon simplify complex options
strategies. We want to fund platforms that give users simple exposure to strategies likedelta-neutral yield farming, leveraged market making, downside protected lending, and others.
Novel mechanics to bootstrap protocol owned liquidity — As more protocols launch and grow, theneed for bootstrapping mechanisms will increase. We believe there will be new, innovative
bootstrapping mechanisms as new protocols launch.
Payment streams and vesting — Standardization of payment streams in crypto would unlock
many use cases: employment contracts, vesting contracts, DAO-to-DAO contracts, and even
unsecured lending.

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DeFi

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Some concrete ideas for products

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Veriﬁed frontend hosting –The BadgerDAO hack resulted in $120m lost funds because hackers
inserted malicious code into the dApp frontend even though the smart contracts were completely
secure. Veriﬁed frontend hosting will help ensure that when a user is interacting with a dApp
through their web browser, it is the securely built oﬃcial version.
Decentralized computation — We are seeing the unbundling of computation from those services
with specialized networks focused on indexing, running background tasks, storing public/private
data, and serving RPC requests. If devs can build a Docker container that express business logic,
they could run it on a decentralized network and serve the result of that computation.
Zero-knowledge developer tools — Zero-knowledge technology is not only useful for private
payments and rollup validity proofs, but also useful for interesting new use cases like games.
Privacy tech like zk-SNARKs and developer tooling around privacy solutions is a prerequisite tobuilding incomplete information games out in the open.
Security review on every commit — Security of assets on chain will become more importantbecause of the immutability and trustlessness of blockchain. Tools that can review security during
development rather than only after being code-complete will be critical.

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Decentralized Infrastructure55Some concrete ideas for products●●

Crypto-enabled games with an interoperable backend — Crypto-enabled games have the potential
to create user experiences superior to that of traditional digital games. With a fully interoperable
backend, anyone can easily build plugins or mods into the game or be able to trustlessly fork thegame, thus evolving game experiences quickly.
Mobile DeFi experiences — Most DeFi apps are optimized for desktop experiences today, leaving
out user bases who operate on mobile. The veriﬁcation and research necessary to participate in
DeFi today limits it to primarily desktop browsing experiences. Mobile app developers are also
beholden to centralized app stores, which may block DeFi experiences. However, as complex DeFi
strategies become more simply packaged and as security and veriﬁcation processes get better forwallet connections, DeFi experiences that can be accessible to more users become important.

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Broadening Access to Crypto

56Some concrete ideas for products●●

Multichain wallets that verify contracts — As crypto evolves, new challenges emerge. For
example, the rise of multiple types of Layer 1s has created new usability challenges, such asdiﬃculties in moving assets between chains or accessing multiple chains with a uniﬁed wallet. We
want to fund wallets with infrastructure to provide smooth user experiences, like verifying
contracts before connecting or integrating with multiple Layer 1s.
Earning crypto — Fiat onramps have two key issues that exclude important user bases fromaccessing crypto: (1) many people do not have money to put into crypto, and (2) centralizedexchanges will not support ﬁat from every country. Bounty protocols, task platforms, play-to-earn,
and merit-based on-ramping mechanisms will make crypto accessible to everyone.

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Broadening Access to Crypto

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Human needs tend to not change
Markets are not free or fair
Products need to have a good answer to “Why Now”
Web3 has multiple good answers to “Why Now”
Great Web3 products willa. Meet a fundamental human needb. Use the unique trade-offs of crypto technologies (it’s ok to be slowc.

●

if you are seizure resitant)
Use tokens for customer acquisition (in a way that maintains unit
economics)
Enable stakeholder ownership of the product/protocol
Operate in a transparent, trust-minimized way
Be compliant with key regulations

d.
e.
f.
There are lots of good resources on how to go from idea to product. They all
basically converge to “the team that learns the fastest, wins”

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Summary58

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Q&A

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