Ben talks with entrepreneur and venture capitalist David Pakman, who recently left his longtime role as a partner at veteran VC firm Venrock to become managing partner at CoinFund. Topics include why the volume and growth of developer activity should be the “North Star” guiding VC investment, incentivizing developers to work on Web3 projects, and CoinFund’s NFT investments.
David is a CS major who worked in Apple’s music group in the 90s and went on to become CEO of eMusic in the aughts.
At Venrock, David invested in early-stage crypto, consumer, and enterprise tech companies. He was early to crypto as a node maintainer on the Bitcoin blockchain and an Ethereum miner, setting up a rig in his basement several years ago.
At CoinFund, he focuses on early- and growth-stage crypto and blockchain companies and technologies like Upshot, a platform for crowdsourced NFT appraisals, and Rarible, a digital art NFT platform.
ICYMI: Listen to our episode Web3 won’t save us.
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David Pakman First I would say, we're still super early. It feels to me, having gone through Web1 and Web2, it feels like '96-'97 timeframe in crypto land. I remember dialing into the internet and getting busy signals. ISPs didn't have enough phone lines. That happened a lot, right? It's busy or getting disconnected when you're in the middle of a file transfer. And there's no way to resume.
Ben Popper That's certainly the experience now trying to make an Ethereum transfer.
DP Yeah! It's exactly the same thing. You approve on your ledger and you pray to God that it's going to work.
BP See the little thing circling around. Yeah, exactly.
DP Could happen in under a minute, could happen in 10 minutes. Don't really know. That was a lot of money I just transferred. So we're in that same space right now.
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BP Hello, everybody. Welcome back to the Stack Overflow Podcast. A place to talk all things software and technology. I am Ben Popper, Director of Content here at Stack Overflow, and today I'm going to be joined by an old friend, David Pakman. We had him on the show once before to talk about crypto, collectibles, NFT, and blockchain. In the time since then, these things have become far more mainstream. They have become far more valuable in some cases, and they've become far more contentious. They generate a lot of excitement, energy, and antipathy in the developer community. So David recently made a move from Venrock where he was, to join a crypto-focused fund. We'll have him talk about why he made that decision and then hopefully some of what he thinks is significant and interesting about the underpinning technology here, as opposed to the hype that surrounds it. So David, welcome to the show.
DP Thanks for having me back, Ben. Great honor.
BP So just to give people a little bit of background, you went to I believe it was UPenn? Yeah, you went to UPenn to get your CS degree. You worked for a while in the e-music space early on. You worked at Apple. You've done a stint as a traditional venture capitalist, Venrock is one of the oldest VC shops in the game. But recently you joined CoinFund. So tell us a little bit about why you made that jump, and then we'll dive into how you got started with the whole world of blockchain and crypto technology.
DP Yeah, thanks. A lot of people talk about their crypto journey in sort of a similar arc, like curious but skeptical. People talk about going down the rabbit hole in a reference to Alice in Wonderland.
BP Yes. I've rabbit-holed myself several times. I've tried to.
DP Yeah, exactly. And then The Matrix analogy. So my journey is also a little similar. I started just out of curiosity running a Bitcoin node, and then starting to try to mine. It got way more serious with Ethereum where I was mining Ethereum in the basement for years and burning a lot of electricity doing that.
DP But that turned out to be a smart investment. And just trying to follow the developer activity, which is predominantly, as a venture capitalist in tech, you really have to follow developer activity as the North Star. And that's really what propelled me. I attended a few of the Ethereum developer conferences and talked to people about why they were interested in crypto. And the thing I kept hearing was very similar. It was not about payments and inflation hedges and digital gold. "I was developing on Twitter and then Jack Dorsey shut the API down and my company was wrecked." Or, "I built on the Facebook API and then Zuckerberg shut down the entire platform and all my code was gone."
BP We all feel bad for those Zynga developers.
DP Totally! Yeah, well Zynga did fine but everyone else got hosed. But I think the promise that lures a lot of software developers to blockchain is, so we're going to replace Apple, Facebook, and Twitter with a blockchain. We're going to take the company out of the equation and we're going to make it software that is completely public that I can have an ownership stake in, and I can vote about which direction it goes on, and I can trust that what I build on these public APIs that I'm not going to get the rug pulled out from under me. And I kept hearing that over and over again. That was a common refrain. So, that's a telling and logical reason for why software developers like this space.
BP I do think what you're saying makes a lot of sense. And before there was a backlash, I think one of the things that I noticed was there was an increasing amount of activity on Stack Overflow. People started a lot of stack exchanges dedicated to first Bitcoin and Ethereum, then Cardano and Solana, all down the chain. And as you said, one of the things that kept coming up was decentralization and openness on the web, which now we call it Web3 as sort of a way to name this movement. And a lot of it does seem like it's set in opposition to working on a big platform that centralized everything. You know, what's old is new again. It feels like people who are young and have a lot of enthusiasm, maybe they haven't made their name in the software development space or they want to try something new, this is their chance to create a version of the web with this new underpinning technology. And that's what's exciting to them is the greenfield that's out there and the chance to maybe undo some of the mistakes, as they see it, from the last 10 years of technology.
DP Yeah, I think there's a romantic notion to the Web3 movement, but there is a practical one too. And it's not just like, "Hey, I'm philosophically aligned with the idea as a software developer of building on a platform where the whims of a founder can't shut my company down." But there's also the logical and rational decision to build on a platform that you get an airdrop grant of tokens in that conceivably can go up in value if you help make the network more valuable. So there's this economic justification. I remember when Facebook was talking about their IPO, I was like, "Well surely Mark and Sheryl are going to offer shares, like a friends and family sale, to the customers in sort of an 'F-you' to Wall Street, right? Our customers are what built us." Of course that didn't happen at all. It probably wasn't even discussed. But that notion that like, "Hey, we should thank the users here. They should have some economic stake in what they've built." Not only was that not offered at the IPO but it's anathema. That's not what Facebook believes. But Web3 does.
BP So yeah, one of the things that has come up on the show repeatedly in the two years I've been doing it and sort of diving more into the world of software development versus covering technology generally, is the power and speed and scale of open source. People love to contribute there as a way to learn, and to grow their reputation, become part of a community, but also in some ways, the ability to ensure that projects are well-funded and well-secured is kind of broken. Somebody will create a project, there'll be one or two maintainers, all of the sudden it's being used by 10,000 companies, some of whom are enterprise grade. And then when it breaks it makes the news. Because why did this break? Why was everybody relying on this open source project made by one creative and curious developer in Idaho? So I feel like that is one thing I've thought there's maybe some interesting connective tissue between, if we all build this thing together but from the beginning, the maintainers and the contributors are staked in it with a financial reward, that could be a very interesting turn of the wheel for open source.
DP Absolutely. Web3 is built on the shoulders of giants, and hopefully some of the positive things that we've learned with 30 years of network software development, and open source being a key component there, and almost everything in Web3 is open source, but a couple things that are different that try to address, I'm not so sure they're weaknesses, but just the differences between traditional open source. One is governance. So, how do you make decisions? Is it just Linus Torvalds making decisions from his apartment?
BP The first people on the email list, yeah.
DP Right. Or is there some voting or hierarchical or flat decision making apparatus? And so in Web3, there's this concept of DAOs, where we have somewhat of a representative voting mechanism for deciding the direction of software. Don't know that it's going to be better or worse or the same, but it is an experiment. And then the second it's trying to solve is the economic incentive and recognition problem. How do you incent developers to work on it, but also give them proper calibrated recognition for their contributions? And that's trying to be solved through tokenization. And we'll see if those work, I mean I'm practical, I'm not going to say that they both work great, but certainly the economic incentivization of the, "Hey, you can get tokens on a project that you're working on and they might go up in value," seems to have drawn one of the reasons why we've got 30 or 40,000 super active developers in this space.
BP So let's talk a little bit about what's happening in this space. Maybe give us your view, having moved over to a fund, what you see that's proven to be very successful, the kind of thing you could point back to and say, like, "If we could find the next FTX, if we could find the next Uniswap, it's a great investment. But also this shows us where the technology is headed and what the next set of developers or entrepreneurs might create."
DP Yeah, I think there's a difference also between where have we seen economic value creation, like high evaluations, and where is there sufficient users to point to, like a real market? And first I would say, we're still super early. It feels to me, having gone through Web1 and Web2, it feels like '96-'97 timeframe in crypto land. I remember dialing into the internet and getting busy signals, right? ISPs didn't have enough phone lines. That happened a lot, right? It's busy or getting disconnected when you're in the middle of a file transfer and there's no way to resume.
BP Right. That's certainly the experience now trying to make an Ethereum transfer.
DP It's exactly the same thing! You approve on your ledger and you pray to God that it's going to work.
BP See the little thing circling around. Yeah, exactly.
DP Right. Could happen in under a minute, could happen in 10 minutes. Don't really know. That was a lot of money I just transferred. So we're in that same space right now and so I guess I approach it with that grain of salt. But there have been strong evidence I think of user adoption in a couple of verticals, certainly in the on-ramps of crypto. So exchanges, and asset management, and wallets, right? We see somewhere between 100 and 300 million wallets in the world, but far fewer than that are active. I think Coinbase reports around 9 or 10 million monthly actives. That's mostly US. And Metamask I think has 21 million monthly actives. So 30 or 40 million active people here. That's a lot, but it's also tiny compared to 4.5 billion people on the internet. So it's really early. But we have seen about 2 to 3 trillion dollars of total asset creation that have occurred in 10 years. And that's enormous. That's very large, but let's put that in perspective. So what we're trying to do here is rebuild AWS, Google Compute, and Azure, as an open public blockchain crypto-enabled stack for building apps. We've created about 2 to 3 trillion dollars of total economic value here in asset value. And I think that easily goes to 20 or 30 trillion. So we're trying to recreate the application architecture for the internet, plus crypto eats the global financial system, plus NFTs eat intellectual property. So it feels like the total is very big, but the real examples of mainstream adoption so far in crypto are NFT's. And it's a small number of people, maybe 3 to 4 million total people around the world have bought NFT's, but those 3 or 4 million people have spent more than $25 billion in just the last year. And we're on a run if you look at January's numbers, more than 40 billion. You know the global art market is like 45 billion. I think it was 60 at its peak but it has shrunk a little bit because of COVID, but still that's enormous. Global gaming markets, 180 billion. We're getting to a quarter of it in our first year of NFT activity. So it's an indicator of a likely large area for consumer adoption.
BP Right, right. Yeah, you and I discussed this last time and I think people have strong feelings about NFTs. Maybe I could get your thoughts in a minute about the Marlinspike blog post and his sort of cutting attack on Web3. But the focus on art and fine art and whether or not it's worth something, maybe misses the larger point which is that people love collectibles of all kinds, both the social signal and their use as an asset. And so while NFTs and Bored Ape have kind of dominated the conversation, whether or not they're worth anything as art, as you point out there is a very human, very intrinsic mechanism there that probably has a lot of head room to expand into new categories and new uses.
DP Yep. I think that NFTs and gaming, you just can't argue with consumer behavior. You can try to judge it. I remember in 2008 we all said like, "Why are these kids posting pictures of their lunch on Twitter and Instagram?" But it's what we're doing. And I'm not making a value judgment, I'm not saying social media was great for our democracy. I don't think it is. But it's created hundreds of billions of dollars of wealth. And so similarly, I'm not saying that everyone should own a Bored Ape or a CryptoPunk, but 20,000 people do and those things are worth billions of dollars and that's what consumers are doing with their money. And so our job is to look at it. On your question about Moxie Marlinspike, so again, going back to it's 1996, and so I was really upset at the busy signals and the fact that we couldn't hold a connection and we couldn't stream high fidelity audio or even video. So a lot of it needs to be built. We're in the infrastructure building phase and it's super immature. And he's right, also, that a bunch of shortcuts are being taken to try to drive slightly better user experiences. Why do we cache information? It's so we don't have to do a lookup, right? Why do we centralize some information? Because it's easier to ensure its reliable delivery. So developers are creating workarounds to try to deliver a reasonable consumer experience. And some things haven't, like Metamask doesn't do a good job of working around the 10 minute time it takes for an Ethereum transaction, right? But that's not a good user experience. So we just have a lot more to build. I don't think any of it was an indictment on the principles behind it. It's just a judgment on the fact that we're not there yet.
BP Well, I think one thing that he pointed out and which kind of takes aim at what you said initially, is that a lot of developers are excited about this for the chance to be off a big platform, be free of the decision-making of a CEO or a business, to feel that they were in a distributed open source space that maybe they had some influence on the building or the governance. Unfortunately, well not unfortunately, but a lot of users who are jumping head first into the NFT space don't realize that they're just sort of surfing on the rails built by these centralized infrastructure providers, and that in reality, unless you're slightly more technical and slightly more involved, you don't really have necessarily those protections or those advantages you discussed.
DP Right. And actually I think that's what I took away most from it was, where is the sort of decentralization health report for any DAP or piece of Web3 infrastructure or blockchain that we're using? How do you know that it's been verified that it is decentralized? I mean, the same thing has happened with security and software code, right? Like, when I start writing an app today, I'm largely calling the libraries that a whole bunch of other devs have put together. Have I done any validation that that library is safe?
BP And NPM would say, "No." And recent history would say, "No."
DP Right. But that's why a lot of software is insecure, because no one did that health check. So now we have startups that try to scan every library and tell you where there's unpatchable. So very similar concerns.
BP Cool. All right. So last thing I wanted to ask you. If you were a developer, an entrepreneur, interested in getting into this space, what would you recommend? And I guess, then a little bit talk your own book. Like, what are you looking at? Are there recent investments you've made you're excited about? And if people want to get in touch with you, what's the best way?
DP So I'm at CoinFund, and I'm David at coinfund.io and we're looking at seed stage and sort of Series A stage companies in every subsector of crypto. We're crypto generalists. We're seeing a lot of activity in certainly NFTs, collectibles, and in the NFT financialization, like, how do you create DeFi for NFTs? How do you discover prices on assets that don't trade frequently? A bunch of stuff around that. We're also really focused on DAOs and DAO tooling and DAO infrastructure, since, as you point out, we're all trying to organize ourselves into communities that are decentralized, and those are DAOs. And yet we have insufficient tools to really do that. How do we take votes? How do we share a treasury?
BP Just shout it out in the Discord. Everybody raise your hand.
DP And that's what's happening now. And so I would say those are some areas that we've been pretty heavily focused on lately.
BP Very cool. And have you already made any investments in this space that you think are interesting and you want to shout out?
DP We have. We're investors in Juicebox and Syndicate, which are two pieces of DAO infrastructure I'm very excited about. On the NFT financialization stuff, we're investors in Upshot, which is a protocol to try to price illiquid assets. We're investors in Rarible, which is both an NFT marketplace, but really interestingly, is a protocol also that tries to put the entire NFT order book into a protocol, so anyone could launch an NFT marketplace and everyone has the same inventory. Which is a unique feature of Web3 that you don't find in Web2.
BP Anybody can spin up their own eBay. I like it.
DP Yeah, that's right.
BP Alright, very cool. Well David, it's always a pleasure to have you on. I think you speak very dispassionately and in a very informed way about this stuff. I'm sure there'll be more chances to talk over the next year if the ecosystem continues to develop at the speed and with the kind of velocity it has been over the last year. So I want to say thanks for coming on. Congratulations on the new gig. And I hope we get a chance to talk to you again soon.
DP Thanks for having me on, Ben. It's great to talk to the awesome Stack Overflow community.
BP Alright, everybody. It is that time of the show. We are going to shout out the winner of a lifeboat badge, somebody who came on Stack Overflow and saved some knowledge from the dustbin of history. Awarded February 7th to M-M, “Find the area of an n-interesting polygon.” Alright, if you need the answer to that, we've got it for you. I am Ben Popper, Director of Content here at Stack Overflow. You can always find me on Twitter @BenPopper, email us firstname.lastname@example.org, and if you like the show, leave us a rating and a review. David, remind the folks who you are, what you do, and where they can find you online.
DP I am David Pakman. I'm a Managing Partner at CoinFund. I'm on Twitter at @Pakman, and David@coinfund.io.
BP Wonderful. Alright, everybody. Thanks for listening. We'll talk to you soon.
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