This Week in Startups - Dapper Labs CEO Roham Gharegozlou on powering NFTs, NBA Top Shot, & CryptoKitties | E1197

Episode Date: April 13, 2021

Check out Dapper Labs: https://www.dapperlabs.com​ FOLLOW Roham: https://twitter.com/rohamg​ FOLLOW Jason: https://linktr.ee/calacanis​

Hey, everybody, last Thursday, back on April 8th, I interviewed Dapper Labs, CEO and founder Rome, Gary Gosloo, and he is a really brilliant guy who did Crypto Kitties. He is part of this NFT boom, the non-fungible token boom. And so when I don't understand something, I just put out the bat signal, I find the people who are doing the most important work, and I interview them, and then I record it, and then I share it with you. So we can all get smarter. It works brilliantly. If you don't know, NBA Topshot is powered by Roham's company Dapper, and it has generated hundreds of millions of dollars in transactions already. It's pretty bonkers. So this is a great interview.

You're going to really enjoy it. And NFTs, I think, you've probably heard me be critical of crypto many times. NFTs, actually, I think make a total amount of sense. If you have digital trading cards and people are buying weapons and mana in video games, why wouldn't you buy a one-of-a-kind? dunk by LeBron James. What a great idea. By the way, we're having another event and like all the events we do, free for founders. The name of the event is Meet Our Fund. It's going to be on June 8th and 9th. It's going to be on Zoom. Maybe we'll use one of the other event platforms. You can go to Meet Ourfund.com. And I decided to flip the script. I realized, you know, you go to a demo day

and all the founders are pitching the venture firms. But the founders don't know much about the venture firm. So what if we flipped the script and we gave each of the venture firms 20 minutes to present and 10 minutes to answer questions? And we had 50 of them show up. Well, today we announced the first four speakers and we're going to fill in over the next couple of weeks, the rest of the 50 speakers and you as a founder can go there and look at the menu of all the different firms and maybe you have a co-founder. You can pick which ones you want to go to and get really educated as to what that firm can do for you and your startup. as opposed to what you can do for that firm, which is get them a great return.

You want to hear what the value add is for these firms, and we're going to do that for the first time at Meet Our Fund. Go ahead and sign up, Meet Our Fund.com. We're going to have 10,000 people there online. Who knows? Maybe in the future we'll do it in person. But for now, online, June 8th, and 9th, and I hope to see you there. This week in Startups is brought to you by Vanta. Compliance and Security shouldn't be a deal breaker for startups to win new business.

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Our Crowd helps you invest early in pre-IPO companies. alongside professional VCs. If you're interested in investing, you can join our crowd for free at OUR-C-R-C-O-D dot com slash twist. Really great to have Roham here. How are you, Roham? I'm doing great. How are you, Jason? I am well. Do us a favor. Let's pronounce your last name and let's just nail it so that everybody says it perfectly going forward. Roam is pretty easy. The first name, but give us your last name.

Gary Gozlu. Gary Gozlu. Did I get it? That's right. I got it. Gary Gozlu. It's not that hard. It's not too bad.

It throws you off because it's a lot of letters. Well, Calicanis throws people off too. So, Roham, tell us when did you start dapper labs? Then when did CryptoKitties come out? And then when did Top Shot start? Because I just want to always like to get the overview from the founder of how they wound up here. Because everybody is looking at what's happening with top shot and just go, wow, the NBA, this is incredible. But this obviously is an overnight success.

How many years in the making? Yeah, I mean, so we built CryptoKitties first before Dapper Labs. We built CryptoKitties as part of my last company, Axiom Zen. And Axiom Zen started playing around with crypto back in 2014, first trying to build stuff on top. of Bitcoin and you know we we always saw it crypto or blockchain is more of an application platform than a database or a currency platform or whatever people were using it for so so we we worked on that sort of non-fungible token standard over the summer 2017 launched the CryptoKitties alpha at ETH Waterloo which became the first sort of EF global event and so the kick off of

that series of events in October 2017 launched the CryptoKitties product November November 27th, 2017, and Cryptokitties, and then, you know, it sort of exploded within 24 hours, basically. We, we saw a lot of kind of scalability issues, et cetera, and decided, hey, we need to kind of, we need to bring more people around the table. We need some help. And so we brought on board Fred Wilson, Chris Dixon, formed Dapper Labs with their investment sort of the same day and February 28th, 2018. The idea for CryptoKitties, I just want to pause there for a second. Did you come up with the NFT standard?

When did you first hear the word NFT? What's the origin of that? Because I hear people talking about NFTs all day long, a clubhouse. I think they should just rename Clubhouse, NFT, and shoot your shot, you know, social network for those two types of rooms because it's filled up everything. But what's the origin of the term NFT? When did you first hear it or did you come up with it? I think ICTO came up with it.

And we were just trying to figure out a standard to represent unique assets rather than fungible assets. There was already ERC 20 at that time. That was sort of the standard that all the ICOs were based on, a common way that exchanges and wallets and stuff could see. This token is the same as this other token, part of the same category, right? Like these are all, you know, brave tokens or whatever it was. So we wanted that same thing where there could be a category where you could have a marketplace that says these crypto kitties are all individually unique. This is number one.

This is number two. But they're all part of one type. And that's essentially what the NFC standard is. It's a way to represent assets of particular categories that are individually unique. And why the crypto kitties, where did that concept come from? And why not baseball cards to start or some other IP? Was there some story behind that? And then what was the actual footprint like of in terms of the number of people who participated in that first year of CryptoKitties, the amount of commerce that occurred?

Yeah. So obviously, you know, four years ago, going to a licensor and talking to them about blockchain and NFTs, it was never going to work. It was that was sort of the peak ICO mania. And that's how people saw what blockchain was. And so we wanted to create our own IP. We played around with some different ideas. But you've been around long enough to know the first cool things that happened on the internet happen with cats. And so that's –

And I hate cats. They're the worst. I'm a dog person. I can't take cats. I'm a dog person too. So conniving, so insincere. Cats are just the worst. Come at me in the chat room, people.

digital cats are loyal to you forever so are they loyal is that that's a differentiator so what how many of these it was kind of interesting too you know you you can you were trying to you sort of show off this you know really amazing concept and at the time ICOs were the big craze they were largely a giant scam tons of grifters tons of lawsuits now and legal action post Yeah. But during that time, people were making fun of you and investing in the ICOs, and it turned out that you were legit and they were a scam. Well, I want to say that, you know, like, I mean, there's hardly anything about venture capital that's perfect. And so any experimentation and alternative funding methods and then sort of reducing barriers for both entrepreneurs to get access to capital as well as for investors of different kinds to get into new kinds of deals that they believe in, I support that.

And of course, there's speculative mania that comes along with it. But I think I think that some good things came out of ICOs. And that funding model of, you know, crowdfunding, et cetera, is now more and more and more part of the popular culture. And, you know, so I think we took the good parts and, you know, obviously we have to put some protections around it. But, you know, in terms of, you know, our position and sort of, so about 100,000 people total have interacted with Cryptokitties.

We're now we've crossed, I think we've almost. we're almost at a million registrations on NBA Top Shot and a little over 400,000 owners. And so the scale, even in beta, you know, we're only six months in, has really been taken to the next level. But it's just barely scratching the surface. I think it's good to pause on the ICO stuff. I, you know, as somebody who is part of the venture industrial complex and an angel investor and who runs a syndicate, I was fascinated by the fact that there was so much pent-up demand, globally to participate in a range of levels, you know, from a dollar to, you know, as we've

seen, you know, tens of millions of dollars in highly speculative projects. And, you know, I think you framed it actually perfectly. You take the good with the bad. The bad is there's a ton of grifters out there. And if you take out all the regulation, all the friction, and you just let people write a white paper with spelling errors in it and just these really stupid ideas that like the blockchain would displace Airbnb or Uber or Google. It just seemed dumb to me, frankly. And the people were just completely not impressive. But what was super impressive to me was when 100,000 people or a million people read the paper

and were like, you know what, I'll take a flyer. And all of a sudden there's $100 million in Bitcoin in somebody's account and nobody knows who sent it. This actually is how I think it would be amazing if this is how angel. investing worked. Imagine when you did Doppler, you raised from Fred and Chris, amazing, right? Union Square Ventures. But imagine if you could have just said, hey, I have this idea and you got, I don't know, 100,000 people to put in $30 each on average, $100 each on average. You could have raised a monster. But of course, our regulations don't work that way because we want to protect people. And in the ICO craze, we actually did need to protect people.

Hey, everybody. I thought I would have Christina Casiofo on this week in startups to tell you about Vanta. Vanta, of course, has been sponsoring the pod and had a great reaction. I'm going to talk today just a little bit about what SOC2 compliance is and why it's so important for SaaS products. Welcome to the pod. Christina. Thank you so much for having me. When's the right timing for a startup, let's say a SaaS startup that's providing software? And, you know, they've got 10 customers and now they're doing their SOC2.

Did they do it too late, too early, just on time? When do you want to incur this expense? You know, both in terms of cost and time. For sure. So like a lot of startup advice, the advice here is let your customers guide you. So specifically, right, if you're selling and you're finding that SOC2 and security review and questionnaires come up in your sales process, great time to engage and kind of get the SOC2 report and make those objections disappear. If this isn't something you're hearing from customers, you probably are hearing other valuable things that you should prioritize first.

Got it. So when your customers demand it, that's a good time to do it. Great time. All right. Thanks again, Christina, for explaining to us why this is so important for SaaS companies, especially when you start getting into that sales process, and you've been very generous. You're making a nice offer. If people go to vanta.com slash twist, where are they going to get, Christina? They're going to get $1,000 off their Vampa subscription, and we're a big fan of twist listeners. Oh, thanks. I know you had a great response from our listenership, and they always tell you they found you here. So thanks to our Twist Army, and we'll see you all next time. Bye-bye. When you look at Top Shot now, tell me how that occurred. Was that all

How did you get the NBA to buy into that, I guess, is the story I want to hear, is when did you come up with that idea? And did you say, look, we're selling these crypto kitties and it's working. And if there's 100,000 people who are passionate about virtual kittens, just think about how many people who collect baseball cards who would love to own a dunk, right? How did it come about? Yeah, that's right. But it's also beyond just, obviously trading cards have been sort of on the upswing for several years. But it's also gaming. Every modern game is essentially a collector loop.

And it's kind of, you get items, you open packs, you get things inside those packs that give your character and new powers or you level up your players or whatever it is. But you don't actually own any of those items. And so a lot of the conversation is sort of, we're kind of doing a hybrid of three things, right? We're taking the power of highlights, social media. That's kind of all the younger fans especially interact with. We're taking pack opening. We're taking the sort of the gameplay experience and the mobile game for Top Shot is coming out later this year.

And then we're also taking sort of the tangible feeling of owning a piece of history. And it just happens to be that these are digital things rather than physical things, which for entire generations of people at this point feels even more natural than you know, having piles of these things, you can't even see them lying around. He held up a baseball card in Laminant, I think. Basketball, yeah. It's a pinionic card, yeah. But yeah, so it was by bringing those things together. We started talking to them very early, and, you know, the MBA is very well known for being,

very forward-thinking, very tech-savvy, and they, but it still took over a year to kind of go through all of the dynamics, you know, share data around CryptoKitties, share their retention rate, It's not just, and if you remember, there was a speculative mania around CryptoKitties 2, but there were, you know, we showed them a year of data basically after that, speculative mania and showed how high their retention is when people feel real ownership over their assets. How the mindset is different when people feel like stakeholders rather than just customers, right? It's a community, not just customer base. And then it's also the technology where, you know, we had to figure out,

that one year, what's our answer going to be for scalability? Because if Ethereum couldn't handle crypto kitties and a few thousand concurrent users, how could it handle the MBA? And by that time, we'd finalized the flow architecture. We had brought on board folks like Dan Bonaid from Stanford as our advisors. We had gone really deep with the Andreessen and crypto team. And they basically locked in and said, hey, the future of the company is we're going to build our own platform. are we're going to launch the NBA on top of it. And so the NBA decide, what is the revenue breakdown of how the NFTs work on Top Shot? Because there's players, there's the teams, there's the league, and there's you.

How did you navigate that? Because that seems to me to be one of the hardest things to do. Because we had this concept, you know, when you crypto kiddies, you own the IP. And if you were to go to Disney and do something around Star Wars and Marvel, which I'm sure will be the next. I mean, I think that's probably, you getting a Disney relationship has to be the number one goal of the company, correct? At this point? Well, no comment on that specifically. But actually, U.S. leagues, American leagues are pretty, they're very organized on this stuff.

And, you know, player rights are managed by the players association. Team rights are all managed by the league. The league is essentially a sort of a group of owners, right? And all 30 owners sort of have the kind of vote on the league's decisions. And so all we had to do is go to the league and players association. At this point, we've built fantastic relationships with many of the owners and many of them on our cap table directly as well. Oh, really?

So like Mark Cuban is an investor in the company itself? Mark Cuban is not a direct investor, but he has, But he's the biggest NFT guy. We collaborate a lot. He, let's just say checks, you know, he has a big check size and we've had very competitive rounds. And so we've, but we've co-invested in a whole bunch of companies building OnFlo, which I appreciate even more.

But, but yeah, we've, obviously, we're very friendly with them. And, you know, the relationship with the NBA is, you know, this is not just a licensing thing where, you know, we just send them checks. They pick every single video. We have teams of people on their side that work full time on, you know, selecting the videos being kind of the editors of sort of the canon of NBA Top Shot. And I think that's the relationship we also want with other sports leagues. You sold 500 million in NFTs for the NBA to date.

Is that correct? No, we've sold about 40 million in packs. And then there's been about 500 million in secondary marketplace trading of the items within those facts. So the 40 million in packs, that goes to the NBA. You get some cut of that. Is that public knowledge, what the cut is? Is it like 30% like an app store or something?

No. So that comes to Dapper Labs. And then we share it with the NBA and the players association. Those cuts are not public. Oh, those are not public. But okay, so they each get a portion of that, the Players Association and the NBA separately. Then how does the NBA players participate in this?

Because that's where I'm sort of wondering if I'm, you know, some rookie, I'm Zion, I guess, is the, is the, as the, is the canonical example today. Does Zion get that money directly or goes to the Players Association? They split it evenly or do the stars get the higher prices? How does all that work? No, all current players work through the Union. So all current players get a share through the Players Association. Some former players manage their own rights.

And so they, that we have to do one-on-one deals with them. Ah, so if you want Kevin Garnett or Michael Jordan, they're going to have to come. So if you were to get Michael Jordan's, and you don't have Michael Jordan on the platform today, correct? Well, the only thing we've announced so far is that he's one of our investors in our day. Okay, so he's going to be on the platform soon. There's going to be some big Michael Jordan drop, obviously. No comment. Well, when that happens, obviously, he wouldn't be an investor if he wasn't, but let's assume he does, then he just gets all of that.

And does the NBA own him dunking? So when he does some incredible dunk, and there's a video of it, does the NBA on that or does Jordan on that? Or do you have to get both of them to agree? Has to be both. And remember, there are also other players. So we also need all the other players as well as the player associations for the, because a bunch, most retired players are actually part of the, the common agreement. And so we, but a lot of the stars, we have to go one on one. And, you know, it just.

So are you saying the other players? in the scene. So if Jordan was dunking on Hakeem Elyjo on, you got to get Hakeem Elijah on for being posterized by Jordan to agree as well. Absolutely. But why would anybody agree to being posterized? So do you have to then negotiate? We'll get one Hakeem dunking on this person. If Jordan agrees that he can dunk on him, I mean, this seems incredibly complex. No, I mean, look, the rights management is one sort of workstream, and then the editorial and the economy design and all that stuff is another works from. So approvals need to happen. But look, this is part of basketball, right? Yeah. You sort of, some of, there's, there are very valiant attempts sometimes that don't,

don't go the right way, but that's still, you got to give people respect for trying. Yeah. Michael Jordan will never approve John Stark's dunking on him as an NFTA. I can tell you that right now. You're going to have to pixelate everybody in the background and just have it be, just John Stark's dunking on the, on nobody. So up that 500, million in resale. This is where I think NFTs are the most fascinating thing to me. I have a beautiful signed

poster of like a championship next team from the 70s. Now, if I sell that, Clyde Frazier doesn't get anything. He doesn't even know I have it. He doesn't know I sold it. But with TopShah, obviously, every single time, you know who bought it. Is there a percentage that goes back to the players

on the resale? How does that all work in the NBA? Well, the market place fee is 5% and then we share a portion of that with the with both the league and the players association again. And so if you sell a thing for a dollar, this fee is five cents. If you sell for $100, it's currently $5. I mean, in the long term, we'll figure out, you know, frequent flyer points and things like that.

But right now that it's sort of a flat price. But it's not like in the Jordan example. If there was a Jordan dunk that was just sold for a million dollars, 10 years later, Jordan doesn't get 10% of that sale every time it turns over? Well, the deals with the retired players are one-on-one. And so, you know, I won't comment on sort of individual terms and things like that. But I can say, you know, the idea of this like perpetual royalty in a sense is, I think, very important and a unique thing of NFTs, right? And at the end of the day, blockchain, you don't even have to audit it.

It's sort of out there. Anyone can take a look at it. And it reduces all of the operational complexity. normally you can't promise these things to people because then what are you going to do? Let them audit your entire book and it just doesn't work. But here it's very easy. So it's personally important to us that players get a fair share of all of this. So that's sort of the ethos with which we're approaching the conversation.

It's really interesting for the NBA specifically because you had all these players who played and built the league in the 60s, 70s and 80s who really didn't get compensated the way the players, let's say, from 2000 on did. Or late 90s, they started to get pretty big contracts. And the NBA became a global phenomenon sometime in the late 90s, you know, with Jordan, and Akeem and Patrick Ewing. And so, you know, and building off of, you know, Magic Johnson and Larry Bird. So when those players get on here, this is a chance for them to actually have revenue that maybe

they haven't seen in 20 years. They must be knocking your door down right now. Yeah, a lot of people are knocking our door down. And it's sort of a sorting through long-term thinkers, short-term thinkers. But absolutely. I mean, you know, it's, yeah, I think this is going to be amazing for those, you know, the really historic moments. We just wanted to start with, you know, most of Topshot has been contemporary moments

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decisions at scale. Let's talk a little bit about these initial NFTs that I got sold. Which NFT in the top shot, you know, offering is currently trading at the highest price? what's the highest price paid for any individual one? A couple of different LeBron's have been sold for over $200,000. That's the limit, I think, $220, or the record, I should say. I think there's been a Zion also for $200,000, but most of them are, most sales above $100,000 are LeBron.

But there's quite a few, you know, Janus, Zion, and others in there, too. And so if something sells for $200,000, you get a $10,000 market could fee and some portion of that gets split with the players union, the NBA, and yourself. So this could wind up being, you know what this reminds me of, Raham, is you remember when the music industry was trying to stop Napster and then all of a sudden Spotify now, they're going to these like giant royalty checks from Pandora and Spotify and everything. It's almost like we're kind of moving into this kind of space where maybe they didn't want digital assets online.

They didn't even let us bring cat. I don't know if you're old enough to remember this, Raham. But remember when they wouldn't let you take a picture at an NBA game? Like if you took out your camera at an NBA game, 20 security guards would carry you out of the place. Now they're like, use the hashtag when you do it. So society is definitely changing in that regard. Let's talk about the rights. I looked at the Beeple sale.

I'm sure you watched that one. And that wasn't, you weren't involved in that one in any way. It wasn't on your platform or anything, correct? No, I mean, we're friends with Mike and as well as with Medakovin, but not directly involved. Just supporters. When you saw that, what was your reaction? I thought it was very cool. I mean, you know, I'll sort of let Metacoven speak for himself, but I think there's, you know, I think it's all about supporting the artists and knowing Mike, knowing people, you know, he's someone that's been working without, you know, without a payday for 13, you know,

for years and years and years, right? Like he's just been creating digital art year after year, day after day, every single day, once a day, and connecting with his community being himself. And, you know, he's, he was the one that sort of kicked off this, the sort of upswing in digital art and just getting people's attention on NFTs. I think he was really the first mainstream digital artist to jump into NFTs. And I think his spotlight is well deserved.

And I think Medico and support. of people is amazing to see. That's, I think it's super cool. Is that how you frame it in your mind? Because I think, you know, civilians who see this, even people from the art world,

they might understand it a little bit better because they've seen, they probably face the same criticism like, okay, that's just a piece of paper with art, with paint on. It's a black square or something, right? Yeah, people would be like, oh, my kid could have done that.

In fact, there was a documentary. My kid could have drawn that was a pretty funny, interesting documentary. Do you ever see that one? I have not. Oh, it's worth watching. It's really bizarre, like a group of a basically, I wouldn't spoil it for you, but did this eight-year-old kid draw these beautiful, this beautiful art or did their parents? Let's find out.

But yet, they face that same thing. But when you're looking at it, you don't look at it as an investment. You're primarily saying when you see something like that people, hey, the artist was doing this for whatever. Over 10 years, a painting a day, 5,000 images. This is more about supporting all of that effort. If you were to guess in 10 years, will that trade for more or less than 70 million? If I had to guess, I would guess more. I think the value, you know, we're, I mean, but the reality is we have so many more dollars in the system that who knows in terms of purchasing power terms, what that means.

But in dollar terms, nominal terms, I think absolutely more. And with art, yes, I frame it as support for the artist. Of course, there's also speculation on the viability of that artist and on the long-term potential of that artist. But the, but that's the, but that's how I see art. You know, Topshot is different. I see Topshot more like we see trading cards. And, and, you know, there are other kind of asset classes within NFTs that I think are different.

You know, crypto punks are very different. That's more of a sort of Bitcoin style, you know, limited supply thing that that is, doesn't really do much, but is is limited supply and has a lot of sort of social meaning. So I think every category. is different, but that's how I like to see digital artists as primarily support for the artist, as well as a stake in that artist's future. What about the rights to the object you're buying? So in the case of a top shot, I own this dunk.

Can I play it on, could I play that a looped video on a, I don't know, projector on the side of a building or put it in my office? or could I commercially monetize it in any way? What are the rights that? What am I actually buying? What rights do I have in your terms of service when I have that LeBron dunk? Could I put it in a TV commercial and get paid a royalty for it? Can I monetize it anyway? Put it on a T-shirt.

What can I do with it? I would think about it the same way as you would if you buy a LeBron rookie card. You have the right to sell that LeBron rookie card anywhere. You have the right to, you know, you can put it on eBay. you can do whatever you want with it. Resale. I mean, right now with Tasha, there are some complexities, but what you can't do is use that photo of LeBron somewhere else and commercialize.

That way you can't do is use LeBron's name or likeness to just promote your own product. I mean, even we can't do that without working directly with LeBron and his team. So I think that that's the distinction there. What we want, ultimately, and what we believe NFTs need to be. be in order to sort of reach their full potential is essentially a file format that lets you say, hey, I own this. And for that to mean you can put it anywhere on the internet, you can print it on infinite objects, you know, physical frames for digital videos and things like that. And then you can see, hey, this person's all you can put it on your Twitter and it's clear

you own that thing. Your avatar picture is a verified NFT. That's sort of our vision of NFTs where even the Web 2 platforms can very easily read. hey, this person is for sure the owner of this item. And so if the user cares about it, then it's sort of, you know, you get a little star saying, hey, it's, it's authentic. So with the NBA specifically, when you buy these, if it appreciates great, you get that appreciation, but, and that has a historical clear path, right? So everybody sort of assumes, hey, this occurred in the print, the printed paper,

baseball cards and sports cards. So this will happen digitally. That makes sense to me. But you don't get any additional rights with you. So you're not able to take this and sell another 100 copies of it. You're not able to make T-shirts. But do you think that will exist in other NFTs? I'm curious.

Yeah. For example, with CryptoKitties, if you have a crypto kitty, you can commercialize it up to $100,000 a year. You can put on a t-shirt. You can put it on mugs. You can put it in an advertisement. we want it we want people who are making businesses out of it to contact us you can't do something that hurts the value of other people's cats that's sort of in the terms of service but you know nifty license dot org is a and i think crypto clunks last i heard they adopt the same thing is you actually

have full rights to the image and you can't do whatever you want with it um even commercialize it up to 100,000 dollars the only thing you can't do is sort of things that are illegal or um or sort hurt the value of other people's you can't say your crypto kitty and go rob a bank with a crypto kitty or something like that. Don't want your crypto kiddies involved in or adult entertainment or something that would damage the other crypto kitties. So you can't have a racist Nazi crypto kitty. No white supremacist's crypto kitties.

Please don't have them storm the capital. It makes sense when you think about it. Like probably don't watch you have the crypto kitties become white supremacist and storm the capital. But selling t-shirt and has anybody actually done that and sold t-shirts and monetized in some other way in the real world? And what was the result? Yeah, there's quite a few.

Crypto-Kajus is probably one of the more famous ones. They made CryptoKi stickers. They made physical figurines. That's a fascinating one, though, if you could make those, sorry interrupt, but if you could make the physical manifestation of the crypto-kitties and then sell those, then buying a crypto-kitty and buying into it, it's almost like buying a McDonald's franchise in a way. It's almost as if, imagine if, you know, you could individually own

the Marvel characters in the Marvel universe and every time they were used, which when now that I think about it, that was Marvel when it was an independent company's huge mistake slash how they survived was they sold the rights to Spider-Man to Paramount and Fantastic Four to Fox, etc. Yeah, this is a little different given that there's two million kitties and you can breed your own, right? Like you can make that that's like that was always the idea is you could make your own sort of stable of cats, do with them what you will. people who were building CryptoKitties games and all these things.

It's just the network that CryptoKitties is on today is not scalable. It costs $150 to breed your cats together. It costs, I think, still $20 to send a cat back and forth even. It's just gas fees are too high. And so I think all of this, once we're, once CryptoKitties is on flow where MBA TalkShod is, you'll see an entire universe of creativity when people can do more with the content. and those rights. Do you ever wish that you invested early in some of the best performing IPOs of 2019 and 2020?

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Okay, let's get back to this amazing episode. So back in 2019, you raised, I think, $15 million for the company, correct? Yeah, so 2018, we raised two rounds. First round was about 12. Second round was 15. 2019, we raised another $12 million. And then 2020, we raised another $13 million. we raised another 13 million to start the year.

And then most recently we announced our sort of $305 million real growth round. So we basically raised four small rounds of financing to kind of keep the company moving super fast. And those were led by our insiders. So, you know, Andresen, Union Square, et cetera, more based on technical milestones, right? We knew this was a three-year build and there was a lot to do. And so we were kind of chipping, chipping away at it. But, you know, I was in that way top shop, we have a degree of product market fit that kind of gives us the confidence to keep scaling. Yeah, 300 million at a $2.4 billion valuation is a pretty big step up from the last couple of years.

How do you plan on deploying that capital? And what are your thoughts on this incredibly hot market we're in? Because you're kind of overlapping, you know, two or three different major trends, obviously crypto. and we're in an incredibly hot market right now for startups. And so these valuations are crazy, but you have had some real sales. So how do you think about the bubble we're in right now? It's clearly a very unique moment in our lifetimes with all the stimulus money being pumped into the market and people having all this discretionary income to invest in alternative assets.

How do you think about that crazy bubble nature, you being at the forefront of it, like you were just surfing these $10 million investment rounds and then all of a sudden $300 million shows up. You know, it's a 30 time bigger investment round while keeping this company stable because we know that this kind of bubbly peak is not going to last forever. Yeah, look, I mean, I want to make clear, those previous rounds of financing were for our company with very limited revenues, whereas now we're profitable just based off NBA Topshot alone. and we're not planning on using that money to just we're not you know we're planning on staying profitable

and you know the NBA Top Shot isn't even a complete product mobile games coming out etc so so what the in terms of sort of a forward-looking multiples on our revenue that valuation is actually quite quite reasonable and so you know I don't think we I would take issue with us being sort of the despite the you know digital cats and and whatever we're quite a solid organization. By the way, that's sort of where I was going with the question is, it seems like you're taking a very responsible approach to this very peak moment, which is, hey, you're keeping the company profitable.

Most people would say, yeah, spend more money, spend more money. But you're actually taking a very methodical approach to this for some reason. What is that reason? Well, I mean, I think we're still very early. The expectations are very high. And, you know, we believe deeply in the long term of the technology, but there's still a lot of infrastructure that needs to be built. There's a lot of, most people think that, you know,

the economy design is very easy because everything people put up right now is selling out. And so it's a question of, well, you know, why didn't we find NFTs any earlier? But people don't realize that, you know, there's sort of dynamics to these open economies. And I think that, you know, just digital pictures that can be traded on marketplaces is really scratching the surface, right? That's sort of what websites were to the Internet. What we're focused on is what kinds of applications can you wrap around these token economies? What can you do with sort of smart contracts as your sources of truth rather than, you know,

software programs that run on closed databases? And what does that do to open source software and the kind of compounding that happens? So when you have a multi-decade mindset, you want to sort of take it very methodically because what we won't gain is by over-inflating people's expectations. What we got to do is deliver, deliver, deliver, and, you know, people's expectations will get ahead of reality, but we'll kind of catch up to it and fill in the blanks. And on the meantime, we'll sort of focus on our community, on MBA Top Shot, we'll keep people happy and just build an awesome product people want to use. And, you know, most of the money that we raised is going to go towards, well, most of it is going to stay in the bank account, but a lot of it is also going to go towards supporting developers that are not us that are building on top of flow and other open. open source platforms to sort of show people you don't actually need an MBA license to be successful

on this new technology. So is your business going to be these partnerships or is there a broader platform business here that you're considering? No, we're already a platform business. You know, flow as a sort of part of Dapper Labs as enterprise value is, you know, we hold more flow tokens than we have, then we have dollars. Let's put it that way. And, and, you know, the majority of our team are infrastructure engineers or folks that are building either the open source piping or the payments and compliance and marketplace tooling on top of it that every single partner we have, whether it's some of those media companies you mentioned or sports leagues, they're going to want to use.

And so that's kind of where we see our long term as being a platform partner for all of these content partners to be able to reach their communities in a way that's right for their communities, rather than us trying to say, hey, this is the master eBay or whatever, and you have to plug into it the way we say you have to plug into it. But then we want to build flagship applications, right? A thing that keep MBA TopShod as sort of that light, you know, the beacon of light of, look, this is what you can do with NFT technology. And, you know, with TopShod, I think we're scratching the surface.

So that's what we want to stay focused on. Let's talk. Let's unpack that open source piece. You're very committed to open source. By being committed to open source, that means anybody can create a CryptoKitties competitor, correct, or a top shot competitor or tools around it, correct? Well, the difference I would make is, you know, open source means that code is open, but most of the open source on the internet pre-blockchain has actually meant the data is closed, right?

Like Facebook runs on open source software, but a developer, can't just build on Facebook's data. It needs to use this APIs, et cetera. What blockchain allows is what we call open services or composability, where the data lives out in the open. And so anyone can build tooling on top of, like there's 30 plus products on TopShod, some of the venture funded that takes zero platform risk, right?

We can't cut them off even if we wanted them to, even if we wanted to because of this sort of, it's both open source code as well as open data, and it allows these things to sort of compose on top of each other. So that's what I think is unstoppable in terms of the value blockchain can bring to people. So this is a fascinating observation, I think. When you had open source, I could take WordPress and I could go compete with Matt Mullenweg and make my own WordPress and we both use the same software, but I don't have all the comments and all the blog posts that he has. But in your case, all of the NFTs are on that public blockchain.

So does that mean I could create or I could as an investor back? a top shot aftermarket and then say instead of 5% we're just going to charge 1% or is that 5% then transferable over to my competitive, you know, Topshot Cafe, you know, just to come up with a name for it. Or obviously I wouldn't actually be able to use Topshot because that's your IP. But I could say I'm going to have a trading a digital trading card NFT website and it supports top shot NFTs. Is that possible for me?

Yeah. technologically speaking, that's possible. But yeah, legal rights and IP, you know, kind of the battle is fought different parts of the stack. But the reality is for the customer, they can take their items anywhere they want. And for the MBA, they can choose to give their rights to whoever they want. So the power goes away from sort of a digital platform in the middle, which is where today, you know, vast majority of the NASDAQ is five companies, right? And it goes towards the creator and the customer, the people that arguably, in my view,

or actually creating the value, but in any of these digital networks. Does that mean you're risking your entire enterprise? Our enterprise wouldn't exist if we hadn't done that, right? Like, if we weren't able to convince the MBA that, hey, this is better for you. They would have never given us their highlights. If we weren't able to convince the customer, hey, this is better for you. They would never have bought the thing for $200,000, right? So we built a multi-billion dollar company on the idea that we will make

the world a better place by giving both the content created IP owner and the customer what they want. And, you know, is our business going to be as big as Facebooks? Maybe, maybe not. Because, you know, as you know, every wave of new technology, there's new ways of competing, right, and new things that can create defensibility. But we don't think lock-in should be defensibility. That's the core thing is we don't think monopolies should be built around data that actually

belongs to the people that are creating it. that is fascinating. When the VCs who invested in you, do they actually understand this concept? There's absolutely no lock-in. Yeah, they do. They do. And they're cool with that. They buy into this new world where you don't have, you know,

the control over the system. The NBA at some point could say to you, I'm not sure how long your contract is, but theoretically they could say, well, we're just going to build our own infrastructure your service, and so we're bringing in-house. And so based on your previous answer, is that part of the sales pitch to the NBA? Is, hey, listen, you could start with us, but if we're not performing, you could always take

this in-house at some point. That's always the reality with open ecosystems, right? And I remember our first board meeting was like, guys, we're building there and that, not AOL. Are we cool with that? Like, that's the future vision of, and back then we weren't building flow. We were just building on top of Ethereum. But the concept was, you know, we're not trying to build walled networks.

We might have to create controlled environments, right? MBA TopShed is a very controlled environment. We keep your money safe. We keep your assets safe. We do identity verification. We do anti-money laundering checks. It's kind of like that AOL bubble, but it's based on open protocols. And so when the world is ready, just peel all that back.

Let the user manage your own keys if they want to. Let them use a ledger wallet if they want to. But that's all both architecturally possible as well as on the roadmap. it's just a matter of, you know, when will the average fan care, how many of the super fans care, and then sort of how do we prioritize it between sort of accessibility and kind of serving power users. So that's the balance that. I mean, I think it's a great answer. And it's even, I mean, I think this is a very challenging moment for everybody who was, and you were part of the internet revolution early on. We all had this aspiration that open states.

standards would win the day and that this would be great for humanity. And we saw it with RSS, OPML, HTT, FTP, you know, pick the open protocol, the email protocol, SMTP, all of this stuff. If you just look at those, podcasting, blogging, email, and every email client that came after it, the open web, all of this was just so rich. And then Zuckerberg just slowly tried to close it off. and, you know, really the worst human being. I'm joking, he's not the worst human being,

but he's the worst, I think, entrepreneur in our space in terms of how he treats customers and his philosophy. You're the anti, I think, Zuckerberg to this. So I'm curious, knowing what you know, is Facebook and the social networks going to experience what's happened, you know, to trading cards, let's say? Are they going to face that?

I mentioned because I keep getting pitched every couple of years, you know, three or four times, somebody's got a decentralized version of Facebook, Twitter, MasterDom, whatever, you know, decentralized version of Reddit, decentralized version of Twitter. And it never, ever happens. But you figured out how to actually make it happen and make it easy for consumers. So why isn't there a Rojom doing what you did for trading cards, making it that easy for, making it easy for social networks in your mind? Well,

there are. There are so many smart founders. I haven't, you know, but none have scaled is my point. Like, nobody on this call is using a social network. Nobody's using a distributed social network here every day.

If they are, it's probably some, yeah, weird that's case. This is a problem. Social networks don't have a good single player experience. They require you to port your existing social network. It's, you know,

most of the people trying to do like, hey, Twitter or Facebook, it's sort of, they don't think about, hey, starting a net new community. They try to kind of like, you know, bit cloud, et cetera. It looks exactly like Twitter instead of saying, well, let's start with niche communities and grow from there, like kind of like Clubhouse did, or like others Web 2 social media companies do. But at the end of the day, social media requires lower friction to get in than a product like Topshot. Product like Topshot is a paid product.

That by itself is such a high friction that it filters out the late, the late adopters, right? Late adopters need free to play. Late adopters need mobile. Topshot is paid and web only. Social networks can't be, can't like put up unless, again, they're like niche community first, like clubhouse and it's like only, you know, invite only. And most people in crypto, that's kind of antithetical to the open nature.

So that's the conflict, I think. And I think it's going to be very soon where now we have a million and a half flow wallets. Now, and most are consumers, not bots and traders, right? Right. And so now a social network mine actually makes sense. And so you start kind of the ball is rolling, but you need crypto wallet penetration, just like you needed internet penetration for social networks to make sense, right? Like the reason they worked on college campuses because everyone's got a computer in their bedroom. And so you're kind of guaranteed connectivity or penetration.

You think it's coming? Five years, 10 years? Six to 12 months because it's whole software. You think there'll be somebody who makes like, oh, really? Who do you think is leading? that are there open source projects that you're tracking? And do you have any interest in doing this? I have a huge interest in supporting others to do it.

We have our Henspool at the current moment. And nobody's figured out the right kind of patterns yet, right? The problem is that Jesse Walden put this really well. Most growth in crypto is very tumorous. And people haven't figured out how to prevent that tumorous growth. Everyone gets really excited about it. but it almost always sort of takes the wind out from the company or the product that experiences because it's too fast.

And so, you know, we've, I mean, even with TopShot, we exploded 20X in a month and now we're scrambling to kind of catch up. I think we're doing a great job and we're getting our foot under us. But it's a lot of growth and it's hard to manage. Yeah. Well, I mean, listen, you've done an amazing job and you've been very generous with your time. We'll do a quick lightning round of questions from the audience. apologies that there's so many questions here

that we're not going to get to Pookie Anderson asked why not make an NFT of blue chip art couldn't the owner of the Van Gog for example make an NFT of one great question yeah you absolutely can I mean remember anytime there's a digital physical barrier

you have a trust you need a trusted party because the blockchain is it's not yet an artificial intelligence that can sort of deem a thing outside of itself as sort of real or not. And so as long as you have a trusted party like us, other bees or Christie's

or some sort of custodian that says, yes, this is a real thing and this NFT is associated with it. And either they then hold custody over the physical thing or there's some sort of like physical audit. Like that's the complexity with the physical world

and why we started with digital cats is you can, you sort of, yeah, self-contained. David K and asked, do you see any VR or AI opportunities here? I mean, are we going to be?

interacting and doing 3D worlds with these assets? So after trying to build apps on Bitcoin, we got really deep into Google Glass and we're one of the first developers of Magic Leap and all these things. And absolutely, that was the realization of, wow, the Metaverse is going to come, you know, whether it's two years or five years or 20 years, and Facebook should not own all of it. We as customers need to have some sort of say. And so, you know, obviously Bitcoin as an actual sort of payment method, you know,

know, to us back then. But then how do you deal with sort of physical ownership? So 100%. And, you know, that's why top shots aren't videos. They're unity objects. And so, you know, they're already kind of future proof in the ARVR sense. So that's the tell. You have unity, you hired unity executives and Disney executives to work at the company, correct?

We have, we have an ex-Unity SVP. I don't know if we have Disney. But we've got an amazing team. According to my sources, you do. you got some Disney people and you got some Unity people but the Unity is the tell right I mean you're building these objects

in unity means they could easily drop into the Metaverse at any point in time and it's interesting I think you you just sort of tipped your cards as well that you're actually concerned that Zuckerberg has the stranglehold on VR and AR that he has on social networks that is

an actual existential concern you have for humanity correct? Yeah I mean I remember this was also back in sort of 2015, 2016. I think I think Facebook has, their hold on the sort of social sphere has reduced to a certain extent. And they've also taken directions to show that, you know,

maybe they are going to move in the direction of open platforms in certain ways. So it's less of an existential threat. I'm optimistic. I'm always an optimist. I am, I tend to judge people by their actions. I think his actions haven't got any better. And so I just look at the track record. I don't think he'll ever share revenue with users.

I don't think he'll ever be magnanimous about the data. And he screwed over every partner he ever had. Any content company, any video game company, anybody who built pages got screwed by Zuckerberg. And so it's really, you're like the opposite. You're just incredibly generous in sharing the opportunity with everybody. People are building utilities on top of Top Shot and you get zero dollars from it. And you design the system so you can't stop them. So the way that Zuckerberg pulled the API out from under everybody,

once they started investing in it or pulled out pages and said, oh, you have to pay now in order to reach the audience that you paid to grow on Facebook, you built the system to actually prevent yourself from doing that. Am I correct? Yeah. And those are the number one examples as well that, I mean, Mark Pickus is one of our early investors and sort of the Facebook Zinga. Yeah, you know, it's, it's, and then brands like the MBA, right?

You work, you give all your content for free to a platform and you sort of grow a huge community. And now you have to pay to reach that your own community that you help grow. It doesn't, it doesn't seem, uh, doesn't seem bright. And for a fan, you're sitting there saying like, wait a second, why, why can't they send me the thing they want to send me, right? Like I'm, I love the NBA. Why am I being served ads about, you know, razor blades? So dumb. Yeah.

I think it's, it's sort of like, uh, I think Princess Leia said to either Darth Vader or whatever that general name was, like, the tight of you squeeze, the more galaxies will slip through your fingers. I'm butchering the quote. But I think that Zuckerberg's Achilles-Eel is that he's just squeezed too much out of his partners and the customers. And they have zero loyalty to them at this point. So has, there's another question.

This one, we'll end on this one for Max. How has the NBA Topshot engineering roadmap changed in the last 45 days, very specific? of the question. And what are the most important objectives for the teams before the NBA playoffs? Is there some sort of big NBA playoff rush going on here for the playoffs and the return to stadiums? I know I had Mark Cuban on my podcast two weeks ago and he talked about selling tickets and every ticket being an NFT. So the idea is you can have that forever and maybe even resell it. Right. Right. Yeah, look, like I'm not going to reveal anything sort of super secret as is my habit.

Well, you know, the past 45 days, actually, the only thing we've been focused on is reliability, infrastructure, and security. You know, everything's basically all marketing has been off. It's been it's been all hands on deck. And, you know, that'll change. Did the system break at some point? Did the system get overwhelmed or break at some point due to all the interest? Yeah.

I mean, everything except the blockchain. Basically, we got DDoS at the top of the layer. We have, you know, sneaker bots trying to scoop everything. And so we sort of have to harden basically every. every aspect of it. But the good news is this is what Nike and Shopify and other companies have have a lot of expertise in. So we've locked down all those systems. And in the next 45 days, we're going to switch the, switch to everything back on. But I'm sensitive to revealing market shifting information. So I'll pause there. All right. Listen, Raham, you've been amazing

as a guest. Congratulations on your amazing success. Another eight years overnight success in the making. Yeah, it's just great. And it's so, so funny, like how as a founder, you can go from being like a punchline of a joke to being the absolute bell of the ball. And I'm so proud of myself that I saw it, but I feel so dumb that I didn't invest. And so many of my friends invested in your company. And I was like, God, this crypto stuff is like, it's so interesting technically, and there's so many scams going on. But I actually think that that one, that everybody's making fun of the CryptoKitties, that's the one that makes the most sense to me. Collectibles, authenticity, proof of who owned it. And man, the smart contracts where the original artist can get

a portion of future sales, that could change art and commerce forever. The smart contracts piece to me, my God, and you've just, you haven't even really scratched a surface of it, have you? It's all getting started. That's the coolest part. Man, is there something in those smart contracts that, you know, I'm not thinking of? All I think about is just like, hey, the royalty, but is there something in smart contracts I am not thinking about that? Yeah, I mean, the biggest thing in smart contracts generally that no one's thinking about is their modularity and their and their composability. And, you know, it took a decade of open source software on the internet before GitHub,

and it took a decade of GitHub before like anyone really took it seriously. I think we're, I mean, the same thing is going to happen with smart contracts and composability in overdraft. Most people still think of smart contracts as, legal contracts, but you can't change them. They don't realize that it's, it's these are software programs that can do anything and that you can just build them on top of each other like Lego blocks. And frankly, I don't think we even at the upper labs know the full potential anywhere close. I'm super fascinated by what these smart contracts could do. I mean, if there was a

revenue stream that emerged in the future or, you know, if you wanted permission for a new revenue, this is the one I vote of. If the old. owner of the NFT could request with the original artist a new deal. So let's say this, you know, crypto kitty, or let's just make it even simpler, you know, somebody sells a digital painting, essentially, like an object. And they never conceive that the person down the road would want to put this into the metaverse or maybe charge people to see it or charge people to make a thousand special prints of it with something. They could actually send a request to the original artist or their estate and let them approve the new use case,

right? Like that doesn't exist, right? Future use cases, that hasn't been addressed yet. That has not been addressed yet. Was that a good idea? Did I just give you like a billion dollar idea? Not sure it's quite that much, but we'll work it out. You're like this is the obvious idea ever, Jail. All right, listen, great job, brother. Continued success. Thanks for coming on. Thank you, sir.