I was talking to a top SF-based VC about a Web3 incubation program.
He said: but the conversion ratio is very low.
What he meant is the conversion from hacker numbers to founder numbers.
Although I’m writing this from a chain perspective, this applies largely to any web3 project trying to drive adoption, and major overlap with the early-stage VC mindset is needed.
Hacker and Founder
Hacker numbers are typically what a Layer 1 would track:
- Integrations
- Transactions per app
- Key infra building
This requires a lot of developers building various layers, which is education and dev support. Even hackathons.
I can see a hacker is an engineer with a laptop. Highly intelligent and knows how to build software.
But the VCs who invest in these Dapps or downstream protocols are looking for their growth possibilities.
Their metrics are:
- TAM
- Market share
- Revenue
- Traction
- Community
These metrics require a founder’s mindset.
The persona of a founder is someone who is making sales calls, doing investor pitches, working with cost optimization, hiring a formidable team.
Globally, only a fraction of devs end up being founders. I believe most don’t even intend to. After all, a founder’s life is not an easy one.
Web3 Dev Ecosystem
Back to the market, a typical hackathon participant, a hacker, is a young graduate or a student looking to learn, and maybe a job.
The sheer number of hackers is staggering.
Thousands of projects across Eth Hackathons.
But how many of these got funded? Less than 2% according to an estimate.
This plus some peculiarities creates typical conditions for those driving adoption. Let me discuss three specific factors.
Time from hackathon to funding is high
Let’s say we find a good hackathon project with a founder(s) (or founder material) at the helm. This founder/team will go through the funnel and get funding between 6-12 months. From Preseed to Seed sometimes takes 1-2 years even for good founders.
One factor that I’ve identified is definitely the lack of emphasis/support on the business side of things. Almost zero education. Hardly any VC will train or be hands-on. Coaching is only for the most elite founders. There might be other factors too.
For an L1, this means the cost of supporting every founder from hackathon to seed funding is much higher. And the pipeline for their venture arm will look very different.
Education and Adoption often don’t go along
These two goals look like they have a lot of overlap. And often a chain/protocol will spend a lot of money in education while expecting adoption (integrations and transactions).
Education initiatives like college outreach, workshops, meetups, and devrel support will lead to branding + integrations that will be abandoned.
Whereas real integrations that sustain + transactions will come from funded startups that manage to scale and dominate a market.
Remember the difference between a hacker and a founder?
Chain ecosystem folks and VC arms see this as one funnel.
But these are two separate tracks. And mixing their efforts + budget will not yield results in either.
There is no Stanford (sadly!) where you have hackers going through the founder’s funnel with the support of YC, angel networks, advisors, coaches or venture studios.
Don’t spend wide, spend deep
We saw that the numbers game is skewed here. Spending wide in the name of adoption will not lead to any ROI. The surface area is too wide.
I’ve seen one chain setting up a stall in Goa trying to “educate” tourists to download their wallet for $10 airdrop of their token.
Many have organized meetups where students are “incentivised” with t-shirts, food or drinks.
Or workshops in colleges without any record of producing founders. Glamorous hackathons. Parties and the list can go on.
Those who intend to build a sustainable scaled startup care for tech, support, and focused ecosystem support in getting off the ground. What they don’t know they need is business education, support, and coaching.
Conclusion
This market is different. But chains / VCs have been the degens in the last cycle. Without understanding the nuances, they’ve ended up shooting with a machine gun instead of sniping.
This cycle is for correction.
Experiments:
Founder House at EthIndia was an experiment to see if we could provide an disproportionately high attention and money to founders.
On-going collection of Datapoints:
Observed:
- Chain loyalty hardly ever shifts in early stages
- Devs become loyal to whichever chain supports them in their earliest days
Hacker mindset Datapoints:
- Build on my chain or leave. These devs are potential founders who would build on your chain if you form a relationship with them and help them out.
