Our number one objective as a fund is to be singled out as a partner for the finest and most discerning entrepreneurs and technologists in our domain. These next chapters outline in practical terms our approach to achieving this and to delivering further value to these networks over time.

Grass-Roots Sourcing

While previous technology waves enabled new business models to flourish on top of the new tech platforms, the move to decentralised data networks allows monetisation within the base protocols; at the application and also the business layers. As a result, contrary to previous technology waves, even more of the early value creation can be heavily concentrated in the technical infrastructure layers built by developers for developers.

There is inevitably a minimum time it takes for consumer facing applications to be iterated to sufficient usability, with significant raw technological advances between Web 2.0 and Web 3.0 blending into the background of successful applications. Consumers will in turn overcome certain psychological barriers in use-cases that did not previously feel natural — and hence adopt new habits. New products and new markets will be supported by new go-to-market strategies and forms of distribution — such as financial rewards, token airdrops and decentralised app stores.

We believe that particularly in the coming 2–3 years the majority of interesting projects will be focused on the infrastructure layer: the developer tools that will serve teams in areas ranging from smart contract libraries to data management frameworks; the ‘picks and shovels’ that will facilitate the transition to Web 3.0 for both retail and institutional investors and the underlying protocols that will provide computation, storage and data privacy.

Consequently, our craft as investors will focus on sourcing innovative projects from developers, reviewing their Github commits as a leading indicator of development and adoption, and assessing their fit within the decentralised applications stack. In a continuation of an ongoing shift, the greatest investments of tomorrow will be discovered by attending (and contributing to) hackathons instead of startup pitch competitions. In a time where software is eating the world¹⁷, and open source is eating closed source software, the developers are the next kingmakers. The developers are those with whom we will be spending our time.

Sectors Ripe for Disruption

While it is undeniable that Bitcoin introduced a viable digital store of value as an alternative to government-issued currencies and gold, by coupling a limited supply with an immutable ledger, we are convinced this wave of technology will bring a wealth of new opportunities beyond just a form of money. In the realm of finance, we believe compliance will be automatically built into the transfer function of any and every asset, credit scores & insurance premiums will be dynamically adapting to a myriad of data sources on a global scale and the whole notion of capital markets is on the brink of being modularised into programmatic financial primitives: a set of open and permissionless building blocks readily assembled for any financial application using data sets in every market of any assets one can imagine.

There is an equally large opportunity to reimagine supply chain management from the ground up. From inventory tracking and provenance verification across multiple providers to automated credit financing and auditing. In the automotive space specifically, enabling cross manufacturer car to car data sharing and vehicle tracking opens up a whole new set of possible operations & interactions. Online, tokenisation is enabling global ownership of digital assets for the first time — starting with simple crypto-collectibles but inevitably evolving towards sovereign identity and authentication. Peer-to-peer marketplaces for data, software licences and work providers can flourish in their true form — without an AirBnB or Uber taking a cut on every transaction.

By abstracting the element of trust, which has led to the prevalence of middlemen we observe today, decentralised networks will not only fundamentally change our perspective of how businesses operate across all existing sectors, but also introduce entirely new business models — native to the peer to peer environment.

Active Network Participation

As previously touched upon — on the role of an investor in the space — we have seen the opportunities for capital providers evolving radically. By simply locking away our assets in custody, we would not merely miss out on potential returns from network inflation, but in many cases we would even be hurting the projects with our neglect. These digital assets are intended to incentivise all actors to participate in the value creation: from capital to work and usage.

Active network participation can take the form of validating blocks in Proof of Stake networks in exchange for block rewards or capturing tokens in a Merkle Mine. Additionally, it can focus on providing desirable resources to a network in exchange for fees paid by users, such as storage, data, or registry curation. With the right incentives designed into these networks, individuals and specialised service providers will rapidly offer their services to earn rewards and fees. In the case of competing decentralised networks, network providers will follow the network participants, and these network participants will probably converge towards networks with numerous providers (which can lead to a chicken-and-egg situation). Additionally, there is a risk that network participation is not economically viable in the early days of a network when observed in a vacuum: relying on transaction fees in a network with no transactions or providing data streams to the Ocean Protocol Network before there are any buyers will generate losses. It is specifically this niche of scenarios that no rational actor will cater to, other than an early investor. The returns from a VC fund are predominantly driven by maximising each investment’s chances of outlier success, and as a result, this potential for exponential results in a network outweighs the sunk costs of provisioning and seeding the network. As a result, we intend to help our portfolio networks kickstart their supply-side providers, whether internally or through delegation, and we openly commit to portfolio projects to actively participate within their networks. We have already outlined our plans to run nodes, provide data and stake towards data streams within the Ocean Protocol Network and are working with numerous of our portfolio companies to be ready to provide work to the networks as they launch.

Accelerating Serendipity

We are strong believers in the value of an engaged community and connecting smart people to make extraordinary things happen. By immersing ourselves in this community, we will not only be in the position to source the best opportunities at the earliest stages, but we will also curate a network that will contribute to the successful growth of our portfolio. To this purpose, we host a range of events, varying in format and purpose — each designed to bring together a specific subgroup of individuals and solve particular problems:

Regular technical meetups — focused on bringing together the developer community to collaboratively problem-solve specific research & development issues around infrastructure, token economics, and adoption;

— focused on bringing together the developer community to collaboratively problem-solve specific research & development issues around infrastructure, token economics, and adoption; Larger-scale conferences like CogX — focused on introducing the Web 3.0 to a wider audience — presenting latest achievements in research & development, and helping corporates, governments, and investors become more comfortable with newly emerging business models;

like CogX — focused on introducing the Web 3.0 to a wider audience — presenting latest achievements in research & development, and helping corporates, governments, and investors become more comfortable with newly emerging business models; Annual Founders Summit — an intimate gathering designed to showcase the development in portfolio projects and proactively match them with useful partners in the ecosystem;

— an intimate gathering designed to showcase the development in portfolio projects and proactively match them with useful partners in the ecosystem; Talent dinners — where we proactively match talented engineers, product designers, cryptographers, community builders, or operations super-stars with projects in our portfolio.

Fabric House

We are building Fabric House with a firm commitment to surround ourselves with the smartest developers in London working on decentralised data networks. Through the nature of open source software development, most projects will have distributed teams without a firm ‘home base’. We believe a flexible coworking space for developers building decentralised networks doesn’t only provide the opportunity for cross-pollination between projects, but will also serve as one of our greatest assets for sourcing investments. Equally, whenever we spend time in Berlin, we are residents at FullNode — a coworking space for blockchain projects built by Gnosis and Cosmos.

State of the Token Market Research Reports

In January 2018, we launched our regular State of the Token Market reports, focusing on quantitative trends in the token ecosystem, as well as qualitative analyses of significant developments in the space. Deep-diving into aspects such as the evolution of funding mechanisms, insights into crypto hubs globally, trends in the development activity as a function of market corrections, and the emerging regulatory landscape — has helped us not only stay at the forefront of the evolving European and global scene, but also put Fabric on the radar with established and emerging projects, talent exploring the ecosystem, academics, and industry associations.

Translated into 4 languages and quoted in over 100 media publications and several notable talks — including university lectures — the report in its two editions has become a reference point for developments in the space. Going forward, we intend to supplement the report with more regular newsletters including select data fragments.

Human Fabric

Just as it was in the Web 2.0 era, the fuel of innovation in the decentralised Web — and the most scarce resource for which the best projects will compete — is talent. As we aim to invest in projects right after their inception, we expect that team expansion will be one of the top priorities we can get involved with. As a result, we are building a curated community of talented engineers, product managers, and community builders, who we programmatically match with relevant projects in our portfolio. In a first instance, we use the social mapping platform we have built in-house, to proactively identify promising individuals across Github, Twitter, Reddit, and other networks, and make tailored recommendations based on projects they have committed to previously, their location, interests and reputation. Additionally, we host a regular series of events and dinners focused on further cultivating the physical community, and allowing portfolio projects to share their vision.

Instrument Agnostic

Having kept pace with the rapid rate of change in investment instruments over the past 2 years, we will not shy away from further iterations. From equity to tokens to SAFTs to SAFTEs to Security Tokens, the ideal value-capturing investment instrument that fosters both governance and milestone driven funding is still being improved. To avoid any future technical restrictions, Fabric Ventures is asset agnostic. Instead of ignoring new investment instruments and being precluded from new opportunities, we will embrace further iterations of instruments enabling us to work on network participation, custody and liquidity management.

Liquidity & Returns to LPs

Despite the liquid nature of token markets, Fabric Ventures is fully committed to a long term patient capital approach to investing in digital networks. We invest in teams that are building meaningful technology and growing user adoption — and that takes years if not decades.

The liquid market does however provide the ability to mark our portfolio to market on a daily basis and to double down on undervalued positions we already hold. Towards the end of the lifetime of the fund, unlike traditional equity shares, tokens will be much easier to sell without negatively affecting the project. Instead of having to push for an IPO or acquisition, we will have the ability to sell to accredited investors on the open market with exchanges that are fully regulated and potentially even include on-chain compliance frameworks, while also keeping the option to sell tokens to a larger buyer in an OTC sale. There is also an opportunity to make way for capital with a different risk/return lens or for strategic actors within the network, which might ultimately increase the value of the remaining tokens. We may however also choose to sell out of a successful project that nonetheless no longer promises venture level returns, or indeed be forced to exit rapidly should we believe a team or project has shifted from its course at the moment of our investment. These ‘liquidity modes’ remain a domain of further development and iteration — just as this broader “fork” of the venture capital model itself.

Conclusion

This is not just simply a generational shift in computing architecture, it is a dislocation in organisational principles. A new wave of human-centric services will be interwoven with our everyday lives with unprecedented intimacy, and for humans to trust their machine counterparts not to abuse the growing torrents of accessible data, we will need this layer of crypto-powered privacy and incentives. We believe there is a long journey ahead to build a scalable, secure and privacy-preserving Web3.0 — starting with the technical infrastructure, developer tools and data management frameworks. To support this vision, Fabric Ventures is adapting the patient venture capital model to investing in decentralised data networks: backing the boldest technologists & communities at the earliest stages, supporting them throughout their journey and becoming active participants within the networks they are building.