This content was created by Tim Draper. This content was uploaded by Tim Draper. This is a YouTube video titled "The X, Y & Z Axes of Startups | Andy Tang & David Needle" (published 2018-05-01). The excerpt is an English moderated conversation/Q&A between David Needle (interviewer/moderator) and Andy Tang (investor/entrepreneur) discussing startup valuation red flags, competition and team quality, and broad applications and geographic hotspots for blockchain beyond cryptocurrency (payments, smart contracts, supply chain/IoT, governance, etc.).
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We talked about the short term. Are there other red flags? Because we do have a lot of investors here. Is there other red flags you see when you're valuing this? I mean, one that comes to mind to me is uniqueness, or if in fact you're one of many.
Yeah, yeah. So we actually don't mind investing in a competitive field. To a certain extent, it's a validation of the market, right? But the key is to find the best team in the field. I mean, Google is a good example. We're not an investor in Google, but they were probably in a highly competitive search engine field when they got started, but they were— it was a good team, good technology.
It's not that they invented search or something, obviously.
Right, but obviously—
There were other—
Right. Lycos, Excite, the list goes on, right? But, so, you don't have to be the first to the party, but you certainly have to be unique enough and to sort of have that staying power.
And one of the things, again, that was discussed a bit in the last session, I'd love to hear your thoughts on it.
By the way, that was an awesome talk, right?
Eureka.
Yeah.
Cryptocurrency is is the name of the game right now, financial area, but are there other opportunities? And I think I saw something on one of your talks where you even mentioned groceries, food business. What are the other opportunities in blockchain?
It's pervasive. I think blockchain is so fundamental that it's the second coming of internet, right? I often refer to this as an internet square. And the fundamental driver is this: if you look at the computational power in the x-axis, and then the bandwidth in the y-axis, right?
Yep.
So, blockchain is basically that z-axis. As computational power increases, and the bandwidth increases to everyday consumer, every one of us have a phone in our pockets, right? And these things— where's my phone? Very important, it's like my brain, right? These things become servers, right? This is no different from a server in the bank. So we have all these servers floating around at, you know, $500— actually some of these phones are free. So it changes everything, right? So it really— when you think about internet revolution, there's internet 2.0, 3.0, shared economy, all that mobile internet. Blockchain, I think it's the internet squared, because it takes that third dimension of combining bandwidth and computational power and puts the distributing computing into every one of the consumers. So, it affects the way we do finance, that's the low-hanging fruit, most people think about payment. And you have smart contracts that change the law profession, it changes the media entertainment industry in terms of profit distribution, It changes the food industry, manufacturing industry based on the IoT. You can start tracking the goods, how they were manufactured, the history. It changes everything, so it's very pervasive. It even changed the way you might be governed one day, right? Governance, e-government. So I think that it's such a fundamental change in the way we humans communicate with each other. So, we're just seeing, going back to the baseball example, this is a spring training of a, you know, long baseball season that ends with a, you know, in a 7-game series world championship. And we're very, very early. Very early.
If you were, I don't know if there's such a thing as Blockchain Magazine, but if there was and they were doing their end-of-the-year issue for 2018, what would be the What would be the feature story or the headline, do you think? How significant is this year in the evolution?
I think this year is important because it is the first time I feel the mainstream consumers are getting this awareness, right? It actually started, if you trace back to the Bitcoin price, just using it as a proxy It was around Thanksgiving time when the Bitcoin price started climbing, and many people attributed it to Thanksgiving dinner. Suddenly, one person came to the turkey dinner, and then they told them about the rich stories about Bitcoin, everybody go and buy. And we're investors in a lot of exchanges, and our portfolio companies can't keep up with the new account opening, right? And that was the biggest— That's a good point. But it's so quickly you see the Bitcoin price start crashing and correcting in Q1 of this year. So, I think this is definitely the blockchain technology getting indirectly introduced to the public through Bitcoin. Most people still don't know what it is, but now they're beginning to get a taste of what it can do.
I meant to mention this earlier. Andy said something very dangerous to me when we met briefly ahead of time, which was he said to a journalist, feel free to ask me anything.
Okay, please.
But is— I mean, crypto obviously and blockchain clearly cuts across geographic boundaries, but is this— is the Is it the US where it's happening, or where are the hotbeds from that point of view?
Good question. In spring training right now, I think it depends on industries, I think, or depending on the layer of the architecture. I think in the mining space it's still China, and China is probably dominant. And then in terms of exchanges, it's moving very quickly. If you see the exchanges, they moved from US to China to now Japan, and some of these governments have very favorable and tolerable policies that would attract these exchanges. So, it's moving very quickly. Whatever is sort of the flavor of the day today will probably be very different next year. But one thing I do notice, Blockchain compared to other type of early-stage startups we invest, blockchain companies are very international. One thing I didn't address is, if you look at the major change in startup this year compared to 10 years ago, is really the idea of harnessing those 2 axes, computational power and bandwidth, It allows international startups to collaborate, right? And combine that with open source movement, you look at any white paper, you see this is like a United Nations, and you see oftentimes people don't work from the same office, right? So idea of having great companies coming out of Silicon Valley, it's gonna become a little bit sort of spread out a little bit more, yeah. Yeah, yeah, yeah, I mean, of course, yeah.
It's pretty low.
Right, and you, you have the best of breed. You could find the best backend developer, you could find the best Solidity programmer, and they may not necessarily be living within 10 square miles of each other, right? In fact, oftentimes they're different nationalities.
