Conviction – Earlybirds Invest

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Co-founder and executive chairman of web3 gaming unicorn Animoca Brands, few people in crypto haven’t heard of Yat Siu—with the exception of the gatekeepers to the media lounge at TOKEN2049. “They wouldn’t let me in!” he exclaims, a little flustered as we finally meet on the stairway several minutes late. Industry legend or no, the only currency here is a media badge. I enjoy my newfound power for a moment.

I smile and extend my hand. “Lovely to meet you,” I say. “It’s a pleasure,” he replies, handing me his business card with his direct line and mobile number on the front. Despite being one of web3’s most influential people, Yat Siu has nothing of the behemoth egos that accompany many other crypto founders. He isn’t even surrounded by an entourage of executive assistants or PR reps with click-clacking heels, managing to find his own way here instead.

He’s down to earth, humble, and polite, speaking eloquently without losing his thread, and firmly only when necessary (like one of the many times my media colleagues try to interrupt, including Wolf of All Streets Scott Melker attempting to steal Yat away). “I’m actually in an interview now,” he interjects, smiling, “but I believe we have a meeting later.”

From good Asian kid to industry titan

Born in Vienna and residing in Hong Kong, Yat’s journey is the stuff of legends. Son of an opera singer/director mother and instrumentalist father, he grew up studying music at his parents’ insistence, “like a good Asian kid,” despite his passion for gaming and desire to put his energies elsewhere. Yet, music would become a stepping stone on his path to success.

“It’s because of music that I started writing composition software,” he explains, “and that got me into tech. Back then, there was no computer science degree. It was more like just code, and through a free internet service called CompuServe, I got discovered and got a job at Atari.”

Studying at the Vienna Music Conservatory, Yat was “very much in the minority” learning many more lessons besides music composition. Despite speaking fluent German, he was “the only Asian kid in a sea of Caucasians” and frequently suffered what he calls “innocent racism.”

“So your parents run a restaurant?” was the most frequent question he received growing up. “There are a billion Chinese people,” he emphatically states, “we don’t all have restaurants!” Then he smiles as he concedes that most of the other Chinese in the city belonged to the culinary trade.

When neoliberalism goes ‘completely extreme’

Yat’s mother worked on the Eastern side of Berlin at the Komische Oper. “This was the 80s,” he says, “there was still Eastern and Western Europe. The Berlin Wall hadn’t fallen yet.” He would frequently cross the border to visit his mother or travel to destinations behind the Iron Curtain, including Prague in the former communist Czechoslovakia and Hungary’s capital, Budapest.

“The whole area, I witnessed literally what communism was like, that extreme side,” he says. “It gave me a definite impression.”

Yat witnessed both extremes firsthand, in fact, in the “capitalist but not quite” Austria, the “money, money, money” USA, and the “capitalism in overdrive” Hong Kong. “I’ve seen the whole spectrum. It’s like there are no limits at all.” Hong Kong only introduced social security in the year 2000.

“Before that, you had 60 or 70-year-olds still pushing trash carts up the hill. But that’s capitalism unchecked. It’s that extreme side of what happens when neoliberalism goes completely extreme. I think seeing all these things shaped my thinking.”

While he’s no advocate of socialism, it’s not hard to see the failings of a system that can’t protect the elderly and vulnerable. “Maybe there’s a medium,” he says. “We’re still pro-capitalists. We don’t think socialism is the answer, but there has to be a fair form of capitalism, and we think web3 is the answer to that, because through tokenization, we can all be stakeholders.”

Digital property rights and stakeholder capitalism

With an estimated value of $5.9 billion in August 2022, there are over 500 companies in Animoca Brands’ investment portfolio. Despite being a gaming company at its core, Yat’s keen to point out that Animoca is about much more than that. He explains:

“We started with gaming because we’re a gaming studio—and we’re probably the first example of a web2 company going to web3—not a crypto-native company but a traditional gaming company that kind of saw the light.

“We have 573 companies in our investment portfolio, of which 165 or so are in gaming. So obviously, it’s a big point in our portfolio, but it’s not everything we do. Our mission is very much about driving digital property rights, and one of our big things is financial literacy and stakeholder capitalism. Web3 changes the equity and income/outcome because we all become involved and have ownership.”

He gives the example of an Apple product, pointing at my phone, face down on the table, recording our talk. “How many people use Apple and are shareholders in Apple?” he asks, enthused as he sees my brow furrow in thought.

“Using an iPhone, you’re making Apple money, not just because you paid for the phone, but because you’re promoting it. Every time you buy an iPhone, you’re adding to the network value. How many people bought an Apple because you have one? But are you getting paid for that? No. Exactly. Do you get any value for that? Nothing, right?”

To illustrate the point further, he brings up the example of Uber, whose drivers earn modest pay and will likely be replaced by automation in the coming years. “There should be an ESA program for Uber drivers because they’re contributing to the value of the network. If they became shareholders, not only would they be happier, but they would probably be okay when Uber goes to self-driving cars. It’s about how to shape a better society, with long-term sustainability and more sustainable forms of capitalism. We think stakeholder capitalism is the answer and tokenization is the way to do it.”

An early blockchain adopter and internet pioneer

Yat and his team weren’t interested in web3 for Bitcoin or the “financial movement,” he says, but entered the space “because of NFTs” in 2017. “Our studio was involved in helping shape CryptoKitties in the early days,” he explains.

Blockchains were infamously clunky back then, and a surge in transactions would cause heavy congestion, skyrocketing fees, and never-ending confirmation times. Ethereum was pretty much the only choice for a gaming dApp, and CryptoKitties famously brought it to its knees, throwing the omnipresent issue of blockchain scalability into the limelight.

“CryptoKitties clogged the Ethereum chain,” he laughs. “Our company eventually spun out to become Dapper Labs, and we were one of the earliest shareholders. One of the guys who was actually working for us became one of the co-founders. It was all in the family, as it were.”

I ask whether that experience led to any disillusionment with blockchain’s suitability for gaming or whether he had entered the space at the wrong time. “We knew we were early,” he says. “That’s also because of our background.”

As an early internet pioneer in the 1990s, Yat Siu is no stranger to emerging tech, having started one of Hong Kong’s first ISPs. “We’d seen all these congestion issues before. I ran an ISP in Hong Kong that serviced customers on a 64k line—not one customer; I was servicing hundreds of customers.”

My eyes widen. “That must have been quite slow,” I exclaim. “You can’t imagine how slow that speed is! That is slower than 2G!” he laughs. I struggle to imagine how businesses made it work in the days before broadband and fiber-optic.

“I would really define 2017 and 2018 as the beginnings of crypto as a culture movement,” he reflects. “Crypto, in particular, blockchain and Bitcoin, is very much the underpinnings of a financial movement, versus an entire cultural movement that NFTs represent. That’s what attracted us.”

Open fields and blue skies: Growing web3 together

From the early days of crypto to today, Animoca Brands has been pivotal to growing web3. “We realized we needed to help invest in companies to make this happen. So that means we didn’t just invest in gaming companies. We also invested in infrastructure.”

Animoca Brands was one of the earliest investors in OpenSea and projects like Polygon, Flow, and:

“Basically all the L1s and L2s being built up. That’s why we’ve become such a large ecosystem investor. We realized that to grow the space, we have to invest in the companies that can help make it a reality. Of course, the opportunity in web3 is significant because there are so many gaps to fill. Web3 is an open field. It’s almost blue sky everything.

“It’s like shaping the nation,” he continues, “the railroads, the telecom stations, the infrastructure, the roads. One part is not going to work without the other part. We’re still not there yet. Of course, we’re much better than seven years ago, but we’re not there yet compared to where we could be.”

The road to mass adoption

Another of Animoca Brands’ top priorities is onboarding the masses to crypto. With over 3.3 billion gamers worldwide, Yat believes gaming will be the catalyst for reaching a critical mass. However, other important ways to onboard the next billion include investing in education. Just this morning, Yat says, Animoca Brands announced a $10 million investment with Open Campus in a student loan financing platform called Pencil Finance.

“Pencil Finance is a DeFi student loan platform,” he explains. “Why is that interesting? Well, in places like the Philippines and Indonesia, a student loan is like $500, so $10 million will go a long way. That $10 million will onboard students from a student loan perspective. How did PayPal grow? How did Venmo grow? It’s because they offered financial services to students for the first time who don’t have a bank account or don’t have access, and, more importantly, they need money to finance their education.”

I believe this is called big-picture thinking. Nurturing your pipeline of potential customers from a young age and a digital-native upbringing. He continues:

“Why would we, a so-called gaming company, be investing in something like that? Because it onboards young people to web3, right? Which is also a key factor because it sets a foundation for future growth. Are we the only beneficiaries of those customers? No, right? But our 573 portfolio companies may benefit from that, too, because let’s say we’ve onboarded a million students. Those million students become customers of web3. It’s not a zero-sum game. In web3, value flows around.”

Resilience of mind and strength of conviction

Yat is 100% committed to building web3, and few companies have done more to grow the pie than Animoca Brands. Has his conviction been tested over the years in this volatile space with more twists and turns than a Colombian Telenovela? He pauses:

“FTX set the industry back a couple of years. I mean, that was terrible, right? And it also accelerated the hostile regulatory climate in the U.S. in particular… But you know, it is also a way in which you shake out stuff. At the end of the day, you can’t determine when the earthquakes happen. But when they happen, that’s really the true test.”

“The big thing is just resilience of mind. Can you deal with that stress? Can you deal with the challenges, the community going after you, your staff being unhappy, and your investors coming after you? That is an example of that test of character.”

I nod, recalling the explosions and implosions of 2022 and the multiple ones before those. Yat and I had found our way into crypto at the same time, but crypto years are like dog years, and 2017 may as well have been half a century ago. Yet, Yat has barely a line on his smooth forehead; more a testament to his strength of character than his great Asian skin.

Did he always know he would build a unicorn? Did he always envision Animoca Brands as a titan in the space? He shakes his head profusely before answering:

“No, no,” he replies and pauses for a moment before saying, “When you build companies or do anything in life, I think, there are actions you do and they will take you towards different paths that you can’t predict, and then you just kind of flow with it. That’s how I’ve lived most of my life.”

I have more questions, but I’m conscious of already taking up 40 minutes of his time, which he is incredibly generous with. Plus, Scott Melker is hovering on the sidelines waiting to pounce. One last piece of advice before we close?

“Hesitation or doubt is probably one of the other big factors that hold you back. You may be wrong, and we are wrong many times. But you have to have conviction and go somewhere, and if you don’t, then it’s worse than not doing it at all.”

And with that, it’s time to log off…