Token Led Growth

...and centicorns

TLDR: $100b+ outcomes impact everything from early stage investment to go-to-market strategy

Centicorns are changing the game…

The mere fact that a venture-backed company can now become worth >$100b, or as I like to call it a “Centicorn,” has dramatically changed the game.

Imagine you’re an early stage investor. It used to be that you were chasing unicorns—billion-dollar-startups. You run the numbers, and if you invest X dollars into Y companies, some percent of them will create power law returns and catapult the overall performance.

So if return potential is now 100X, what do X & Y become?

Early stage valuations are going up, but not by 100X. That’s part of the reason funds are coming downstream and investing earlier with more aggressive terms.

Another reason is that IRR is a vanity metric, and the only thing that really should matter to an investor is TVPI.

That might be a controversial statement, but that’s also why you see funds like Tiger targeting lower multiples as a tradeoff for faster returns.

I digress.

All you need to know from the above is that more capital is being invested earlier because the potential outcomes are becoming larger.

And with more capital earlier, go-to-market creativity can be unleashed.

Having more money to deploy earlier changes more than just valuations and investment theses.

It changes how you run the company itself.

Take fiat vs. digital currency for example.

According to the FDIC, the average savings account is paying .06% APY.

Stablecoins on the other hand are offering anywhere from 4.6% - 14% yields.

They are literally paying you to move your money from fiat to digital.

Why?

Because they can. Because the corporate economics work when you’re talking in Centicorns > Unicorns. Because the way the current market is valuing discounted cashflows allows you to.

And that’s why the tactics to gain market share have and will continue to change.

But there’s a primary obstacle.

The web3 vernacular has not only become a rate limiting step for itself, but a runaway train too. People can’t keep up. They can’t keep up with company names, technologies, new projects, or even basic web3 language…

Protocols, tokens, NFT’s, DAO’s, Dapps, DeFi, DeSo, DeSci, L1, L2, airdrop, altcoin, GM, WAGMI, staking, ERC-20, Proof of Stake, Proof of Work, public key…

The web3 community has created an accessibility problem, and it’s more about language than it is about the technology itself or the value exchange.

If you could get over 4.6% return in your savings account instead of .06% wouldn’t you do it?

Well you can, and you probably aren’t.

So despite great offerings, customer acquisition needs to evolve.

Companies, specifically web3 startups, need to revisit two things:

1. Vernacular

2. Incentive Alignment

Vernacular

First, they need to make their product accessible to the masses through a clear articulation of value. This is Sales 101. As a friend reminded me this past week, “can you explain it to a 7 year-old?”

Literally Sales 101.

Currently, web3 cannot.

Second, what is the value exchange with your customers?

Chief Financial Officers deploy capital to teams who drive growth. Teams who turn one dollar into two dollars.

They pay sales leaders to sell top-down (hurdle rate). Marketing teams to influence buyer behavior (CAC). Product teams to remove the friction to adoption (conversion metrics). Pricing teams to optimize purchasing behavior (LTV, ASP)…and so on and so forth.

But there is something a bit more beautiful in these new models of decentralization—incentive alignment.

Let’s use one we’re all familiar with first—content creation.

YouTube pays creator for views, attracting eyeballs that increase inventory, which in turn enables their advertising machine to thrive.

What’s valuable here isn’t the business model, but the fact that the advertiser reaches who they want, the content creator gets paid for their talent, and the audience discovers (hopefully) relevant and meaningful content curated by the individual they follow.

Everyone wins, not just YouTube.

Incentive alignment will continue to dominate new go-to-market strategies.

If you treat the aforementioned traditional GTM as one end of the spectrum and pure incentive alignment as the other, the midpoint would be Product Led Growth (PLG).

PLG is essentially that the product is so good, and the friction is so low, that you can amass users at scale and turn the dials on profitability as you go. Think freemium for example.

The natural next question then, for me at least, is how do traditional GTM teams and new startups leverage the best of all worlds?

In other words, how do you get the immediate revenue impact of a sales team with the incentive alignment of content creation and the low friction of PLG?

I think the answer is Token Led Growth (TLG)

The term “token” itself suffers from the web3 vernacular problem.

Even this post, by a16z, which is certainly a great overview of tokens, suffers from skipping Sales 101.

If you were a 7 year-old, and you asked me what a token was, I might say something like:

You know when you do something good and get a small reward, like extra allowance, more time on your iPad, or a high five?

Yes.

Those are tokens. Small pieces of recognition for doing your part.

Sure, maybe it’s slightly more complicated than that, but not by much.

And we, as users and customers, are no different.

We use the product. We contribute our data. We invite more users. We provide product feedback. We are the entire reason your business exists in the first place.

So whether it’s a higher APY, an incentive for using or referring a product, or simply a small piece of recognition that can be converted to a digital or fiat currency, it’s all the same.

Now, I’m not suggesting another ICO boom or that DAO’s takeover the world, but rather that tokens can become a clear model and means by which incentives become aligned and value gets transferred.

It’s you getting your share of the value you’re creating.

It’s you not being taken advantage of by big ad networks for inputting your personal data.

It’s companies sharing in the value and profits.

It’s community over oligarchy.

It’s an everyone-wins game.

It’s Token Led Growth.

See You Monday.