Max Webster - 00:00:00:
Bitcoin is the Internet of value. And why would you ever have a competing chain or settlement layer? That is number two, if you're having to pay a high fee to send money overseas or, you know, across borders, letting them get to the that for virtually free, across borders, letting them get to the that for virtually free, and it's going to be all the closed payment hours, the ability to curate content or create content and get paid directly peer to peer, it's just an absolute game changer. And no one has seen where this is all going to go. I think you're just going to see this blossoming of the creative class. And I think people in quote unquote crypto land talked about it and there's again, completely wrong Rails, completely wrong business models, right idea. I think this is the real creator economy of what's going to enable, I think, something that our world needs more of these tools to let people build their own futures and take control of their lives. I mean, how many new Steve Jobs are trapped in a country where for no fault of their own, they can't participate and try their idea? And so I think the ability to earn online and the ability to receive remains or the two interesting most.
Kevin Rooke - 00:01:05:
Max Webster is the founder of Hivemind Ventures, an early stage fund investing in bitcoin companies building on the Lightning Network. In our conversation, Max explained why he's so excited about the Lightning Network. We discussed some of the big opportunities he sees today, specifically running Lightning nodes, liquidity marketplaces, and emerging Lightning payment apps. And we also got into finding product market fit, start up valuations, and identifying strong founders in the Lightning space. I've also added Max to today's show splits. So if you've learned something new, if you find this episode to be interesting, the best way you can support the show is by sending in sats over the Lightning Network. Max and I will each get half the stats you send in, and we'll both be able to see all your comments and questions. If you want to earn SADS, the best way you can do that is by following me on Twitter, where I will be posting updates of future guests that are coming on the show. Whenever you see me post an update announcing a future guest. I'll post it one day before I record with them. You can send in comments over the Lightning Network asking them questions, and I'll pick a great question that a listener sends in for that guest, and I will add that person to the show splits of that upcoming episode. Quick Shout Out. Today's show is sponsored by Voltage. Voltage is the industry standard and next generation provider for Lightning Network infrastructure. Today's show is also sponsored by Zebedee. That's Zebedee, and Zebedee is your portal into the world of bitcoin gaming. We'll have more from Voltage and Zebedee later in the show. Max, welcome to the show. Thank you for joining me today. We've got a lot to cover about investing and Lightning Network stuff, but why don't we start off with your background in investing, because I know you've been investing for longer than you've been in the Lightning Network space. And then what made you recognize the importance of Lightning and what made you decide investing in the Lightning ecosystem was the right move.
Max Webster - 00:03:14:
Yeah, well, thanks for having me, Kevin. I love this podcast. So excited to be a guest. I can talk a bit about my background, even pre investing, which I think got me really bullish on the coin in the first place, and then maybe talk a bit about my investing experience. I first read about Bitcoin in 2011 when I was a student university, and let's just say I've always had somewhat cyberpunk leanings. I thought it was very cool. I also thought it would never be allowed to work in a million years and so didn't buy any. Totally forgot about it. Wish I had like so many people in the space. And then I had another big interest in the time, though, when I was graduating, which was in sustainability and solar energy. And so for whatever reason, I guess my sort of natural personality type is I just obsess over reading, constantly reading, constantly finding new information. And I love finding exponential curves. For whatever reason, exponential curves just really get me going. And so in 2012, I was really interested in solar. And I saw that for every doubling of the capacity of solar deployed around the world, the level of cost of energy for that solar was coming down what I thought was 20% to 30%, it really ended up being more like 40%. And so I told all my friends and teachers and whatever at the time, this means by 2020, solar is going to be the cheapest source of energy in most parts of the world. At the time, it was dramatically more expensive than most fossil fuels. And so everyone was basically like, you're absolutely crazy. There's no way that can actually happen. And of course, not only did it actually happen, but the cost was much lower than people realized. One of the big lessons I internalized from all of that was when you see an exponential curve or you see a growth curve that's increasing at a steady rate, we as humans are not good at extrapolating what that means many years out, but often it's going to adoption is going to happen faster than you think, costs are going to come down faster. You think that's been one of the big lessons with Internet, smartphones, all kinds of various technology curves. So that's kind of like what got me interested in technology and I guess sort of into investing in general. I started a company right out of school doing crowdfunding for solar energy efficiency. Totally bond, had no business doing that, but learned a lot in the process and got really deep into solar through that, I joined as part of the founding team company called bright, which is like, sunrun or SolarCity for Mexico. Residential solar finance. Moved down there early 2015 for what was supposed to be like, six months to a year, and ended up staying for almost five years. That was an incredible experience for many reasons. And while I was living down there, I got obsessed with bitcoin. So in May 2016, I started looking into bitcoin again. Actually, I first looked at the theory interestingly enough because I was interested in decentralized energy trading. And so there were projects at the time like grid plus and some of these other projects. And I said, well, we have all these solar customers in Mexico. It would be interesting if they could trade renewable energy credits or tokenized kilowatt hours without a central clearing house, the CFA, the utility. And so I started looking at these projects. That's pretty cool. And then I saw bitcoin didn't die. When I saw a bitcoin didn't die, my spidey sense went off immediately. I said, look, this thing didn't die between 2016. It's way harder than running the rest of the way. And so I became obsessed. And I had a roommate at the time who was like, even more obsessive than I am. So this led to us doing nothing but reading about bitcoin, watching every Andrea Santa Claus talk. Then the 2017 bull run out. And that's why I said, okay, this thing really will go all the rest of the way, become the new global reserve currency, etc, etc. Through that, I got very interested in technology. I was not particularly technical. I ended up taking Justin moon boot camp, where we built bitcoin from scratch, and python. And that's when I was like, oh, man, this thing is an Einstein or a Newton level breakthrough. If you get one of these in your lifetime, you got to go all in. So I left bright in 2018 and knew I wanted to do something with bitcoin. And the two big kind of lightbulb moments that went off for me that I think are really important is, one, I saw bitcoin as energy backed money. Maybe we can talk more about this as well. But for me, with my sort of background coming to the energy industry, I saw it as kilowatt hour coin. That is a way to take electricity in the fiscal realm and convert it to digital scarcity. And this is something that many people would call for. Buckminster Fuller, personal hero of mine. Tesla. Edison Ford. Not a new idea. And so when I started seeing bitcoin is that it helped me separate a lot from the noise. The second thing was living in Mexico. So many of my friends there were saving with dollars on the mattress. Very few had bank accounts in the US. And very wealthy. And half the country has access to literally no payments network or any kind of digital wall whatsoever. And so I quickly realized bitcoin was going to be or had very close to having a product market fit. It's just the US. And Europe the last to get it. So through that, I wanted to do something with Bitcoin and payments, quickly realized that payments could never scale only one. And so that's when I found Lightning Network in 2018 and I was extremely excited about Lightning. But at that time it was like La La and a few other people that are like 100 x smarter than I am. So I couldn't really participate at that point, but I knew I wanted to follow it. And I did some research around payments and followed about Lightning with some early adopters there coinbase as nonprofit, you have crypto and then Bit. So through that I got hooked up with version One Ventures, which is a general SVC fund base between Vancouver and San Francisco, and they want to do a lot more in both crypto and energy and climate. So it was a perfect fit to join there in late 2019 and then invested for about a year and a half. We had an incredible run. It's all kinds of crypto companies. We did all the defy stuff. It was interesting to me, but I never thought that there were enough people running nodes and ecosystem to make it secure. So I was always kind of skeptical. And so that's when I knew after following Lightning up closely throughout that period, that this is where I thought the real opportunity was. And I had a great run there, but decided I wanted to go all in a Bitcoin and Lightning and decided to start my own fund last year in September and recently closed it out. And now we're $21 million C fund investing in layer two and layer three bitcoin startups building the future of finance, energy and communications.
Kevin Rooke - 00:09:06:
Love it. So I want to dive into your first experience was, you said with Ethereum and then through the work of merging one, you've seen all the DeFi apps and you kind of like being involved in that ecosystem. And I'd love to know more about what was the moment that you had this? Was it a light bulb moment where you realized that's actually not the right way to build it and this stuff might be built on Lightning instead. What was that transition like? Because I know these things happened at slightly different times, right? When you first got interested in Ethereum Lightning, it wasn't an industry. So what was that shift like in your head?
Max Webster - 00:09:49:
Well, I think it was definitely gradual. It came after many years of conversations and thinking about these things, and I generally had a pretty open mind, but over time got stuck deeper and deeper into the Bitcoin ecosystem. I think one of my major concerns is all of the sort of defined Ethereum entrepreneurs we spoke with. And this was pretty salon and all that new stuff. I would always kind of just ask, out of curiosity, do you run a full node for your ecosystem and didn't find anyone? That was and that started concerning me. I felt a little bit like Sandra, and I was like, this whole thing in my mind is about having decentralized base layer infrastructure. And if people aren't running nodes or it's too hard or expensive to do that, that seems like a big problem. And then when you realize the cost of running a node is getting more expensive over time because the rate of the blockchain is swelling much faster than the cost of consumer hardware is coming down to run those nodes, seems like the problem is only getting worse. So that was like the first big knock. Second big knock was the transition of proof of stake. And did a lot of research around that very skeptical proof of stake at the base layer. I actually think a theorem would be much better served to stick with proof of work. I think proof of work is the innovation. And that comes from my understanding of this energy backed money concept that I talked about. And the deeper I went on that rabbit hole, the more skeptical I became. A pretty mistake. And then the next big thing was just understanding that bitcoin could scale vertically like the Internet. And I think the big light bulb, the true light bulb moment for me, was realizing, oh my God, history arrives pretty well, and we have almost an exact blueprint for how I think this is going to happen. And that's the Internet, right? So you got TCP IP scaling up to Https and all these application layers. It's not new. And so when that clicked for me, bitcoin is the Internet of value. And why would you ever have a competing chain or settlement layer that is number two? If you have one that is the most secure, that is the most liquid, and the most decentralized, and it's exponentially growing all those fronts, then it's kind of like it reminded me of the old Internet versus information superhighway argument. And you had very smart people like Bill Gates being like, oh, the information is super highway. It's like, that's crazy. Open always wins. And so I see bitcoin as the Internet of money. It's an open system. And when I realized that with the Lightning Network you could scale to take payments, I was like, okay. I started thinking of it like the Grim Reaper meme, where he goes and knocks on every door. I was like, first bitcoin is coming for money, then it's coming for payments next. When I learned about Tarot, or Tarot, however you say lightning lots coming for stablecoins. And I think smart contracts or versions of that will likely come later with covenants, if we ever get there, or something like that. I'm not saying for or against the covenants, but I think in general, my zoomed out investor intuition is everything comes back to bitcoin. It's just a matter of when.
Kevin Rooke - 00:12:41:
Right now, when you first discovered lightning. I want to get your sense for like, what? Let's talk about the scalability here. Did you know right away that this was going to scale to the point where it could become this next Internet? It could support billions of transactions from billions of people all over the world? Or was it something that just kind of came a few years later as the industry continued to grow because there was a lot of blockchains that also claimed they had instant settlement, they had more throughput, they had all these things that bitcoin supposedly didn't have. And how did you parse the signal and the noise there and figure out that lightning could scale whereas some other solutions couldn't?
Max Webster - 00:13:31:
Yes, it was a gradual process. To be clear, I think I'm probably more technical than most VCs, but I'm certainly not like an engineer by any stretch of the imagination. So when I first saw this, it was more curiosity, interest, some intuition that okay, this feels like it could be pretty powerful. But I think my conviction came over many years, five or so years, where just talking to some of the brightest minds in the industry, I started to see how it could happen sort of on top of bitcoin. I was very convinced and to be clear, I play a bunch of other ecosystems even prior to investing in Ethereum companies. I certainly had experience. I didn't do a ton, but I did a little shit coining in 2017, as all of us do, trying to understand what's going on here. And there are other projects that I really like. In fact, I still like projects like DCredit as an example, which I think has objectively some features that I think are better than some of the Bitcoin features, particularly around, for example, this idea of proof of work hyper proof of work, proof stick. I thought that was kind of an interesting idea. But again, what I started realizing is if features are really good enough, it's going to come back to bitcoin and features don't win. In order to revolutionize the Internet of value, to take an old technology, which is essentially money all the way, money and payments networks from gold to fiat, and then the payment networks on top and really disrupt that, you need something that's at least in order of magnitude better, maybe much better. And I couldn't realize none of this stuff, even with some kind of minor interesting features of a bitcoin, was going to be able to surpass it. And so I'm not saying it will never happen, maybe in 100 years or 200 years, but there needs to be some new kind of like step function change. And so I very skeptical that anyone is going to be able to do that. In terms of how I really got conviction on lightning scaling, I think there's two people that are really pivotal to me understanding that one is Ryan Gentry at Lightning Labs. When he was a multi client capital, he published a piece called, like, the Heretics Guy to Web Three. And it was funny because we were both kind of like in these crypto ecosystems. I think he was further along than I was, but I was quickly losing faith in all the other ecosystems. And then I met this guy who's had coincident, not to be too rough about it, but who's basically telling me actually in very good detail, explaining how else ads work and some of this identity and whatnot works, that actually a lot of this activity can come back to life. And when I read his paper, I was just like, oh my God, of course this is it. Of course this is the Internet, and things will come back to us. That was the first one. And then the second one was a talk by Drew Bansel co founders Unchained Capital, who's just like I mean, he's the galaxy brain of galaxy brains. And he gave this talk in 2018. It just basically predicted everything. He predicted what was going to happen with mining and the fusion of mining and energy industries. Everyone's like, so surprised we want to talk about the energy stuff. We certainly can. But I quickly realized, yes, it's only a question of will the miners buy the energy asset owners and vice versa. So he talked about that, and then he talked about lightning scaling in layers, and he talked about having all the different stuff that you could build with that. And then eventually, on top of lightning, something, I talked about talk and adopting bitcoin, what I call the bitcoin orboris, which is bitcoin lightning for payments and then eventually physical infrastructure where you can meter by, for example, if you want to sell bandwidth storage or compute, you can literally sell those resources for satoshi. When I realized, I was like, oh my God, the bitcoin orbis. Because then bitcoin will be run on top of that. So anyway, I'm sure we'll talk more about some of the Sci-Fi stuff, but I think Ryan and Drew, I definitely have a great deal of gratitude for showing me the way.
Kevin Rooke - 00:17:14:
Let's say that's amazing. Yes, I want to start off with let's start off with just lightning specific applications. And actually one place we can start off is the recent Stacker News. AMA, you did I asked you a question on it, and the question was which company in the Lightning space would have the largest market cap in a decade? You thought potentially block, but you also highlighted three different categories of lightning apps that you were kind of like looking at that you thought were interesting. So I thought we could kind of like go through each of those and dig into what that investment case looks like today. These three categories were large and well connected nodes on the Lightning Network liquidity marketplaces. So things like Ambos and LM Plus and loop a pool, and emerging Lightning native applications like stacker news and fountain, things like that. So maybe we can start with large and well connected nodes. How do you see this evolving? Like, if you're thinking about being an investor, how do you get returns in this large and well connected nodes? Are you running nodes yourself? Are you finding people to run nodes for you? And like, is it a skill game? Is it a capital game combination? I'd love to dig into what that investment case looks like.
Max Webster - 00:18:43:
Yes and yes. One thing I'll say with the notes is, let me be clear. First of all, I don't know what the future holds, right? And so I have ideas, I have pieces, and I'm investing in such a way that any of these are correct. Hopefully our fund Hivemind is going to be very well positioned, but I think it's still very early and no one really knows how it's going to play out, which is what makes this so exciting. Right? Again, I think watching the Internet is kind of how the Internet developed is our best mental model for that, but it's anyone's guess. So the first category is well connected routing nodes. Now, this is something that I've debated very, very smart people that I respect. And again, I think we can take either side of this argument. But one analogy I've been thinking about more recently is thinking about the Lightning Network as sort of analogous to the railroads. And so when we go back to the Gilded Age in the United States, and the building of railroads and all of that, obviously some of the wealthiest people in human history came from that boom. And I think this is similar to that. It's a transportation network. As Lalu like malabs always says, it's money tubes. Bitcoin is money. This is like the railroads or the tubes to send the money around the world. And so I think it seems pretty intuitive and obvious to me that if you own the Grand Central or many of the major hubs or routing kind of rail stations for that seems like that's going to be pretty valuable. I think the debate is how much staying power these routing hubs are going to have and also how decentralized routing is going to be in the future. So I'll take each of those one by one. One question is, if I were to take the bare case on having staying power with these major nodes today, it would be that unlike physical railroads, it's much cheaper to lay Lightning track, ie. It's purely digital. All I need to do is open the channel with a Bitcoin transaction, probably true. So it's probably much easier to build Lightning railroads than it was physical railroads. However, no one knows what the future cost of laying track is going to be, right? And so it's cheap today the mempool is empty. But if you see a possible world where the entire global economy comes over to Bitcoin, then who knows how expensive it is to get a transaction in the menpool or to get a transaction through. And so I could see easily a case where it's thousands of dollars, maybe much more to lay some of this track, in which case it's going to be much more expensive than people realize to build up some of these well connected nodes. I think there's also just a lot around Brand. Like I thought it was interesting, for example, your routing fee I think just kind of went down and started a new note because people knew him and trusted him, he was able to build that up again pretty quickly, again in a low fee environment. But I think Brand does matter a lot. I think also connections among a lot of the big players matter. So if you're well hooked up in sort of like the legacy financial system, some of these companies like Rivers and Krakens or whatever, I think they're going to be pretty well positioned for that. So I think you could take either side of that. But in general, if we're taking the entire payment network of the world and moving it over to Lightning Network, I think it's just like pretty obvious if you're routing a meaningful percentage of those payments it's going to be valuable now I think, and we'll touch on this more later as well. But another interesting question is what is the value created versus value captured there, right? And this one I'm sure we'll go into much greater detail on, but very high level. There is a world where we create a ton of value. By that I mean we basically route payments for very low fees and so everyone in the world benefits from that. It's free instant frictionless commerce. But then you say, well those nodes, if they're routing at such a low fee because the market rate, market clearing price is so low, well then how do they make money? Like what's their take rate? And I think one interesting model to consider around that is that the take rate could be substantially lower. Like let's say whatever it is, say a couple of percentage points, maybe it's only zero one percentage points or whatever. I think it's probably higher than that, but who knows. But when you have 8 billion people one day that are able to engage in global commerce, the vast majority of them today are just completely shut out. And you have all these new different kinds of commerce that are enabled by the Lightning Network. Things like stacker news which I'm sure we'll talk more about. Then all of a sudden there's another argument that says even if our take rate is much lower, if we can increase the pie global commerce by orders and magnitude, well even a much lower take rate is still potentially more profitable than some of the visas and mastercards today. So that's my kind of general bull case. I'll positive there's two more categories.
Kevin Rooke - 00:23:28:
Yeah, so it could be a bit of a volume game. It could get to the point where we have this massive pie and it's okay that the take rate is smaller because there's so many more payments flowing through. Exactly how important is skill because you talk about brand and reputation. What about the actual skill of a routing node operator? Is that going to be an important feature in determining which routing nodes are successful and which ones are not?
Max Webster - 00:23:54:
Certainly is today. I don't foresee that changing any time soon. To be clear. I run like cloud node, I run number node as well and pretty hands off. So I would say I'm a objectively terrible note operator. But even still I got a little bit rough. It's kind of cool. It's kind of a fun little thing. Again, it remains to be seen with developments in the network what the scarce skill set is going to be. But my guess is that there will still be decent offscale. The other thing that I would just mention that I also should touch on is it also matters a lot how decentralized drowning is. And so if we get much more of a hub and spoke model where vast majority of payment volume is flowing through some of these big nodes, well, it's going to be hard to compete against them because of economies and scale, because of the skill they have, etcetera. Etcetera. However, if some of this other stuff, and this is kind of stretching my expertise, but listen to your podcast with Renee talking about some of the multi path payments and stuff like that. If there's a world where it's a lot easier to split payments and make it easier for smaller notes to route, maybe more passively, then maybe that's kind of a shift more in the kind of democratized routing world. At this stage, I don't think anyone knows. It's kind of anyone's guess.
Kevin Rooke - 00:25:09:
Do you worry at all on the topic of decentralization and maybe potentially a set of really large nodes being built on lightning that control a lot of the payment flow or have a lot of the payments come through them? Do you worry about centralization in that regard? Is there a point at which it could get too centralized and actually start to erode people's confidence in the Lightning Network in its vision or is that an issue at all to you?
Max Webster - 00:25:41:
Not really. I mean, I think that the key with light network and what I love about it is open. It's open. Anyone can run a note. So I think it's almost certain that you're going to have a big portion of the network that's going to be very kind of like KYC, like let's call it completely regulated and that's going to be one block whatever is running big nodes like. They're not going to be doing some darknet stuff or whatever, and that's fine. And I'm sure they're all going to have channels open with the Krakens and whatever, the the world and whatnot and totally cool. But I think the key with the lightning out is even if there is a decent amount of quote unquote centralization, which is a good thing for consumers or could be a good thing in terms of price and the economies of scale, is that you don't have to use them. If you and your buddies all want to set up umbrellas and say, actually we're willing to pay a higher price because we want privacy or because we want to support, for example, the plebs that are providing liquidity to el salvador or whatever, that's your choice and no one can stop you from doing that. So again, I think this kind of comes back to why I love bitcoin. Lightning works so much, especially compared to some other stuff like the side chains where I'm probably not as big a fan of it's because it's open, it needs, the key is anyone can run a note and force you to use it or not.
Kevin Rooke - 00:26:56:
Now, from your perspective as an investor and running a VC fund, how do you then think about finding those venture style returns in this category?
Max Webster - 00:27:11:
Well, I'll answer that two ways. The first way is, look, I truly believe that we have a once in a lifetime opportunity here, and I truly believe that our fund could be one of the top returning funds in the decade. That's certainly my intention and my goal. Will we outperform bitcoin? I don't know. And I don't know if any investment on earth will perform bitcoin. That's a very interesting debate to have. Fortunate to have LPs, who for the most part are probably pretty long bitcoin already. And so I would tell everyone, like, highly recommend being long bitcoin first. And so I don't think it's necessarily an issue either way. Having said that, I can certainly paint the picture where we can outperform bitcoin. And I think that counts on two factors. Number one, how much room does bitcoin will have left to run? Like if you believe that the entire economy is going to get repriced a bitcoin, which I do, and you don't know how long that's going to take, who knows? Let's say we're aggressive and say it's going to happen in a second. Even in that world at some point, bitcoin reaches an upper limit. Now, I don't think it ever maxes out because if it's essentially GDP coin or as I said, it's energy backed money, right? So any systems calories in, calories out, kilowatt hours in, kilowatt hours out. So as humanity continues to harness more energy and use that to create new wealth, price of bitcoin will go up forever is the idea. But maybe that ends up happening. It's just kind of like tracking GDP. So maybe it's like two or 3% of growth per year or something like that. It depends on how long it takes us to get to that point. But my point is, bitcoin is not going to have 100 or $1,000 forever. So maybe that's 100 X left, I don't know. And to be clear, good venture returns for a full fund historically have been three X. Ten X would be considered quite good. 20 X would be considered historic or whatever or way out there. And so if you get 100 X just putting in bitcoin, it's going to be really tough to beat that. Will that happen or not? That's debatable. But the second thing that I would say is that you have to remember that bitcoin and Lightning Network, well, the bitcoin is two things, right? You have the asset and you have the network. And so as you think about the network, I think about all the new companies that are going to be built on top of it, just like the internet. The core part of my thesis is that today we're at around 200 million users. That's where the internet was in 97. From 97 to 2007, the Internet scaled from 200 million to 2 billion users. And so in that time, you had Google, YouTube, Twitter, Facebook, all these incredible web companies. And honestly, it was hard to miss as an investor. And if you got one of the really big ones, then you could post some pretty historic returns. And so the way I look at it is if we can catch some of those 1000 X's, that's why I love to go so early and I'll talk to you about this as well as I want to give myself a chance to catch the thousand X's, then I think we can outreform bitcoin. And so that's what I'm in the.
Kevin Rooke - 00:30:04:
Game to do, right? Is it fair to say when you're talking about the internet, is it fair to say that we have like we're trying to make a comparison here. You couldn't monetize the Internet when it first came out. You could monetize some of the apps built on top, but the pipes that send all this information, it was not available. That you just couldn't get a return on it. The way I'm thinking about it now is like, is Bitcoin that Internet that can be monetised. And then on top of that, there's also going to be applications that can also be monetized. Is that the right way to think about it?
Max Webster - 00:30:40:
I think so. Infrastructure and application, got it.
Kevin Rooke - 00:30:44:
Okay, let's go to the second category, liquidity Marketplaces. And this is something where you have players like Amboss, you have players like LM plus Lightning Pool. You have liquidity ads from Core Lightning. And this seems to be my take on it right now, is that it seems to be like it's a network effect waiting to form. Like we have a few variations of these marketplaces, but it seems like there's going to be strong network effects that develop over time. Do you think this is going to be kind of a winner take? Most market, kind of like if you look to DeFi maybe like a uniswap where they kind of like aggregate a lot of the liquidity on DeFi.
Max Webster - 00:31:29:
Maybe, I think there's going to be at least two big players and I could see making the case for more. So to take a step back, why do think liquidity marketplaces are a big deal? Roy the founder of Breeze, which I'm investor and I love that company, Roy has put out some great articles around. Like one of those articles is actually called the Lightning Network is the Liquidity Network. And I think it's really important for people to understand what that means. So not to go all the way to how Lightning works, but essentially when you send payments on the light network, I like his example of it's an abacus with beads to say, I want to route a payment to a mutual friend, Kian. I don't have a channel open with him, but I have a channel open to you. You channel Kian. I sent some beads your way, you send some beats his way, you take a small fee for routing. If he was just coming on the network and all the beads, he only had a chance with you and all the beads are on your side, then that's a huge problem because he can't send out a payment. And I highly encourage anyone to read more about how this works. There's a great book called Mastering Light Network by Andreas. It's not as low, Renee, you can learn more about this. But the high level takeaway is liquidity is the scarce resource in the Lightning Network, the beads that you're shooting back and forth, particularly for new users that are coming on the network. And so that is the scarce resource. And typically the scarce resource is the valuable thing. And so marketplaces for the valuable things are going to be valuable. That's kind of my very simple take on it. And so I think it's very early, I think it's way too early to call any kind of winners, any one I see a couple of interesting things for me. So I think in terms of early network effect, I am an investor in Network Plus and I invest there because I started to see that network warming on their site, they're claiming 760 BTC volume done, something like that. It's insane. And so there I think, have some pretty strong early network effects, certainly among the Plebs. And in some ways it's kind of like it's more peer to peer. It's not the perfect Craigslist analogy, I know, and Boss is going to use that as well right now, which is a bit more of a market buy and sell. But that's certainly where the Plebs are sourcing liquidity for now. And part of it is because it's free and it remains to be monetized, et cetera. But it does have early network effects is my view. And so I think that's really interesting. In a site like that, I think it's also important to understand who's using it and why. And so what a lot of people forget here is that early bitcoiners that got here in 2011. These people are institutions themselves, many of them are billionaires, and so they're sitting on tremendous amounts of capital. And if they got in that early, they were highly technical. And so they can certainly run around nodes, they can certainly manage liquidity, et cetera, et cetera. And so for folks like that, I think they kind of prefer some of these easy sites don't require a whole lot of information or whatever. And so I think like Network Plus has just been huge for them and that's I can't confirm this, but that's why I would guess why it has such really strong network effects, right?
Kevin Rooke - 00:34:36:
Go ahead.
Max Webster - 00:34:37:
Yes. I was also going to say. Though. I love a product like Lightning Labs Pool. Also investors like Labs. And I think for them especially as they start onboarding more institutions and obviously there's a bunch of exciting stuff. Ataro or Tarot. However you say it. I think that Lightning Labs Pool is like a pretty obvious answer for some of the older financial institutions and the real huge amounts of capital that they're going to bring to bear. And so I would also be pretty bullish on them. I also like a lot inbox their new liquidity marketplace. I like that it's also peer to peer and they make it easy just to click buy them. Adding the API was extremely smart. I think a lot of people are going to build cool apps around that. In fact, I saw one of the Bitcoin Plus hackathon that I liked a lot, and so I think that's awesome. And then I think you're going to see new players come into the space that basically build aggregators on top of all of these marketplaces and try and drop that liquidity for you. So the analogy there in DeFi, I guess a little bit would be like Uniswap became the dominant DACs for centralized exchange, and then you had I forgot the names, like one X or something like that. All these things on top of the aggregation there remains to be seen in the long run, were a valuable crew if these ecosystems survive. But I think the same thing here for liquidity and the peer to peer liquidity ads from Sea Lightning, I think, or Blockchain or Lightning as well, too.
Kevin Rooke - 00:36:01:
Yeah. So now if you had to pick just one, I know I'm asking you to pick favorites here, but if you had to find one of these liquidity marketplaces and said, I'm going to put everything behind that, I'm going to back that as the dominant liquidity marketplace in a decade, what's your sense today, man?
Max Webster - 00:36:24:
It's early. I mean, again, I think the network effects for Lightning Network Plus are very strong early on, but not too early that they keep instructed. Lightning Labs just have the best team by far. I mean, I'm a huge fan of Ellen Plus, but I don't think there's any question that Lalu and the team that Elizabeth is assembled over there is just a plus plus. So I would not bet against Lightning Labs, that's for sure, and I think particularly for onboarding some of the larger institutions. But again, I kind of see that there's a world where there are certain players, there are certain features that you may or may not be able to offer depending on who you're catering to. And so I don't think it's going to be winners ticks all depending on who you are, what you're willing to share or not.
Kevin Rooke - 00:37:09:
If we look at all these liquidity marketplaces and compare them to, let's say, web to marketplaces for various goods and services, those have traditionally been pretty good businesses. Is it fair to say that the returns for an investor and the margins for these businesses could be comparable?
Max Webster - 00:37:32:
That's a good question. I don't know. My guess is that, again, because this is open, margins will probably be lower in general. I don't know that for a fact. I haven't thought much about this, but my guess would be margins are generally lower because of it's open. Who knows, maybe in the day these marketplaces are actually not valuable at all. And maybe just like pure liquidity ads brings everything to zero. I can totally see that too. So too early to say. My hunches in general with open systems, lower take rates, but larger pies.
Kevin Rooke - 00:38:02:
I hope you're enjoying the show so far. I just want to give a quick shout out to our sponsor, Voltage. Voltage is the industry standard for Lightning Network infrastructure, creating layer two applications and services. On top of bitcoin starts with Voltage, where you can spin up nodes, get access to liquidity, optimize your node, and much more. Voltage is leading the way as the next generation provider of Lightning Network infrastructure. And if you want to get a free trial and start using Voltage today, you can do so at Voltage Cloud. Okay, let's go into the third bucket now. And this is emerging Lightning native applications for making payments. What kind of payments are you envisioning here in this third bucket?
Max Webster - 00:38:45:
So I think about them, maybe let's categorize them in two sub buckets. One is kind of replacing conventional payment networks, and two is creating new categories of payments. And so I think both are very interesting. I think it's easier to sort of invest today against at least initially replacing old payments. And so that's things like anytime you see an international payment, particularly things like remittances, I think it's well documented how usirius and exorbitant these charges are, particularly for people that are very poor in the global south, it's not right. And so I think that when you see international payment providers and remittance providers for places like some of the big corridors like US to Mexico, US to Philippines, some of these places, I think that's like a very obvious area that's super right for disruption. And so I think that's kind of like step one is any kind of international payment. If you're having to pay a high fee to send money over overseas or across borders, Lightning up to do that for virtually free, and it's going to eat all the closed payment networks. Nicholas birthday and Galloy, they're my portfolio companies. He put out a piece like a year and a half ago. This is the other thing besides Ryan and Drew's talks that got me so pumped, and Light Network, where he just explained how this instant global free payment network, we're nearly free payment network is going to eat ACH, Swift, Mastercard, Visa, all of those. I totally buy that. So I think step one is replacing all the existing international panels. Now step two is where I get even more exciting and you guys will indulge me here. This is the classic skewerphic thing, which Chris Dixon loves to write about. And by the way, I think he's very smart. I just kind of replaced all of his Web Three stuff with Bitcoin and it makes a lot of sense to me. And so he's always talking about like, yo, it was dope to put the New York Times online, but it was much tougher to put Twitter online. And so when you have a new kind of application that straight up was not possible prior to this new technological primitive being available, in this case political network, that is where you're going to see some of the wild stuff. And so I think we're very early there. But the examples that I love today, I'm a huge stacker news fan. In fact going to pop this guy on Slack stack of news fan. And it's so cool because it's like reddit or stack overflow or core or whatever, but you upvote with value. And so I'm extremely bullish on this company. Very proud investor. You look at some of the valuations for some of these other information exchanges or whatever you want to call them, and they're very high, but it's just like, it's just upvoting, right? Which is not civil resistance. There's no easy way of integrating commerce inside with stacker news. The ability to upvote with value is incredible. Now when I say I'm speaking with real value, real money, when I say this thing is worth something to me and it's valuable to me. And I think what I love about this category of application is that it opens up. Perhaps the thing I'm most excited about, which is the ability to earn. Right? Now, if you look around the world, let's say we're very fortunate to be born in a place like US. And Canada. Where we can have good job opportunities, like even the worst situation, we're still going to have food and roof overhead. But if you're born somewhere in Africa and Latin America, Southeast Asia, being able to earn a few dollars a day online might be like dramatically life changing, better than what you have in your home country. And so the ability to curate content or create content and get paid directly peer to peer, it's just an absolute game changer and no one has seen where this is all going to go. Similarly, I'm very excited about Fountain for Podcasting, which we're on there right now. Breeze obviously has their amazing podcasting app. I think this is just the beginning. I want to see this applied in music. I'm a musician myself, I rap, and I've always wanted to see a peer to peer music platform and a Wave Lake, and some guys are playing with it. But I think we're very early there. And perhaps the last thing I'd like to mention here is kind of a fourth bucket of companies I'm excited about, which I think is going to enable the third bucket. I think what we're missing today, we've only seen a few of these apps because it's hard to roll your own when you look at someone like Kean from Stacker News, he's just an exceptionally brilliant guy who, in addition to building his app, he's running his own Node infrastructure. He knows how to handle all of that in the back end, and most developers just want to build their app. And so I think the fourth category that I'm really excited about right now, and if anyone's building this, please reach out is I want to see more APIs that say, ideally noncustodial. How can I integrate Lightning payments into my News or podcast app with one or two lines of code? I think that's the missing piece right now.
Kevin Rooke - 00:43:38:
Yeah, I can see that being like a game changer for just getting more people on board. Because when we look at the penetration of specifically podcasts, because we have those numbers, there's about 7000 podcasts that are Lightning enabled today. And you could have a flick of a switch at Spotify or Apple or someone like that, or even a smaller app that's trying to compete and trying to become a Spotify or an Apple. If they can just turn that on in one flick, all of a sudden you can light up an entire section of this podcasting economy and give them access to payments. One other thing I want to bring up is that you did a sacred News AMA the other day, and if anyone listening to this has not seen it, definitely check it out. But I want to dive into the numbers here because there were a few dozen people that commented, gave you questions, you responded back, they sent you about, I think, 27,000 sats. So we're looking at like with Bitcoin price changing all the time. It's hard to know exactly, but I think five or $10, something like that, from a few dozen people. I think daily there's a few hundred people checking in on the app. There's maybe 1000 that are kind of like viewing the app and already you're seeing like five or $10 for doing hosting an AMA. How big do you think that grows? If we get to a stage where you look at some of the influencers online today, I don't know if Warren Buffett or LeBron James or some global icon or Christian or Reinaldo decides to do like an AMA on Instagram or Twitter or whatever, what could they earn? If everyone had lightning enabled walls? What's your estimate of how big that could be a lot.
Max Webster - 00:45:36:
I mean, I am clearly not an influencer. I don't know about that. But the fact that I got even five to $10 from small community is pretty cool. I mean, for people that actually have fans and put time into it, the sky is the limit. I mean, let's say something that I do think about a little bit more, which is music, right? I love music and I would love to be able to go peer to peer to all my favorite musicians. And I'm not like a super expert on this, but you look at how the Spotify model works or whatever, and basically we're all paying for 510, $20 a month, whatever it is, and then most of that gets pooled. I'm sure the labels take their cut. There's all these middlemen in the industry. There's a lot of middlemen that are kind of like sucking the value that's going to get completely disrupted by bitcoin Lightning. And so in those industries, then in order to sign and get some of the big catalogs on there, my understanding is that they basically pay peanuts or pennies to like the long tail of artists or even like the medium sized artists. And it's basically just going to the labels and the few really big artists on there. And so that's it. Because if you're an artist, how are you supposed to make a living? Most of them have to do it with touring and merch and especially in the pandemic that was really hard to do. So I'm a big fan of independent music. Some of my favorite bands I love Span, Brian Jones, Town, Owskir and Tom, who's been doing this forever, like completely direct to fans. And he kept all his own catalog and that's its own kind of rabbit hole. But I was thinking a lot about this recently with Blackstar, so most definitely Telecourier, Bay and Teleport. They released a new album a couple of weeks ago and it was amazing. And I've been waiting for the new Black Star album since I was eight years old. They didn't put on any of the streaming platforms and they can get away with that because they have enough of a cult falling. The people that like them really like they're going to be willing to pay. But to be honest, I was pretty frustrated because it was like they put it behind some bizarre what do you mean? The paywall? They put it on some podcasting app where you to sign up and give your credit card information some new recurring SAS fees. In general, SAS is just annoying. I hate a lot of the business models to try and get you to essentially trick you into forgetting your pay. And yeah, it just pissed me off. And I love these artists. I would have happily paid 10, 20, 50, maybe even $100 if they had given me the option to do it because I loved it. I love that music and I'd get a lot of value. This is kind of the Adam Curry value for value thing. And it's true. And so I am so excited to see in that industry, people are going to be experimenting in a wavelength, is doing this a little bit. I've actually got a few tracks on there already. And the ability just to go direct peer to peer. I think this could usher in a golden age for artists. Like, imagine someone who's middle class, maybe even lower class, and now they can earn a couple of grand a month. That's the goal. If you can get a couple of grand a month, enough to pay your rent, then you don't have to do some drone job. Instead, you can create art that some people are going to find beautiful. And if you've read, I'm sure you probably have or maybe some of the audience, kevin Kelly put up this article ten years ago or something called Thousand True Fans. And this whole thing was if you can get 1000 true Fans as an artist or content creator, well, then you can earn a middle class living. And that was awesome back then, he was right, but that also requires selling merchandise, blah, blah, blah. And so now I think he was right but early with how right he could be and now with peer to peer lightning enabled payments, I think you're just going to see this blossoming of the creative class. And I think people in quote unquote crypto and talk about it again, completely wrong rails, completely wrong business models, right idea. And so I think this is the real creator economy. And what's going to enable how important.
Kevin Rooke - 00:49:24:
Do you think is the fact that you can send a payment of any size of money? How much of an impact is that going to have on the creator economies blossoming?
Max Webster - 00:49:33:
It's going to be huge. Again, I don't know exactly how it's going to play out, which is why I'm so excited and investors like what I watch, but there was like a tweet storm. I think Ryan mentioned this in that article that I mentioned a couple of years ago where he put out a tweet from. I guess Ryan Armstrong, of all people who was tweeting about I forgot the labeling of this. But essentially when you made it really cheap, it used to be really hard. You wanted to do communication. You can send a physical handwritten letter that's really expensive and time intensive and so not many letters got sent and then the telegraph made it a little bit easier and telephone and then got to the point of email and what's happening and whatnot where people are sending stuff nonstop. So literally when I orders back to savings I have with payments as the cost of payments keeps coming down, like every new threshold is cheaper and cheaper and cheaper. Now it's essentially free for micro payments. We don't even know what that's going to do, but it's going to be orders magnitude more payments for sure.
Kevin Rooke - 00:50:30:
Now how important then is the other component? Because I think there's two things happening. One is becoming basically free or it scales down to zero payment size. You can send any amount. The other is that it's now instant and those are two things that are happening at the same time. So how do you weigh the importance of the instant payments? Is that going to be as big of an important factor as the cost of payments or is the cost of payments more important?
Max Webster - 00:50:56:
I think they're both huge and I think yeah, I don't know which one is a bit bigger. I guess it depends on the use case, maybe. My intuition tells me instance even bigger in some ways because there's new things you can do. For example, I've been talking with friends. One of my friends, David King has been talking for a long time about hey. And I think John Trail has been talking about this as well. What if we could have a global kind of like game show where anyone anywhere in the world can participate and get paid out in stats at the same time. And all of a sudden that means like, wait a second, I can be playing against a friend who lives in Bahrain or wherever like some random country had never been to. That's just completely new activity. So I think it's going to be huge. I think the third thing, in addition to the size of the payments I can send, the speed of the payments I can send is the programmable nature of payments. And so this is also going to be huge. A lot of people have just started playing with this. There's like lightning escrow and some new kind of primitives that are being built around that. But having this be programmable is also huge, right?
Kevin Rooke - 00:52:01:
Yeah, I think the game show idea is great. I know Zebedee is working on like they have integrations with they put like sats into the fabric of their games so you can shoot someone in counterstrike and have chat pop up and chase people around in like a Mario Kart style thing. So I. Think there's a lot to be built there I want to dive into. Now the topic, we touched on this a little bit, but creating and capturing value. What do you think when we look back on lightning in the next decade or so? What applications do you think will create the most value for the world? Not necessarily capture, but just like change people's lives the most? What are the most impactful applications for lightning?
Max Webster - 00:52:48:
With the caveat that, again, the thing I'm most looking forward to is the unexpected, but I can't proceed. The two obvious ones to me are remittances. If I'm someone who's working extremely hard here in the US to send a couple of $100 back to my family in Mexico, and now I can get it there instantly for 10% cheaper, that's a really big deal. The second one is the ability to earn. And in addition to products, we talked about Paul Eutoy at Stackwork, who I know you've had on the podcast recently. I think he's kind of the original thought leader here and he's building some incredible stuff and I agree with him. I think the ability for anyone to earn, I think something that our world needs more of is tools to let people build their own futures and take control of their lives. And if you're born into a place with Spotty, internet, nonexisting payment systems, bad currencies, you just don't have a shot. No matter what you do, how hard you work, you just don't have a shot. And so I think giving billions of people a shot, a chance to participate is just going to how many new Steve Jobs are trapped in a country where for no fault of their own, they can't participate and try their idea? And so I think the ability to earn online and the ability to receive remains. Are the two to intersem us, right?
Kevin Rooke - 00:54:10:
Yeah. One cool thing that I'm working on with this show is I had Mash's CEO Jared Nusinoff on last episode and we talked about how I'm going to have a section on my website where I pay a transcript and I can read through a transcript. So this full episode, people can listen or they can just read the transcript, pay over lightning. But what I didn't say to everyone was that the transcript is going to be created by thousands of people all over the world working for sats. And that's something that Paul Etoy is helping out with right now. So every time you read a transcript. I hope this will be out in the next week or so. But every time you read one of these transcripts. There will have been hundreds or potentially thousands of people that contributed to getting that like a little audio clip. 3 seconds of me or you talking correctly. Writing it down and compiling it into this document that is already I've seen some of the early versions. It's already way better than you could get from some AI auto translate app. So I'm really pumped about that. I just think that's, like, anyone can actually make a living off this stuff. I think that's going to unlock some really big doors.
Max Webster - 00:55:28:
That's amazing. Shout out to Paul. He's seen this before. Anybody also. That's amazing.
Kevin Rooke - 00:55:33:
Yeah, very early. Okay, I want to highlight one other comment you made on your stacker news, AMA, earlier this week. I think I ask you how many people will be making Lightning transactions every day in a decade? And you said a number. That just blew me away. You said 2 billion people.
Max Webster - 00:55:58:
Over two.
Kevin Rooke - 00:55:59:
Over 2 billion, yes. Okay, so it blew me away even more. What's your vision there for how these people will be interacting with Lightning? What kind of applications they'll be using, and how frequently they'll be making payments and for what?
Max Webster - 00:56:15:
So I kind of want to go back to what I was saying at the beginning of the podcast, which is humans are very bad at seeing exponential curves and adoption. And I look again, part of my thesis is just modeling my investing on the first wave of the Internet. And so 97, 200 million users. 2007, over 2 million users. So when you said a decade, let's just say it's one for one with the Internet, I think the reality is it's going to be bigger than that and it's going to happen much faster. Because when the Internet was coming to fruition, well, obviously there was no Internet, there was no infrastructure, there was no smartphone. And so the Lightning Network in Bitcoin can actually scale much faster than the Internet did because it's built on top of it. It's a protocol stack built on top of an existing call stack that already has wide distribution with billions of users through smartphones. High level. I'm a fan of these curves, and I would never, ever take the underwater exponential. So that's a very high level. I think that there's a lot of debates and exactly what that world looks like. Is there a world where we can have 2 billion plus users in a decade that have their own nodes or their own keys? That's trickier. I think it's possible. I think there's some necessary technological advances that need to happen. I know Roy Breeze is working a lot around this, how you can have your own keys just on your phone. I don't think you're running a full routing on your phone. I think that's probably not realistic. But could you just have your keys and the rest of the world in the cloud? Maybe. Could you have your Lightning wall integrated into other super apps or services use like Twitter? And ideally there's a way to do that. Not necessarily. I think that's possible too. I think the other possibility is I'm not 100% told on that. And in order to open that many channels, there are some theoretical limitations on how many of those you could open just like per block today. And so you might have some new breakthroughs with things like channel factories or even some new technologies that people haven't thought of before, share UTXOs, et cetera, et cetera. Then all of those kind of have like a spectrum in terms of security model and kind of value delivery for people. The other option is kind of the other end of that spectrum, which is you could have 2 billion plus users on centralized services. I know this is controversial and a lot of people say, well, that's not bitcoin, that's not lightning. And philosophically I agree with them. But in reality I do think centralized players. Companies like Strike. Companies like at least today. Pouch and Neutron Pay. Which are both focused on Filkins and Vietnam respectively. IBEX Mercado. Which is focused on Latin America. These guys are custodial today and honestly. I would prefer noncustodial. But at the same time I feel like they can still offer experiences that pass on zero costs or close to zero cost payments to their customers and that's still life changing. I don't think that's the worst thing to happen. Then you also have this middle ground where you have companies like that are working on essentially community banking or you can think of it as the next wave of credit unions where maybe you do have some trust model and it's not purely non custodial. But the people that manage the treasury are people. You know. With whom you have recourse because it's the mayor and councilman of your city or town and if they fuck you over right where they live. That's a different trust model as well. And so I don't know how it's all going to play out. I'm investing personally along all three channels. If I put on my bitcoin or hat and just like human freedom hat, I hope it's non custodial. But at the same time I think we have to be realistic and open to all.
Kevin Rooke - 00:59:53:
Yeah, there was an interesting comment you made a little while ago about the exponential curve of the Internet and how now with bitcoin we're kind of building on top of something that is already, because we have the Internet, we can now build on bitcoin faster and we can get faster bitcoin adoption. Does the same thing happen when we think about bitcoin and lightning? Like lightning is being built at a time when we already have maybe, I don't know, 100 plus million bitcoiners. And the growth of lightning maybe can happen even faster than the growth of bitcoin because we have this massive base of people who already have bitcoin. All they need to do is set up a wallet or something like that or download an app and just move the bitcoin over and it's like a seamless process. Is that realistic?
Max Webster - 01:00:41:
100%. And I think I'll throw out two things. Linda, although put out a great article a while ago about network effects, talking about bitcoin network effects, like networks network effects and how those are actually like a virtuous cycle with each other. 100% believe that. And then if there's a talk that Ryan and Drew actually gave together, not this year, not the most recent, but the bitcoin Miami prior where they kind of talked about scaling bitcoin, lightning and layers, and I forget the numbers, but they actually have a slide where they literally look at this and say, well, how fast Internet adoption go? How fast did smartphone adoption go? How fast did bitcoin adoption go? How fast the lightning adoption and lightning is the fastest of all. Bitcoin was faster than Internet. Lightning is faster than bitcoin today. So I don't even think it's a question. I think it's just like empirically correct. And just to maybe make this very real for people, when I went to college, I enrolled as a university freshman in 2008. I had a dumb phone. Maybe I was a little behind the curve, but I had a flip phone in 20 08, 20 09 or 2010, I guess. My sophomore year, I got my first smartphone, and obviously I never looked back, although occasionally I wish I had never done that. But that's a separate rabbit hole. And that happened really fast. Like, literally, I remember overnight from no one has smartphone to, oh my God, everyone has a smartphone. That was like a year. At least in my world, it was like a year. And maybe in developing markets took a little bit longer. Maybe it was faster because they we don't know. But the point is, it went really fast. And that was with a physical technology. You actually had to buy and move Adams for a phone. This is a digital technology. Way faster. It's going to happen way faster.
Kevin Rooke - 01:02:20:
Right. I like that. I mean, now your over 2 billion prediction doesn't seem that crazy anymore. I have to say conservative. Yeah, okay. I want to spend a little time talking about investing specifically and investing in the lightning startup ecosystem. Maybe we can start with founders. How do you identify founders? Because you got meetings with all sorts of people all day long. How do you know when you found a good founder, someone who's going to build something that's going to have a real big impact on the world?
Max Webster - 01:02:57:
I think this is more arts and science. It's one of those things like, you know when you know, and there's times when you know it's definitely not the case for you. There are times when you think maybe and you see someone, maybe it's a little bit younger, that's not quite there yet, but you could see the potential and then moving forward. And then there's occasional cases where you're just like, yes, this person has it. And I don't know what to say other than, like, it's rare when you feel it, you get excited and you commit money quickly. I think for me, I was very lucky in that prior to starting my own fund. Well, first of all, I've been in and around startups for a long time. And so over a decade, a lot of my good friends from college, my cofounder, my first company was the second engineer Benchling, which is now a major Uniswap and sort of like bioinformatics get up or bioinformatics. I have another one of my best friends, like CEO of a major biotech company, a bunch of my other friends, or DCs. When I was at Bright, we were actually, like, investment in solar. And in Mexico, we were backed by first round of police, some of the best ones in Silicon Valley. And so I've been very lucky to kind of be in and around that ecosystem for a long time and kind of see the quality of founders there. And then when I joined version one, I have so much gratitude to Boris, manager, just first of all, incredible people and just A plus, world class PCs. And so I got to learn a lot from them. And during the pandemic, it was actually anything. It was extremely exhausting. But we had so many meetings, and so I just got tons of reps, hundreds, if not thousands of reps. And I've seen all kinds of companies. I've seen from our portfolio, we have multiple unicorns now. And so I've seen those founders and founders that we funded day one, founders that we passed on deliberations that we had. And so that was just really, I guess, like an incredible school and learning opportunity for me. And so that I think helped kind of calibrate me a lot. These days, I'm still meeting lots of people all the time, and I say it's rare. You get the spidey sense it happens. Zachary is one of the ones that happen for but it's rare. And so sometimes what you'll see is with the founders, you'll see them maybe, especially if they're on the younger side and they're not there yet. But you can kind of see in the future their potential, and you hope that you can help new coaching support. It's also just luck. Let's be real. At the end of the day, you hope you get lucky too.
Kevin Rooke - 01:05:33:
Yeah. So now let's go from you have the founders. You first try and identify a good founder. Then the founder goes on and builds their product. They eventually have to get to a point of product market fit. How do you identify when a founder has reached product market fit? And are there any examples of that in the lightning ecosystem today where you think they've found the product market fit?
Max Webster - 01:05:58:
You know, when you have product market fit, you don't have to ask. And you know, because you see a hockey stick growth chart, and it's not fake. There's no ads going on. It's just growing very fast, and you can't keep up with demand for new users, and it's rare. And I think Stacker news again, not to talk too much on this one, but if you look on Kean's Twitter account, you put out some charts recently. That's early product market. I think it's still within a very kind of tight niche, which is Bitcoiners, but I'm making the bet that we can go outside of that at some point, which I think we will, but those are organic hockey stick numbers. I think that I'm not privy to any of their insider data, and I'm not an investor in these companies at least yet. But I think it seems like there's pretty strong product market fit for some of the later stage Lightning companies like Voltage that's offering kind of notice of service for gaming. That seems like it probably has it, I would guess. Again, I don't have any insider info, just guessing, and Strike might have it. I think with Lightning Labs, they're showing product market fitting, people using your software. That's clear to me. The business model, obviously is going to come on top of that, but I think the people using light notes for sure. Umbrella, I think, had it early on. I'm also angel investor there. I think the other thing you have to think about is you might hit an S curve and then kind of reach the top of that niche market, and then you see if you can hit the next estimate. And I think they're at that stage now. Yeah, those are some examples that come by. Satoshi Energy and Investor there. I know those guys are just killing it in the energy industry. Yeah, those are a few examples.
Kevin Rooke - 01:07:40:
Okay, I like it. Let's now talk about valuations because then you got a great founder, the hip hop market fit, and now you're ready to do another round and you're trying to help them raise. How are you thinking about valuations and like, what's your framework for thinking about how a startup should be valued, especially in the Lightning space where the economies are a little bit different and we don't have many data points to look back on yet.
Max Webster - 01:08:12:
Well, I'll speak about valuations and how I think about helping founders raise. In terms of evaluations, again, this is somewhat of an artist and also depending on the market, at the end of the day, I can tell you all the things I want to tell you, but like, it's a market. And so if there's a tremendous amount of demand for a hot startup, then either pay what founder is asking or you don't get in the round. And so for me, I prefer just with my personality type. And also, I think term profiles come. I love going very early. I love being first money into startups. If you're a founder out there and you're alone and you're just thinking about an idea, it's never to really hit me up. I love going at that stage, and I typically like to do with earlier stage evaluations. Let's say you're doing a precede around sub $10 million valuations and things like that, that gives us, as a fund, a chance at 1000 X. That's my goal. Once you get kind of above that $10 million valuation range, it becomes much harder. 1000 X not impossible, but that's kind of the goal. Seed rounds, let's say somewhere 2020, $5 below, depending on the company. And again, that range, you're hoping you can still 100 X, but that's hard. It's just kind of the different words and magnitude. But at the end of the day, put all the evaluation discussion aside. Like, we're in a business of outliers. And so I'm an early stage investor, and some of these later stage investors, they're having to do a lot more modeling and actually looking at business models and cash flows. Not say that we don't think about business models and potential cash flows. We do. But the reality is, what matters is getting in the right one, period. And I've been faced with this decision a couple of times where it's like, I think this is overpriced based on what I'm seeing with other comps. But if my spidey sense of intuition tells me this thing is going to be a massive unicorn or deck of corn, and say you overpay by a few months and the grand scheme of things, not a big deal, we're in the business of one company. Can connect your fund if you get the right company. And so it's more important that you don't have a cinnabon mission, is my view.
Kevin Rooke - 01:10:30:
Yeah. Now, how do you think about the comparison of Lightning startups today to startups and let's say the fiat economy or like, the Web two world? I know we've seen valuations kind of come down in the later stage rounds as the stock market has come down. I get the sense still, though, that the Lightning Network startups are still in this bull market where there's a lot of demand for all sorts of rounds. And it's basically like, I don't see much of that outside of the Lightning space in the crypto economy. And then I don't know well enough about how that compares to the broader global economy, but it seems like we're kind of like in this insulated environment where we're definitely seeing momentum enlightening and that's being reflected in the start of valuations. Do you think valuations today are at a sustainable, fair level in the Lightning ecosystem? Are they undervalued? What's your sentiment on evaluations in Lightning versus the rest of the economy?
Max Webster - 01:11:36:
Well, first of all, I don't really know much about the Web two stuff these days, or even the later stage companies. I'm pretty focused on my lane, which is seed and precede focused on bitcoin and Lightning. What I can say is I'm not really seeing deals or capital dry up at all. In fact, I've seen quite the opposite at this moment. You also caught me on a busy day, so I'm a little biased, but I think that if you think about it, there's too big forces happening right now in the world. There's this like everything in the world is crashing and there's the little dogs because coffee while the world is on fire, and he's telling us everything is fine. And then in the Lightning Network world, you have this incredible early hockey stick adoption. I believe it's happening. And so my view is, and I tell all founders, obviously, say for rainy day, we don't know what's going to happen. I haven't seen things dry up yet. Doesn't mean it couldn't happen. Tomorrow we go into the next Great Depression. Like, all bets are off. I have no clue at that point. Like, your guess is as good as client, but as long as we keep having adoption scaling globally and I can tell you from some of my companies, companies like Pouch, the Philippines, neutron pay in Vietnam, IBEX Mercado throughout Central and South America, these regions are adopted. They just published this incredible talk of Central African Republic that just made bitcoin a legal tinder. It's like you have this exponential curve. It's not slowing, right? And so I personally think that force is much stronger than the economy crashes. I also think that we're lucky in the bitcoin and lightning world, partially because there's not as much crazy loose money chasing deals, partially because they don't understand it. Because if you're chasing these crazy fiat deals with crazy evaluations, probably not a bitcoin or in the first place. But we never had at least in my view, I never was funding crazy valuations. I'm a fairly conservative investor in that. Like I said, precedes below ten, L feeds below 20. Typically, that's pretty healthy in my life. And so I never saw anything get crazy. And so I'm kind of seeing things be more or less the same right now. Later stage, no idea. Web Two seems scary hearing all my friends, SaaS companies seem like they're getting just absolutely taken cleaner, but I don't know a ton about that. And then Web Three, someone asked me this on stack reviews, like, well, can VC model work in Lightning Network? Because it's not like Web Three where you can get a token and then you get all this liquidity. I'm like. Well, that's not VC. That's like gambling on penny stocks and getting people to quit and to do that, that seems like a scam. And so the valuations that were happening over there, I just think we're completely untethered to reality always. To be honest, between us, I guess between me and everyone listening to this podcast, it doesn't make a question on some of these VC funds that are doing this. I'm like, Are you guys really doing your homework? Do you really believe it? I don't know. But at least at Hivemind, I've always been kind of in my lane, responsible valuations. But I think it's fair for us, fair for the founder. And I'm seeing that continue.
Kevin Rooke - 01:14:26:
Right. Okay. I know we're running out of time, but I want to get into this segment that I'm trying to build up. It's basically an opportunity for any listener to send in a comment or question. It's called the Lightning Round, and we didn't have any listeners sending questions, but I have a few questions of my own for you. So are you ready for the Lightning Round?
Max Webster - 01:14:43:
Let's do it.
Kevin Rooke - 01:14:45:
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Max Webster - 01:15:24:
Oh, man.
Kevin Rooke - 01:15:26:
All right, you got a list for.
Max Webster - 01:15:28:
A bunch, dude, where do we even begin? I'm pulling a couple of books here. Okay. So most recently, I've got some recent he buys Stalking a Wild Opinion. This is, like, describes reality in a way. I think this guy could be the next Einstein Wild. And yeah, this book blew my mind, truly blew my mind recently. What technology wants by Kevin Kelly. He also wrote out of Control, which is kind of a bible for me, a lot of technologists. I think he saw the future a long time for other people. I think he's just a great writer. I'm a big fan of his other books that I don't have in front of me. I've got a bunch of others here. Well, actually, I got to give a shout out. I even know how to finish all this. But Master and Light Network. You haven't read this yet. Walu, Andreas and Renee do a great job, but I would say some other books have been influential for me. Probably the Bogba Gita. This book the Way it was in by Alan Watts. I used to read more fiction. I don't do as much. I used to like comedy novels a lot. But yes, I love to read. Always reading, love it.
Kevin Rooke - 01:16:38:
What Technology Once was also recommended by Brian Murray, so it's two recommendations for that. Okay, next question. You said that we'll have over 2 billion people using the Lightning Network in a decade. How many do you think are using the Light Network today on a daily basis?
Max Webster - 01:16:59:
I don't know. I think they're not open to the Arcane research report. I think I forgot they have a $40 million for the volume or something like that per year. The number of users, I really don't know. I guess it depends on how many kind of custodial downloads there are. Thousands. Tens of thousands, maybe hundreds of thousands.
Kevin Rooke - 01:17:21:
Yeah. It's interesting right now because there's a discrepancy between the number of people that have access to Lightning and the number of people actually using it. Right. We have close to 100 million people with access because they got Cash App and all these different there's cracking now, there's Paxful, a few others, and they combined to 100 million users. But not everyone is actively using it today.
Max Webster - 01:17:45:
And so, to be clear, Cash App is the sleeping giant when people realize that they can use Cash App, if you think about using Light Network is kind of like a two sided problem. One side of that lease, the United States is totally solved. People don't realize it yet, so that's a big thing.
Kevin Rooke - 01:18:02:
Yeah, I think actually this is where I think that game show idea that John Cantrell was talking about, I think that is where it could really blow up. If you get that right, all of a sudden, anyone can participate in a game show in real life as long as you have cash out and everyone already has it. And it's like people will just wake up and go, whoa, I never knew I could do this.
Max Webster - 01:18:24:
Totally. And David King again, he's been mentioning for a long time, like, maybe the thing that makes Lightning go crazy is some silly app. Maybe it's a game show, maybe it's audio feed volume two. I don't know, but who knows?
Kevin Rooke - 01:18:36:
Yeah. Okay, one other question, actually, two more questions. First one is, if you could change something about the Lightning Network, what would you change?
Max Webster - 01:18:47:
I could change something about a Lightning Network, I guess. I wish there were easier non studio tools and APIs for people to integrate.
Kevin Rooke - 01:18:57:
Okay, I'll take that. If you could bet on one fiat company running a Lightning Network node, participating in the Lightning economy, let's say so maybe it's running a node. Maybe it's just like integrating with their app. One fiat company that has nothing to do with Bitcoin or Lightning today. Who's your pick?
Max Webster - 01:19:22:
Well, I think square block is the.
Kevin Rooke - 01:19:24:
Obvious one because there already is. They hold Bitcoin. That doesn't count.
Max Webster - 01:19:29:
Totally. Which yacht company is going to be next PayPal because they're already exploring crypto. That seems like that could be very likely. It seems like some of these may be emerging market fintechs. Like, I know you have salinas in Mexico, tweeting a lot about Bitcoin Lightning. That seems pretty likely. Perhaps some of these other sort of orange filled billionaires around the world on their own payments networks. That could be interesting. I do sometimes think, like, is there a World or Visa or Mastercard adopt this? And it seems unlikely, but it would be cool. I just doubt it.
Kevin Rooke - 01:20:08:
Yeah, fair enough. Awesome. Thank you so much for taking the time today. I learned a ton. I feel like we got in like 3 hours of information into this. It was just jam packed with insights. So I appreciate your time where. Can listeners go to learn more about you and the work you're doing?
Max Webster - 01:20:23:
Yeah. So I'm on Twitter at Maxawebster. My son is at Hivemind VC. We don't really have much on there yet, but sometimes we will. And then the fun website is Hivemind VC. Again. One project I'll be pursuing soon is a redesign of the site. So if you're an eager bitcoin Lightning designer has some ideas for me, hit me up. I'll be looking in the next month or so. But yes, Twitter is probably the best way to reach me.
Kevin Rooke - 01:20:51:
Awesome. Thanks so much for the time. Hope we can do it again soon.
Max Webster - 01:20:55:
Yeah, thanks, Kevin.
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