From her perspective, Simpson has a broad vision of the investment landscape, which has led her to invest in various cryptocurrency and gaming companies including Irreverent Labs. She believes in the power of decentralization brought about by blockchain technology, which she also believes will lead us to the Metaverse.
A16z is known to have a dedicated gaming fund of $600 million and a cryptocurrency fund of $4.5 billion. Simpson is deploying the money, but we’re also in the midst of a crypto downturn and hard-core gamer resistance to NFTs. That makes the business feel more at risk than it did a few months ago. But Simpson has a lot of experience in the field. Ten years ago, she “fallen down the crypto rabbit hole” when she was following talent in the field. She has been through multiple crypto winters, and in an interview with GamesBeat, she said that A16z is prepared to take a long-term view of the market.
I spoke with her to gain an understanding of the intersection of cryptocurrencies and gaming, her views on gamers accepting non-fungible tokens (NFTs), why players should earn from gaming, and why A16z founders Marc Andreessen and Ben Horowitz Seeing opportunities in this area and doubling down on industry-specific funds to invest in this market.This belief hasn’t changed despite the market’s many roller coaster cycles.
GamesBeat: When did you become interested in this field? How did you come into contact with cryptocurrencies and gaming?
Arianna Simpson: About ten years ago, I fell down the crypto rabbit hole. I first became interested in this field in 2013 after a trip to southern Africa. I spent time in six countries including Zimbabwe. I saw the consequences of the hyperinflation they experienced. Clearly, it has destroyed the economy, forcing them to turn to the dollar to stabilize the economy. This forced them to take drastic measures.
When I came back to the US, I was talking about this with a friend and he mentioned that Bitcoin has something to do with deflation, not the possibility of hyperinflation. This took me on a long journey. Clearly, the space is now more than just Bitcoin. But this was the initial catalyst. The deeper I go, the more interesting I find it. It’s such a rich design space that brings together fields ranging from cryptography to game theory to computer science and more.
Gaming, that’s actually one of the cores of the fund I’m in charge of. Before joining A16 z, I started a fund called Autonomous Partners. I’m already very interested in game scenarios. I have made many investments in this category, including blockchain projects Mythical and Flow. I connected with the Dapper Labs team. They deserve credit for coming up with the idea of NFTs as part of the gaming experience, and of course many other teams have adopted, extended and built on this idea.
I’ve been deep into NFTs and gaming for a long time. It’s incredible to see how they’ve actually started to grab mainstream attention. This is the phenomenon of 2021. I’m very excited about where we’re going from here. The reality is that we’re still only scratching the surface. We think web3 games can be a huge catalyst for bringing tens, if not hundreds, of millions of people into the web3 space. They fit perfectly. Gaming environments often lead the way in technology.We’ve seen this time and time again. It’s really exciting to have the ability to get people into a lower risk environment and educate them on the principles they need to learn in order to thrive in this ecosystem. I continue to be very excited about the future of this category.
Cryptocurrency prices plummeted.
GamesBeat: I know A16z also has an early cryptocurrency background, but are you surprised in some ways that a large VC firm like this would dabble in something like cryptocurrencies the way it did? How do they think this is the right thing to focus on?
Simpson: This company, especially Mark (Anderson), Ben (Horowitz), and Chris (Dixon), deserves credit for being willing to take the big risks of the time and go all-in on the field. Most VC peers don’t. Of course not at that time. The willingness to set up a dedicated independent fund and take a stake is one thing that makes me want to join A16z. I’m not looking for a job, but it really sets them apart compared to most of their VC peers.
The firm’s belief in this category over many cycles and over the years I think it’s really unique among the large VC platforms. It allows us to work with the best founders. Founders want to know that their investors have confidence in the space. They don’t move in and out of the category based on market conditions on any given day. Of course, Mark, Ben and Chris saw it early on. That’s what made me want to join and be a part of it.
GamesBeat: In terms of initial appeal, was it the decentralization debate, or did other factors play a role in the appeal, thinking it was something to invest in?
Simpson: In our business, we are somewhat passive. We have to see where great entrepreneurs go. Even in the early days, there was something like this. Brian Armstrong and Coinbase, and ultimately many others. Even so, while it’s certainly a novel category, you have very good founders who are very excited about the technology. Likewise, our investment radar is driven to some extent by arguments, but it is also very much driven by talent. We’ve always felt that this is a key question to consider when founders, top founders choose the crypto space.
GamesBeat: You mentioned deals. Have you experienced two crypto winters? How do you feel about these winters in terms of cryptocurrencies as a whole?
Simpson : The length of the cycle will definitely increase over time. Back in 2013, the crypto market had multiple cycles in a year. And then, of course, that timeline has stretched outward. The most important part is to focus on the technology and not focus too much on cycles. We’ve seen that many of the best ventures – whether in broader technology, or cryptocurrencies or web3 – start out during times of market instability. We see this as an opportunity to focus on technology. One of the challenges of cryptocurrency is having a stock ticker, which early stage startups don’t have. This can be distracting. But in reality, periods of low price activity can be a great opportunity to focus on construction.
Digital land sales in the blockchain game: Crypto winter has begun to hurt price appreciation.
If I compare where we are now with the recession of 2018, we’re in a completely different universe in terms of what’s actually being built. In 2018, a lot is going on, a lot of layer 1 is being built, a lot of infrastructure is being built, more important than applications. Infrastructure must come first. There is not much one person can do. Now we are in a completely different place. Many agreements have been launched. Hundreds of applications are available in real time.Games, wallets, all kinds of things. In my opinion, this is the most important development. We have seen huge progress.
We also published a State of Encryption report that you may have seen. We use the data to plot the parts of the loop.While they appear to be chaotic cycles of volatility, they are actually very predictable. Each part of the cycle has its own specific role, especially periods of rising prices attract people into the field. They attract investors. There is a lot of enthusiasm. Some will leave when the tide goes out, but they may not be builders anyway. They may be speculators. Many core talents remain in this field. This allows us to prepare for the next wave of construction and ultimately appreciate as more value is created. But cycles are very important. The most important thing to focus on is building technology, which obviously won’t happen overnight.
GamesBeat: It’s interesting that you can have confidence in the developers that are entering the space. They either have a cryptocurrency background or a gaming background. This is a good thing. If there’s any uncertainty in the category, these great teams, the veterans, seem worth betting on. When did you start seeing this happen and people on the gaming side realize this is something they want to get into?
Simpson: The wave really picks up in 2021. Prior to this, some founders from more traditional gaming backgrounds had expressed interest in NFTs and web3 games. But in terms of when it really starts to hit critical mass, it’s early 2021. We’ve certainly seen it pick up from there. Just mapping talent migration is very exciting. Although not everyone, the percentage of founders in the gaming industry who have expressed an interest in or are already actively building Web3 components into their games has increased dramatically. Again, we think this is an important trend to watch. We’ve been investing in many of these teams since then.
GamesBeat: I think it’s going to put pressure on the rest of the industry, which is interesting. CEOs of big companies are under pressure to say, “Don’t leave, we’re going to explore this space too.” When I interviewed Activision Blizzard’s Bobby Kotick, he said that one of the reasons they sold to Microsoft was that they had a hard time acquiring talent, retaining them Talent, hire the thousands of people they promise to make games.Interestingly, this particular blockchain gaming trend could make a comeback and affect the mainstream.
Simpson : Oh, yes. We definitely think so, whether it’s a publisher or a big game maker, the whole concept of games and revenue is going to have a big impact on traditional game entities. We think players should capture some of the value they create. While these models still need some iterations, and we haven’t found the perfect architecture for everything, the core idea that the players who create these worlds, create these communities, and build so much value should share in that value, and we think it’s is a very important idea.
Now, as players become more familiar with the fact that this is a new paradigm, we think this will put more pressure on the more traditional entities in the game world to adopt a more favorable model. They won’t all have the same model. This can take many forms. But this core idea is crucial.
Arianna Simspon fell down the crypto rabbit hole ten years ago.
GamesBeat: One area of my confusion and doubt right now is, who are gamers? Throughout 2021, I’ve been thinking that blockchain gaming will be a stepping stone to the Metaverse. You can use all of these technologies for things like identity and interoperability of assets, which are necessary ingredients to create a Metaverse. But then we had that buzz in December, with gamers opposing Ubisoft’s NFT plans in the Rainbow Six game. [They also] started speaking out for traditional gamers against other announcements about NFT gaming.
So, who loves NFTs and who hates them? Asians seem to have embraced this kind of experimentation in certain markets, as they have done with free-to-play, while traditional gamers in the West, hardcore gamers, feel betrayed by free-to-play. They feel like the loot box is all there is to it. I looked at the entire market to see how free-to-play games make up more than half of the games. It permeates every game from mobile to consoles, and we have 10 times as many players as we did in the past. These are good things for me. But for this segment of the loud voices, they think free-to-play and now blockchain games are evil.
It’s strange to see the Philippines embrace gaming for money (P2E) in the first place. I don’t know if it’s users who accept it or users who don’t – which is more important? I can see that if there is a mainstream trait among players who are embracing it now, it is only a matter of time before NFT games become mainstream. But if these gamers have quirks — they’re crypto geeks trying to avoid taxes by putting their money into NFTs — there’s some behavior here that’s a small group of people, not the mainstream — maybe it’ll never go mainstream. If it were just people paying $10,000 for a piece of land in a virtual world without blinking an eye, this activity wouldn’t go mainstream.
In conclusion, what do you think are the users who are interested in this right now? What kind of users can take off and grow to tens of millions?
Simpson : You make a good point that new form factors, new models are generally not embraced by the core gaming community. As you pointed out, there is a lot of precedent for this. That hasn’t stopped some of these models from reaching massive scale, such as free-to-play. I think the train is bound for the destination station and it doesn’t really stop at this point.
There is a very outspoken group of people who have reservations about NFTs, and in many cases, their criticisms are unfounded. They either don’t fully understand them, or they just have a very skewed bias. But they are a minority. There are many people who are starting to see the benefits of this model and welcome it. I don’t think it’s a small universe with only very crypto natives. In fact, if you look at it – Axie Infinity was the first Web3 game to go mainstream. They attract millions of players. It’s not just a few crypto insiders. They are huge and most of their players are crypto newbies.
It just goes to show that while there’s definitely still a lot of room to go from here, we’re on the right track. Games are a tool for taking people into space, not something that just attracts a small group of people for self-reference. There are definitely naysayers, but I think the bottom line, the bottom line, is that there are millions of people who have already shown a very strong interest in Web3 games. This is where we focus, and where our portfolio companies focus.
We had a friendly debate on NFTs at the GamesBeat Summit in April 2022.
GamesBeat: The interesting part of the discussion is that some game developers continue to resist. Their arguments are sometimes more technical. Like, everyone says it’s about decentralization, but why are there so many centralized entities involved, like OpenSea? If OpenSea goes out of business, 90% of NFTs will be worthless.If you have some of these discussions with game developers and they need persuasion, how does the discussion go?
Simpson : Most of the founders we talked to were already excited about Web3. Obviously, I’m on the encryption team, so there’s a kind of filtering before they find me. But overall, we see a very open attitude and willingness to experiment with this new model. Gaming, although some sub-sectors of the gamer community may be more reluctant to change — gaming is the perfect place to test new technologies and iterations. Many Web 2.0 founders who have developed games before saw the potential here, which is what brought them into the field.
Before going into web3, I had a lot of conversations with founders who had worked on major games in previous lives, and now they say, “This is the obvious answer. I can’t think of anything else. It makes a lot of sense. It solves a lot of problems. “Have the ability to own your assets – although if OpenSea disappears, that might briefly affect that market, the fact that I still control my sword or any NFT assets I own, no matter what happens because I own it on-chain key, this is an important shift. Many savvy game founders understand this. That’s one of the reasons they’re entering the field now.
GamesBeat: As for things that might be out of the entrepreneur’s control, like regulation or what the U.S. allows or doesn’t allow, whether those things are classified as securities or gambling, or whether companies don’t want to give up some of their revenue streams — you Think we’ll reach a freer market for blockchain gaming companies than we are now?
Simpson : There are definitely some regulatory gray areas. For our founders, we’ve seen that they want compliance. They are looking for clear rules of the road that they can follow. Challenges – that’s why we’ve built a large regulatory team designed to work with policymakers and help them get up to speed. We think about this space all day. They have many considerations. Just help them think about the nuances of space. Web3 games do not require the same regulation as DeFi protocols or other things that are entirely still in the space. What we’re looking for is nuanced regulation that makes appropriate distinctions and applies to what they’re trying to regulate.
From our perspective, regulation is critical. You’re welcome. This is very important from a consumer protection perspective.But it needs to make sense. That’s why we’ve built a large team and spend a lot of time in Washington, D.C., working with regulators and policymakers on these topics.
GamesBeat: I don’t know if you agree with that, but I wonder if the big game companies will be at a disadvantage in this market. This has to do with their public status. They worry about regulations. They will wait for a clear signal before moving quickly to this stage. However, some of these startups are valued so quickly that they will be beyond the confines of the big game companies. Their usual solution is who wins and who buys. But when it comes to mobile games, developers like Supercell are almost becoming too big for anyone to buy. Tencent is almost the only possibility. But the winner of the mobile game market is not a company like Electronic Arts. The startups that move fast and don’t worry about regulation are the ones that win in the free game. In my opinion, we now have the same opportunity in blockchain gaming.
Simpson: Of course. We’re investing in a lot of these upstarts, as you describe. We think they have the ability to understand this technology from day one. They are very native to encryption, native to web3. They saw the positives that this space could bring. Also – I think that’s an important concept – not just putting a game that might exist off-chain on the blockchain. Instead, use the specific design constraints and opportunities provided by the blockchain architecture as a novel canvas for how to design different forms of gameplay.
For example, the field of on-chain gaming is very new, but very exciting because it’s really — I mean, the game world where you’re fighting on-chain, not just assets. You integrate blockchain into your game. This logic is on-chain. Smart contracts are a critical part of the architecture. All of this is combined so you can’t create the same game as off-chain. But you can get a new and very compelling experience that is obviously native to Web3 and native to crypto. We think the category is driving the possibilities of Web3 gaming, but I hope we’ll see more of it soon.
Arianna Simpson led A16 z’s investment in Ireverent Labs.
GamesBeat: Do you think the technology stack of blockchain game companies will become simpler? It still looks complicated now. They have a lot of choices around which chain to use and other things. Do you foresee that part getting easier soon? Or will web3 be a fundamentally more complex set of technologies?
Simpson: For game creators, I hope it’s going to be easier soon. You’re right, we see that founders who want to develop a game need to make a lot of decisions like where to develop it. In some cases, this also informs how they design the actual game. For example, Irreverent Labs chose to build on Solana. This comes with a series of decisions. We’re also an investor in Mysten Labs, which I think is very well-architected, specifically for gaming and entertainment use cases. It has a very different programming model designed for this use case.
The good news is that founders have more and more powerful, technically sound options. There is still work to be done, no doubt. We are still in the infrastructure construction phase. But this is the case whenever there is a new field of technology. Build tools are required. The infrastructure track needs to be consolidated. It needs to be battle tested. In this regard, this is happening. Just need a little time.
GamesBeat: Through decentralization, this also has the opportunity to change the relationship between games and the big tech companies, which are the middlemen in these industries that have been taking a piece of the pie. How attractive is this aspect of the opportunity?
Simpson: Of course. Taking control of your own destiny is very important and very appealing.
Digital Earth Surrounded by Blockchain and Decentralized Web3 Code
GamesBeat: Do you think games are won not only through blockchain, but also through the Metaverse, rather than any other kind of swarm? Whether it’s a big tech company or a business or a brand.
Simpson: I feel like there is a lot of overlap in all of these categories you mentioned. They are not exactly the same, but the edges overlap. We believe some of the same important pillars are at the heart of several of these concepts. We recently published an article on what we believe to be the seven essential elements of the Metaverse. Things like openness and decentralization are important to what we think will be the final state of the Metaverse. Obviously, a lot of attempts are being made to launch a closed Metaverse, but we think the opportunity lies in having an open Metaverse.
Likewise, people are launching games with closed ecosystems in more traditional forms. We see opportunity at the center of Web3 games that are open and provide more ownership to the gaming community. There are definitely some similarities and some overlaps. In some cases, you’ll see games exist in virtual worlds. Lines are a little fuzzy. But right now they’re all very experimental, but very exciting categories that are pushing the frontier.
I also think we see web3 components as an important element in the Metaverse and web3 games. I mean tokens as part of ownership, persistent digital identity, decentralization, all these important concepts are very native to Web3. These are integral to both the Metaverse and the game environment. This is where some of the similarities and overlaps come from.
GamesBeat: If this battle is going to be fought between proponents and haters of Web3, what seems to be decisive seems to be an example of how many great game developers we have come in and have great success with. I think of companies like Mythical or Forte. Paul Bettner’s company, Wildcard Alliance. They are all very focused on making great hardcore games with NFT utility. But I also recall who won the free game, and it wasn’t Grand Theft Auto that got put on the phone. Between the people at Axie Infinity and the people who made these hardcore games and brought them, who do you think deserves the most attention?
Simpson: We’ve invested in Web3-native, novice game founders, as well as founders with a long and prestigious history in the traditional gaming world. I don’t think it’s a relationship of one to the other. We’re looking for people who understand what makes a good game and have enough knowledge of Web3 technology to see both opportunities and constraints.This is what I described earlier. This is a different design space. This means that, in some ways, it can be better, and in others, it can be more challenging. We don’t prioritize one type of founder or one model. Instead, we’re looking for key insights into what makes a great game, and what support teams we believe are top-tier and capable of delivering a great gaming experience.
Rahul Sood and David Raskino are co-founders of Irreverent Labs.
GamesBeat: Do you have a lot of expertise in different parts of the company, or are you all becoming more multidisciplinary and learning a little bit about the Metaverse, crypto and blockchain?
Simpson: We’re all generalists in crypto and Web3, although some of us tend to specialize in certain areas of the stack. I focus more on the application layer, consumer virtual worlds, Web3, games, etc.
GamesBeat: I think people would expect me to ask you what your thoughts are as we head out of this crypto winter, but I don’t know if that’s necessarily important to your game plan.
Simpson: We really have a long-term view. It’s been a while in this space, and we’ve seen cycles come and go. In reality, they are hard to predict. My job is to find great technologists and help them build their businesses, not make short-term forecasts. Unfortunately, I can’t help there. But the good news is that we recently announced our $4.5 billion fund. That speaks to the scale of the opportunity we’re seeing here, and the fact that we’re very excited about the future of this category.
GamesBeat: Is there anything else you want to comment on today?
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