If you follow tech press, you’ve probably noticed more outlets covering the blockchain-based, play-to-earn trend, wherein individuals playing crypto-powered games can ostensibly earn a living by earning assets or tokens within the game that they can then sell for “real” money.
A Vietnam company called “Axie Infinity” has been driving the current conversation. It’s so popular that a startup in the Philippines exists almost solely to lend money to players who want to get started in “Axie Infinity” (one needs first to buy its digital creatures). Both the lender and the company behind the game are now backed by Andreessen Horowitz.
The trend is no flash in the pan, say the co-founders of a new early-stage venture firm called Patron. Instead, they believe games like “Axie” will be the biggest consumer on-ramp to what’s being called the decentralized “Web 3” era.
We emailed yesterday with Patron’s founders to learn more. One of them, Brian Cho, spent the last seven years with Riot Games, leaving as its global head of business and corporate development. (He also logged two years with Andreessen Horowitz, beginning in 2012.) His co-founder, Jason Yeh, spent the last four years as the founder of his own investment firm in Berlin, Germany, and, before that, worked for eight years at Riot Games, including as its head of EU Esports.
They shared the many individuals who make up Patron’s new investor base, including a handful of partners from Andreessen Horowitz, along with Fred Wilson of Union Square Ventures, Garry Tan of Initialized Capital, and Hans Tung of GGV Capital. They also shared a bit of their roadmap.
TC: You met at Riot Games. At what point did you decide you wanted to leave to do your own thing?
BC: We initially met at Riot Games as colleagues and became close through co-investing in various deals over the past decade. Patron has been in the works conceptually for many years, but it wasn’t until recently that the market’s needs provided us with the opportunity to successfully create the type of firm we originally wanted to build.
TC: You have capital commitments from a lot prominent VCs. Who wrote the first check?
BC: We purposely focused on getting individuals who would have skin in the game and a desire to help our companies reach a successful Series A milestone. What we didn’t expect was how much positive impact our earlier individual LPs would have on our overall fundraising and our ability to win some of the most competitive seed deals in the market. We were able to raise the entire $90 million in four months.
Many of the LPs are people we’ve been close to for the better part of the past decade as colleagues or co-investors, so it made sense to get them on board first. Our first checks were our former bosses and mentors like Chris [Dixon] and Marc [Andreessen] at a16z, Rick [Heitzmann] and Amish [Jani] at FirstMark [where Yeh was an associate more than a decade ago], and the founders of Riot Games. Our average individual check size is north of $400,000, so many of the individuals wrote large personal checks into the fund.
TC: Are there any institutions involved? Is Riot Games itself a backer?
JY: Horsley Bridge Partners and Invesco are two of our most significant institutional leads in the fund. Riot Games is not an investor, as we wanted to prioritize individuals and institutions rather than strategics for fund one.
TC: ‘Play to earn’ is everywhere suddenly, thanks to “Axie Infinity.” How long have you been tracking this trend, and which other startups are interesting here and why?
BC: I left Riot Games briefly four years ago to start a company in the NFT games space when Cryptokitties had first launched. It was, unfortunately, the wrong timing for us as consumers or investor interests were not strong back then, especially after the market bottomed out in 2018. That said, the most significant signal for us has been around products like “Axie Infinity” and “NBA Top Shot” that we can onboard non-crypto users onto the platform in the past year.
In addition, crypto-native products like BAYC and Punks have been driving more mainstream awareness. The 2.3 million-strong waitlist on Coinbase NFT marketplace and the deal flow we see from AAA and Web 2 game developers leaving to start companies in the space have all been fantastic signals.
TC: How many investments have you made to date?
JY: We’ve made four investments in the space, which are still unannounced but live squarely within our thesis.
TC: Will you be using the capital to buy tokens and equity? How are you thinking about these different modes of investment, and what are your LPs’ expectations on this front?
JY: Yes, and one of our first deals is a pure token deal. We evaluate these on a case-by-case basis, and our perspective is that it should be a thoughtful implementation for the type of startup or product that the founder should try to build. We’ve told our LPs that Web 3 and tokens will be a significant part of the fund given the strong convergence between gaming and Web 3, and it’s one of the reasons why they are excited to be investing in Patron.
TC: Do you think there is any particular advantage to being based in Los Angeles, given what you are funding?
JY: Yes, there is a strong intersection of arts, creatives, gaming, entertainment and crypto in LA right now. That said, we’re a virtual native firm, and while we will have a presence in LA and SV, our coverage will be international, and we expect around half of our deals to come outside of the U.S.
I recently moved back to LA after spending most of the prior decade living in Berlin, and both Brian and I spent time working on opportunities in East and Southeast Asia during our time at Riot. We believe you can build global consumer businesses from any of these geographies.
TC: In terms of check sizes, how are you thinking about the minimum investment you’ll make — and where’s the upper boundary?
JY: We are taking the high conviction and concentrated portfolio model — meaning we aim for quality over quantity and look to lead or co-lead opportunities at the seed stage. This means that we’ll [write anywhere] from $1 to $4 million checks for the stage that we play in, with the goal of having a high ownership percentage early as a lead investor.
TC: Where are you scouting around for interesting projects?
JY: Our LPs have been some of the best sources of our deal flow and ability to win competitive deals. Of course, Twitter and Discord will be natural places for us to connect with founders. We also expect non-traditional areas like Web 3 native communities such as DAOs or closely knit angel syndicates — which we are part of — to be a vital source of our future deal flow.
Pictured above: a scene from “Axie Infinity”