Web3 is the next generation of the internet.
Though it is difficult to understand and seemingly easy to dismiss, the advent of a decentralised internet demands our attention as it is a fundamental shift away from how we use the web today.
So says Noor Sweid, a veteran venture capitalist in Dubai who has been tracking the rise of the technology and eyeing opportunities.
She joins Kelsey Warner this week to explain her thinking on Web3 and what to expect.
Ms Sweid is the founder and general partner of Global Ventures, an emerging markets venture capital firm backed by some of the world’s best-known investors such as General Atlantic and Capria. Global Ventures will shortly close its second fund and has now invested in more than 40 companies including Kitopi, Mumzworld and Red Sea Farms.
A transcript of the interview, edited for brevity and clarity, is below.
In this episode
The future is here: Web3 (0m 49s)
Noor Sweid explains Web3 (3m 01s)
The pay-as-you-go model, the creator economy and decentralised data (9m 00s)
What are investors looking for in Web3? (15m 39s)
Kelsey Warner: Thanks for joining and bravely agreeing to talk Web3. Are you ready?
Noor Sweid: As ready as I'll ever be.
KW: At this point in time, you're one of the first voices I've seen in the region who has endeavoured to explain to an audience or try to publicly wrap your mind around what this all is. So first, I want to get into your understanding of what Web3 is.
Let's both step onto the Moon together and try to describe it, understand the opportunities, the potential threats.
And then also I want to dig into where you're seeing opportunities, specifically as an investor. So part one of this conversation, let's just try to help our listeners and ourselves understand where we are and where we are headed. And then I'm interested in knowing from you, wearing your investor cap, what it is you're actually looking for.
We're hearing a lot these days about Web3's potential to get rid of intermediaries. Decentralised feels like the word of the week, word of the year. But what are you seeing in terms of what this will actually mean, when you think about the products or the services that will be involved in a decentralised new web?
NS: OK, so big questions. Thank you. One of the reasons I've been writing about this is because I think that if Web3 is decentralised, and the purpose behind it is to really build as a community – rather than as a corporate or a server that then, you know, centralises all the information and provides it to customers – the community approach is to have the conversation.
So my postings are much more out there to say, here's what I'm thinking, here's what I'm seeing, here's how I've understood it so far. I'm happy to have a conversation, happy to have discourse, would love to know what other people are thinking. We're still in the exploring phase.
So I think we are all working together, we are all building together. And we are all in this together. And that is the purpose of Web3, to say: Let's build an infrastructure that we are all building together, rather than five large tech companies owning everything. That is first and foremost. And that is decentralised. So that is the first thing that comes to mind, in terms of, if it's decentralised in the product, it should be decentralised in the conversation. Distributed, decentralised decision-making. That is where we end up with Web3.
What this means and the implication is, if we all own our own data, if we all are parts of this ecosystem, if we are all building on this ecosystem, if we're all deciding together in the form of dollars, which we could talk about in a minute, and kind of building communities within this ecosystem, then in theory, this ecosystem belongs to all of us. This internet belongs to all of us and serves all of us in the way in which we believe it should be serving us. And that is the promise of Web3.
KW: I mean, it sounds so hopeful. But can we learn lessons that fast, given we're coming out of what feels like a hyper-warp speed growth cycle of Web2? It's happened so fast over the last, say, 20 years. So can we learn lessons that quickly and rebuild? Is that what you're feeling like, that the internet almost needs a rebuild moment? Like, let's think about what we've learnt and do better this time?
NS: Well, I don't think that we're that sophisticated. I think that it's a matter of function. So Web1 was information, it gave you information. If you remember it was Google getting information, Yahoo giving you information.
KW: It was Ask Jeeves.
NS: Exactly, right. It was very much the provision of information and very rudimentary and modems and servers and logging on was a really big deal.
Web2 was the ability to then interact, whether it's social media, whether it's posting something and someone comments. Your ability to participate on the internet was Web2.
But Web3 is different. Web3 is the evolution into – if those were stores of information and a way to store information – Web3 becomes a way to store value. And the rudimentary form of that being Bitcoin. So if we want to store value, in my last post, I liken this to [moving from coins to paper currency].
So imagine, you know, when they said, here's a paper, here's a note, that represents 10 gold coins. Can you imagine if that were you receiving that piece of paper, or trying to give it and [the recipient] said, I can burn this, I can lose this, how am I supposed to carry this? You know, what if I tear this. And similarly then with crypto we get to a point where it's a digital form. It is in essence asking us to stretch our imagination. The same way we had to stretch our imagination to accept paper as a form of value. So Bitcoin is a form of value and then all the extensions of that – all the others, the ethers and the coins and everything – and then that extended to become, can we therefore do micropayments on platform, can I pay you small bits.
So if you post something and I read it, you should be rewarded. If you now create music as an artist and sell it or put it as an NFT and distribute it, people can now own that music. Rather than just listen to that music. People can own the royalties if they've participated in investing in you as an artist.
So you get them the extension of what is valuable, and all the creators that can create art and music and education. If you post something on YouTube, shouldn't you not be compensated every time somebody watches it? That is value, your time is valuable, what they have just learnt is valuable to them, should they not be compensated for that?
So the ability to create these micropayments in digital form that are then consolidated into either coins, or tokens are different forms of digital currency, the same way that you had paper currency hundreds of years ago and thousands of years ago, be invented. That is a stretch of the imagination that is required to say, OK, I'm buying this, I believe that this form of digital currency has value, and that value can be distributed via Web3, the same way that information was distributed via Web1.
KW: It sounds very exciting but what comes to mind for me is this idea of the internet being founded to be free and open access to the information superhighway.
And what you're describing really is a bank account each of us carries around with us online. And through the power of data collection, we're tracked and our activities are monitored. So that, you know, to the victor always goes the spoils in a sense.
When you think about the creative economy, you think about artists and you think of course I would want to pay the artists to play their song. But then you think about that in a more malevolent sense. There seems to be some risk in there being an inherent value to every single thing we consume online. I don't want to get too philosophical on this. But what do you think of that? If we're sort of starting Web3 on a paradigm of value, do you see a further digital divide?
NS: I think it's the opposite. So I'm with you that could be one way we end up.
I'm of two minds, I like to believe in the idealistic mind, which is much more if you think about where most of the world's economy and population sets, they don't have access to most information. They can't afford to pay Spotify, or Netflix. The studios and the content aggregators actually make most of the money not the artists. You know, many of us even listening to this show could afford these subscriptions, these monthly subscriptions, they're very easy, and it's great for us to use them. However, we have credit cards, and $10 a month doesn't seem like a lot of money.
But if you take a look at most of the population that lives in emerging markets, they don't use postpaid on their phone, more than 85% use prepaid in emerging markets, which shows that people really do want to pay as you go, rather than subscribe to a package every month. Because that can be more expensive and is committal. Whereas if you're in a pay-as-you-go mindset, where I want to pay for the education that I learnt, I want to pay for the music that I use, and it's as efficient as using a credit card, and so on. Because the platform allows it to be so and actually the person who's getting this micropayment at the end isn't even feeling that they're going to be charged 10 cents. And you've just charged me 10 cents to listen to a song. And I know that I'm going to listen to this one song many times over the next week, and probably on repeat, and I do that all the time. Right? We end up with, this is my song for the week. And then next week, I'll change the song.
But if you think of most of the world's economy, that sits in that section, where it's, I want to pay for what I'm consuming, because I can't afford to pay these monthly subscriptions for all these other things that I don't need. And when I'm paying these little payments, I actually want them to go to the person who's creating this, not 95% of it to the studio or to the content aggregator or the big corporates or to whomever. I won't name the Big Five tech companies. But you know, you want the artist that's sitting somewhere else in emerging markets to get this money.
KW: When I think about Web2, the intermediaries really were advertisers and platforms. We just talked about one half of it, which is the subscription model. I think the other half has been the deal with the devil, that I'll search into my favourite search engine but agree that the first 10 things I see are paid ads in exchange for, you know, kind of relatively free access to information.
So we've just been at the behest of advertisers on these platforms for years now. And I do agree with you that it's probably not serving enough people. So the Web3 version of this, talk to me about decentralised autonomous organisations, DAOs. What are they?
NS: Well, people often joke that they're just social groups with a bank account. But effectively, what they are, are communities that come together, that put together a certain set of rules. And then based on those rules, they raise money if they want, and they transact. And so if you think about it, you write the rules into the blockchain, you can't change them.
And the famous one that didn't work was the Constitution DAO where a bunch of people got together. There were 13 original versions of the US constitution and one of them was on [auction] at Sotheby's. And people got together and said, 'We're going to raise money and buy this constitution'. And they said, OK, but it's all public, obviously, but it was on the blockchain. And so they said, 'If we raise this much, then we bid this much', and so on. And all the rules were there. And they ended up raising $47 million in a couple of weeks. But obviously, because it's public, other people could see what they raised, what they were going to bid and somebody put just a little bit more and got the constitution [document]. And then everybody got their money back. And all of this happens seamlessly. Because it's rule-based on a protocol. No lawyers were involved. No. So it's very much community-led community based.
KW: They did still have to establish an LLC, though.
NS: It did. But you can imagine the comparative legal costs of doing this through a traditional route, right? So that's again, by getting rid of the middle – the middlemen are the layers of bureaucracy – and making sure the value actually goes there.
But to your point earlier, it's not just the advertisers, I just wanted to go back to this very quickly. It's also the data. When you're searching now your data belongs to the corporates. On Web3 when you're searching your data doesn't belong to anyone except to you. And that is a very fundamental shift.
The privacy that you have, because your data actually belongs to you is very different to when you sign all cookies are allowed, and so on, everyone's tracking exactly what you're searching for. And that's how they know how to target you and advertise and then proliferate, what you're searching for, to get you to buy. The psychology behind that is all very strong and very well-researched, in order to get you to buy something or in order to advertise to the correct product at the right time when you're searching for something else.
So all that manipulation that happens behind the scenes that's possible because of the AI and data aggregation doesn't happen in Web3, because there is no centralised server aggregating all your information and then predicting what you're going to do. And for those of you that have watched some of the Netflix documentaries, you know how this happens. And so Web3 does not allow for that.
KW: So as an investor, it seems anathema that investors would have a say in this utopic, decentralised, no-middleman world. But there will be opportunities and there will be money to be made. And so what are you looking for? What role do you see VCs having in this new world?
NS: So there's many different opportunities and fun opportunities and some of them are in FinTech. We've seen a lot of FinTech companies funded recently.
There are 65 unicorns [worth at least $1 billion] in Web3 in total. A lot of them are in trading, brokerage, finance; you can also imagine that there could be something very dark there. You know, there's nothing that's absolutely pure about anything, and this is no exception. So we think about it and whether it's infrastructure, crypto, financial services, brokerage, all of that now exists, a lot of these have grown massively.
We also see a lot of plays into digital health. So as you think about healthcare and your data privacy around there, can you centralise it? Can you own it? What can we do there?
And then finally, there's the NFTs and the gaming. So NFTs are much more in art and music. You actually own this piece of art, and it doesn't really exist, except digitally. You really need to stretch your imagination. But a lot of people believe you do, and some of them have traded for millions of dollars.
And then you can buy crypto land. So you go into the metaverse, and there's a lot of different real estate agents and you can buy imaginary real estate and your virtual world, which again, to me seems very Matrix-like, but you stop and think more and more people are spending time in their virtual worlds than in the real world. Is it an investment opportunity? We have not invested in crypto land [laughs].
And then there's gaming. I have three boys, they're 13, 11 and 8. And as much as I try to be a strict mum, and you're not allowed to play this game, or that game, and what are you doing online? All of these arguments that mothers of boys have with their boys, at the end of the day, they will spend a large amount of their time gaming. And in Web3 there's something called play-to-earn. And some people in South-east Asia earn $2,000 a month now gaming on Web3 protocol. When you think about that, that's twice the average salary.
So not that I would encourage my kids to earn money while playing games but to show how what could not have even been imagined five or 10 years ago, where, if I'm gaming, and I'm earning, I can actually then generate an income in crypto, but guess what, you can convert that to fiat [currency] and actually buy groceries.
So again, very utopia but if you take a look at all of these play-to-earn platforms, they are democratising access to income because a lot of people in emerging markets don't have the education and are incredibly good gamers. And so when I think about what is the future of Web3, would I invest in a gaming company? No, but would I maybe invest in a platform that enables gamers to communicate and compare notes and learn from each other? Maybe yes, because that is an industry in the future and in itself. So those are some of the things that we're seeing.
KW: When I think about the Activision buy from Microsoft earlier this month - we'll see if it goes through - and Facebook rebranding to Meta and making big plays on its Oculus and wanting to put us all into virtual reality. Do you think these universes will have to be interoperable? Do you think they're going to have to play with each other? Or is it still going to be some time and all of these things are going to be siloed?
NS: I think they will be interoperable. We've already seen there are many chains on the blockchain. And we've already seen a lot of companies focus now on the interoperability between chains. A lot of Web2 companies, part of their development is now in Web3.
There's always a tipping point in development. That tipping point is when your new generation of coders, which is usually when someone hits 15, or 16 years old, and starts building on the internet, the new generation of coders is coming in about two years, where the first language they will learn is something that gets built on Web3.
Blockchain would have been 16 years old [by then], and that's usually the tipping point. And they'll probably remove those borders, anything new gets built on Web3 unless there's no good reason, but they will find a good reason for that most of time simply for data privacy and decentralisation.
And a server can go down, for those of you who remember when the WhatsApp servers went down a few months ago, or a year ago and what happened, that's not possible with Web3. Theoretically it still happens because we're still building it. But it's a lot harder for that to happen because there's not one central server.
KW: Noor, I feel like we accomplished something today. I feel like we learnt and grew. Thank you.
NS: Thank you very much.